Dismissed

Pochiraju Industries Limited v. Punjab National Bank

DRT20 Feb 2024SA/343/2022

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal dismissed an application challenging an auction sale conducted by Punjab National Bank. The applicant alleged violations of valuation rules, limitation periods, and inadequate notices. The Tribunal held the application barred regarding possession notices, found valuation and process compliant with ARCE Polymers precedent, and dismissed the appeal.

What did the court decide?

Securitization Application dismissed; auction sale confirmed; interlocutory applications disposed of.

Pochiraju Industries Limited versus Punjab National Bank — Banking and Recovery | DRT (2024)

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IN THE DEBTS RECOVERY TRIBUNAL-II^{AT HYDERABAD}

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DATED THIS THE 2OtN DAY OF^{FEBRUARY,2024}

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PRESENT: SH. RAMESHWAR^{KOTHE,B.com,L'LB.(Hons.),M.A'}

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PRESIDING OFFICER

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Securitization Application No'343^{OF 2022}

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lvl/s Pochiraju Industries Limited No. 1/102, Satyamangalam Village Bagalur-Berigai Road, Thummanapalli^Post Hosur Taluk, Krishnagiri District Tamilnadu

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Rep. by its Managing Director, Sri^{P. Sudhakar}

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.......APPlicant.

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Versus

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Punjab National Bank Asset Recovery Management Circle Office, Lakdikapool Hyderabad

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Rep. by its Authorized Officer

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Punjab National Bank Sastra Division, MY Home^JuPallY Green Lands, Ameerpet Hyderabad - 500016

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M/s Knowledge Square^{Parks and Incubators Pvt' Ltd} Building No.2700, Plot No.11, Sy.No.101 Lalgadi Malakpet Vlllage. Shameerpet^Mandal Medchal District - 500078 Rep by its Authorized Signatory

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Counsel for the Applicant^{:Sri C' Prabhakar}

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Counsel for 1"t & 2'd Respondent Bank

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:Sri Vedula Srinivas

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Ld. Designated Senior Counsel for Sri N. Manohar Reddy

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Counsel for 3'd respondent^{:Sri K' Vivek Reddy}

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Ld' Designated Senior Counsel for Sri D.Narendar Naik

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SANo.343l2022

-:ORDER:-

The Applicant filed the^{present Securitisation Applicationu/s 17} of the Securitization and^{Reconstruction of FinancialAssets and} Enforcement of Security^{InterestAct, 2002 (hereinafter "the Act" for} short) to declare the auction^{notlcedated 08'2.2018 published on} 09.02.2018,^{possessionnotice dated 73.O7.2075and procedure} adopted by respondent^{bank in taking physicalpossessionof theSA} schedule^property, as^{null and void.}

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The case of the applicant^{as per avermentsof the applicationis;}

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(i) The applicant M/s Pochiraju Industries Limited^is incorporated as a Limited Company^{under the provisions} of Indian Companies Act,^{1956 in the year1995.It has} two divisions ie., Agriculture and^{Biotechnology& Life} Sciences and it is a listed^{company in BSE and NSE.The} company had avalled two term^loans of^{Rs.250 and 350} lakhs from Oriental Bank of Commerce^{(now Punjab} National Bank) and full repaid the^{same. Thecompany} raised Rs.38 crores through^public issue towards^part- finance of Bio-Pharma Division at Shameerpet^{and also} acquired 3.85 acres of land in^{AlexandriaKnowledge} Park which is presently known as M.N. Bio^TechPark and started implantlng the^project.

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(ii) The company approached the respondent bank for^part- finance of Phase-I of its project with a term loan of Rs.30 crores and the respondent bank sanctioned^the same vide letter dated 20.08.2010. The^company invested large amounts towards R&D in^{Phase-I for}

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SA No.343/2022

process development of various bio-similars and^created huge infrastructure as^per US^{FDA guidelines. After} completion of major works^{under Phase-I, the applicant} company with an intention to^{expand its commercial} scale^production approached the^{respondentbank for} additional facility of Rs.45 crores.^{After keepingthe} decision^pending for about^{18 monthsand after a lot of} persuasion and submission of Techno Economic Viabilty report, the respondent bank^{sanctionedonly working} capital loan of Rs.12 crores^{out of which, Rs.7.33 crores} was adjusted towards interest and^{instalmentspayable} on term loan for Phase-I and^{declinedto sanction term} loan. The respondent bank^{neither sanctioned term loan} for Phase-II nor did lt^permit to^{approachanyother} bank as mandated under^{general conditionsof term} loan-1. In fact, with the oral assurance^{given by various} officers of respondent bank, the appllcant^company invested accruals to a tune of^{Rs.25 crores derived from} Phase-I in Phase-II. Despite all odds^{faced. the} applicant company served its^{loan obligationsby paying} Rs.22.18 crores upto June, 2014.

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(iii) On one hand, the respondent bank did not^sanction term loan of Rs.45 crores as agreed and^{on the other} hand, classified the loan account as^NPA and^directly issued demand notice dated 11.04.2015^{as against the} rules and regulations framed by^{ReserveBank of India.} The demand notice contains two^{propertiesout of which} one is agricultural^{property.SARFAESImeasures} against agricultural^property are^{prohibitedunder} !^rinla--. ,9 tlv -

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Sec.31(l) of the SARFAESI^{Act. The applicant company} issued objections dated 23.06.2015^{and 12.06.2015} which were received by the^{Assistant GeneralManager} of respondent bank on^{24.06.2015but the same were} rejected on the^ground that^{objectionswere not} addressed to the authorized^officer.

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(iv) Without considering the representation, the^respondent bank proceeded to issue^{possessionnotices dated} LL.07.2015 and 13.07.2015^{in respectof two properties} though one of them comes^{underagriculturalcategory.} The^possession notices^{were neither served noraffixed} on property. Even the^{demand noticewas not served} on. Hence there was violation of^{Rule 3 and 8(1) of} Security Interest^{(Enforcement) Rules,2002 ("Rules"} hereinafter).

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(v) The respondent bank took physical^possession of Biotech unit at Shameerpet Village in^{December,2015} without following due^{procedure.No notice was issued} prior or later to taking physical^possession and no pachanama was prepared.

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(vi) The respondent bank issued e-auction notice on 25.08.2015 with reserve^prlce of^{Rs.5090.07 lakhsin} respect of Item no.1 Biotech Unit at Hyderabad^{and the} auction failed for want of bidders.^Thereafter, respondent bank issued three auction sale^notices reducing reserve price by 10olo each time. In the^e- .A,v<.-t'

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5A No.34?12022

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auction sale notice dated^{f3.!2.2076, the reserve} Price was drastically reduced to^{Rs.2280 lakhs and further} reduced to Rs.1725 lakhs in the^{e-auction notice dated} 14.03.2077. The^{property was undervalued by 70o/o in} gross violation of Rule 8(5) of the Rules, 2002.

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(vii) The applicant company submitted OTS^proposalon 05.11.2016 for Rs.25^{croresand enhanced proposal to} Rs.27 crores as advised by the^{respondentbank and} further to Rs.30 crores.^{Though respondent bank agreed} for OTS, it insisted for^payment by^{31.03.2017which} was not^possible and hence^{requestedfor time of three} months. Without accepting the^{request, the respondent} bank^proceeded to^issue e-auction^{sale noticedated} 14.O3.2077 fixing auction^{on 31.03.2017.The applicant}

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was supplied copy auction^{notice by mail on 21.03.2017} and guarantor on 22.03.2017^{thusthere was no 15} days^gap between service^{of notice and auction date.}

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(viil)Challenging condltional order^passed by this^Tribunal, applicant flled WP 11699 of^{2017. Recording the} statement of respondent bank that it^wouldcancel auction on 37.03.2017, the^{Hon'ble High Courtdisposed} of the WP on 28.06.2017^{leaving it open to applicant} company to avail appropriate remedy^{availableunder} law. However, the respondent bank^{hastily issued e-} auction notice dated 01.07.2017^{fixing auction on} 24.O7.2077 with reserve^price at^{Rs.17.25crores. Even} the distress sale value is Rs.4581.07^{lakhs as per} valuation report of M/s Precission^{CharteredEngineers} X,,'lq-.rv ')g-

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and Valuers. Hon'ble High Court^{passedinterim orderin} WP No.24021 of 2017 staying auction.

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(ix) The applicant company again submitted OTS^proposal for Rs.32 crores which was accepted^by the^respondent bank on 14.06.2017 but^insisted to^{payRs.17.55crores} on or before 74.06.2017 i.e., within^{one week. Without} responding to request of applicant^{company to relax the} time, respondent bank cancelled the^{OTS on 29.06.2077} and proceeded to conduct the auction on^24.07.20t7in respect of Biotech Unit. Vide order^{dated19.01.2018in} WP No.24021 of 2017, the^{Hon'ble High Courtdeclared} the auction on 24.07.2077 as^{illegal for transgression of} Rule 8(5) in valuing the^{property.Before obtainingthe} order copy and serving, the^{respondentbank issued} fresh e-auction notice dated 08.02.2018 fixing^auction on 03.03.2018 with increased reserve^{price of Rs.21} crores. The said e-auction notice was received^by applicant company on 12.02.2018 and^{immediately it} issued reply bringing undervaluation of^property to^the notice of respondent bank. It was intimated that^two valuation reports were obtained and^{reserve price was} fixed after referring both reports to the constituted committee of the bank. Despite specific finding^about violation of Rule 8(5) by the Hon'ble High Court, respondent bank repeated same transgression^and defeated Constitutional rights of the applicant^company under Articles 14, 19(1)(g), 21 and 300-4. ,1y: * 1'l^*

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(x) The applicant company brought to the^notice of^Hon'ble High Court in WP No.7617 of^{2018 flled challenging the} auction notice dated 08.02.2018,^{that two valuation} reports were not^proper.

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(xi) The applicant was not informed whether the^valuersare from exclusive^panel of bank^{meant for valuing highly} technical Biotech and^Pharma Units.^{The visitors must} be technically competent to^{assess such type of} sophisticated Units. In all the^{valuationreports, neither} the building sanction^plan nor the structural^drawings and technical specifications were^{obtained for falr and} true valuation. The valuation^{reports of M/sNavanirman} Associates and M/s Dhanapati^{Rao and Valuers Pvt.Ltd.} were also^prepared in similar^{lines as} of^{previous report} of M/s Mytrei Asset lvlanagement^{Solutions.The} valuation in respect of cutting^cost of^{rock sheet in the} land, compound running all-round^{4 acres of land, its} solar fencing, underground electric^{cabling,internal} roads, sewage, security room, two^underground concrete sump tanks, the^{RCCstructures etc., were not} properly measured and valued. The internal^equipment in 5th floor of Adminlstrative Block^{worth of} Rs.L,L7 ,97,6f9/- was not considered^{for valuation. Also,} several items in R&D Block^{worthRs'83,26,320/-,} scientific doors worth of Rs.54,55,557l-,^{reinforcement} structures in STP^plant costing^{Rs.35lakhs,lifts worth} Rs.32,60,000/-, SS^{railings, anlmal house, sceptic tank,} fire fighting equipment worth of^{Rs.27,88,895/-,HVAC} and clean room^panels of^{Rs.1,76,87,197l-,aluminium}

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SA No.343/2022

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L shaped cladding of Rs,33,77,8221-,^unpacked Thermax Boiler in Utility building worth^of Rs.f4,O6,325/-, unpacked STP equipment^of Rs.25,13,600/- unused electric cables, etc',^{were not} considered for valuation. The rates adopted^for valuation at Rs.1050/-, Rs.600/- and^{Rs.1000/- per sft} were irrational whereas they should not be^{less than} Rs.1800/- to Rs.2000/-. For assessing^depreciation value, the age of buildings^was taken as^eightyears whereas they are six^years old.

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(xii) The present valuation reports of 2018 show a reduction in valuation of plant and machinery by 93%^as compared to valuation of 2015. No inventory of^plant and machinery was^prepared and served^{on applicant as} prescribed under Rule 4(1X2X2A). No separate reserve price was fixed as per Rule 6.

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(xiii)The Rule 8(6) notice dated 08.02.2018 was served on applicant and simultaneously^published in^Indian Express and Namaste Telangana newspapers on 08.0,2018/09.02.2018 thereby respondent bank^caused violatlon of right of redemption under Sec.13(8) of^the Act,2002.

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(xiv) The respondent bank clearly violated sections 13(2) and 13(4) of the Act, 2002 and Rules 3, 4, 8(1), 8(2), 8(s), 8(6), 8(7), e(1) to e(7) of the Rules of 2002. Hence this SA. D$r*'

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The respondents 1 and 2 bank filed^{reply statementalong with} documents. The respondent^{bank has not denied certain facts stated} in the application under^paragraphs 5(1),^{5(2) and 5(5). It denied} that the application is within limitation^{excluding the time spent} before the Hon'ble High^{Court in WP No.7617of 2018 and anothersix} weeks from O7.7L.2022 i.e., the date of order'^{There is no cause of} action aD initio. fhe respondent^{bank denied all the adverse} allegations and the^grounds raised^{in the application againstthe} Securitization measures taken up^by the^{respondent bank and sought} for dismissal of the SA.

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The 3'd respondent-auction^{purchaser filed reply statement} stating, rnter-afa, that;-

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(i) the applicant filed WP No.7617 of 2018 challenging^the auction sale notice dated 08.02.2018,^auctionon 03.03.2018. The scope of the Writ^{Petitionwas limited} to alleged violation of^Rule 8(5).^{The applicant never} challenged^possession notice or any^{othernotices issued} by the respondent bank. While dismissing^{the Writ} Petition, the Hon'ble High Court^{granted liberty to the} applicant to approach the Tribunal^{on the limited} questions raised in the WP.

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(ii) The cause of action arose several^years ago in^2015. The scope of this application cannot^{be enlargedand} therefore the sA is not mainlainable,rvflDl*,r (:,/ '*-

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(iii) The SA is barred by limitation since the^applicantdid not seek leave of the Tribunal by^{filing delaycondone} petition.

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(iv) The previous nine auctions remained unsuccessful.^The 3rd respondent stood as^{successfulbidder in the 10th} auction held on 03.03.2018.^{The applicant company} cannot now make an^issue out of^{valuation reportsas} observed by Hon'ble High Court^{for the State of} Telangana and the State of Andhra^{Pradesh in the} similar case in Concern^{Readvmix and Ors. vs. The} Authorized Officer. Corporation^{Bank and Ors 2019 (3) ALD} 384.

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(v) The 3'd respondent is a leading entityⁱⁿ the^{business of} development of bio-technology^{parksand as a part of it,} the 3'd respondent made the^{SA schedule propefty fully} operational by investing more^{than Rs'70 crores.} Whereas, the applicant company^is a^{fraudulent entity} having duped the respondent bank for^{Rs.50 crores in} 2015 and continuing frivolous^litigation.

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(vi) In compliance of order of the Hon'ble High Court,^the respondent bank conducted a fresh valuation^and auction with reserve^price at Rs. 21 crores.^{In fact,} there were no bidders in the earlier auctions.^{Only in} the^previous auction there were five bidders. It^shows that the respondent bank exercised^{right valuation.} ffi*t

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(vii) The scope of the SA is limited to the^{issuesraised in} WP. The applicant failed to^{exercise right of redemption} on 8-9 occasions since it^{had no intentionto repay the} dues.

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(viii) The movable and the immovable^{property couldbe sold} together as held by^{Hon'ble SupremeCourt in Arce} Polymers Pvt Limited Vs M/s^{AlphinePharmaceuticalsand} others case,

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(ix) The applicant failed to make out any valid^ground warranting to^grant reliefs as^{claimed in the application.}

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The applicant flled a reioinder to the^{reply statementFlled by} the respondent bank stating inter-alia,^{that section17(1) of the act} any aggrieved^party by any of the^{measures referred to in sec 13(4)} may make an application before the^{jurisdictional Tribunal. The} present SA excluding the perlod exempted by the^{Hon'ble High Court} is filed well within 45 days from^{the date of auction sale.The demand} notice dated 11.04.2015 and^{possessionnotlcedated 77.07.2075} substantiate fact that those^{were issued including agricultural} property. The respondent bank is^put to strict^{proof as to compliance} of the rules. The fact borne out of^{recordis that the property was} twice auctioned in favour of^{M/s SanzymLtd which was commentedin} the^judgement by Hon'ble High Court^{in WP 24021 of 2007.The} respondent bank has not^{followedthe procedureas contemplated} under sections 13(2), 13(4), 14 of^{the Act and rules 3 to 7, 8(1),} 8(2),8(5),8(6) and 9(1) to 9(7)^{and hence all those measuresare} liable to be crashed.

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SA No.r41l2022

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The applicant also^{filed the rejoinderto the reply filed by the3rd} respondent slating, inter-alia, that^{3'd respondent has no locusstandi} to state that material^{facts mentioned in the main SA as incorrectand} comment on various^{violations including valuation, committed by the} respondent bank. The details^{of auctlon held on 03 03.2018 were not} provided to the applicant company till^{Hon'ble High Court directedin} WP 7677 of 2018.^The 3d^{respondent company!s representedby its} director Mr. Atul Bharadwaj^{and he is also director in 8 more} companies. There^{is apprehensionthat in the previous auction, all the} flve bids belong to^{companieswhere Mr. Atul Bharadwajis director'} The applicant company brought^{to the notice of the Hon'bleHigh} Court about the^{seriouslapsesand violationsof the Rules 4 to 8'} Therefore, the claim of 3'd^{respondent that the applicant cannot} question violation of^{provisionspertaining} to^{demand noticeand} auction notice is not tenable.^{Further, there is continuouscause of} action under Sec.13^{while questioningthe auctionsale dated} 03.03.2018 in the^{present SA. The Hon'bleSupreme Courtin the case} of Indian overseas^{Bank Vs Ashok saw Mill lnterpretedthe correlation} between Sec 13(4)^{and 17.}

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The 3'd respondent that is I4/s^{KnowledgeSquareParks and} Incubators Pvt Ltd was^{incorporated on 24.2.2018just three days} before last date for^{submlssion of El4D withtwo directors.Therefore,} the 3d respondent cannot^{claim itself to be an establishedplayer in} promoting Bio Technology Parks. The 3'd respondent^allotted optlonally redeemable, optionally^{convertibleand compulsory} convertible debentures to^{othercompanieswithin a spanof 25 to 30} days which is not^possible without a^{pre-plannedstrategy and} collusion with respondent^{bank. It is at the sole dlscretion and risk of} I^nP :.,t4 ')!-

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3'd respondent to^make modifications and^{encumbranceson the} auctioned^property.

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Heard Sri C. Prabhakar,^{Iearned counselfor applicantcompany,} Sri Vedula^{Srinivas, learned designatedsenior counsel representing} Sri N. Manohar^{Reddyon behalf of respondent bankand Sri K Vivek} Reddy, learned designated^{senior counsel representing Sri D'} Surendra Naik for^{3'd respondent company-auctionpurchaser'} Perused the written arguments^{filed by the applicant company,} respondent bank as^{well as 3rd respondentcompany'Also perusedthe} material documents^{filed by the parties.}

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The^points that arise^{for consideratlonare;-}

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(i) whether the applicant company^{has made out any valid} grounds to set aside the e-auction^{sale held on} 03.09.2018 in^{respect of SA schedule property for} violation of^{provisions of the Act, 2002 and Rules} framed thereunder,^{especiallyRule8(5)?}

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(ii) To what relieQ

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The arguments^{advanced on behalf of the parties are similar to} those averments^{madein the application,rejoinders, reply statements} respectively.

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Learned designated^{seniorcounselSri Vedula Srinivas for the} respondent bank and^{Sri VivekReddyfor the 3'd respondent company} contended that the^{application is barred by limitation' Whereas,Sri C'} Prabhakar, learned^{counsel for applicant company contendsthat the} application is filed under^{Sec.17 of the Act, 2002 with the libertv} granted by Hon'ble High court^{in wP No.7617 of 2018. vide order} /l\y--a t/ '"t9''

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dated 07.11.2022 and hence the SA is well within limitation as per Section 17(1) of the Act, 2002. In this regard, it is pertinent to reproduce the relevant operative part of order dated 07.|L.2022 passed by Hon'ble High Court for the State of Telangana at Hyderabad in WP No.7617 of 2Ol8 as hereunder:

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"In view thereof, the writ petition is disposed of. However, having regard to the fact that this writ petition was fited on 06.03.2018 and is pending consideration by this Court till date, in the event of petitioner filing an application before the Tribunal within six (6) weeks from today, the Tribunal is requested to consider to exclude the period spent before this Court till date and for further period of six (6) weeks from today towards computation of period of limitation.,,

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The writ petition was filed on 06.03.2018 and the date of order was 07.11.2022. The present SA filed on 15.L2.2022 was within six (6) weeks time granted by the Hon'ble High Court. Thus, the SA was filed well within time granted by the Hon'ble High Court.

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The learned counsel for applicant company strongly opposed that the auction purchaser has no locus standi to oppose the SA averments. In reply, the learned counsel for 3rd respondent-auction purchaser refuted the contention stating that the auction purchaser being a necessary party, has every right to contest the proceedings. He relied upon judgment of Hon'ble DRAT. Kotkata in punjab Nationat Bank and Ors. vs. Aviiit Mukheriee reoorted in (2022) 09 DRAT CK 0013 whereunder Hon'ble Chiarperson held that; However, as far as details of auction purchaser to implead him as necessary party in the SARFAESI application are concerned since right has been accrued in favour of the auction purchaser, he is a necessary party and he should be impleaded in the SARFAEST application. Auction purchaser also have right to contest the proceeding before the concerned DRT. (emphasis supplied).

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Generally, the interests of^{securedcreditor and auction} purchaser are common and such interests are mutually defensible,^In view of the aforesaid^{judgment,needless to say that the auction} purchaser accrues right to contest the SARFAESI^{proceedingson} impleadment.

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The further contention of^{learned senior counsel for respondent} bank as well as 3'd respondent-auction^{purchaserthat the applicant} company earlier filed SA No.186/2017^{challengingonly auction notice} dated 14.03,2017. No challenge^{was laid in respect of demandnotice} and possession notice. The scope^{of WP No'7617of 2018is restricted} to e-auction held on 03,03.2018^{and the scope cannot be enlarged} with regard to demand notice and^{possessionnotice' Thebelated} challenge on demand notice and^{possession notice isnot} entertainable. The learned senior^{counselplaced relianceon} judgement of Hon'ble Madras High Court in M/s Velar Engineering^Works Pvt. Ltd vs. The Authorized Officer/Chief^{Manager. Indian Bank and others in} C.R.P. Nos.3785. 3786. 3787 of^{2012 decided on 05.09.2019, with} emphasis on^paragraphs 13 to t5^{vide whichthe Hon'ble High Court} held that the^petitioner therein should^{have challengedthe possession} notices within 45 days from the date of^{issuanceof the notices; that} the Securitization Appeal^(SA 88/2009)^{was filed 18.06.2009 with an} intention to challenge the sale^{notices and not the possession notices} and relief cannot be^granted with^{regard to action taken prior to the} Sale Notices. Reliance has also^{been placed on judgement of Hon'ble} DRAT. Chennai in MA(SA) 32/2021 in^{AnthonvSamYvs. The Authorized} Officer. State Bank of India and^{Ors. decidedon 27.06.2023'Thisdecision} is about non-applicability of Sec.5^{of the Limitation Act to application} under Sec.17 of the SARFAESI^{Act being original in nature. On the} lrlm)<r .^/ '1)'-

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other hand, learned counsel for applicant relied on^judgement of Hon'ble Suoreme Court in Authorized Officer, Indian Overseas Bank vs. Ashok Saw Mill repofted in (2009) B Supreme Court Cases 366 in support of his submission that the DRT can adjudicate upon or interfere with action taken by secured creditor after the stage contemplated under Sec.13(4).

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In the present SA, the respondent bank issued demand notice under Sec.13(2) on 11.04.2015 and^possession notice on 11.07.2015. It is not disputed that applicant company already filed SA No.186/2017 challenging auction notice dated L4.03.2017. Even if demand notice and^possession notice were under challenge in the SA 186/20L7, the same was dismissed for default. The applicant company did not take any steps to restore the SA. It might have moved the Hon'ble High Court by filing WP 11699 of 2Ol7 challenging the conditional order dated 30.03.2017^passed by this Tribunal as argued by the learned counsel for applicant company, but the said WP 11699 of 2017 was dismissed recording the statement of respondent bank that auction held on 31.03.2017 would be cancelled. In spite liberty granted by the Hon'ble High Court in order dated 28.06.2017 in WP 11699 of 20t7, the applicant company was not present in SA LB6/2017 proceedings and as a result the SA No.186/2017 was dismissed for default. Therefore, the dismissal order in SA L86/20t7 remained unchallenged so also the issues therein. Consequently, the question of continuous cause of action with regard to demand notice and^possession notice as contended by the learned counsel for applicant does not arise.

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L7. Admittedly, the applicant company issued reply dated 12.06.2015/23.06.2015 to the demand notice dated 11.04.2015. In dY*"

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its reply, the bank categorically denied receipt of any notice dated L2.06.2015 except one enclosed to letter dated 23.06.2015.^{Vide its} reply dated 29.06.2015, the respondent bank detailed the applicant company that the term loan account had been irregular, the^loan account became NPA as on 31.03.2015 and that dues were^not cleared in spite of company earning^profits of Rs.11.10 Crs during financial year 2013-14. After the detailed reply, the respondent bank AGM said that the objections addressed to Branch Manager/AGM instead of Authorized Officer was not as^per law. The objections were never rejected for not addressing to the Authorized Officer as averred by the applicant company. Hence, I do not find non-compliance of Sec,13(3A). However, no right accrues to the aggrieved borrower^to prefer an application to DRT under Sec.17 of the Act, 2002 at the stage of Sec.13(3A), Since the^possession notice dated 11.07.2015 was not the subject matter in WP No.7617 of 2018 and SA^186/2017 remained unchallenged, the^possession notice cannot be^{questioned in} this SA. The^judgement in M/s Velar Engineerino^{WorksPvt. Ltd vs. The} Authorized officer/Chief Manager. Indian Bank and^{others (supra) squarely} applies to the case on hand. The^{judgement in in Authorized officer.} Indian Overseas Bank vs. Ashok Saw Milt^{(supra)relied upon by learned} counsel for applicant dealt with^{post-13(4)measureswhich is not the} case here. Under the said circumstances,^{the challengeof applicanton} possession notice is barred by limitation.

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Another contention of^{learned counselfor applicant companyis} that the respondent bank, after^{keepingthe OTS proposalpendingfor} several months, accepted the^{same for Rs.32 crores but deliberately} gave only seven days time to^pay upfront amount^{of more than Rs'17} crores, As^per learned senior^{counsel for respondentbank, the} applicant earlier also failed^{to complythe OTS terms and that the}

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approval was conveyed on^{09.06.2017to the applicant company soon} after the Management Committee at^{Headquartersfinalized the} proposal. The applicant company did not choose to comply^{and hence} the OTS got cancelled. The^{learned senior counselfor auction} purchaser stated that OTS is not a matter of right. In my^considered view, OTS is wlthin the arena of^{secured creditor. The respondent} bank being a Nationalized^{Bank is bound by Reserve Bank of India} guidelines issued from time to time and also its internal^policies.In spite of bringing this issue in SA^{averments,the applicant in its reply} to response^given by 3rd^{respondent statedthat oTs is not a ground} and no relief is sought in the^{presentSA on OTS.}

¶116

The learned counsel for^{applicant companyfurther contends} that the respondent bank failed to^{prepare panchanamaor inventory} as required under Rules. According to^him, to^{cover up non-} compliance of Rule 4, the respondent^{bank has pressedinto servlce a} purported document labelled as panchanama which in fact is inventory and no intimation was^given as^prescribed under^{Rule 4(2A)} and 4(28). The learned senior counsel for^{3'd respondent opposed the} contention stating that Rules 4(2A) and 4(2B) were^{introducedafter} issuance of^possession notice and hence not applicable. The learned senior counsel for the respondent bank said that Inventory was prepared in the presence of Panch witnesses and it was prepared in the prescribed format Appendix-Il Format. I have perused the Inventory taken in the premises of M/s Pochiraju Industries Ltd., by Plr. Amresh Prasad, AG14 of respondent bank on 30.12.2015 in Appendix-Il in the presence of two witnesses (Panchs) and Mr. P. Sudhakar, Promoter/Director of applicant company. Pertinently, Mr.P. Sudhakar subscribed his signature on the Inventory without recording any objections. The applicant company has not explained any )V*lv ' /,/^{/\n >}

¶117

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SA No.343/2022

¶119

prejudice caused due to variance in Format. Rules 4(2A) and 4(28) were insefted with effect from 03.11,2016^{whereasInventory was} dated 30.12.2015. Hence, contention of^{applicant company on non-} compliance of Rule 4 does not deserve^acceptance.

¶120

With regard to right of redemption, the^{learnedsenior counsel} for 3'd respondent relied upon^judgements in⁽ⁱ⁾ Concern^{Readvmix vs'} Corporation Bank [2019 (1) ALT 698:⁽ⁱⁱ⁾ Shakeena vs.^{Bank of India} t(2021) 12 SCC 761:⁽ⁱⁱⁱ⁾ Karthikvs.^{N. Subhash Chand lain} [(2022)^{10 SCC} 6411: (iv) Dwarika Prasad vs. State of IJ.P. t(2018) 5^{SCC4911: and (v)} Kasturi vs. Authorized Officer t2023/MHC/9201 in support of^his contention that borrower's right of redemption^{extinguishes once sale} certificate is issued. However, the applicant company^{admitted in} reply to response of 3'd respondent that Section^{13(8) is not the} ground for the present SA 34312022 and no relief is sought^under section 13(8). In view of the admission,^{occasion does not arise to} examine applicability of the cited^{judgementsto the present case.}

¶121

The^primary contention of^{learned counselfor applicant} company is that there is^{grossviolation of Rule 8(5) in valuingthe SA} schedule^property. He seriously^{arguedthatno separate valuation has} been done in respect of^{movableand immovableproperty and} valuation reports are not^{in conformitywith Inventoryand same} Inventory is not listed in^{sale certificate.In spite of specific} observation by the^{Hon'ble High Court in WP No.24021 of 2017on} undervaluation of^{property,the respondent bankdid not take proper} care in obtaining valuation.^{The respondentbank stated to have} obtained valuation reports on^{05.02.2018 and 06.12.2018 and there} was hardly one day^{gap betweenthe date of valuation reportsand} date of e-auction^{notice i.e., 08.02.2018' The respondent bankdoes}

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not contain signatures of bank officer and^seal, date of^inspectionis left blank.

¶127

On the other hand, the learned senior^{counsel for respondent} bank relies upon^judgment of^{Hon'ble Supreme Courtin ARCE Polvmers} Private Limited vs. M/s Alohine Pharmaceuticals^{Private Limitedand Others} reoorted in (2022) 2 SCC 221 in support of his^{submission that no} separate valuation is required in^respect of^{movable and immovable} property. The learned senior counsel for 3'd respondent also sailed with the same argument. They^{have drawn attentionto paragraph 29} of the cited^judgement which reads as^hereunder:

¶128

"29. We do not agree with the High Court that^{the machinery} should have been separately auctioned or^{sold. This would be} putting fetters and restrictions on the Bank by barring the Bank from setling the machinery along with the building^{and the land.} Prejudice and loss caused to the borrower is not shown^and estabtished. Auction-sale as confirmed was at a^{price higherthan} the fair market valuation of the land, the building and^the machinery. Whether or not the^price of the machinery should^be accounted for the^purpose of^payment of stamp duty on a composite sale wherein the land, the building and the machinery located in the building are sold, would not be of any relevance and importance as the issue in^question does not concern payment of stamp duty and the principles applicable. On the other hand, the law recognises that the lender knows its interest and how to secure best value of the^{property given} the fact that the mortgaged property had to be sold for recovery of the debts due and payable to the Bank."

¶129

The learned counsel for applicant company said that the above observation is only with regard to movable assets and observation is being misinterpreted.

¶130

The learned senior counsel for 3rd respondent also placed reliance upon^judgement in M/s Concern Readvmix vs, Corporation Bank ffi*,

¶131

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sA No.343/2022

¶133

(supra) with emphasis on paragraphs 35 and 36 which read as h ereu nd e r:

¶134

"35. But the fact remains that the Bank had in fact taken a fresh valuation before the last sale, This was referred to by the Debts Recovery Tribunal in paragraph-2 of its order.

¶135

It is true that the securinq of the best possible price by the secured creditor, would be beneficial to both parties. But ideal situations do not arise in auction sales. The Bank could not get a buyer for the property in 6 auction sales. It was only in the Vh auction that the Bank succeeded. Therefore, the petitioner cannot make an issue out of the valuation report. Therefore, the 3rd contention is also liable to be rejected."

¶136

In the case on hand, reportedly nine (9) auctions failed. In WP No.24021 of 20L7, the Hon'ble High Court declared the e-auction notice dated 07.07.20L7 and consequential e-auction held on 24.07.2077 as illegal being in violation of Rule 8(5) of the Rules of 2002. The Hon'ble High Court observed that fresh valuation was done by the Deputy Circle Head in June, 2017 and found variation of valuation undertook by Maitryei Asset Management Solutions. It was also^pointed out that there was no indication that Deputy Circle Head having any technical^{qualification} to undertake such valuation. Hon'ble High Court further held that when Rule 8(5) of Rules of 2002 categorically specifies that Authorized Officer shall obtain^{valuation of} the^property from an approved valuer, the^{question of} the^{bank falling} back upon an in-house valuation done by its own officer^cannotbe countenanced. It was also held that it^{was mandatoryfor the bank to} secure a fresh valuation from an approved^{valuerin terms..of Rule} 8(5) of the Rules of^{2002 before issuing fresh sale no,i.*z-XI-. r-'1}

¶137

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¶138

SA No.3a3l2022

¶139

The Hon'ble^{High Court did not give any specific finding about} undervaluation of^{the property but directed to obtain valuation from} approved valuer^{before issuing fresh auction sale notice'}

¶140

Learned counsel for^{applicant pointed out that the bank} deliberately undervalued^{the propertyin violation of Rule 8(5) of} Rules, 2002. He^{reliedupon the judgement of Hon'blesuoreme courtin} of 2074 decided on^{74.03.2014in support of his contentionthat the} respondent bank^{failed to put best efforts to secure moreyield out of} the sale. Before^{delvinginto the issue, it is necessaryto examine the} valuation reports.

¶141

The subject^{property was successfullyauctionedon 03'03'2018} on 10th occasion^{pursuantto e-auction sale noticedated 08'02'2018'} The respondent bank filed^{copies of two valuation reports dated} 05.02,2018 and 06.02.2018^{videpages 54 to 92 annexedto reply} statement obtained from^{M/s Dhanapathi Rao & Valuers Pvt. Ltd. and} M/s Navnirman Associates.^{Both the valuation reports demonstrate} that the property was^visited on^{25.01.2018 and separate valuation} was undertaken in respect of land, buildings,^amenitiesand equipment. According to M/s Navnirman^{Associates the fair market} value of Biotech Plant was Rs.15,88,57,700/- and as^{per M/s} Dhanapathi Rao and Valuers, it was Rs.15,37,41,769/-.^{The value of} equipment was assessed to be Rs.1,25,00,000/- by M/s Navnirman Associates and Rs.1,32,26,2501- by M/s Dhanapathi Rao & Valuers. It is clear that the valuation was done separately for the land and building and plant & machinery. The reserve price was fixed in impugned e-auction sale notice was Rs.21 crores against which price fetched was Rs.22.50 crores. The realized value is more than the fair

¶142

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SA N0.343/2022

¶144

market value and the reserve price. The observation extracted supra from the^judgement of M/s Concern Readymix squarely applies to the case on hand.

¶145

According to learned senior counsel for respondent bank, the previous valuer had been removed from empanelment list of approved valuers for improper valuation of the property due to which the earlier auctions failed. When the reserve price reduced based on fresh valuation report from another valuer, there were bidders which indicate that correct valuation had been arrived. The learned counsel for applicant said that the present valuers have no technical qualification to evaluate the Biotech plant and no such letter deempanelling M/s Precision Engineers is filed. I find no evidence to doubt the competency of M/s Navnirman Associates and M/s Dhanapathi Rao and Valuers.

¶146

lvlere averment sans evidence does not help the applicant to get a favourable answer. It is not the case of applicant company that it independently obtained valuation report to substantiate the contention that the property was undervalued nor did it file list of movable items that were missing.

¶147

In view of the^preceding ten^paragraphs, the contention^of applicant company on undervaluation is not sustainable.

¶148

The next^plea advanced by learned counsel^{for aPplicant} company is that no separate auction^{sale notice was issuedin respect} of movable assets as^per Rule^{6 of Rules, 2002. In this regard, in view} of the finding in^para 29 as^{extractedsupra in the judgementof}

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Hon,ble supreme^{court in ARCEPolvmers (P) Ltd, this contentiondoes not} deserve acceptance.

¶153

The other^{contentionof learned counselfor applicant is that no} separate notices under^{Rule 8(6) and 9(1) of the Rules,2002 have} been issued and^{he arguesthat separate noticesare required to be} issued even after^{amendmentof Sec.13(8) of the Act,2OO2' He relied} upon^{judgement of} The learned senior^{counsel for respondent bank as well as 3'd} respondent relied^{upon judgement of Hon'blesupremecourt in ARCE} polvmers (il Ltd case (supra) in support of their submission^{that there is} no such requirement'^{In paragraph 29 of the judgmentin ARCF} polvmers case, the Hon'ble supreme court clearly dealt^with this^issue. The cited^{judgement squarely applies to the present SA' Therefore,} the contention of^{applicanton issuanceof separate notices under} Rules 8(6) and 9(1)^{does not deserveacceptance.}

¶154

The next contention of^{learned counselfor applicant company is} that 3O days notice as^{mandated under Rule B(6) had not been served} on applicant^prior to^{impugned sale. He relied upon judgements of (1,)} Hon'ble Hon'bte Supreme Court in^{Vasu P. Shettv vs. Hotel Vandana Palace} and Others reported in⁽²⁰¹⁴⁾ 5^{Suoreme Court Cases 660 with emphasis} on paragraph 24 of cited^{judgementand (ii) Hon'ble High Court for the} State of Tetangana and the State of Andhra^Pradesh in^{Sri Sai Annadhatha} Polvmers and another vs. Canara Bank reported in 2018^{(5) ALT 207 (D.8.),} The applicant company issued letter dated 12.02.2018^(page 93 of reply statement filed by respondent bank, acknowledging intimation by e-mail on 09.02.2018 of e-auction notice dated 08.02.2018 and auction on 03.03.2018 with reserve price of Rs.21 crores. In view of

4lS*x

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SANo.t43l2O22

the proof available on record as to receipt of intimation of auction notice on 09.02,2078, the contention is not acceptable.

¶159

The sale certificate and certificate of sale have been issued in favour of 3rd respondent in respect of movable and immovable properties separately on 14.03.2018 preceded by bid acceptance letter dated 03.03.2018. The date given in the said letter for payment of balance was 18.03.2018 whereas by 14.03.2018 sale certificate/certificate of sale were issued. Hence, I do not find any violation of Rules 9(3) or 9(4) of Rules, 2002.

¶160

Learned senior counsel for 3rd respondent-auction purchaser contended that auction process cannot be reopened once the sale certificate issued and that a bonafide purchaser must not suffer for violation of rules in auction sale. He relied upon judgements of;

¶161

(i) Hon'ble Supreme Court in Shakeena and another vs. Bank of India and others repofted in (2021) 12 Supreme Court Cases 761;

¶162

(ii) Hon'ble High Court of Karnataka at Bengaluru reported in 2015 SCC OnLine Kar 9431;

¶163

(iii) Hon'ble Supreme Court in Sadashiv Prasad Singh vs. Harendar Singh and Others reported in (2015) 5 Supreme Court Cases 574;

¶164

(iv) Hon'ble Supreme Court in Janatha Textiles and Others vs. Tax Recovery Officer and Another reported in (2008) 12 Supreme Court Cases 582;

¶165

(v) Hon'ble Supreme Court in Ashwin S. Mehta and Another vs. Custodian and Others reported in (2006) 2 Supreme Court Cases 385;

¶166

(vi) Hon'ble Supreme Court in Central Bank of India vs. C.L. Vimla and Others reported in⁽²⁰¹⁵⁾ 7 Supreme court Cases 337. AlwO.-.u

¶167

/j/^/ts't-'

¶168

26 ol2,

¶169

sA No343l2O2;

¶170

Learned^{seniorcounsel also submittedthat applicant company} alleged of^{collusion with respondent bank and such allegationwithout} any evidence^{is inconsequentialin the light of judgement of Hon'ble} with emphasis^on para 17 of cited^{judgement'Page No'120 annexedto the reply} statement^{is the Extract of Minutes of Meeting of Board of Directorsof} 3d respondent-auction^{purchasercompany viz', Mls Knowledge} Square Parks &^{IncubatorsPrivate Limited authorizingMr'Atul} Bharadwaj for^{executing sale certificateand other acts on behalfof} the company.^{It is irrelevant that Mr.Atul Bharadwajis Directorsome} companies^{participated in the previousauction' As already stated} supra, anY averment^{sans evidence to establishsuch averment is} futile.

¶171

In of the^{above discussion, I am constrainedto find that the} applicant failed^{to establishany validground to set aside the e-} auctlon of SA^{scheduleproperty held on 03.03 2018 pursuant to e-} auction sale^{notice dated08.02.2018 and accordinglythe SA is liable} to be dismissed.

¶172

Point No.(ii):

¶173

In the result,^the Securitization Application^{fails and is hereby} dismissed. 40. consequently,^the Interlocutory Applications^pending if^any, shall stand disposed of. 4/$.,-t

¶174

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SANo.343/2022

¶176

No order as to costs.

¶177

Communicate a copy of this order to the parties concerned and upload in the web portal.

¶178

(Typed to my dictotion by the pS, corrected, signed ond pronounced by me in the open court on this the 20th doy of Februory,2024).

¶179

¶180

(RAMESHWAR KOTHE) PRESIDING OFFICER RAMESHWAR KOTFIE presiding Officer Govt. of India D EB r Jfl E;'6'v E I i' iil8i ro.-, l\Drds, Hydera bad_sOO O0i-

Pochiraju Industries Limited v. Punjab National Bank

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Pochiraju Industries Limited v. Punjab National Bank

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