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M/s. Harpreet Fashion (P) Limited and Another V/S Canara Bank and Others

    Miscellaneous Appeal No. 342/2009 in S.A. No. 30/2009 (Delhi-II)

    Decided On, 23 August 2010

    At, Debt Recovery Appellate Tribunal At Delhi


    For Petitioner: Mr. Sanjeev Bhandari, Advocate And For Respondents: Mr. Anil Panwar for 1st Respondent, Mr. Hemant Choudhary and Mr. Ravi Data for 2nd Respondent

Judgment Text

1. The only question which revolves around the present appeal is whether it is incumbent upon the Bank to forfeit the Earnest Money Deposit (in short EMD) deposited to the extent of 25% by the auction purchaser. Vide impugned order dated 18.11.2009, the learned Presiding Officer DRT-II, Delhi set aside the auction sale and directed the respondent Canara Bank to hold auction once again in respect of the property in dispute to ensure that maximum amount was recovered. It was also observed that a single bid had been received. It was also noted that the prospective purchaser had also sought two moths' time to deposit balance 75% of the sale consideration. It was held that the rights of the parties including that of the auction purchaser were not going to be affected in any manner. Therefore, the Ld. Presiding Officer, DRT gave the following five directions:-

i. "The proclamation of sale shall be again published one in "Times of India' and another in "Dainik Bhaskar" as suggested by the learned counsel for the applicant. In addition to above, the bank may also publish a notice in 'Financial Express/Economic times". The expenses incurred in these publications shall be debited in the account of the applicant company.

ii. The offer given by M/s. Gee Co. Infosystem Private Limited shall be retained and the EMD deposited by it shall not be refunded to it until further orders.

iii. The steps shall be taken by the bank at the earliest possible time but not later than 10 days w.e.f. today.

iv. The offer shall be invited in a sealed cover and it should be made clear in the sale notice that the tribunal may, at its discretion, also direct the bidders to enter into inter se bidding.

v. In the meantime, the applicant co. is also free to bring a better buyer in respect of the of property in dispute.

2. Aggrieved by that order, M/s. Harpreet Fashion (P) Limited and Shri Mohanjeet Singh, the appellants/borrowers halve preferred the present appeal.

3. I have heard the counsel for the parties and have perused the synopsis filed by the counsel for the appellants. The learned counsel for the appellants submitted that the auction in question took place on 6.11.2009 by tender. M/s. Gee Colinfosystem Pvt. Ltd., respondent No. 2 herein, deposited 10% of the amount in the sum of Rs. 20 lakhs. However, it could not deposit the 15% amount immediately. The 15% amount was deposited on 7.11.2009. The respondent No. 2 also failed to deposit the balance sale consideration within 15 days of the confirmation of sale.

4. The learned counsel for the appellants invited the Court's attention to sub-rules (2), (3), (4) and (5) of Rule 9 of the Security Interest (Enforcement) Rules 2002, which are reproduced as hereunder:-

(2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or tender or quotation or offer to the authorized officer and shall be subject to confirmation by the secured creditor: Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less that the reserve price, specified under sub-rule (5) of rule 9: Provided further that if the authorized officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price

(3) On every sale of immovable property, the purchaser shall immediately pay a deposit of twenty-five per cent of the amount of the sale price, to the authorized officer conducting the sale and in default of such deposit, the property shall forthwith be sold again.

(4) The balance amount of purchase price payable shall be paid by the purchaser to the authorized officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties.

(5) In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold.

5. It was argued that the public notice, Annexure R-2/1, in relation to the proposed sale to be held on 6.11.2009 nowhere stipulates that the authorized officer has the power to extend the time to make the payment by the auction purchaser. The attention of the Court was invited towards the letter dated 6.11.2009 written by the Chief Manager, Canara Bank to the Deputy General Manager of the Bank. The relevant para of the said letter is reproduced as under:-

We enclose a request letter from M/s. Gee Co. Infosystem Pvt. Ltd. requesting for 7 days time to pay the balance 15% of the bid price, i.e., 30,75,000/-. The party has further requested to deposit the balance amount of Rs. 15224999/- by 30.12.2009. We feel that party's request is genuine as they have to arrange for the funds. We recommend that party's request may be considered favourably and the sale be confirmed immediately.
6. The learned counsel for the appellants contended that this goes to how that this conduct of the Bank being based on extraneous condition and colourable exercise of power. It as also submitted that the cheque issued by the respondent No. 2 in the sum of Rs. 30,75,000/- representing the 15% earnest money has not even been encashed by the Bank to favour the respondent No. 2 and that the respondent No. 2 has not even deposited the balance 75% till date.

7. It will not out of place to mention here that in this particular case, the sale was yet to be confirmed. Consequently, paying of 75% of the sale consideration did not arise.

8. It was further argued that two months' time granted by the Ld. Presiding Officer, DRT to the respondent No. 2 to deposit the balance sale consideration is illegal. The balance amount was not deposited or tendered by the respondent No. 2 under Rule 9(5) of the abovesaid rules. Consequently, the amount deposit with the Bank either 10% or 25% is to be forfeited and the Bank cannot depart from the said rule.

9. It was also argued that the fresh sale notice published carries the reserve price of Rs. 203 lakhs and now the EMD has been fixed at Rs. 50.70 lakhs as against Rs. 20 lakhs fixed for the sale scheduled for 6.11.2009. It is alleged that his has been done to prevent the bidders from applying and just to open the way and favour the respondent No. 2 so that no fresh bidders come forward. It was contended that the said act of the Bank is mala fide and is colourable exercise of power to favour the respondent No. 2 and-that because this condition is harsh and unreasonable, the second sale was also not successful.

10. In order to bring his point home, the learned counsel for the appellants cited the two authorities. In the first authority reported in Mohd. Tahir Siddiqui & Anr. Vs. Vice-Chancellor J.M.I. and O : 140 (2007) DELHI LAW it has been held that if power is derived from Statute and no fetters attached to it other than those laid down in statute itself, any other recommendations by any other body cannot whittle down powers as vested by Act.

11. In the second authority reported in Raghunath Rai Bareja and another Vs. Punjab National Bank and others : (2007) 135 Comp Cas 163 (SC)], it has been held as under:-

The literal rule of interpretation really means that there should be no interpretation. In other words, we should read the statute as it is, without distorting or twisting its language.

We may mention here that the literal rule of interpretation is not only followed by judges and lawyers, but it is also followed by the lay man in his ordinary life. To give an illustration, if a person says "this is a pencil", then he means that it is a pencil; and it is not that when he says that the object is a pencil, he means that it is a horse, donkey or an elephant. In other words, the literal rule of interpretation simply means that we mean what we say and we say what we mean. If we do not follow the literal rule of interpretation, social life will become impossible, and we will not understand each other. If we say that a certain object is a book, then we mean it is a book. If we say it is book, but we mean it is a horse, table or an elephant, then we will not be able to communicate with each other. Life will become impossible. Hence, the meaning of the literal rule of interpretation is simply that we mean what we say and we say what we mean.

In the present case, we are clearly of the opinion that the literal rule applies, and the other rules have no application to interpreting section 31, since the language of section 31 is plain and clear, and cannot be said to be ambiguous or resulting in some absurdity.

12. On the other hand, the learned counsel for the auction purchaser submitted that he had brought a cheque in the sum of Rs. 1 crore representing 75% of the balance amount and requested the Court that the sale should be confirmed in its favour or, in the alternative, its money should be returned forthwith. The auction purchaser should have made this request before the learned DRT at the appropriate time.

13. The learned counsel for the auction purchaser and the bank vehemently argued that rule 9(5) quoted above has no application to the instant case because the occasion for deposit of balance amount to the extent of 75% did not arise at all. It was argued that the auction purchaser cannot be burdened with the forfeiture of the said amount.

14. I find force in the arguments of all the counsel in a measure. In State of Uttar Pradesh v. Manbodhanlal Srivastava : AIR 1957 S.C. 912), it was held that the words "may" and "shall is according to strict language directory, or mandatory respectively. The use of the word "shall" in a statute, though generally taken in mandatory sense, does not necessarily mean that in every case shall have that effect, that is to say, that unless the words of the statute are punctiliously followed, the proceeding or outcome of the proceedings would be invalid. On the other hand, it is not always correct to say that where the word "may" has been used, the statute is only permissive or directory in the sense that non-compliance with those provisions will not render the proceeding invalid."

15. In Hari Vishnu Kamath Vs. Ahmad Ishaque (AIR 1957 S.C. 912) it has been held that It is well settled that an enactment in form mandatory might in substance be directory and that the use of the word "shall" does not conclude the matter. The question was examined at length in Julius Vs. Bishop of Oxford: (1880) 5 A.C. 214, and various rules were directory. The are well known, and there is no need to repeat them. But they are all of them only aids for ascertaining the true intention of the legislature which is the determining factor, and that must ultimately depend on the context.

16. In Mansukhlal Vithaldas Chauhan Vs. State of Gujarat: (1997) Cr. L.J. 4059) at page 4064(S.C.) it was held that one of the fundamental test for determining statute is directory and mandatory is to find out if the provisions affect the purpose of a public duty or relate to a right privilege or power; in the former case the enactment is generally directory and in the latter mandatory.

17. In T. Shankar Prasad Vs. State of H.P. : (2004) 3 S.C.C. 753) at page 762 it was held similarly that mere use of the word "shall' does not invariably will be the result that an imperative duty has been cast. The whole purpose and context of the provision has to be kept in view for deciding the issue.

18. In the instant case, the following factors are noteworthy. The notice for the auction dated 6.11.2009 mentions that the property will be sold in:

AS IS WHERE IS" condition including encumbrances, if any. (There are not encumbrances to the knowledge of the Bank):

It clearly an inkling that there were no appended to the said property. However, it is an admitted fact and as was explained by the auction purchaser in his letter dated 7.11.2009, in para No. 2 which is reproduced as follows:-

It is very disappointing to know that you have deliberately suppressed the material facts from us that arrears are outstanding against M/s. Harpreet Fashions Private Limited the company occupying the property. Upon checking with Excise & Taxation Office, Bahadurgarh, Haryana there are known dues of Rs. 25,62,386/- (Rs. Twenty Five Lac Sixty Two Thousand Three Hundred & Eighty Six Only), copy of which is enclosed. Also the Excise & Taxation department has asked HUDA vide the enclosed letter dated 28/07/2009 "not to transfer/sale/lease out the said property till recovery of outstanding dues.
19. The major fault lies with the Bank. The Bank should not have given much a clean public notice. This fact should have been mentioned because the same was in the knowledge of the Bank. The auction purchaser cannot be made to pay such an amount. Secondly, the Bank had no authority to extend the time. The bank should not have even thought of it. The conduct of the bank is difficult to fathom. Sometimes it appeared that the Bank wanted to help the auction purchaser out of the way. However, at other occasions it appeared that it was acting against the auction purchaser. I find considerable force in the argument urged by the learned counsel for the appellant that this Act of the Bank is mala fide and colourable exercise to favour the respondent No. 2. However, the auction purchaser cannot be penalized to the maximum extent for the mistake committed by the officers of the Bank. Thirdly, it is difficult to fathom as to why the money of the auction purchaser was ordered to be withheld, by the learned Tribunal. The learned Tribunal should have ordered to return the money forthwith, after setting aside the sale. It is well settled that the act of the Court should not prejudice anybody. This is well known maxim of law, Actus curiae neminem gravabit "Can act of Court shall prejudice no man". The auction purchaser has already suffered and consented that its money should be detained for such a long time.

20. On the other hand the other side of the coin ought not to be overlooked. It must be borne in mind that reality must dominate the count's mind. This appears to be a case of contributory negligence and mistake of law and fact. Some fault also lies at the door of the auction purchaser. Before taking a plunge into the abovesaid transaction, the auction purchaser should have made proper enquiries which are required from a prudent and vigilant person. The public notice makes it clear that the property was to be sold in "As in wherein condition" INCLUDING ENCUMBRANCES IF ANY. THERE ARE NO ENCUMBRANCES TO THE KNOWLEDGE OF THE BANK". The demand raised by the Excise and Taxation Office, Haryana must be and should be in the knowledge of the bank. That demand was not a chicken feed. The Excise Department was asking for a whopping amount in the sum of Rs. 25 t

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o 26 lakhs. This demand must have found a place in the public notice. The Bank must first of all or in the case of mortgaged property, last of all, made an attempt to settle the revenue due. Although, the auction purchaser must have been taken by a surprise, yet it was his prime duty to know all these facts before hand. He cannot be absolved of the entire liability. The entire procedure entails a lot of money and time including that of courts. The court is bound to take a down to earth view. Moreover, the auction purchaser was not ready with the entire more required for this purpose as is apparent from his abovesaid letter. He had requested for more time. The Earnest Money was to be deposited on the same day. The Bank officers were not empowered to extend the said time. 21. In the light of the abovesaid facts and circumstances as well as the fact that the paramount duty cast on this court is to a adjudicate the disputes between the parties, keeping the principles of natural justice in view, I take a balanced view and hereby order that a partial amount in the sum of Rs. 3 lacs deposited by the auction purchaser be forfeited. He will also not get the interest on remaining amount. The rest of the amount be returned to the auction purchaser within fifteen days from today. 22. Nothing will preclude the auction purchaser to participate in the next bid. 23. The appellant will be at liberty to produce a better buyer before the concerned authority. Appeal stands partly allowed. There shall be no orders as to costs. Copies of the order be furnished to the parties as per law and another copy, along with lower Court records, be sent to the learned DRT.