Dismissed

Mr Narendra Vishwanath Jadhav v. Asset Reconstruction Company India Limited

DRT17 Jan 2024SA/417/2022

Case brief

AI extract

What is this about?

Application under SARFAESI Act to quash auction sale of mortgaged properties was dismissed. Court held applicant lacked locus standi as borrower company was under liquidation and auction buyer had completed purchase after status quo was vacated by appellate tribunal.

What did the court decide?

Securitization Application No. 417 of 2022 is dismissed. Respondent-bank is at liberty to proceed under the Securitisation Act.

Mr Narendra Vishwanath Jadhav versus Asset Reconstruction… — Company and Corporate | DRT (2024)

¶1

Presented on: 18/10/2022 Registered on: 19/10/2022 Decided on: 17/01/2024 Duration: Y M D 1 - 2 - 29

¶2

IN THE DEBTS RECOVERY TRIBUNAL, at Aurangabad Securitization Application No. 417 of 2022

¶3

Mr Narendra Vishwanath Jadhav, age 48 years occupation business, former Managing Director of Yog Industries Limited, a public limited company having its Registered Office at 10, Shriniketan Colony, Off. Jalna road,

¶4

Aurangabad - 431001 … Applicant

¶5

Versus

¶6

Asset Reconstruction Company (India) Ltd. Registered Office at : The Ruby, 10^th Floor, 29, Senapati Bapat Marg, Dadar (West), Mumbai – 400 028 through its Authorized Officer And

¶7

Branch Office at : A-3, Suyash Complex, Kalda Corner, Shreya Nagar, Aurangabad

¶8

Smt. Kamal Vishwanath Jadhav, age major occupation household R/o Shriniketan Colony, Off. Jalna Road, Aurangabad

¶9

Jailaxmi Alloy Steels Private Limited through Authorized Representative Mr Shriniwas J. Palsudesai, CTS No. 19149, Shop No. G-15, Sai Trade Centre, Railway Station Road, Aurangabad – 431001 ... Defendants

¶10

(S.A. No. 417 of 2022) Page 1 of 54

¶11

(Madkar)

¶12

APPEARANCE : For Applicant: Mr A.A. Yadkikar, Advocate For Official Liquidator of Mr Rajat Malu, Advocate Yog Industries Ltd. For Respondent No.1- ARC Mr S.V. Adwant, Adv. a/w. Mr P.S. Agrawal, Adv.

¶13

For Respondent No.2 : None For Respondent No.3 : Mr R.R. Totala, Adv. a/w. Mr A.S. Karlekar, Adv.

¶14

Shri Vimal Gupta Presiding Officer

¶15

Judgment pronounced on: 17^th January 2024

¶16

J U D G M E N T

¶17

This Securitization Application is filed under subsection (1) of Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short “the 2002 Act”) and the Security Interest (Enforcement) Rules (for short “the said Rules”) by applicant for quashing and setting aside sale of the mortgaged

¶18

properties conducted on 04/10/2022 pursuant to auction sale

¶19

(S.A. No. 417 of 2022) Page 2 of 54

¶20

(Madkar)

¶21

notice dated 15/09/2022 and also measures adopted by Respt.

¶22

No.1 U/S. 13(4) of the Act .

¶23

The facts in the Securitisation Application, in brief, are as under:

¶24

It is pleaded that earlier the applicant had filed Securitisation Application bearing lodging No. 1584 of 2019, which came to be rejected for non-removal of office objections. Applicant also constrained to file Writ Petition No. 14346 of 2019 before the Hon’ble High Court, which is pending till date. Despite pendency of the writ petition, the respondent proceeded further and conducted an auction sale of the property on 04/10/2022 of which he learnt after the auction sale was conducted because of which applicant got a fresh cause of action to file the present Secu. Appln. It is pleaded that applicant is a former Managing Director of Yog Industries Ltd. (for short “the company”) which is a public Limited Co. established in the year 1982 and was engaged in the various business such as paper manufacturing, news print, energy generation, etc. and it has having various

¶25

(S.A. No. 417 of 2022) Page 3 of 54

¶26

(Madkar)

¶27

business divisions, namely, Vishwa Paper Mills, Gayatri

¶28

Energy, Vishwa Infrastructures, etc.

¶29

It is pleaded that in the year 2007 the company availed multiple banking finance from the Central bank of India and ICICI Bank. Respondent No.1 by an assignment agreement dated 18/07/2013 stepped into the shoes of the Central Bank of India. The company availed various credit facilities from the present Respt. i.e. a Term Loan of Rs. 20.55 crores, Cash Credit loan of Rs. 6.92 crores ad ou of MPF Rs. 0.10 crores. As security of loans availed, the company mortgaged properties shown at Ser.Nos. 1 to 4 in para 4 of the Secu. Appln., which are agricultural lands and property at Ser. No.5 mortgaged by applicant and his mother Respt. No.2 Mrs Kamal Vishwanath Jadhav in favour of Respt. No.1 and the ICICI Bank. Applicant pleads that the company was regular in repayment till March 2011, however, due to collapse in regular business sales, the company suffered huge losses and consequently the loan accounts categorized as NPA resulting into service of demand

¶30

(S.A. No. 417 of 2022) Page 4 of 54

¶31

(Madkar)

¶32

notice dated 27/04/2011 U/S. 13(2) of the Act. Thereupon,

¶33

Respondent No.1 has filed Original Application bearing No. 84/2013 U/S. 19 of the RDB Act against the company claiming recovery of Rs. 42,16,49,621/- a/w. interest. The ICICI Bank also has filed a separate Orig. Application against the company. It is further pleaded that in the year 2017, one Amsi Enterprises being one of the Operational Creditors of the company initiated proceedings bearing CP No. 82/IBC/NCLT/MB/MAH/ 2017 before the Hon’ble National Company Law Tribunal, Bench at Mumbai, under the Insolvency and Bankruptcy Code, 2016 in which Respt. No.1 filed a Misc. Appln. No. 1278/2018 seeking to realize its security interest in the secured assets U/S. 52 of the

¶34

IBC and the Hon’ble NCLT vide order dated 10/04/2019 permitted Respt. No.1 to exercise its option U/S. 52(1)(b) of the Code. It is pleaded that thereafter Respt. No.1 published a notice for e-auction sale in newspapers on 01/11/2019 whereby

¶35

the properties put for auction of sale. On or about 07/10/2022 applicant learnt about an auction sale conducted on 04/10/2022

¶36

(S.A. No. 417 of 2022) Page 5 of 54

¶37

(Madkar)

¶38

pursuant to an auction sale notice dated 15/09/2022 in which the property is sold at an extremely low reserved price in comparison with present market value.

¶39

Applicant pleads that during the pendency of the captioned S.A., and when the final arguments were partly heard, Respt. No.1 sold the mortgaged properties high handedly and at a throw away price by executing sale deed No. 3741/2023 on 07/06/2023 in favour of Respt. No.3 with irregularities and also issued sale certificate dated 07/10/2022 wherein the sale price of Rs. 17.50 crores has been shown. It is pleaded that surprisingly varied and lesser amount of Rs. 16.69 crores is shown in sale deed No. 3741/2023 dated 07/06/2023. It is pleaded that the Registry Office has shown market value of the properties to Rs. 24,93,63,500/- which shows that Respt. No.1 has grossly undervalued the property while selling it and thereby misled and committed a fraud. The respondent has bypassed the mandatory provisions of Rule 8(4) of the Security Interest Rules and different figures have been shown in demand notice, auction

¶40

(Madkar) (S.A. No. 417 of 2022) Page 6 of 54

¶41

notice and auction sale notice. Further, provisions of the Act cannot be made applicable to auction of agricultural lands U/S. 31(i) of the Act. Accordingly, the applicant prayed for allowing the Secu. Application.

¶42

Respondent No.1 appeared in the matter and filed its affidavit-in-reply at Exh. 6 and opposed the pleadings of the applicant. It is submitted that the respondent has sanctioned the loan facilities to applicant on execution of relevant documents to secure the loan amount and on acceptance of terms and conditions by applicants. The applicants since beginning did not follow repayment programme as agreed resulting into converting accounts as NPA and issuing demand notice. Thereupon Respondent obtained order U/S. 14 of the Act from the District Collector on 19/07/2012. Execution of said order was stayed due to Secu. Application filed by applicant which got vacated in June 2015 and thereafter said order carried out in July 2016. It is contended that CIRP against the company was admitted by the NCLT on 22/08/2017 and moratorium under the IBC commenced

¶43

(S.A. No. 417 of 2022) Page 7 of 54

¶44

(Madkar)

¶45

from such date and continued till order of liquidation was passed

¶46

against the company (12/04/2018). Thereupon, the Hon’ble NCLT passed an order on 10/04/2019 for allowing financial

¶47

creditors to sell the assets under the 2002 Act and choosing to exercise its option U/s. 52 of IBC. It is contended that the properties land Gat Nos. 84, 85, 86 and 70 have been sold via auction held on 04/10/2022. The successful bidder deposited 25% of the sale price and sale confirmation letter has been issued to the purchaser/Respt. No.3 and, as such, the Secu. Appln. is not maintainable. It is contended that there is no whisper or any grievance raised by applicant regarding previous sale notices issued by the Respt. except the writ petition filed in November 2019 in the Hon’ble Bombay High Court, Bench at Aurangabad, which is not later pursued by the applicant. It is contended that this is the 5^th sale notice issued for the property in consideration by the respondent and previous notices issued for sale of the property

¶48

were not challenged but in the current instance when the bidders

¶49

came forward to purchase the property, the present application is

¶50

(S.A. No. 417 of 2022) Page 8 of 54

¶51

(Madkar)

¶52

filed before the Tribunal. It is contended that the applicant failed

¶53

to point out any illegality committed by the respondent while issuing the sale notice. The respondents have carried out proper valuation of the property prior to the sale notice and sale on 04/10/2022 has been carried out on the basis of the valuation report dated 12/09/2022 by following rules and applicant has not raised any objection to the sale notices. Huge amount is to be recovered from applicant, however, the applicant just wants to drag the recovery of huge money for no lawful reason. It is contended that while passing order dated dated 15/06/2015 in S.A. No. 60/2012 the Tribunal has already concluded that the contention of the applicant that the lands Gat No. 84, 85 & 86 are non-agricultural lands has no substance, which is not challenged by applicant. It is contended that the respondent has followed all the Rules and acted as per law and if the relief prayed by applicant is granted, respondents would suffer irreparable loss as the huge public money is involved and, accordingly prayed for dismissal of the Secu. Application.

¶54

(S.A. No. 417 of 2022) Page 9 of 54

¶55

(Madkar)

¶56

Applicant, vide rejoinder Exh. 9, contended that as to

¶57

charging exorbitant rate of interest and penal interest, respondent No.1 has not filed documents. It is categorically denied that the NCLT passed any such order allowing the financial creditors to sell the assets under the SARFAESI Act. The alleged successful bidder has deposited only 25% of the sale price and remaining amount has not been deposited as of till date and the last date to deposit the balance consideration was 22/10/2022 as per Respt.No.1’s letter dated 07/10/2022 and in view of this the respondent should have forfeited the amount deposited by the said bidder. It is denied that applicant has not raised any grievance about previous sale notices and if assumed that no notices have been challenged, it does not permit the respondent to go ahead with sale allied with glaring illegalities. Rate of interest mentioned, which is exorbitant, has no basis. The respondent has been trying to sell the secured assets for throw away price and in fact, said assets are worth about Rs. 173.25 crores. It is contended that once the CIRP is initiated, all actions including the

¶58

(S.A. No. 417 of 2022) Page 10 of 54

¶59

(Madkar)

¶60

actions under the SARFAESI Act to enforce security interest are prohibited, as per judgment of the Hon’ble Supreme Court in Civil Appeal No. 4750 of 2021 dated 18/05/2022 and no prejudice would be caused to respondent if the prayer of applicant is allowed.

¶61

Respondent No.3/auction purchaser appeared in the matter and filed its reply at Exh. 12 denying all averments made by applicant in the captioned application and contended that the Application is not maintainable as the applicant has no locus standi to file this application, since Yog Industries Ltd. is under liquidation under the provisions of the Insolvency & Bankruptcy Code, 2016 and a Liquidator can only represent the Corporate Debtor U/S. 35(1)(k) of the IBC. It is contended that the Hon’ble Chairman, DRAT, Mumbai after hearing both the parties has vacated the status quo order dated 16^th November 2022 passed by the Tribunal, vide order dated 17^th January 2023, in I.A. No. 11/2023 in Misc. Appeal No. 161 of 2022 and said order has not

¶62

been challenged by applicant till today and Respt. No.3 has paid

¶63

(S.A. No. 417 of 2022) Page 11 of 54

¶64

(Madkar)

¶65

the entire sale consideration to Respt. No.1 and sale certificate has

¶66

also been issued in favour of Respt. No.3 by Respt. No.1. It is further contended that prior to the auction dated 04/10/2022, numerous sale auction notices were issued by the respondent which never agitated by applicant. However, only on confirmation of sale of said properties to Respt. No.3, which was within his knowledge, the applicant has preferred present Secu. Application to create unnecessary hurdles in its execution. It is contended that the order dated 10^th April 2019 passed by the Hon’ble NCLT, Mumbai, makes it abundantly clear that Respt. No.1 had complete power and authority to deal with said property and exercise its option U/S. 52(1)(b) of the IBC, 2016. The applicant did not challenge said order dated 10/04/2019 till today to the knowledge of Respt. No.3. It is denied that the said property is sold at an extremely low price as alleged. Thus, Deft. No.3 lastly prayed to dismiss the Secu.Appln. with heavy costs.

¶67

Respondent No.3 in its additional reply affidavit (Exh.19)

¶68

to the amended Secu. Application denied all averments therein and

¶69

(S.A. No. 417 of 2022) Page 12 of 54

¶70

(Madkar)

¶71

contended that only in order to create hurdles in the proper

¶72

execution, applicant sought amendment and filed amended Secu.Appln. Respt. No.3 is the successful auction purchaser vide

¶73

auction dated 04/10/2022 conducted by Respt. No.1 and got sale certificate after paying entire sale consideration to Respt. No.1 and, as such, there is no question of cancellation of the sale deed executed as there are no irregularities or illegalities committed in respect of sale auction sale. The sale certificate is issued for total amount of Rs. 17.50 crores for the sale of immovable property as

¶74

well as plant and machinery, vide sale deed bearing Regn. No. 3741/2023. The present S.A. is filed at a belated stage after confirmation of sale of the said properties to the present Respt. and the reliefs sought by applicant are not worthy consideration and

¶75

prayed to dismiss the S.A.

¶76

In this matter, the arguments have been heard at length. Written notes of arguments have been filed by all the three parties

¶77

which are made part and parcel of this order.

¶78

(S.A. No. 417 of 2022) Page 13 of 54

¶79

(Madkar)

¶80

(A) Written notes of arguments on behalf of applicant are

¶81

as under:

¶82

“ REGARDING LOCUS AND MAINTAINABILITY OF THE PRESENT SECURITIZATION APPLICATION (SA) :-

¶83

(i) The present SA is filed challenging th e auction sale conducted by the Respondent No. 1 in favour of the Respondent No. 3 on 04-102022. For the said sale a public notice for sale was published in the Times of India Aurangabad Edition on 15-09-2022, 'which is annexed. to the S.A. at EXHIBIT-E, Page No. 54.

¶84

(ii) In the said auction notice the name of the present Applicant has been specifically mentioned as a guarantor. The outcome of the sale impugned is going to directly have an impact on the liability that the Bank proposed to saddle on the Applicant as a guarantor¹ It is the basic contention of the Applicant that the Bank has conducted sale of the secured asset at a throw away price which is substantially low than the market price. If the Bank would have sold the property at the correct price/market price, the extent of liability of present Applicant as a guarantor would be proportionately substantially reduced, however, since the Bank has chosen to sell the property at a very low price the rights of the present Applicant as the guarantor have been affected. The wording of the Section 17 of the SARFAESI Act begins as follows:

¶85

(S.A. No. 417 of 2022) Page 14 of 54

¶86

(Madkar)

¶87

(1) Any person (including borrower), aggrieved by any of the measured referred to in sub-section (4) of Section 13 t aken by the secured creditor or his Authorized Officer under this chapter,' [may make an Application along with such fee, as may be prescribed,] to the Debts Recovery Tribunal having Jurisdiction in the matter within forty five days from the date on which such measures had been taken..

¶88

Further Section 2 (f) of the SARFAESI Act defines 'borrower' as under.

¶89

"Borrower" , means [any person who, or a p ulled investment vehicle as define in clause (da) of Section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) which,} has been granted financial assistant by any Bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any Bank or financial institutions [and includes a person who, or a pulled investment vehicle which,} becomes borrower of a [asset reconstruction company] consequent upon acquisition by it of any rights or interest of any Bank or financial institution in relation to such financial assistance [or who has raised funds through issue of debt securities ]"

¶90

(iii) Thus, the definition of borrower includes a guarantor further, Section 17 of the SARFAESI Act clearly specifies that any person who is aggrieved by measures taken by the secured creditor under s ection 13 (4) of the said Act can approach Hon'ble DRT under Section 17 of the said Act. In the present case the sale of the secured asset by the Bank at a substantially lower price than the market price has aggrieved the present Applicant who is a guarantor to the loan therefore, he has every locus to file present Securitization Application. In this regard it is pertinent to mention the fact that the borrower company Yog Industries Limited (YIL) is under liquidation, has no consequence with respect to the entitlement to present Applicant to file present Securitization Application because the status of the present Applicant as the guarantor has not been alter

¶91

(Madkar) (S.A. No. 417 of 2022) Page 15 of 54

¶92

pursuant to appoint of !RP/Liquidator on Yog Industries Limited, therefore, the objection regarding locus of the present Applicant in light of the liquidation proceedings of Yog Industries Limited is legally not tenable and the present Applicant has require locus standi to file the present Securitization A)l)plication.

¶93

(iv) It is the case of the secured creditor that they have opted out liquidation process by securing an order under Section 52 of the Insolvency and Bankruptcy Code from the Hon'ble NCCLT, Mumbai. That being so the Respondent No. 1 has voluntarily subjected itself to the scrutiny under Section 17 of the SARFAECI Act having taken measures under Section 13

¶94

(4). As stated earlier, when a secured asset is being sold by the secured creditor at a lower price then what can fetch easily is a clear cause of action for the present Applicant being a guarantor who has approached this Hon'ble Tribunal under Section 17 of the SARFAECI Act and therefore, the present Securitization Application is maintainable.

¶95

II . CHALLENGE TO EARLIER ATTEMPTS OF SALE:-

¶96

It is being contended by the Respondent N o.1 that the present Applicant has not challenged the previous sale notices and only when there is successful sale i.e. when the present Applicant is trying to obstruct the recovery. This contention is factually totally incorrect, it is pertinent to note that the present Applicant had filed Securitization Application lodging No. 1585 of 2019 before this Hon'ble Tribunal challengingl the Auction Notice dated 01-11- 2019, which is annexed at EXHIBIT C, Page No. 47 of the Securitization Application. At the relevant time the office of the Hon'ble presiding officer of DRT,

¶97

(S.A. No. 417 of 2022) Page 16 of 54

¶98

(Madkar)

¶99

Aurangabad was vacant therefore, the Applicant was constrained to move a Writ Petition before the Aurangabad Bench of the Bombay High Court bearing W.P. No. 14346 of 2019,, wherein the Applicant had raised an objection regarding under valuation of the plant and machinery as well as immovable property. In fact the Bank had caused its appearance before the Hon'ble Court and accordingly an Order was passed by the Hon'ble High Court on 07-02-2020, a copy of said Order passed by the Hon'ble High Court is annexed herewith. The said Writ Petition is pending even as on today. Vide the order dated 07-02-2020 the Hon'ble High Court had directed the Counsel of the Respondent to take instructions about the valuation of the movable assets and about the contention of the petitioner that the petitioner be allowed to submit valuation of the Government ap roved value. Till date the Respondent No. 1 has not complied with the direction of the Hon'ble High Court, therefore, the contention of the Respondent Bank that the present Applicant had not challenged the earlier said notices is totally false and has no merit at all.

¶100

III. GROSS VIOLATION OF THE SECURITY INTEREST (EFORCEMENT RULES, 2002 BY THE RESPONDENT No.1 WITH RESPECT TO VALUATION OF THE SECURED ASSETS :-

¶101

Rule 5 of the Security Interest (Enforcement) Rules, 2002 reads as under:- " After taking possession under sub-rule ( 1 ) o f r u l e 4 and in any case before the authorized officer shall obtain the estimated value of the movable secured assets and thereafter, if considered, necessary, fix in consultation with the secured creditor, the reserve price of the assets to be sold in realization of the dues of the secured creditor.” f'

¶102

Similarly, Rule 8 (5) of the Security Interest (Enforcement) Rules, 2002 reads as under : I

¶103

(S.A. No. 417 of 2022) Page 17 of 54

¶104

(Madkar)

¶105

"5. Before effecting sale of the imn10vable property referred to in sub-rule (1) of rule 9, the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods: .................. "-

¶106

A plain reading of the aforesaid rules makes it crystal clear that it is imperative for the Bank to carry out valuation of the property immovable as well as movable prior to conducting sale. Moreover, it is also clear that the exercise of carrying out valuation of the property is not a mere formality, and is to be done by the secured creditor in all earnestness and sincerity. In the present case during the pendency of the present Securitization Application, as per the directions of this Hon'ble Tribunal, the Respondent No. I has on I6-05-2023 submitted valuation report based on which the impugned auction sale was conducted by the said respondent. Following are the glaring discrepancies, irregularities and infirmities in the said valuation report relied upon by the Respondent No. 1 which vitiate the entire sale process:

¶107

A. The valuation report is purportedly dated 12-09-2022. The date on which the representatives of the valuer have visited the factory premises is shown to be 10-09-2022. The date on which auction notice was published is 15- 09-2022.

¶108

B. On Page No. 7 of the said valuation report it is mentioned that, "Mr. Yash Sonje from our Team has visited the said site belonging to YI.L located in Village Farola on 10-09-2022 in the presence of Mr.

¶109

(S.A. No. 417 of 2022) Page 18 of 54

¶110

(Madkar)

¶111

Jayprakash - Security supervisor of YI.L. " It is pertinent to note that Yog Industries Limited (YIL) is under liquidation and the possession of the factory premises has been handed over to the IRP in the month of November 2017 itself. In the earlier valuation conducted by the Respondent No. I they have categorically admitted that the possession of the factory premises is with IRP and therefore, there is no question of any security supervisor been appointed by Y.I.L.

¶112

C. While on Page No. 7, it is mentioned that Mr. Yash Sonje visited the factory premised however, on Page No. 57 of the said report it is mentioned that one Mr. Niten Panchal I from the team of the valuer visited the site this is a clear discrepancy.

¶113

D. On Page No. 59 of the said report it is mentioned that present market valuation of the plant and machinery is INR. I.23 Crores and the realizable sale value is considered at the rate 85% of the market value which works out to INR I .05 Crores. That being so the reserve price mentioned in the impugned sale notice dated 15-09-2022 annexed at page no. 54 of SA shows the reserve price for plant and machinery as Rs. 81 Lakhs only. This clearly shows that the Bank has put the property for sale even against the valuation report on which it seeks to rely on.

¶114

E. On Page No. 27 of the valuation report at point No. 3 it is mentioned that "the said plant is designed to manufacture Kraft Paper from wood. There is a complete line for converting wood to pulp and then making Kraft Paper from the pulp. " This is a completely false observation as well as statement. It is pertinent to

¶115

(S.A. No. 417 of 2022) Page 19 of 54

¶116

(Madkar)

¶117

note that the said plant has machinery only for recycling of Paper. Moreover, making paper from wood pulp is banned in India. This bring the factual possession, t h e observations in the report based on which valuation has been arrived at are itself totally wrong which clearly indicate that either the plant was never visited by the valuer or that they had absolutely no knowledge about machinery that they were evaluating in either of the cases the valuation is bound to be inaccurate.

¶118

F. On Page No. 27 of the report at Point no.6 it is mentioned that "at the backside there is no boundary wall, some cattle were found grazing in the open area. " This is also factually wrong as there is boundary wall which exist at backside of the factory premises.

¶119

G. On page No. 27 of the report at Point No. 8 it is mentioned that "the plant is housed in a RCC shade with GI sheet roofing." This is also factually totally wrong in fact the roofing on the plant is of asbestos sheets. If asbestos would have been considered naturally the valuation would have been different i.e. higher. If the valuer had actually visited the premises he would have understood that the roofing is made up of asbestos sheets. In the same point it is mentioned that there are pulp digesters in the factory, which is also false as stated above the plant is only for recycling of Paper.

¶120

H. On Page No. 27 of the said report at point No. 9, 10 and 11 it is mentioned that due to thick vegetation around the e trance,

¶121

(S.A. No. 417 of 2022) Page 20 of 54

¶122

(Madkar)

¶123

the valuer could not access the Diesel Generator (DG) house. It· s also mentioned that the DG house was locked at the time of the valuers visit. It is further mentioned that the Boiler House also could not be inspected due to thick vegetation around it. It is further mentioned that the DG House and Boiler House could not be measured as it was impossible. The admitted inability of valuer to access important structures! in the factory premises and the consequent inability to carry out measurement of them as well as to access the valuation of the plant and machinery located in them clearly hampers the ultimate valuation arrived at by the said valuers. If the valuer could not even measure or access the important structures it is certain that the valuation ultimately arrived at was much lower than what it ought to have been.

¶124

I. As stated earlier, the valuation report is purportedly dated 10-092022 and the auction notice was published on 15-09-2022 yet, on Page No. 30, 31,32, 43, 44 & 45 of the said valuation report documents which are dated 23-09-2022 i.e. 11 days after the purported date of valuation report and 8 days post the date of auction sale notice have been referred to and relied upon, which clearly shows that the actual valuation report was not in existence on 11-09-2022 or even on 15-09-2022 i.e. the date on which the auction notice was published. When the valuation of the property came under the scanner in the present Securitization Application, the respondent No. 1 appears to have fudged a va lua tion report back dated it and submitted before

¶125

(S.A. No. 417 of 2022) Page 21 of 54

¶126

(Madkar)

¶127

this Hon'ble Tribunal to show compliance of Rule 5 and Rule 8 (5) of the Security Interest (Enforcement) Rule, 2002. This Hon'ble Tribunal shall take a serious note of this incurable defect in the auction sale under challenge and the sale ought to be set aside on this count alone. J. On Page No. 47 of the said report, it is mentioned that the combine distress sale value of the secured assets is Rs l7.26 Crores, meaning thereby the reserve price ought to have been at least Rs.17.26 Crores, however, in the impugned auction notice dated 15-09-2022 the combine reserve price is shown to be Rs. 17 Crores only on this count also the impugned auction notice and the subsequent sale is bad in law and deserves to be quashed and set aside.

¶128

K. It is also pertinent to mention that the valuation based on market and cost approach is shown to be INR 26.85 Crores whereas realizable value is shown to be Rs. 22.82 Crores and the distress sale value is shown to be Rs. 17.26 Crores, while there is no explanation or clear formula based on which such reduction in valuation is done by the valuer yet, it is clear that in the present case the sale under challenge having been completed for a meager amount Rs. 17.5 Crores clearly shows that the valuation appears to have been tailor-made for the present auction purchaser to purchase this secured asset at a throw away price.

¶129

L. On page no. 64 of the report, extracts from a booklet showing circle rate from the sub-registrar office to identify land valuation are annexed. It is pertinent to note that on the same page on bottom it is clearly mentioned that the said extract dated 0306-2020 whereas the valuation is carried out purportedly on 12-

¶130

(S.A. No. 417 of 2022) Page 22 of 54

¶131

(Madkar)

¶132

09-2022 i.e. 27 months after. The extract i.e. annexed at page no. 65 shows that it was dated 24-06 2020 which is also 27 months prior to the date of the purported valuation.

¶133

All these points mentioned above clearly points towards a botch-up/ fudged/incomplete/ fabricated valuation report sought to be relied upon by the Respondent No. 1 for carrying out the auction sale and on this count the Respondent No. I being in clear violation of Rule 5 and Rule 8 (5) of The Security Interest (enforcement) Rules, 2002 is liable to be penalized and the impugned sale notice as well as the sale deserves to be quashed and set aside.

¶134

IV. DISCREPANCY IN THE EARIER VALUATION REPORT:

¶135

During the pendency of the present Securitization Application on 15-06- 2023, the Respondent No. 1 has submitted the earlier valuation reports based on which it had floated the earlier sale notices. Following are the important points to be considered in this regard.

¶136

A. In the year 2018, the valuation report given by Krushna Consultant on 05-12-2018. The total value of the land and building was shown to be Rs. 34 Crores and the valuation of the plant and machinery was shown to be Rs. 2.20 Crores. Thus, the Bank was ready to put the property for sale for a total price of Rs 36.20 Crores in the year 2018. However, ultimately after 4 years the Bank has sold the property for a price less than 50 percent of the price determined in the year 2018. B. In the report dated 05-12-2018, it is clearly mentioned that the property is in possession of IRP Mr. Amit Poddar, that being so the

¶137

(S.A. No. 417 of 2022) Page 23 of 54

¶138

(Madkar)

¶139

observation in the latest valuation report that the property was under the supervision of security personnel of Y.I.L. is totally false and shows that the valuation is fabricated.

¶140

C. On page no. 34 onwards the report dated 09-10-2019 issued by M/s Synergy valuers and project consultant's private limited is annexed. The said report is appears to have been issued on 09-10-2019 which is visible on page no. 35 and on the very next page i.e. page No. 36 the date of the report changes to 06-10-2019 and the date of the visit at the property is shown to be 12-11-2019. It is pertinent to note that the Respondent No. 1 had earlier published public notice on sale on O1-11- 2019 which is annexed at EXHIBI C to the SA on page no. 47. From the record produced by the Respondent No. 1 itself it is clear that they have carried out valuation of the property after publication of the auction notice dated O1-11-2019. This again is a gross violation of the mandate under Rule 5 and Rule 8 (5) of the Security Interest Rules. The said report which starts from page no. 34 comprises of 18 pages in total and internal page numbers are given on the right side at the bottom. Page no. 2 of 18 mentions date of the report as 09-10-2019 whereas page no. 12 of 18 mentions date of the report as 06-12-2019. On page no. 53 there is valuation report of plant and machinery carried out by M/s Synergy valuers and project consultants private limited dated 2111-2019 which is also after the date of the auction notice i.e. 01-11- 2019. Though, the said report is purportedly dated 21-11-2019 on page no. 55 at the bottom digital signature of Charter Engineer Mr. Jeetendra P. Paithankar is seen which is dated 09-12-2019.

¶141

(S.A. No. 417 of 2022) Page 24 of 54

¶142

(Madkar)

¶143

D. There is one more valuation report of open plot which is carried out by M/s Synergy valuers and project consultants private limited annexed at page no. 65 which has 12 pages in total on the second page of 12, it is mentioned that the said report is dated 20-112019 whereas on the third page is mentioned that the report is dated 06-12-2019.

¶144

E. On page no. 73 i.e. internal page no. 9 of 12 of the report the date of the report is shown as 06-12-2019. On page no. 98 of the compilation it appears that the Respondent No. 1 obtained ready reckoner rates valuation from M/s. K and A i.e. Kakode associates consulting private limited who are the same valuers who have carried out the valuation report dated 12-09-2022 and in this valuation on page no. 99 they have refer to the ready reckoner rates and given valuation as of the land and buildings as l 7.03Crores whereas plant and machinery is shown to be valued 2.07 Crores and cumulative value is shown as 19.10 Crores. This report is dated 21-08-2021. It is clear that the same ready reckoner rates which were used for the report in 2021 have been used in the report of 12-09-2022 as well. All these glaring ·discrepancies point toward only one fact that the valuation exercise purportedly conducted by the Respondent No. 1 was nothing but sham and bogus and it buttresses the contention of the Applicant that the R espondent No. 1 has grossly undervalued secured assets only to suit a particular party and has caused grave prejudice to the present Applicant. N eedless to mention the action of the Respondent No. 1 are in direct con travention of the provisions of Section 13(4) read with Rule 5 and Rule 8 (5) of the Security

¶145

(S.A. No. 417 of 2022) Page 25 of 54

¶146

(Madkar)

¶147

interest Rule, 2002.

¶148

V . EXORBITANT INTEREST RATE APPLICATION:

¶149

1. The 13 (2) notice issued to the borrower is annexed at EXHIBIT A page no. 29 to 32 of the Securitization Application. The said notice is dated 27-04- 2011. Vide the said notice the then secured creditor Central Bank of India has called upon the present applicant to pay total outstanding amount of Rs 31,14,68,115.71/(Rupees Thirty One Crores Fourteen Lakhs Sixty Eight Thousand One Hundred Fifteen Rupees & 71 paise). The impugned auction sale notice is dated 15-09-2022 i.e. approximately 11 years 5 months from the date of 13(2) notice. The amount i.e. shown to be due from the borrower in the auction notice is Rs. 188,51,03,0f28/(Rupees One Hundred Eighty Eight Crores Fifty One Lakhs Three Thousand Twenty Eight Rupees). It is also pertinent to note that in the auction sale notice dated O1-11-2019 i.e. 34 months prior to the last auction sale notice. The amount of dues from borrower are shown to be Rs. 123,12,20,855/- only. By no stretch of imagination could be amount of dues which were 31 Crores in the year 2011 could multiply more than 6 times in a span of 11 years to reach astronomical figure of Rs. 188 Crores plus. In the SA the Applicant had called upon the Bank to establish the basis on which such an astronomical was arrived at by the Bank yet in their reply the Respondent No. 1 has failed to clarify or give any explanation.

¶150

2. Even if historical bench mark prime lending rates are

¶151

(S.A. No. 417 of 2022) Page 26 of 54

¶152

(Madkar)

¶153

considered for the relevant period of time from the year 1999 to September 2022. The highest ever prime lending rate during this period was 14.75 percent per annum, even if the highest BPL Rate is applied the amount of dues that may actually be claimable by the Respondent No. 1 would be less than half of the amount i.e. being claimed by the Bank in their latest impugned auction sale notice. On this count also the impugned auction sale notice is illegal and deserves to quashed and set aside. No denial by the Respondent No. 1 to the contents of amended Securitization Application. During the course of the present Securitization Application the Applicants amended the Securitization Application and challenge the auction sale as well as the sale deed executed by the Respondent No. 1 in the amended memo of the SA It was specifically contended that " 18-D the applicant further submits that on a bare perusal of the aforesaid sale deed, the market value of the properties which are allegedly sold has been calculated by registering office to Rs. 24,93,63,500/- which makes it clear that the Respondent No. 1 has grossly undervalued the property while selling it which is precisely what the applicant is pleading in the present securitization application" there has been no denial of this specific pleading in affidavit in reply filed by Respondent No. I. 3. In the amended SA is has been specifically pleaded that " the applicant has learnt that the Respondent No.1, has not even advertised the impugned auction sale/ published the impugned auction notice on its web portal in the manner it is expected under the SARFAESI Act and the rules made there under. The

¶154

(S.A. No. 417 of 2022) Page 27 of 54

¶155

(Madkar)

¶156

Respondent No. 1, must be directed to place on record the proof about publication/compliance of the rules regarding publication of the e- auction on its web portal.' The Respondent no. 1 has not whispered a word about this specific allegation in its additional affidavit in reply to the amended memo thereby making it clear that this specific pleading have gone uncontroverted in the reply filed by the Respondent No. 1 that being so the same will have to be accepted and the Respondent No.1 has to be penalized for violation of provisions of the SARPAECI Act.

¶157

VI . COLLUSION BETWEEN RESPONDENT NO. 1 AND AUCTION PURCHASER RESPONDENT NO.3

¶158

1. The purported action sale was conducted on 04-10-2022 on the same day the Respondent No. I issued a letter to the Respondent no.3 which is annexed by the Respondent No. 3 at Interim Application No. 1641 of 2022 at Page No. 14. On a bare perusal of said letter it is clear that the Respondent No. 3 had deposited Rs. 1 Crore 70 Lakhs as earnest money deposit and an additional amount of Rs.2,67,50,000/- was required to be deposited by them immediately on the next day as per the terms and conditions of the auction sale which would have made total payment constitute of 25 percent of the auction sale amount i.e. Rs. 4,37,50,000/- . It was stated that a letter of confirmation of sale would be issued pursuant to payment of the aforesaid 25 percent amount. In the said letter it is further mentioned that the balance 75% of the bid amount i.e. Rs. 13,12,50,000/- was to be deposited strictly within 15 days from the date of issuance of letter of confirmation of sale by the authorised officer further, in the said letter it is categorically mentioned that "

¶159

(Madkar) (S.A. No. 417 of 2022) Page 28 of 54

¶160

kindly note that in case of default of payment towards the entire sale prices within tiw1elines mentioned hereinabove, the authorised officer shall forfeit to Arcil the anwunt already deposited and the schedule property shall be re- sold and the default in purchaser shall forfeit all claims to the schedule property or to any part of the sum for which it may subsequently sold."

¶161

2. It appears that the Respondent No.3 did make a deposit of the 25% amount as required and therefore, on 07-10-2022 another letter styled as letter of confirmation of sale was issued by the Respondent No. 1 to Respondent No.3 which is annexed at Page No. 19 of Interim Application No. 1641 of 2022. In the said letter the Respondent No. 3 was directed to pay the balance amount ofRs.13,12,50,000/- within 15 days from date of issuance of the said letter i.e. by 22-10-2022. It was once again stated in the said letter that in the event of default the amount already deposited shall be forfeited to Arcil. It is pertinent to note that the Respondent No. 3 filed the aforesaid Intervention Application bearing No. 1641 of 2022 on 28-11-2022 and even in that application they claimed to have deposited only 25 percent of amount. Therefore, the Respondent no. 3 had clearly passed the deadline given by Respondent No. 1 to deposit the balance amount yet, no action of forfeiture of funds was taken by the Respondent No.1.

¶162

3. Subsequently, the Respondent No.1 has executed a sale deed dated 06-06-2023 in favour of the Respondent No.3 from the recitals of the said sale deed and also from the sale certificate dated 01-02-2023 annexed to the said sale deed it appears that the balance amount was paid by the Respondent No.3 much later than the stipulated time limit given by

¶163

(S.A. No. 417 of 2022) Page 29 of 54

¶164

(Madkar)

¶165

the Respondent No. l which clearly shows an active collision between both the parties. Not only did the Respondent No. 1 sell the secured assets to the Respondent No. 3 at a throw away price it also allowed the Respondent no. 3 to deposit the sale consideration at its own leisure.

¶166

4. In all this the collusion between Respondent No. 1 and 3 is further apparent from the conduct of the Respondent No. 1 that is totally ignored the letters given by the Applicant from intending . purchaser who were ready to purchase the secured asset at a substantially higher price.

¶167

In light of the aforesaid it is apparent that the Respondent No. 1 has brazenly flouted the mandatory provisions under the SARPAESI Act as well as the Security Interest (Enforcement) Rules and therefore, the impugned auction sale dated 04-10-2022 carried out pursuant to the auction notice dated 15-09- 2022 is required to be quashed and set aside and also the sale deed executed by the Respondent No. 1 in favor of Respondent No. 3 bearing Registration no. 3741 of 2023 dated 07-06-2023 is required to be quashed and set aside. “

¶168

(B) Notes of arguments submitted by Respondent No.1 are as follows :

¶169

“ 01. Central Bank of India has sanctioned the Loan facilities in favour of Yog Industries Limited (hereinafter referred as the

¶170

‘Company’). The petitioner stood as a guarantor to the said loan facilities availed by the company. The Company and Petitioner

¶171

(S.A. No. 417 of 2022) Page 30 of 54

¶172

(Madkar)

¶173

has executed various documents so as to secure the said loan and further mortgaged the immovable property. Accordingly, the charge in respect of the immovable property concerned is created upon the property of the petitioner & the company on January 09, 2008. The guarantors have executed the letter of Guarantees in favour of the bank for the loan facility. Thereafter, the loan account of the Central Bank of India was assigned in favour of the Respondent for the recovery purpose as per the provisions of the law.

¶174

02. The Central Bank of India has by way of deed of assignment transferred various N.P.A. accounts that, from which one of the account is of the company, who is the defaulter of Central Bank of India. The Central Bank of India by way of deed of assignment dated March 22, 2013 has handed over the account in favor of ARCIL i.e. the respondent.

¶175

03. Respondent (ARCIL) is a Securitisation and Reconstruction Company incorporated under the Companies Act, 1956 and registered with Reserve Bank of India, under Section 3 of SARFAESI Act, 2002.

¶176

04. Company started making default in repayment of the instalment and thereby violated the terms and conditions of the loan agreement. Since beginning, the Company did not repay the instalments and therefore, the outstanding amount was increased

¶177

(Madkar) (S.A. No. 417 of 2022) Page 31 of 54

¶178

day by day. It is pertinent to note here that the Company was categorized as NPA in 2011.

¶179

05. Notice dated 27/04/2011 issued by the assignor under Section 13 (2) of the SARFAESI Act, 2002, was served to the Company /Petitioner. The Company continued to default in repaying of loan, therefore, the answering respondent has preferred an application under Section 14 of Securitisation Act for taking of possession of Secured Assets before the District Collector. Accordingly, the Sub-Divisional Magistrate (Revenue) had passed the order on 19/07/2012. The execution of such order was stayed due to Securitisation Application filed by the company, which got vacated in June 2015. Further, substitution of Arcil in place of Central Bank of India was carried out in the order of Sub-Divisional Magistrate in July 2016

¶180

06. CIRP against the company was admitted by NCLT on August 22, 2017. Moratorium under IBC commenced from such date and continued until order of Liquidation was passed against the Company on April 12, 2018. Thereafter, NCLT has passed an order dated April 10, 2019 for allowing financial creditors to sell the assets under SARFAESI and choosing to exercise its option u/s 52 of IBC.

¶181

07. Respondent have proceeded in the following

¶182

(S.A. No. 417 of 2022) Page 32 of 54

¶183

(Madkar)

¶184

chronological manner and taken all necessary steps for

¶185

recovering the dues for the concerned property:

¶186

*Sr.*	*Time*	*Particulars*
*No.*	*Period*
1	Apr-11	Notice was issued to the borrower under Section 13(2) of SARFAESI Act by Assignor Bank
2	Jul-12	Order was passed by Sub-Divisional Magistrate (Revenue) pursuant to the Section 14 application filed by the Assignor Bank
3	Jul-12	Securitisation Application filed by the borrower against such order passed by Sub-Divisional Magistrate (Revenue) and stay was granted in the matter
4		Original Application (O.A) filed by Central bank of India and Arcil was substituted in such OA in December 2014
5	Jun-15	Securitisation Application filed by the borrower was dismissed and the stay was vacated
6	Aug-16	Respondent issued request letter to Tehsildar for fixation of date of execution of S.D.M. order for possession of property Gut no. 84, 85, 86 & 70
7	Aug-17	Commencement of CIRP in the Company and moratorium became applicable thereof
8	Apr-18	Liquidation Order passed by NCLT for the Company
9	Apr-19	Order passed by NCLT allowing financial creditors to sell the assets under SARFAESI and choosing to exercise its option u/s 52 of IBC
10	Jul-19	Possession Notice published in Newspaper (Property Gut No. 84, 85, 86 and 70)
11	Jul-19	Handover of properties (Property Gut No. 84, 85, 86 and 70) by Liquidator to authorised representative of Arcil
12	Jul-19	Possession Intimation to Company and Petitioner (Property Gut No. 84, 85, 86 and 70)
13	Nov-19	Sale Intimation Notice published in Newspaper for Auction on December 03, 2019 (Property Gut No. 84, 85, 86 and 70)

¶187

(S.A. No. 417 of 2022) Page 33 of 54

¶188

(Madkar)

¶189

14	Nov-19	Sale Intimation Notice sent to borrower & Petitioner for Auction on December 03, 2019 (Property Gut No. 84, 85, 86 and 70)
15	Nov-19	Writ Petition filed by Petitioner (Narendra Jadhav) challenging auction notice dated November 01, 2019
16	Dec-19	Sale Notice sent to borrower & Petitioner for Auction on January 16, 2020 (Property Gut No. 84, 85, 86 and 70)
17	Feb-20	Sale Intimation Notice sent to borrower & Petitioner for Auction on March 19, 2020 (Property Gut No. 84, 85, 86 and 70 )
18	Sep.20	Sale Intimation Notice sent to borrower & petitioner for Auction on September 29, 2020 (Property Gut No. 84, 85, 86 & 70)
19	Sep-20	Sale Intimation Notice published in Newspaper for Auction on September 29, 2020 (Property Gut No. 84, 85, 86 and 70)
20	Sep-22	Sale Intimation Notice sent to borrower & Petitioer for Auction on October 04, 2022 (Property Gut No. 84, 85, 86 and 70)
21	Sep-22	Sale Intimation Notice published in Newspaper for Auction on October 04, 2022 (Property Gut No. 84, 85, 86 and 70)
22	Oct-22	Auction of Properties (Gut No. 84, 85, 86 & 70)

¶190

Properties (gut no. 84, 85, 86 and 70) of Yog Industries located at Aurangabad sold under Auction held on October 04, 2022. The successful bidder has deposited entire Sale price and Sale Certificate was issued on 01/02/2023 to the successful auction purchaser. Sale Certificate in respect of the immovable properties (gut no. 84, 85, 86 and 70) of Yog Industries located at Aurangabad was registered on 06/06/2023.

¶191

09. No. 1 has published the present sale notice dated

¶192

(S.A. No. 417 of 2022) Page 34 of 54

¶193

(Madkar)

¶194

15/09/2022 by way of paper publication & also have published the same on its web- portal. The sale prise of the property was 17.50 Cr which is mentioned in the sale certificate issued to the auction purchaser. The amount of 17.50 Cr includes the value of both movable and immovable secured assets (i.e. land & building and plant & machinery) and accordingly two separate sale certificates were issued to the auction purchaser as required under law.

¶195

10. This is 5^th sale notice issued for the property in consideration issued by the respondent, the previous notices issued for sale of property were not challenged, but in the current instance when the bidders came forward to purchase the property the present application is filed before the Tribunal just to drag time and defeat the purpose of recovery of the respondent. Applicant failed to specifically point out any illegality committed by the Respondent No. 1 in issuance of the sale notice. Respondents have carried out proper valuation of the property and conducted the sale on the basis of such Valuation Report.. Therefore the present Interim Application is not maintainable in the eyes of law & deserve to be dismissed with heavy cost.

¶196

11. As per the dues mentioned in the Sale Notice (i.e. as on August 31, 2022) Respondent has to recover the dues of Rs.

¶197

(S.A. No. 417 of 2022) Page 35 of 54

¶198

(Madkar)

¶199

188,51,03,028 (Rupees One Hundred and Eighty Eight Crore Fifty One Lakh Three Thousand and Twenty Eight only) from the applicant therefore no leniency should be shown against the Petitioner who just wants to drag the time & defeat the respondent’s actions taken under due process of law for recovery of its legitimate dues.

¶200

12. Petitioner has currently raised the contentions that the land sold by Respondent No. 1 is Agricultural land. The same contention was also raised by the Petitioner during the possession of such property, however DRT-Aurangabad vide its order dated a 15/6/2015 in SA 60/2012, had clearly stated that “From the report of the Court Commissioner it may be concluded that land falling in Gut No. 84, 85 and 86 are nonagricultural lands and such contention of the applicant that the lands are agricultural lands has no substance”. The Petitioner has not challenged such order of DRT-Aurangabad and therefore cannot challenge the same as on date as it is barred by limitation. Despite DRT-Aurangabad clearly pointing out the fact that these lands are non-agricultural lands, the Petitioner by once again raising the same contention before the same court has demonstrated its intention to purely drag the proceedings and defeat the process of recovery of the Respondent No. 1 for recovery of its legitimate dues.

¶201

(S.A. No. 417 of 2022) Page 36 of 54

¶202

(Madkar)

¶203

10. The property in contention was previously put up for auction on three occasions for a reserve price which was below the reserve price of the current auction, but no buyers showed up. This clearly indicates that the price of property is in appropriate range and the contention of the petitioner is inappropriate.

¶204

Auction Date	Reserve Price (Rs. In Crore)	Sale Price (Rs. In Crore)	Remarks
December 2019	21.99	-	No bids received
January 2020	15.84	-
March 2020	15.84	-
September 2020	15.84	-
*October 2022*	*17.00*	*17.50*	Sold

¶205

14. The relief prayed by the Petitioner should not be granted, as he is trying to delay the proceeding initiated under Securitization Act. If the relief prayed by the Petitioner is granted, the respondents would suffer irreparable loss, as huge public monies are involved, hence the application is liable to be dismissed with costs. ”

¶206

(C) Notes of Arguments filed by learned Counsel for Respondent No.3 are produced as below:

¶207

“

¶208

(S.A. No. 417 of 2022) Page 37 of 54

¶209

(Madkar)

¶210

I. Non-maintainability of Securitization Application on behalf of/ at the behest of the present Applicant:

¶211

That the Securitization Application as filed & in the manner it is filed on behalf of/ at the behest of the present Applicant is not maintainable as the Applicant is only an erstwhile/ former director of the borrower Company i.e. Yog Industries Limited and whereas, the said borrower Company has already gone into liquidation vide order dated 12.04.2018 passed by the Hon’ble NCLT and an official liquidator has been appointed. Therefore, it is only the official liquidator, who is entitled to represent the Corporate Debtor/ borrower Company in any proceedings initiated by or against the said Corporate Debtor/ borrower Company. Thus, the present Applicant has no locus and/ or has not made out any case in the Application to show that he has any locus to challenge the auction sale in personal capacity as an erstwhile/ former director of the borrower Company.

¶212

That the Applicant has no where pleaded in the entire Application that the Applicant is challenge the impugned auction/ sale notice allegedly in the capacity of a ‘guarantor’ and therefore, in the absence of such specific pleadings contained in the Application itself, the said alleged contention of the Applicant that the present Application filed on behalf of the guarantor is maintainable, cannot be considered and is liable to be rejected/ ignored.

¶213

II. Failure of the Applicant to challenge the earlier the Sale Notices:

¶214

3. That the Respondent No. 1 “ARCIL” in their Reply dated 25.11.2022 have clearly stated that the mortgaged property was

¶215

(S.A. No. 417 of 2022) Page 38 of 54

¶216

(Madkar)

¶217

put up for auction sale on four occasions prior to the impugned auction held on 4^th October 2022 i.e. on 3^rd December 2019, 16^th January 2020, 19^th March 2020 & 29^th September 2020. However, the Applicant did not challenge or raise any grievance in respect of any of the earlier Sale Notices/ Auction proceedings except the first Sale Notice dated 01.11.2019 which even though was challenged by the Applicant by way of Writ Petition filed before the Hon’ble High Court, but the same was never seriously pursued or prosecuted by the Applicant.

¶218

4. That the Applicant has admittedly not challenged any of the Sale Notices/ Auction proceedings conducted after the first Sale Notice dated 01.11.2019 and prior to impugned Auction, when in fact thereafter the Respondent No. 1 ‘ARCIL’ had decreased the valuation/ reserve price of the mortgaged properties and the reserve price was set at only around Rs. 15.84 crores in the Sale Notices dated 16.01.2020, 19.03.2020 & 29.09.2020 as opposed to the reserve price set at Rs. 21.99 crores in the first Sale Notice dated 01.11.2019.

¶219

5. That the Applicant had failed to challenge and/ or raise any grievance against the Sale Notices dated 16.01.2020, 19.03.2020 & 29.09.2020 which were published by the Respondent No. 1 “ARCIL” after the first Sale Notice dated 01.11.2019 and whereby the Respondent No. 1 “ARCIL” had in fact quoted even lower valuation/ reserve price for the mortgaged properties than what is mentioned in the impugned Sale Notice. Therefore, by his own conduct, the Applicant waived any alleged right, if any, to challenge the impugned Sale Notice and is in fact now estopped

¶220

(S.A. No. 417 of 2022) Page 39 of 54

¶221

(Madkar)

¶222

from raising any challenge to the impugned Sale Notice/ Auction as the Applicant had no grievance whatsoever against the act of the Respondent No. 1 “ARCIL” in publishing the Sale Notices dated 16.01.2020, 19.03.2020 & 29.09.2020 at a much lower valuation/ reserve price than what is mentioned in the impugned Sale Notice. Thus, on this ground alone the present Application is liable to rejected/ dismissed in limine.

¶223

6. That it is also pertinent to note that the Respondent ARC had conducted auction sale on at least 4 occasions prior to the impugned auction sale and on all 4 occasions no bids or offers were received by the Respondent ARC despite quoting lower reserve price for the mortgaged properties in earlier sale notices and therefore, the Respondent ARC was constrained to reduce or lower reserve price as there were no prospective buyers/ purchasers who were willing to purchase the mortgage properties at the reserve price set by them in the earlier auction sales conducted by them. Despite the same, the Respondent ARC had in fact increased the reserve price of the mortgaged properties in the impugned auction notice dated 15.09.2022 and the reserve price was set at around Rs. 17 crores in the said impugned auction notice as opposed to the reserve price set at Rs. 15.89 crores in the last preceding auction notice dated 29.09.2020, which was never challenged by this Applicant and which auction had in fact failed as no bids/ offers were received from any prospective buyers/ purchasers.

¶224

7. That the above facts and circumstances clearly demonstrates the

¶225

(S.A. No. 417 of 2022) Page 40 of 54

¶226

(Madkar)

¶227

conduct of the Applicant that he is only trying to protract the proceedings and by way some way or the other attempting to stall the actions taken by the Respondent No. 1 “ARCIL” without making any bonafide attempt to offer any repayment and/ or to regularize the loan account of the borrower Company. That, it is also pertinent to note that the Applicant had no grievance at all against the earlier Sale Notices when the auction did not fructify and it is only when the auction was successful that the Applicant suddenly felt aggrieved and dissatisfied by the actions of the Respondent “ARCIL” and challenged the same by way of the present Application on technical grounds without making any bonafide attempt to repay the loan/ debt due to the Respondent No. 1 “ARCIL”. Thus, the conduct of the Applicant is writ large and that itself disentitles the Applicant from claiming any equitable reliefs from this Hon’ble Authority that too under Section 17 of SARFESI Act which is a discretionary power vested with this Hon’ble Authority.

¶228

III. That the judgement of the Hon’ble Supreme Court in the case of Arce Polymers Private Limited v. Alphine Pharmaceuticals Pvt. Ltd. reported in (2022) 2 SCC 221 squarely covers the case of the present Respondent and applies to the facts and circumstances of the present case. The same is annexed as Exhibit R-1 .Regarding right of redemption of the borrower under Section 13 (8) of SARFESI Act:

¶229

8. That, Corporate Insolvency Resolution Process (“CIRP”) was initiated against the borrower Company i.e. Yog Industries Limited under the provisions of IBC, 2016 by the Hon’ble NCLT vide order dated 22.08.2017.

¶230

(Madkar) (S.A. No. 417 of 2022) Page 41 of 54

¶231

9. That, thereafter, due to failure of CIRP, an order of liquidation came to be passed against the said borrower Company i.e. Yog Industries Limited by the Hon’ble NCLT vide order dated 12.04.2018.

¶232

10. That, thereafter, the Respondent No. 1 “ARCIL” made an application under Section 52 of IBC, 2016 before the Hon’ble NCLT thereby seeking to exclude the mortgaged properties from the liquidation process and further permission to sell the secured/ mortgaged assets of the borrower Company as per the provisions SARFESI Act. That the Hon’ble NCLT permitted the Respondent No. 1 “ARCIL” to sell the secured/ mortgaged assets under SARFESI Act vide order dated 10.04.2019.

¶233

11. That, thereafter, the first Sale Notice was published by the Respondent No. 1 “ARCIL” on 01.11.2019 thereby giving intimation of the sale auction scheduled on 03.12.2019. Subsequently, similar Sale Notices dated 16.01.2020, 19.03.2020 & 29.09.2020 also came to be published by the Respondent No. “ARCIL”. However, none of the previous auction- sales could fructify or were successful as no bids were received by the Respondent No. 1 “ARCIL” in response to the said Sale Notices.

¶234

12. That eventually the impugned Sale Notice came to be published by the Respondent No. 1 “ARCIL” on 15.09.2022 thereby intimating that the auction- sale was scheduled on 04.10.2022. That, in the auction- sale dated 04.10.2022, the present Respondent emerged as the successful bidder and further, the present Respondent also deposited 25 % of the sale price

¶235

(S.A. No. 417 of 2022) Page 42 of 54

¶236

(Madkar)

¶237

immediately and accordingly, sale confirmation letter also came to be issued by Respondent No. 1 “ARCIL”.

¶238

13. That, therefore, any alleged right of the Applicant to redeem the mortgaged property, if any, has also extinguished as per the provisions of Section 13 (8) as the Applicant had failed to seek the same and/ or to offer any repayment for redemption of mortgaged property prior to publication of the Sale/ Auction Notices and in fact the present Application is filed by the Applicant after successful auction of the mortgaged properties and issuance of sale confirmation letter to the present Respondent. Thus, the Applicant has no legal right to claim redemption of mortgaged properties at this stage especially when the mortgaged properties are already sold in auction by the Respondent ARC.

¶239

14. That, the judgment passed by the Hon’ble Supreme Court in the case of Celir LLP v. Bafna Motors & Others reported in 2023 SCC Online SC 1209 squarely covers the case of the present Respondent and applies to the facts and circumstances of the present case. The Hon’ble Apex Court has clearly held in this judgment that a borrower only has right of mortgage redemption only till the publication of auction notice under Section 13 (8) of the SARFESI Act.

¶240

15.

¶241

15. Thus, considering the above position of law, it is abundantly clear that once the auction notices are published by the Bank, then the borrower is not only disentitled from seeking redemption of the mortgaged property, but the Applicant also cannot be permitted to challenge the auction proceedings merely on some grounds of alleged procedural lapses especially when the auction-sale is already completed and the sale in favour of the auction purchaser is confirmed by the Bank, as otherwise, the very purpose of conducting

¶242

(S.A. No. 417 of 2022) Page 43 of 54

¶243

(Madkar)

¶244

auction-sales would get defeated and it would discourage prospective buyers/purchasers from participating in the auction-sales if such challenges are entertained at such later stage and that too after completion of the sale-auctions. It is also pertinent to note that the Applicant, despite having received the impugned auction/ sale notice well in advance, never challenged the same until the auction was successfully conducted by the Respondent ARC and the present Respondent had emerged as the successful bidder and after the sale confirmation letter was already issued to them. Therefore, considering his own conduct, the present Applicant is now disentitled from raising any challenge to the auction in view of the clear law laid down by the Hon’ble Supreme Court in the case of Celir LLP v. Bafna Motors & Others reported in 2023 SCC Online SC 1209.

¶245

IV. Completion of Sale of the mortgaged properties in favor of the present Respondent:

¶246

16. That the Hon’ble NCLT had granted permission to the Respondent ARC to sell the mortgaged/ secured assets under the provisions of SARFESI Act vide order dated 10.04.2019. That the Applicant has till today not challenged the said order dated 10.04.2019 to the best of knowledge of the present Respondent No. 3. And therefore, the Respondent ARC had complete power and authority to deal with the said mortgaged properties as per the provisions of SARFESI Act.

¶247

17. That the Respondent ARC in furtherance of the said permission granted by the Hon’ble NCLT, published auction notices on 01.11.2019, 16.01.2020, 19.03.2020 & 29.09.2020 for conduct of auction of the mortgaged/ secured assets under the provisions of SARFESI Act. However, all the previous auctions failed and did not fructify as no bids were received by the Respondent ARC.

¶248

18. That the Respondent ARC eventually published auction notice on 15.09.2022 regarding the auction-sale held on 04.10.2022. That

¶249

(S.A. No. 417 of 2022) Page 44 of 54

¶250

(Madkar)

¶251

the present Respondent No. 3 appeared in the said auction-sale held on 04.10.2022 and emerged as the successful bidder and further, also deposited 25% of the sale consideration/ price on the same date and accordingly, sale confirmation letter was also issued in favor of the present Respondent. That soon thereafter the present Respondent No. 3 also deposited the remaining sale price/ consideration for the purchase of the auctioned properties as per the agreed terms.

¶252

19. That thereafter the Applicant challenged the auction-sale by way of the present Application and status quo order came to be passed by this Hon’ble Tribunal on 16.11.2022. That the Respondent ARC challenged the said interlocutory order dated 16.11.2022 passed by this Hon’ble Tribunal by way of a Misc. Appeal bearing No. 161/ 2022 before the Hon’ble DRAT and the said Misc. Appeal came to be finally decided by the Hon’ble DRAT vide order dated 17.01.2023 thereby setting aside the interlocutory order of status quo passed by this Hon’ble Tribunal.

¶253

20.That, consequently, the Respondent No. 1 immediately issued sale certificate dated 01.02.2023 in favor of the present Respondent No. 3 and subsequently, also executed a Sale Deed dated 06.06.2023 in favor of the present Respondent No. 3 thereby completing the conveyance/ sale of the auctioned properties in favor of the present Respondent in entirety. Thus, the auctioned properties already stand vested in the present Respondent and the sale/ conveyance stands completed. Therefore, the right, title & interest created in favor of the present Respondent now cannot be divested on mere technicalities or alleged procedural lapses

¶254

(S.A. No. 417 of 2022) Page 45 of 54

¶255

(Madkar)

¶256

committed by the Respondent ARC especially when the Applicant does not even have the right to get the mortgaged properties redeemed from the Respondent ARC at this stage, as per settled law referred to hereinabove.

¶257

21. That the present Respondent is a bonafide purchaser, who has already deposited the entire sale consideration/ price for the mortgaged properties to the Respondent ARC since more than a year now. Moreover, the present Respondent has also become the absolute owner of the mortgaged properties in view of the issuance of final sale certificate dated 01.02.2023 and execution of Sale Deed dated 06.06.2023 by the Respondent ARC, that too under the orders passed by the Hon’ble DRAT itself. And whereas, the Applicant by his own conduct has waived/ acquiesced his alleged right, if any, to challenge the auction or sale by not challenging any of the earlier sale notices or even the present impugned sale notice dated 15.09.2022 prior to conduct of the auction-sale on 04.10.2022, as stated hereinabove. And, therefore, considering from any angle, the present Application deserves to be rejected.

¶258

V. Undue hardship being caused to present Respondent No. 3:

¶259

22. That the present Respondent despite being a bonafide purchaser and despite having deposited the entire sale price with the Respondent ARC since more than a year now, that too after obtaining loan for the same & being required to pay interest thereon for all this time, still the present Respondent has not been

¶260

(S.A. No. 417 of 2022) Page 46 of 54

¶261

(Madkar)

¶262

able to bear the fruit of the property or utilize the same for their own benefit for more than almost 6 months now even since the date of execution of Sale Deed in favor of them. That the present Respondent is being forced to pay heavy interest on the loans undertaken by them for paying the sale price of the mortgaged properties even though they are unable to utilize or use the same and the Respondent is therefore suffering huge loses on daily basis which cannot be compensated in terms of money, which is causing much greater hardship to the Respondent that is irreparable. That, therefore, even considering equities, as ought to be seen while granting any discretionary relief, the Respondent is undergoing much greater hardship and would eventually be caused much greater hardship if the sale/ auction is set aside by this Hon’ble Tribunal at this stage as the same would cause irreparable damage/ loss to the Respondent which could never be compensated in terms of money as the Respondent has already made such a huge investment in the said properties by relying upon the confirmation of sale by the Respondent ARC.

¶263

23. That on the contrary not much loss or hardship would be caused to the Applicant considering the fact that in any case the Applicant has already extinguished the right to redeem the mortgaged properties once the auction notices were published by the Respondent ARC as per the settled law enunciated by the Apex Court.That, therefore, considering the above facts & circumstances and moreover, the conduct of the Applicant, this is a fit case to refuse any interference by this Hon’ble Tribunal with measures taken under SARFESI by the Respondent ARC

¶264

(S.A. No. 417 of 2022) Page 47 of 54

¶265

(Madkar)

¶266

especially under the extra-ordinary jurisdiction vested with this Hon’ble Tribunal under Section 17 of SARFESI Act.

¶267

VI. Reply to the Argument of the Applicant:

¶268

24. That so far as the contention of the Applicant regarding alleged violation of Rule 8 (5) of the Security Interest (Enforcement) Rules, 2002 is concerned, the same does not merit any consideration, as it is suffice to say that the Applicant had already waived his right to raise any such challenge to the auction sale on the ground that valuation report was incorrect or vitiated by not challenging the earlier Sale Notices dated 16.01.2020, 19.03.2020 & 29.09.2020 wherein the Respondent ARC had quoted even lower reserve price or valuation of the mortgaged properties. Moreover, the said rule only casts an obligation on the secured creditor to obtain an estimated value of the property before the auction & thereafter to set the reserve price if it deems necessary. Therefore, the fixing of reserve price is not a sine qua non for conducting auction sale under SARFESI Act and so the Applicant would not get any right to challenge the entire auction process only on the ground that the reserve price fixed by the Respondent ARC was too low or below the actual valuation of the property as the auction that was conducted was a public auction and the property has been sold by private sale by the Respondent ARC and thus, any prospective buyer or purchaser as alleged by the Applicant who was willing to offer a higher price for the auctioned properties could have easily participated in the auction process and bid higher value on the

¶269

(S.A. No. 417 of 2022) Page 48 of 54

¶270

(Madkar)

¶271

said properties. Thus, all these technical objections of the Applicant deserve to be rejected at threshold itself.

¶272

25. That the contention of the Applicant regarding alleged discrepancy in the valuation report also deserves to be rejected at threshold for the same reasoning as mentioned hereinabove.

¶273

26. That the further contention of the Applicant regarding charging of exorbitant interest by the Respondent ARC the same cannot be allowed to be raised at this stage and does not deserve any consideration as the Applicant has already extinguished his right to redeem the mortgaged property as per the law laid down by the Hon’ble Apex Court and therefore, even if the Applicant succeeds in showing that greater interest was charged by the Respondent ARC, still no logical conclusion could be drawn out of the same, as the question of re-working of the amount due & payable to Respondent ARC would only arise when the right to redeem the mortgaged property by repaying the loan amount is still alive & existing. Therefore, this contention of the Applicant would also have to be rejected.

¶274

27. That lastly, the Applicant has contended that there was alleged collusion between the Respondent ARC & the present Respondent No. 3 i.e. auction purchaser. However, the Applicant has failed to provide any particulars in support of the said allegation and therefore, such vague and baseless allegation needs to discarded and rejected at the outset in absence of any specific particulars to support the same, as per the settled position of law. Therefore, all the contentions of the Applicant deserve to

¶275

(S.A. No. 417 of 2022) Page 49 of 54

¶276

(Madkar)

¶277

be rejected at the threshold. “

¶278

Having heard the arguments and gone through the pleadings and written arguments of all the parties, the main objection is about maintainability of the Securitization Application. The Tribunal in earlier orders has made clear that since notice of sale was issued to present applicant, the Securitization Application filed by him is maintainable. With this observation, I do analyse all the arguments. The main bone of contention is that the secured creditors i.e. the ARCIL and ICICI Bank have stood outside the Hon’ble N.C.L.T. proceedings with permission being granted by the Hon’ble NCLT. The auction is being challenged on various grounds including (i) valuation of the mortgaged property; (ii) inclusion of averments in respect of the IBC proceedings and huge outstanding under the IBC. Subsequently, it was argued that the valuation report has been prepared subsequently because the valuation report have documents which are subsequent to the date of the valuation report. The valuation and reserved price of the property, which was put to auction in December 2019, was shown Rs. 21.99 crores, however, no bids were received. Thereafter thrice the property was put to auction in January 2020, March 2020 and

¶279

(Madkar) (S.A. No. 417 of 2022) Page 50 of 54

¶280

September 2020 showing reserved price of Rs. 15.84 crores. Subsequently, in October 2022, the property was put to auction for reserved price of Rs. 17.00 crores (an increased amount) and present auction purchaser/Respondent No.3 has purchased this property for Rs. 17.50 crores. Had the bank sold the property in January 2020 either through public auction or treaty, contention of sudden fall in price could have been looked into. But with the three subsequent failed attempts, none of the auctions are being challenged. The right to redeem the property also goes. Though the applicant’s objection to the sale notice in respect of various averments of dues of other secured creditors/vendors/charge holders under the IBC is mentioned, however, though the same were not required to be mentioned and the borrower could not come forward and say why those were included. If any other party had come before the Tribunal and submitted that because of those averments they were under the impression that those liabilities will go alongwith the property, they could not participate and now they came to know about the bid by the purchaser and they got misguided by those, that is not the case here. The secured creditor must be cautious to see what should be mentioned in the sale notice and what should not be mentioned in it though it appears to the Tribunal to avoid any subsequent challenge that they were

¶281

(S.A. No. 417 of 2022) Page 51 of 54

¶282

(Madkar)

¶283

knowing about other liabilities of the borrower but have not disclosed against which certain steps could have been taken. Considering the respective arguments which were addressed at length by all the parties at advanced stage, the Tribunal has granted an interim protection. The said order was challenged before the Hon’ble Debts Recovery Appellate Tribunal and the Hon’ble Tribunal vacated the status quo granted and allowed to continue the auction sale though by subsequent order it was made clear that the auction sale will be subject to final outcome of the Securitization Application filed. During the proceedings, it emerged that the applicant wants to get rid of his liability of mounting interest and the NCLT proceedings will hang on his head. Intervention of the Tribunal in the settlement also took place wherein certain proposals were exchanged and they were under consideration with the secured creditors i.e. ARCIL and the ICICI Bank. It will be pertinent to note that party/borrower negotiated and tried to settle it in the best interest of the institution. The proposal which came for negotiations is as under :

¶284

Rs. 70.00 lakhs received as against the acquisition will have to be deposited with the secured creditors with an undertaking/authority letter to receive enhanced compensation and the undertaking will be to the effect that applicant will keep

¶285

(S.A. No. 417 of 2022) Page 52 of 54

¶286

(Madkar)

¶287

the efforts on to get enhanced compensation and will not claim of any loss and the same shall be handed-over to secured creditors. There appears to be another property available with the applicant and that can also be secured to the bank as against the charge of the outstanding loan amount. I will leave it to the bank to offer to get it surrendered or put it to the auction to which applicant will not object or the applicant can appropriate at the price which the bank may put in auction to get rid of his liability. These are the observations and liberty to the applicant and the bank to settle this matter out of the Court. However, despite the fact that there could be meetings with the secured creditors while issuing notice but they are not agreed to set aside the auction notice and, as such, this Securitization application deserves to be dismissed with no order as to costs.

¶288

The learned counsel for the applicant requests for stay to the impugned order, which is strongly opposed by the learned Counsel for the Auction Purchaser/Respt. No.3. However, he submits that the Respt. No.3 is not going to create any third party interest in the present scenario. Hence I pass the following order.

¶289

O R D E R

¶290

Securitisation Application No. 417 of 2022 is A) dismissed.

¶291

(S.A. No. 417 of 2022) Page 53 of 54

¶292

(Madkar)

¶293

B) Respondent-bank will be at liberty to proceed under the Securitisation as per law and subsequent actions taken by the respondent-bank can be challenged by filing separate Securitisation application, as permitted under law.

¶294

C) All the interim orders stand vacated.

¶295

Interim applications, pending if any, stand disposed

¶296

D) of accordingly.

¶297

File be consigned to Record Room.

¶298

¶299

The Registrar is directed to send copy of the F) Judgment to the applicant and respondents.

¶300

Judgment be uploaded on the official website.

¶301

( Vimal Gupta ) Aurangabad PRESIDING OFFICER, Date : 17/01/2024 DEBTS RECOVERY TRIBUNAL, Aurangabad.

¶302

(S.A. No. 417 of 2022) Page 54 of 54

¶303

(Madkar)

Mr Narendra Vishwanath Jadhav v. Asset Reconstruction Company India Limited

Case brief

What is this about?

What did the court decide?

Mr Narendra Vishwanath Jadhav v. Asset Reconstruction Company India Limited

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Statutes considered

Parties & counsel

Coram

Case details

Similar cases

Bank of Baroda versus M/S Prashant Agro Input

Icici Bank Limited versus Jasbeer Singh Jageersingh Cheema

Pramila Sanjay Sharma Proprietor Curtain World versus The Malkapur Urban Co-Op Bank Ltd.

Kiran Ratankumar Indure versus Bank of Maharashtra

Bank of Baroda versus Aditya Babanrao Dahiwal

Madanlal Uttamchand Lodha versus State Bank of India