K.T. Unnikrishnan v. Authorized Officer, UCO Bank, Willingdon Island Branch & Others

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR. JUSTICE P.B.SURESH KUMAR** **FRIDAY, THE 9TH DAY OF FEBRUARY 2018 / 20TH MAGHA, 1939** **WP(C).No. 1030 of 2018** **----------------------** ## **PETITIONER:** ## **-----------** **K.T.UNNIKRISHNAN, AGED 56 YEARS, S/O. THANKAPPAN, RESIDING AT KUNJANVELIYIL HOUSE, EZHUPUNNA VILLAGE, ERAMALLOOR MURI, CHERTHALA TALUK, ALAPPUZHA DISTRICT.** **BY ADV.SRI.AJEESH S.BRITE** ## **RESPONDENT(S):** - **-------------** ## **1. THE AUTHORISED OFFICER,** **U.C.O BANK, M.G ROAD, RAVIPURAM, ERNAKULAM - 682 016.** ## **2. THE MANAGER, UCO BANK,** **WILLINGTON ISLAND BRANCH, KOCHI - 682 003.** **3. MR.B. SOMASEKHARAN, PROPRIETOR,** **M/S. OMKAR MARKETING ASSOCIATES, KRISHNA VIHAR, KAITHARAM P.O, PIN - 683 519, NORTH PARAVUR, RESIDING AT MRRA - 58-59, POONITHURA P.O, THRIPUNITHURA - 682 038, ERNAKULAM DISTRICT.** **4. MR. S. SHIBU, S/O. B. SOMASEKHARAN,** **RESIDING AT MRRA - 58-59, POONITHURA P.O, THRIPUNITHURA - 682 038 ERNAKULAM DISTRICT.** **5. MR. K.S JOSHI, S/O. B. SOMASEKHARAN,** **RESIDING AT MRRA - 58-59, POONITHURA P.O, THRIPUNITHURA - 682 038 ERNAKULAM DISTRICT.** **6. SMT.M.R RAGANINI DEVI,** **W/O B. SOMASEKHARAN, RESIDING AT MRRA - 58-59, POONITHURA P.O, THRIPUNITHURA - 682 038, ERNAKULAM DISTRICT.** ***ADDL. R7 TO R11 IMPLEADED** **7. MR.SHAJI V.P., S/O.MR.PEETHAMBARAN, RESIDING AT VATTAPPUZHETHU(SANTHAS), NADUVATHUNAGAR.P.O., AROOKUTTY S.O., AROOKUTTY, ALAPPUZHA DISTRICT, KERALA - 688 535.** **WP(C).No. 1030 of 2018(C)** ## **------------------------** **8. MR.PUSHPAN V.P., S/O.MR.PEETHAMBARAN, RESIDING AT VATTAPPUZHETHU(SANTHAS), NADUVATHUNAGAR.P.O., AROOKUTTY S.O., AROOKUTTY, ALAPPUZHA DISTRICT, KERALA - 688 535.** **9. MR.RAJESH V.P., S/O.MR.PEETHAMBARAN, RESIDING AT VATTAPPUZHETHU(SANTHAS), NADUVATHUNAGAR.P.O., AROOKUTTY S.O., AROOKUTTY, ALAPPUZHA DISTRICT, KERALA - 688 535.** **10. MR.SUMESH V.P., S/O.MR.PEETHAMBARAN, RESIDING AT VATTAPPUZHETHU(SANTHAS), NADUVATHUNAGAR.P.O., AROOKUTTY S.O., AROOKUTTY, ALAPPUZHA DISTRICT, KERALA - 688 535.** **11. MR.SATYASEELAN A.D., S/O.K.S.DIVAKARAN, RESIDING AT MEKKRANIKARTH, 5/286, PALLIYARAKKAVU, AROOR S.O., ALAPPUZHA DISTRICT, KERALA - 688 534.** **ADDL. R7 TO R11 ARE IMPLEADED AS PER ORDER DATED 09.02.2018 IN IA.576/2018.** **R1 & R2 BY SRI.DEEPAK JOY K., SC ADDL.R7 TO R11 BY ADV. SRI.G.RANJU MOHAN** **THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 09-02-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **mbr/** **WP(C).No. 1030 of 2018(C) ------------------------** ## **APPENDIX** ## **PETITIONERS' EXHIBITS:** ## **----------------------** **EXHIBIT P1 TRUE COPY OF THE PAPER PUBLICATION IN MALAYALAM DAILY DATED 20.09.2017. EXHIBIT P2 TRUE COPY OF THE NOTICE REF.NO.UCO/WILLIN/MISC/29/2017-18 DATED 03.11.2017. EXHIBIT P3 TRUE COPY OF THE WRITTEN STATEMENT FILED BY THE RESPONDENT 1 AND 2 IN S.A NO.254/2017 DATED 07.12.2017.(WITHOUT ANNEXURES) EXHIBIT P4 TRUE COPY OF THE JUDGMENT DATED 04.04.2012 IN WP(C) NO.33329/2009. EXHIBIT P5 TRUE COPY OF THE SALE DEED NO.1674/2017 DATED 02.11.2017. EXHIBIT P6 TRUE COPY OF THE SALE AGREEMENT DATED 09.01.2018.** ## **RESPONDENTS' EXHIBITS:** ## **---------------------** **EXHIBIT R7A TRUE COPY OF THE SALE CERTIFICATE DATED 4.1.2018 ISSUED BY THE 1ST RESPONDENT. EXHIBIT R7B TRUE COPY OF THE JUDGMENT DATED 30.1.2018 IN CIVIL APPEAL NO.1281/2018 OF THE HONOURABLE SUPREME COURT. EXHIBIT R7C TRUE COPY OF THE INTIMATION OF SUCCESSFUL BID DATED 3.11.2017 ISSUED BY THE 1ST RESPONDENT. EXHIBIT R7D TRUE COPY OF THE ORDER DATED 24.1.2011 OF THE CHIEF JUDICIAL MAGISTRATE, ALAPPUZHA IN C.M.P.NO.6813/2009.** - **EXHIBIT R7E TRUE COPY OF THE SALE NOTICE DATED 3.9.2016 PUBLISHED BY THE 1ST RESPONDENT.** - **EXHIBIT R7F TRUE COPY OF THE SALE NOTICE DATED 27.6.2017 PUBLISHED BY THE 1ST RESPONDENT.** **EXHIBIT R7G TRUE COPY OF THE PASS BOOK IN RESPECT OF A/C NO.02420110024171 WITH UCO BANK, WILLINGDON ISLAND.** **EXHIBIT R7H TRUE COPY OF THE PASS BOOK IN RESPECT OF A/C NO.02420110024164 WITH UCO BANK, WILLINGDON ISLAND.** **EXHIBIT R7I TRUE COPY OF SANCTION OF CREDIT FACILITY DATED 4.1.2018, ID CONSUMER NO.422491/2017-18 OF THE BANK. EXHIBIT R7J TRUE COPY OF SANCTION OF CREDIT FACILITY DATED 4.1.2018, ID CONSUMER NO.420435/2017-18 OF THE BANK.** **EXHIBIT R7K TRUE COPY OF PAYMENT/ADJUSTMENT VOUCHER DATED 6.12.2017 ISSUED FROM THE KERALA STATE FINANCIAL ENTERPRISE LTD., AROOR BRANCH.** **WP(C).No. 1030 of 2018(C) ------------------------** |**EXHIBIT R7L**|**TRUE COPY OF PAYMENT/ADJUSTMENT VOUCHER DATED 9.11.2017 ISSUED**| |---|---| ||**FROM THE KERALA STATE FINANCIAL ENTERPRISE LTD., AROOR BRANCH.**| |**EXHIBIT R7M**|**TRUE COPY OF PAYMENT/ADJUSTMENT VOUCHER DATED 6.12.2017 ISSUED**| ||**FROM THE KERALA STATE FINANCIAL ENTERPRISE LTD., AROOR BRANCH.**| |**EXHIBIT R7N**|**TRUE COPY OF PAYMENT/ADJUSTMENT VOUCHER DATED 16.8.2017 ISSUED**| ||**FROM THE KERALA STATE FINANCIAL ENTERPRISE LTD., AROOR BRANCH.**| **/TRUE COPY/** **P.S.TO JUDGE** **mbr/** ## **C.R.** ## **P.B.SURESH KUMAR, J.** ## **-----------------------------------------------** ## **W.P.(C) No.1030 of 2018 -----------------------------------------------** ## **Dated 9[th] February, 2018.** ## **J U D G M E N T** Petitioner was the guarantor to a loan availed by respondents 3 to 6 from the Willington Island branch of UCO bank (the bank). The petitioner has also mortgaged an item of property owned by him to secure the repayments of the said loan. When respondents 3 to 6 committed defaults in remitting the dues of the loan, proceedings have been initiated by the bank against the security, viz, the property mortgaged by the petitioner under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the Act) and brought the property for sale. Ext.P1 is the sale notice issued by the authorised officer of the bank in this connection. Pursuant to Ext.P1 sale notice, the property of the petitioner was sold to additional respondents 7 to 11 on 3.11.2017 for a sum of Rs.85,60,000/-. Consequent to the sale, WPC No.1030/18 2 on the same day, additional respondents 7 to 11 remitted 25% of the sale consideration, viz, Rs.21,40,000/- to the bank and the balance sale consideration viz Rs.64,20,000 was remitted by them to the bank on 4.1.2018. The petitioner challenged Ext.P1 sale notice before the Debts Recovery Tribunal in S.A.No.254 of 2017. Later, the petitioner has withdrawn the said proceedings and filed this writ petition challenging the sale held pursuant to Ext.P1 sale notice. The case of the petitioner is that the property of the petitioner which was sold in the proceedings initiated under the Act is one situated on the side of a National Highway; that the same is worth more than Rs.3 crores; that the same was sold recklessly by the bank for a paltry sum of Rs.85,60,000/-, when the liability was about 1.5 crores and when there is no other security for realisation of the deficit amount and that on account of the said sale, the personal properties of the petitioner over which the bank has no charge also became liable for the remaining debt. In short, the case of the petitioner is that the property was grossly undervalued by the bank in their eagerness to sell the same. It WPC No.1030/18 3 is stated by the petitioner in the writ petition that there is a purchaser for the property for an amount of Rs.1,57,20,425/and if the petitioner is allowed to sell the property to that purchaser for the said amount, even though the said price is not the true and adequate price for the property, he will be in a position to liquidate the entire liability to the bank, so that there will not be any further proceedings against him for realisation of the deficit. Even though the property is sold, the petitioner has entered into Ext.P6 agreement with the person who is prepared to purchase the property for the said amount and sought permission of this Court to liquidate the entire liability by selling the property in terms of Ext.P6 agreement. 2. A counter affidavit has been filed by the additional seventh respondent on his behalf and also on behalf of additional respondents 8 to 11. Among others, it is contended by the said respondents in the counter affidavit that the sale of the property held in their favour was in accordance with the provisions of the Act; that they have been issued sale certificate pursuant to the sale by the authorised officer of the WPC No.1030/18 4 bank; that the sale in their favour has not been challenged by the petitioner before the Debts Recovery Tribunal under Section 17 of the Act; that the time prescribed for filing the application under Section 17 of the Act for challenging the sale is over and that therefore, the petitioner is not entitled to challenge the sale in a proceedings under Article 226 of the Constitution. It is also contended by the said respondents that they have raised the funds required for remitting the sale consideration by availing loans from the very same bank and from other sources and as such, they will be put to irreparable injury and loss, if the sale is interfered with by this Court. It is further contended by respondents 7 to 11 that this writ petition is filed without any bonafides and with a view to delay the finalisation of the proceedings. 3. On 10.1.2018, when this matter came up for admission, with a view to test the bonafides of the petitioner, the learned counsel for the petitioner was asked as to whether the buyer of the property in terms of Ext.P6 agreement would be in a position to make available to the court a Demand Draft WPC No.1030/18 5 for the entire outstanding payable to the bank, in the next posting date. The learned counsel for the petitioner readily agreed for the same. The learned counsel for the bank then pointed out that if the sale is not reckoned, the outstanding liability in the loan account as on 10.1.2018, would be Rs.1,44,88,936/-. 4. On 8.2.2018, when this matter was taken up again, the learned counsel for the petitioner has made available to the Court two Demand Drafts for a total sum of Rs.1,44,88,936/- taken in the name of the bank. Even when the entire amount due to the bank has come in the form of demand drafts in favour of the bank, to a specific question put by the court as to whether the bank would agree to set aside the sale for the purpose of accepting the amount offered by the petitioner, the answer of the learned counsel for the bank was in the negative. The learned counsel, however, pointed out that the court can pass appropriate orders. As it was felt that the bank is trying to protect the persons responsible for selling the property of the petitioner at a grossly undervalued price, WPC No.1030/18 6 the Manager of the bank was summoned. 5. Today, when this matter was taken up, the Manager of the bank, who was present in Court, agreed that the sale can be set aside if the petitioner liquidates the entire liability. 6. Heard the learned counsel for the petitioner, the learned counsel for the bank as also the learned counsel for respondents 7 to 11. 7. At the time of hearing, the learned counsel for the petitioner submitted that if the auction purchasers agree to set aside the sale for the purpose of enabling the petitioner to liquidate the entire liability, the petitioner is prepared to compensate the auction purchasers as well. To a specific question put in this regard, the learned counsel for respondents 7 to 11 expressed their inability to agree for an order by accepting compensation and instead, argued the matter on merits. 8. It was contended by the learned counsel for respondents 7 to 11 that in so far as the property of the WPC No.1030/18 7 petitioner has already been sold, the petitioner is not entitled to get the sale set aside by remitting the dues to the bank. It is pointed out by the learned counsel that in the light of the provision contained in sub-section (8) of Section 13 of the Act, such a course is available to the borrowers and guarantors to the transactions, only before the sale and not after the sale. It was also contended by the learned counsel for respondents 7 to 11, relying on the decision of the Apex Court in **Authorised Officer, State Bank of Travancore and another v. Mathew K.C** .(Civil Appeal No.1281 of 2018), that the petitioner, having not challenged the sale in favour of respondents 7 to 11 in a proceedings under Section 17 of the Act, is not entitled to invoke the extra ordinary jurisdiction of this Court under Article 226 of the Constitution of India. It was further contended by the learned counsel that in so far as substantial amounts have been paid by respondents 7 to 11 towards sale consideration, irreparable injury would be caused to them, if the sale is set aside at this stage. WPC No.1030/18 8 9. In so far as respondents 7 to 11 are not amenable for an agreed order, the sustainability of the sale held in their favour under the Act needs to be considered on merits. It is beyond dispute that very wide powers have been conferred on banks and financial institutions under the Act to realise the amounts due to them. The said powers include the power to take over possession of securities with a right to transfer it by sale as well. As held consistently by the Apex court, every wide power, the exercise of which has far-reaching repercussion, has inherent limitation on it also. Such powers can be exercised only to effectuate the purposes of the statutes concerned. The responsibility is far graver in legislations enacted for general benefit and common good. Test of reasonableness is also strict in such cases. The exercise of such powers have to be tested on the touchstone of fairness and justice. That which is not fair and just is unreasonable and what is unreasonable is arbitrary. Power to take possession of a property of the defaulter and transfer the same by sale requires the authority to act cautiously, honestly, fairly and reasonably. WPC No.1030/18 9 Lack of reasonableness or even fairness at either of the two stages renders the take over and transfer invalid. The authority should justify the action assailed on the touchstone of justness, fairness, reasonableness and as a reasonable prudent owner. Right to property is a constitutional right protected under Article 300A of the Constitution, which mandates that no person shall be deprived of his property save by authority of law. When the provisions of the Act and the Rules made thereunder are analysed and understood in the background of article 300A of the Constitution, it is clear that when it comes to the question of realising the dues of the secured creditors by bringing the property entrusted with them for sale to realise money advanced without approaching any court or tribunal, the secured creditor is a trustee and he cannot deal with the property in any manner it likes. The secured creditor, in the circumstances, is duty bound to ensure that maximum price is received from the secured asset and that no one is taking advantage of the vulnerable possession in which the borrower is placed on account of the proceedings against him. In other WPC No.1030/18 10 words, the secured creditor is bound to ensure that the rights of the owner of the security is not infringed in any manner. Merely because a secured interest in a secured asset is created by the borrower in favour of the secured creditor, the said asset cannot be disposed of in a casual or light-hearted manner (See **Mathew Varghese** v. **M. Amritha Kumar** [(2014) 5 SCC 610]). It is relevant in this context to refer to the following observations made by the Apex court in **Ram Kishun** v. **State of U.P** [(2012) 11 SCC 511] : “Undoubtedly, public money should be recovered and recovery should be made expeditiously. But it does not mean that the financial institutions which are concerned only with the recovery of their loans, may be permitted to behave like property dealers and be permitted further to dispose of the secured assets in any unreasonable or arbitrary manner in flagrant violation of the statutory provisions” The above principles make it clear that though the recovery of public dues should be made expeditiously, it should be in accordance with the procedure prescribed by law and that it should not frustrate a constitutional right as well as the human WPC No.1030/18 11 right of a person to hold a property and that in the event of a fundamental procedural error occurred in a sale, the same is liable to be set aside. 10. The case set up by the petitioner has to be considered in the light of the aforesaid principles. As noted above, the property of the petitioner has been sold by the bank for Rs.85,60,000/-. It is stated by the petitioner in ground C of the writ petition that the said property is worth more than Rs.3 crores. To substantiate this case, the petitioner produced Ext.P5 sale deed executed on 2.11.2017, the day previous to the date of sale, in respect of a property situated in the very same survey number, measuring 4 cents. The value of the property shown in the said sale deed is Rs.40,00,000/-. If the price of the property shown in Ext.P5 sale deed is taken as the true price of the property transacted between the parties to the said document, the value of the property of the petitioner which was sold in terms of Ext.P1 sale notice on the next day would be Rs.1,28,33,000/-. In so far as a considerably high percentage of the value of the property is to be paid towards WPC No.1030/18 12 stamp duty and registration charges, it is common knowledge that there is a tendency among the people in our State to show a lesser price in the sale deeds to save stamp duty and registration fees in connection with the execution and registration of documents. If that reality is taken into account, it can be easily inferred that the price of the property transacted between the parties to Ext.P5 sale deed would be far more than what is stated therein. Further, as noted above, in terms of Ext.P6 agreement, a third party has come forward to purchase the property of the petitioner for almost twice the price at which the property was sold by the bank. It is stated by the petitioner that it is that third party who has made available the demand drafts of the amounts payable to the bank, to the petitioner to present the same before the Court. The said circumstances alone are sufficient to hold that the price of the property of the petitioner is far more than the amount at which the same was sold by the bank. Further, having regard to the facts and circumstances of this case and the practices prevailing in the State in transactions of this nature as also the WPC No.1030/18 13 vulnerable position in which the petitioner is placed, and the risk involved for a third party to enter into a transaction in the nature of Ext.P6 agreement, I am of the view that the price of the property agreed between the petitioner and the third party referred to in Ext.P6 agreement would be far more than the price shown in the agreement. True, in the absence of any formula to arrive at the correct market price of a property for the purpose of showing the same as the minimum sale price in a sale notice, the banks and financial institutions may commit errors while arriving at the minimum sale price of the properties to be sold, but such errors shall not go to the extent it has gone in the instant case. Even if the price shown in Ext.P6 agreement is taken as the true price of the property, I have no hesitation to hold that the bank has acted in an unfair and unreasonable manner in arriving at the minimum price of the property for its sale. Needless to say that the entire proceedings for sale of the property of the petitioner is thus vitiated. I hold so also for the reason that the counter affidavit filed by respondents 7 to 11 indicates that the very same bank through the very same WPC No.1030/18 14 branch has extended personal loans to the buyers to purchase the property, making the whole transaction suspicious. 11. Now, I shall deal with the contentions raised by respondents 7 to 11. In so far as it is found that the sale of the property the petitioner under the Act is vitiated on account of the conduct of the bank in fixing the minimum price for sale of the property in an unfair and unreasonable manner, the contention raised placing reliance on sub-section (8) of Section 13 of the Act is only to be rejected. As regards the alternative remedy availed by the petitioner, it is now settled that in appropriate cases, when the fundamental rights of the citizens are infringed, this Court would be justified in invoking the power under Article 226 of the Constitution [See **Whirlpool Corporation** v. **Registrar of Trade Marks, Mumbai and others** (AIR 1999 SC 22)]. True, in the light of the decision of the Apex court in **Authorised Officer, State Bank of Travancore and another** v. **Mathew K.C** .(Civil Appeal No.1281 of 2018), that by itself may not be sufficient to entertain a writ petition challenging a sale held under the Act. WPC No.1030/18 15 But in the instant case, as noted above, the case of the petitioner is that if the sale impugned in the writ petition is set aside and the petitioner is permitted to sell the property in terms of Ext.P6 agreement, the bank would be in a position to receive the entire outstanding in the loan account and in addition, the petitioner would be relieved from further liability to the tune of approximately Rs.60,50,000/-. In a case of this nature, according to me, this Court has to exercise the jurisdiction under Article 226 of the Constitution for the purpose of rendering justice to the petitioner, for if the petitioner is relegated to the alternative remedy available to him, by the time the proceedings under the Act gets over, the buyer in terms of Ext.P6 agreement may not be available to purchase the property. It is all the more so since this Court is satisfied that the bank is going to get the entire money, if the sale is set aside. As regards the loss caused to respondents 7 to 11, insofar as it is found that the sale is vitiated, they are only entitled to get back the amounts, of course with interest. In the result, the writ petition is allowed, Ext.P1 sale WPC No.1030/18 16 notice and all further proceedings pursuant thereto, including the sale of the property of the petitioner referred to in the writ petition are quashed. Needless to say that if the petitioner furnishes to the second respondent the Demand Drafts already taken for a sum of Rs.1,44,88,936/- in favour of the bank together with interest payable in the loan account from 10.1.2018 upto the date of payment, the second respondent shall return the title deeds and other documents pertaining to the property to the petitioner. The second respondent shall return to respondents 7 to 11 the amounts received from them with interest at the rate of 12% forthwith. ## **Sd/-** **P.B.SURESH KUMAR, JUDGE.** tgs