Both the writ petitions are interconnected. Hence, they are disposed of through a common order.
The petitioner appears to be a proprietary concern owned by Sri S.Adinarayana. With an objective of establishing a food processing unit, Adinarayana approached the 1st respondent to sanction loan. The facility to utilize a sum of Rs.15,00,000/- was extended by the 1st respondent and the said amount was accordingly utilized. The wife of Adinarayana by name Smt. Sreerangavalli is said to have stood as a guarantor. Since the amount was not repaid, the 1st respondent initiated proceedings under Section 61 of the A.P. Cooperative Societies Act (for short ‘the Act’) before the Arbitrator/Deputy Registrar of Cooperative Societies. The petitioner remained ex parte. An award was passed on 21.12.1998 holding that the petitioner is liable to pay a sum of Rs.26,13,441.25 ps. with interest at the rate of 18% per annum and penal interest at 2% per annum with half yearly rests from 01.06.1998. An appeal preferred by the petitioner was rejected. The execution of the award was initiated. One of the properties offered as surety was sold on 14.12.2006. The 3rd respondent in W.P.No.388 of 2007 emerged as the successful bidder for a sum of Rs.53.60 lakhs. The said writ petition is filed challenging the award as well as the consequential proceedings. W.P.No.18173 of 2007 is filed with a prayer to declare the levy of penal interest and future interest in award dated 21.12.1998 as illegal and arbitrary, by seeking amendment of the prayer in the writ petition. The petitioner challenges the award also.
On behalf of the 1st respondent, a detailed counter affidavit is filed, making a mention of the various developments that have taken place in the entire transaction. It is stated that the award does not suffer from any infirmity or illegality and that the interest has been levied strictly in terms of the agreement.
The 3rd respondent in W.P.No.380 of 2007 filed a counter affidavit, stating that the auction was conducted in accordance with law and that though the entire amount was deposited within the stipulated time, the possession of the property is not delivered as yet.
Heard Sri Addepalli Suryanarayana, learned counsel for the petitioner, learned Advocate General appearing for respondents 1 and 2 and Sri P.Kesava Rao, learned counsel for the 3rd respondent/auction purchaser.
The petitioner does not dispute the fact that a sum of Rs.15,00,000/- was borrowed as loan. Though it is pleaded that part of the amount was paid, the particulars thereof are not furnished. The 1st respondent filed an application under Section 61 of the Act before the Arbitrator.It may be true that the petitioner remained ex parte in the arbitration proceedings. However, the fact that the arbitration is almost a substitute for a suit for recovery of the amount cannot be ignored. Even where the respondent/borrower in arbitration proceedings remains ex parte, the arbitrator is under obligation to verify the account and record a specific finding touching on (a) the amount due after giving credit to the repayments if any; (b) the legality of the interest claimed; and (c) the liability on the part of the borrower or the guarantor as the case may be. In the instant case, the Arbitrator has just repeated the claim made by the 1st respondent and passed the award as prayed for. Even penal interest was awarded. This Court is of the view that the award suffers from non-application of mind and non-consideration of the relevant questions, such as legality of interest levied, finding as to repayment made, if any.
In the resultant auction, the value of the property was not mentioned as reflected in the basic value register. Even where the property is brought to sale in execution under Order XXI C.P.C., it is mandatory for the executing Court to mention not only the value furnished by the judgment debtor and the decree holder but also the one reflected in the basic value register. Giving publicity is another aspect. It is not in dispute that the sale notice did not reflect the market value of the property. In several cases, this Court took the view that any lapse or failure in mentioning the value of the property would vitiate the proceedings. Therefore, the award passed by the Arbitrator as well as the consequential sale are liable to be set aside.
Though this Court finds that the sale of the property deserves to be set aside, the interests of the 1st respondent cannot be ignored. The loan was borrowed way back in the year 1997. Even by the lowest of the estimates and calculations, the amount would become double by this time. The petitioner needs to be required to deposit that amount as a condition precedent for setting aside the award and the resultant sale. Further, the auction purchaser must not only be refunded the amount deposited by him, but also the interest, which the 1st respondent pays on the fixed deposits made with it. In addition to that, the petitioner must be required to pay a sum of Rs.1,00,000/- to the 3rd respondent/auction purchaser.
Another aspect of the matter is that as on the date on which the auction was held, the law laid down by a Full Bench of this Court is that it not at all competent for an Arbitrator to decide the claims for recovery of amount and the only alternative is to file an application before Debt Recovery Tribunal. It may be true that it was reversed by the Supreme Court at a later point of time. However, the proceedings are vitiated to that extent.
Therefore, the writ petitions are allowed directing that –
(a) the award, dated 21.12.1998 passed by the Arbitrator and the resultant sale effected on 14.12.2006 are set aside, subject to the conditions that-
(i) petitioner shall deposit a sum of Rs.30,00,000/- with the 1st respondent within two months from today;
(ii) pay a sum of Rs.1,00,000/- to the 3rd respondent/auction purchaser within eight weeks from today; and
(iii) on deposit of Rs.30,00,000/- by the petitioner, the 1st respondent shall be u
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nder obligation to refund the amount deposited by the 3rd respondent/auction purchaser with interest calculated at the same rate, at which they pay on the fixed deposits made with them; from the date of deposit, till the date of payment; (b) on complying with the conditions referred to above, the matter shall stand remanded to the Arbitrator for fresh adjudication and disposal, in accordance with law; and (c) in the event of default being committed by the writ petitioner, the sale in favour of the 3rd respondent shall stand confirmed. The miscellaneous petitions filed in this writ petition also stand disposed of. There shall be no order as to costs.