ROGER P. MATHEW v. THE SOUTH INDIAN BANK LIMITED & OTHERS

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE** **THURSDAY, THE 17TH DAY OF NOVEMBER 2016/26TH KARTHIKA, 1938** **WP(C).No. 26290 of 2014 (I) ----------------------------** ## **PETITIONER(S)/PETITIONER:** ## **------------------------** **ROGER P. MATHEW,AGED 54 YEARS, S/O.P.T. MATHAI, PURAPPADATHIL HOUSE, G 203, PANAMPILLY NAGAR, COCHIN-682 036.** **BY ADVS.SRI.P.CHANDRASEKHAR** **SRI.A.JAYASANKAR SRI.C.V.MANUVILSAN SRI.MANU GOVIND SRI.S.SABARINADH** ## **RESPONDENT(S)/RESPONDENTS:** ## **--------------------------** **1. THE SOUTH INDIAN BANK LIMITED,** - **SIB BUILDING, INFOPARK ROAD, RAJAGIRI VALLEY P.O., KAKKANAD, KOCHI-682 039, REP. BY ITS CHIEF MANAGER** **2. THE DEBT RECOVERY TRIBUNAL KERALA & LAKSHWADEEP, ERNAKULAM, FLOOR NO. 5, HOUSING BOARD BUILDING, PANAMPILLY NAGAR, ERNAKULAM.** **3. THE SOUTH INDIAN BANK LTD.,** - **REP. BY CHIEF MANAGER, XXXIX/2018 & 2019, M. G. ROAD, ERNAKULAM, KOCHI-682 016** **4. M/S.P T MATHAI CONSTRUCTION COMPANY (P) LTD., 27/370, KV 60/2 , PANAMPILLY NAGAR, KOCHI-682 036, REP. BY ITS MANAGING DIRECTOR.** **5. SRI. P.T. MATHAI,PURAPPADATHIL HOUSE, MULAMTHURUTHY, ERNAKULAM-682 314.** **6. SMT. MARTHA MATHAI,** **W/O. P.T. MATHAI, PURAPPADATHIL HOUSE, MULAMTHURUTHY, ERNAKULAM-682 314** **msv/** **-2-** **-2-** ## **WP(C).No. 26290 of 2014 (I)** **---------------------------** **7. SRI. GIJU P. MATHAI, 5B, MATHER BUILDING, IVORY HEIGHTS, PANAMPILLY NAGAR, KOCHI-682036** **8. SMT. ACHAMMA GIJU, 5B, MATHER BUILDING, IVORY HEIGHTS, PANAMPILLY NAGAR, KOCHI-682 036. 9. SMT.MARY THOMAS, PULIKKEYIL HOUSE, MULAKKULAM, PIRAVOM-686 664. R1 & R3 BY ADVS. SRI.K.K.CHANDRAN PILLAI (SR.) SRI.K.K.JOHN, SC SRI.K.S.DILIP SRI.SAJU N.A. SMT.G.LEKHA SMT.P.J.FLONY R2 BY ADV. SRI.N.NAGARESH, ASSISTANT SOLICITOR GENERAL R4-R6 BY ADVS. SRI.C.T.JOSEPH SRI.JOE POLLAYIL SRI.ROSHIN IPE JOSEPH R7 & R8 BY ADVS. SRI.K.PAUL KURIAKOSE SRI.K.A.ANISH** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 03-08-2016 ALONG WITH WPC. 28523/2015, THE COURT ON 17-11-2016, DELIVERED THE FOLLOWING:** **msv/** **WP(C).No. 26290 of 2014 (I)** ## **---------------------------** ## **APPENDIX** **PETITIONER(S)' EXHIBITS** **-----------------------** - **P1:A TRUE COPY OF THE WRITTEN COMMUNICATION ISSUED BY THE PETITIONER TO THE IST RESPONDENT BANK ON VARIOUS DATES** - **P2:A TRUE COPY OF MEMORANDUM OF SA 141/2014 FILED BY THE PETITIONER BEFORE THE HON'BLE DEBT RECOVERY TRIBUNAL (KERALA & LAKSHADWEEP) WITHOUT ANNEXURES.** - **P3:A TRUE COPY OF THE NOTICE DTD 20/2/2014 ISSUED BY IST RESPONDENT** - **P4:A TRUE PHOTO COPY OF THE POSTAL RECEIPT EVIDENCING DELIVERY OF THE SAME ON 22/2/2014** - **P5:A TRUE COPY OF THE SALE-CUM-AUCTION NOTICE ISSUED BY THE IST RESPONDENT ON 21/6/2014** - **P6:A TRUE COPY OF HTE SALE-CUM-AUCTION NOTICE ISSUED BY THE IST RESPONDENT ON 25/6/2014** - **P7:A TRUE COPY OF THE ORDER ISSUED BY THE HON'BLE DEBT RECOVERY TRIBUNAL(KERALA & LAKSHADWEEP)DTD 8/8/2014 IN SA 141/2014** - **P8:A TRUE COPY OF THE SALE-CUM-AUCTION NOTICE ISSUED BY THE IST RESPONDENT ON 21/8/2014** - **P9:A TRUE COPY OF THE IA NO 2177/2014 IN SA 141/2014 FILED BY THE PETITIONER** - **P10:- A TRUE COPY OF THE IA NO 2176/2014 IN SA 141/2014 FILED BY THE PETITIONER** - **P11:- A TRUE COPY OF THE APPLICATION FOR URGENT OUT OF TURN COPY ON 8/10/2014 FILED BY THE PETITIONER IN THE HON'BLE DEBT RECOVERY TRIBUNAL (KERALA & LAKSHADWEEP)** - **P12:- A TRUE COPY OF THE STAY PETITION DTD 8/10/2014 FILED BY THE PETITIONER BEFORE THE HON'BLE DEBT RECOVERY TRIBUNAL(KERALA & LAKSHADWEEP)** - **P13:- A TRUE PHOTO COPY OF THE LETTER DTD 23/5/2014 FROM THE OFFICE OF THE TAHSILDAR, KANAYANNUR** - **P14:- TRUE COPY OF ORDER DTD.7.10.2014 IN IA.2177/2014 IN SA.141/2014** **RESPONDENT(S)' EXHIBITS** **-----------------------** **//TRUE COPY//** **NIL** **P.S.TO JUDGE** **msv/** ## **A.M.SHAFFIQUE, J * * * * * * * * * * * *** W.P.C.Nos.26290 of 2014 & 28523 of 2015 ---------------------------------------Dated this the 17[th] day of November 2016 ## **J U D G M E N T** The above two writ petitions concern the issues projected by the debtors with reference to the same loan account and hence heard and decided together. 2. WP(C) No.26290 of 2014 has been filed seeking the following reliefs: _“i. Declare that the Bank which is exercising the powers under Sec.13(4) of the SARFAESI Act is exercising the same powers of an Executing Court and it cannot sold out the whole property in realisation of a debt, without ascertaining the real market value of the property._ _ii. Declare that the jurisdiction conferred on a Bank under Sec 13(4) of the SARFAESI Act for conducting a sale is only limited to the extent or portion of the property which would fully and finally satisfy the whole debt amount and in no way more than that and for that purpose_ 2 W.P.C.Nos.26290/2014 & 28523 of 2015 _the duty is vested with the Bank to ascertain the real market value of the property._ _iii. Call for the records leading to issuance of Exhibit P8 and quash the same by way of issuance of a writ of Certiorari._ _iv. Issue a Writ of Mandamus directing the 1[st] respondent not to conduct the sale, pursuant to Exhibit P10, till the real market value of the property is assessed and direct 1[st] respondent to keep all further proceedings pursuant to Exhibit P8 in abeyance, in the interest of justice._ _v. Pass such any other direction, order or reliefs, as this Hon'ble Court may deem fit in the interest of justice, equity and good conscience._ _vi. Call for the records leading to Exhibit P14 and to quash the same by way of issuance of a Writ of Certiorari;_ _vii. Declare Section 13(5A) of the SARFAESI Act, 2002, as ultra vires the scheme of the statute and unconstitutional as violative of Article 14 of the Constitution of India;_ W.P.C.Nos.26290/2014 & 28523 of 2015 3 _viii. Declare that Section 13 of SARFAESI Act, 2002 as unconstitutional, opposed to basic feature of Constitution of India, violative of Articles 21 and 300A of the Constitution of India, and therefore void, and inoperative and strike down the same, in the interest of justice.”_ 3. I need not elaborate on the facts of the present case. but for stating that the petitioner is a guarantor to the overdraft and other facilities granted by the respondent Bank to M/s.P.T.Mathai & Sons (P) Ltd. The directors of the company who are guarantors have also mortgaged 12 items of property as security for the loan of which two items of property belong to the petitioner herein. Initially, the writ petition was filed at a stage when the Debts Recovery Tribunal, while dismissing the securitisation application filed by the petitioner permitted the Bank to proceed with sale of secured assets. During the pendency of the writ petition, certain items of mortgaged properties were sold by the Bank. Petitioner therefore amended the writ petition inter alia seeking the aforesaid reliefs. 4 W.P.C.Nos.26290/2014 & 28523 of 2015 4. Counter affidavit has been filed by respondents 1 and 3 controverting the contentions urged on behalf of the petitioners. It is contended that the account was classified as Non-Performing Asset in the year 2013. It is submitted that a total of 14 items of property have been mortgaged with the Bank thereby creating security interest over the property. The Bank had filed O.A.No.564/2013 before the DRT, Ernakulam for recovering a sum of Rs.20,65,43,369/- which was due as on 19/11/2013. Additional properties were also attached as the mortgaged assets, which were not sufficient to recover the amount due. It is stated that respondents 5 and 6 filed an application in the O.A for releasing their residential/tharavadu property claiming that it is an agricultural property. The property was valued and as permitted by the Tribunal, the property of respondents 5 and 6 were released on them paying Rs.4.90 Crores. It is further stated that bank attempted sale of property on several occasions but sale did not take place as there were no bidders. Therefore, the Bank sought for permission from the higher authorities to bid the property by invoking Section 13(5A) of the SARFAESI Act and W.P.C.Nos.26290/2014 & 28523 of 2015 5 accordingly, the property of the petitioner situated at Panampilly Nagar was bid by the Bank for an amount of Rs.4,00,01,000/- and the said amount was paid to the authorised officer. The auction was held on 10/10/2014 and the sale has been confirmed. Similarly, another item of property belonging to respondents 7 and 8 was purchased by the Bank at Rs.2,25,10,000/- and sale certificate has been issued. It is further stated that the petitioner and respondents 3 and 4 were permitted to sell the property by paying the bid amount at 9% interest per annum within 15 days from the date of receipt of the order but no attempt was made to pay the amount. It is further submitted that one another item of property belonging to respondents 5 and 6 was sold for Rs.1,00,01,000, sale was confirmed and the successful bidder has paid the entire amount. The respondents also denied the other legal contentions raised by the petitioner. 5. WP(C) No.28523/2015 has been filed by one of the Directors and his wife seeking the following reliefs: _“a) Issue a Writ of Mandamus or other appropriate writ, order or direction commanding the 1[st] respondent bank to_ W.P.C.Nos.26290/2014 & 28523 of 2015 6 _consider and dispose Exhibit P1 and P2 applications and thereby permit the petitioners to release their individual property by selling it to 3[rd] person based on the reserve price so as to pay the sale amount to the loan account of the 1[st] respondent Bank to discharge that extent of liability.”_ 6. 2[nd] petitioner is also a guarantor who had given certain items of property by mortgage. Petitioners offers to pay the reserve price to release the property from mortgage. 7. Heard the learned counsel appearing on either side. 8. The main contention urged by the petitioners is regarding the vires of Section 13(5A) of the Act. The vires of the Act has been upheld by the Court in **Mardia Chemicals v. Union of India** _[2004 KHC 584]._ At the relevant time **Mardia Chemicals** (supra) was decided, Section 13(5A) was not in the statute. The only question to be considered is whether Section 13 (5A) is ultra vires the Statute or unconstitutional. Petitioner submits that the right of the petitioner over the property can be taken away only by due process of law in so far as it is a W.P.C.Nos.26290/2014 & 28523 of 2015 7 constitutional right. Reference is made to the judgment in **K.T.Plantation Private Limited and Another v. State of Karnataka** v. **State of Karnataka** _[(2011) 9 SCC 1]_ wherein the Apex Court, while considering the question regarding claim for enhanced compensation and the scope of Article 300A of the Constitution, held that when a person is deprived of his property, the limitations are implied in Article 300A as well as List III of Entry 42 and a constitutional Court can always examine the validity of statute on those grounds. Paragraphs 170 and 193 are relevant which reads as under: _“_ _**170.** Article 300-A, therefore, protects private property against executive action. But the question that looms large is as to what extent their rights will be protected when they are sought to be illegally deprived of their properties on the strength of a legislation. Further, it was also argued that the twin requirements of “public purpose” and “compensation” in case of deprivation of property are inherent and essential elements or ingredients, or “inseparable concomitants” of the power of eminent domain and, therefore, of List III Entry 42, as well and,_ W.P.C.Nos.26290/2014 & 28523 of 2015 8 _hence, would apply when the validity of a statute is in question._ _**193.** Right to property no more remains an overarching guarantee in our Constitution, then is it the law, that such a legislation enacted under the authority of law as provided in Article 300-A is immune from challenge before a constitutional court for violation of Articles 14, 21 or the overarching principle of the rule of law, a basic feature of our Constitution, especially when such a right is not specifically incorporated in Article 300-A, unlike Article 30(1-A) and the second proviso to Article 31-A(1).”_ 9. Further reference is made to the following judgments: i) **GnanDas v. Paulin Moraes** _[1998(2) KLT 88]_ wherein it is held that it is the duty of the Court to ensure that the property is not being sold at an inadequate price and only Court has to consider whether sale of one item of property or portion of the property, if sold would satisfy the decree debt. ii) **Narasayya v Subba Rao** [1989 Suppl (2) SCC 693] wherein it is held that only such portion as would satisfy the decree should be sold and not the entire property. W.P.C.Nos.26290/2014 & 28523 of 2015 9 iii) **Desh Bandhu Gupta v. N.L.Anand and Rajinder Singh** _[1994 (1) SCC 131]_ , wherein it is held that sale of property without notice to the judgment debtor is a nullity and sale without following the mandatory requirement is set aside. iv) In **Lal Chand v. Additional District Judge** _[1997 (4) SCC 356]_ , the Apex Court held that the decree holder has no right to bid in auction without prior permission of Court. v) In **Mathew Varghese v M.Amritha Kumar and Others** _[2014 (5) SCC 610]_ , the Apex Court held that the sale conducted without complying with the mandatory procedure of issuing thirty days notice to the debtor is illegal and is liable to be set aside. It is held that the secured creditor when it comes to the question of realising the dues by bringing the property entrusted with them for sale to realise the money advanced without approaching any Court or Tribunal acts as a trustee and cannot deal with the property in any manner it likes and can be disposed of only in the manner prescribed in the Act. Paragraphs 25 and 30 are relevant which reads as under: _“_ _**25.** Having heard the learned counsel for the respective parties and having perused_ W.P.C.Nos.26290/2014 & 28523 of 2015 10 _the judgments and the orders impugned in these appeals and other material papers, in the first instance, we wish to deal with the appeal filed against the judgment dated 8-32010 in M. Amritha Kumar v. Union of India. The Division Bench, after holding that the sale was not conducted in a fair and reasonable manner and thereby the borrowers’ rights have been seriously infringed, set aside the sale effected on 28-12-2007, in favour of the appellant and directed the borrowers to give a demand draft for Rs 2,00,00,000 drawn on a local branch of a nationalised bank in favour of the appellant and hand over the same to him within a period of two months from the date of the judgment. It further held that if the payment was not made, as directed, the sale in favour of the appellant would stand confirmed and the writ appeal would stand dismissed._ _**30.** Therefore, by virtue of the stipulations contained under the provisions of the SARFAESI Act, in particular, Section 13(8), any sale or transfer of a secured asset, cannot take place without duly informing the borrower of the time and date of such sale or transfer in order to enable the borrower to tender the dues of the secured creditor with all costs,_ W.P.C.Nos.26290/2014 & 28523 of 2015 11 _charges and expenses and any such sale or transfer effected without complying with the said statutory requirement would be a constitutional violation and nullify the ultimate sale.”_ vi) In **Ram Kishun and Others v. State of U.P and Others** [(2012) 11 SCC 511], it was held that law requires a proper valuation report, its acceptance by the authority concerned by application of mind and then fixing the reserve price accordingly. The authority is duty bound to decide as to whether sale of part of the property would meet the outstanding demand. Valuation is a question of fact and valuation of the property is required to be determined fairly and reasonably. vii) In **Palpap Ichinichi Software International Ltd. v. Indian Bank** _[2012 KHC 2353]_ , a Division Bench of the Madras High Court held that though there is no statutory prohibition against the secured creditor taking part in the auction, it will not enable them to purchase the property by refixing the market price as well as the reserve price and to purchase the property at such reduced rate. W.P.C.Nos.26290/2014 & 28523 of 2015 12 viii) In **Varghese Ukken and Another v. State Bank of India and Other** _[2011(1) KLT 114],_ a learned Single Judge of this Court held that the bid has to commence at the upset price which may not be an amount below the reserve price. When the decree holder avails leave granted by the Court, the sale will have to be effected in his name for the reserve price. This judgment was delivered in the light of Order 21 Rule 72A of the Code of Civil Procedure. ix) In **Anita Sadana v. Baljinder Kaur and Others** _[2014 KHC 3393] the_ Division Bench of Madhya Pradesh High Court held that when the valuation report was obtained about two years prior to the publication of sale, the sale was not in compliance with Rule 8 (5) of the Security Interest (Enforcement) Rules, 2002. 9. While challenging the vires of Section 13(5A), petitioner also submits that the market value of the property has not been properly fixed, the reserve price has not been fixed and the bank had knocked down the properties at a nominal amount. W.P.C.Nos.26290/2014 & 28523 of 2015 13 10. There cannot be any quarrel to the proposition of law relied upon by the learned counsel for the petitioners. However, it has to be considered whether the provision is ultra vires the Constitution. Article 300A of the Constitution of India reads as under: ## _“300A :_ _**Persons not to be deprived**_ _**of property save by authority of law.-** No person shall be deprived of his property save by authority of law._ 11. The SARFAESI Act is a special statute which permits the mortgagee to take possession and conduct sale or management of the secured asset. The vires of the Act has already been upheld by the Apex Court. In such circumstances, it is not open for the petitioners to contend that the exercise of power by the Bank under the statute amounts to violation of Article 300A of the Constitution of India. The limited question is whether Section 13(5A) of the Act is arbitrary or affect any fundamental right of the petitioners. Section 13(5A) reads as under: W.P.C.Nos.26290/2014 & 28523 of 2015 14 ## _**“13. Enforcement of security interest.-**_ _(1) xxx_ _xxxxx_ _(5A) Where the sale of an immovable property, for which a reserve price has been specified, has been postponed for want of a bid of an amount not less than such reserve price, it shall be lawful for any officer of the secured creditor, if so authorised by the secured creditor in this behalf, to bid for the immovable property on behalf of the secured creditor at any subsequent sale.”_ 12. The Statute itself indicates that in respect of sale of immovable property, for which a reserve price has been specified, is postponed for want of a bid of an amount not less than such reserve price, it shall be open for the secured creditor to authorise an officer to bid for the immovable property on behalf of the secured creditor. What is reserve price of a property? The reserve price of a property is not defined under the Act. In the Security Interest (Enforcement) Rules, Rule 8 relates to sale of W.P.C.Nos.26290/2014 & 28523 of 2015 15 immovable secured assets. Sub Rule (5) of Rule 8 specifies that before effecting sale of the immovable property, 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 methods specified in sub causes (a) to (d). Sub Rule (6) indicates that the authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets and if it is being sold by public auction or by inviting tenders, necessary newspaper advertisements are also required to be published showing the reserve price as well. Therefore, fixation of reserve price is a pre-condition to be observed by the authorised officer before effecting sale of the property and it has to be done through an approved valuer and in consultation with the secured creditor. When the secured creditor's right to bid in auction arises at a stage when the auction is postponed for want of a bid for the reserve price fixed by the authorised officer. Only in such an event, the secured creditor is entitled to authorise an officer of W.P.C.Nos.26290/2014 & 28523 of 2015 16 the bank to bid for the immovable property on behalf of the secured creditor on any subsequent sale. Therefore this is not an instance where, in all auctions, the secured creditor can authorise an officer to participate in the auction. In an instance where it is found that there are no bidders, such a method can be adopted. The officer can participate in the auction and if there are other bidders, the bank is entitled to proceed further. Therefore I do not think that the statute, in any way, is arbitrary or it violates the fundamental rights of the petitioners, in any manner. There is no reason to grant any of the reliefs, as sought for. 13. Petitioners have raised a contention that only a portion of the property is required for the purpose of settling the liability which apparently depends upon the value of the property as has been fixed by the authorised officer. Since there are several items of property, such questions of fact cannot be decided in a writ petition filed under Article 226 of the Constitution of India. The Statute also provides a remedy to challenge the sale, if it is conducted illegally or if any of the measures taken under Section 13(4) is contrary to the rights conferred on the authorised officer W.P.C.Nos.26290/2014 & 28523 of 2015 17 on secured creditor. Petitioner in this case has not availed of any such remedies. None of the grounds warrant interference by this Court. These writ petitions are, hence, dismissed. Sd/- **(A.M.SHAFFIQUE, JUDGE)** jsr