1. These two writ appeals are directed against a common judgment dated 20.03.2018 passed by the learned Single Judge finally disposing of W.P.(C) Nos.34521/2017 and 41631/2017. W.A. No.999/2018 arises out of W.P.(C) No.34521/2017 while W.A. No.1041/2018 arises out of W.P. (C) No.41631/2017. Both the writ petitions were filed by persons, who had agreed to purchase apartments from M/s.Dewa Projects Private Limited. The agreements were for the purchase of apartments comprised in their project “DEWA PIER 20” in Survey No.843 of Ernakulam Village, Kanayannoor Taluk. The petitioner in W.P.(C) No.34521/2017 is a registered association of persons, who had agreed to purchase the apartments as stated. They had filed the writ petitions challenging the action of the appellants herein proposing to auction plot No.C5 for the purpose of recovering the loan amount advanced by them in view of the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'SARFAESI Act'). It was contended that the writ petitioners were persons, who had advanced substantial amounts for the purchase of apartments. Therefore, proceedings for recovery of the amounts due to the banks should be continued only after protecting their interests also. In other words, it was contended that any auction of the property, on which the apartment complex has been constructed in part, would have to be proceeded with, only safeguarding the interests of the home buyers also. It was contended that they had invested their hard earned money for the project in the hope of acquiring homes for themselves. The action of the bank in proceeding to auction the land ignoring the rights of the home buyers was challenged in the writ petition.
2. The learned Single Judge noticed that in the earlier round of litigation at the instance of some of the intending purchasers, i.e., W.P.(C) No.19773/2015, the proceedings initiated against plot No.C5 had been challenged. In the said writ petition, the bank had agreed as a concession to keep aside plot No.C5, to sell the other plots first and to proceed against the said plot only if the amounts due could not be recovered from the sale of the other plots. Thereafter, the bank filed R.P. No.939/2016 seeking a review of the condition with respect to sale of plot No.C5. The review petition was disposed of on 30.03.2017 permitting the bank to proceed with the sale of the plot, keeping in mind the interests of the members of the association. Thereafter, it was when the bank issued the auction notice that the present writ petitions were filed alleging that the interests of the home buyers had not been safeguarded. The contentions were resisted by the bank pointing out that the auction notice had specified that plot No.C5 was being sold in the 'as is where is' condition. According to the bank, that sufficiently disclosed all details regarding the nature of the property as well as the liabilities on it. However, by the time the writ petitions were finally heard, the date of auction, 12.03.2018, was over and no buyer had come forward to take part in the auction. It was, therefore, submitted on behalf of the appellants that a fresh notice would have to be issued scheduling the auction.
3. The learned Single Judge has held that it was not possible for this Court to ignore the persons who have invested money. Therefore, in order to protect the interests of the home buyers, it was necessary for the auction notice to state about the protection that is envisaged to secure the interests of persons who had invested money to purchase apartments. The learned Single Judge has further observed that it was for the auction purchaser to either wipe off the liability by repaying the amount or offering apartments on mutually agreed terms. It is aggrieved by the said directions that these writ appeals are filed by the bank.
4. According to the learned Senior Counsel Sri.A.V.Thomas, who appears for the appellants, an amount of Rs. 477 Crores had been sanctioned by a consortium of banks of which the appellant was also a member. After the amount was sanctioned, about Rs. 265 Crores was disbursed. The amount was intended to be utilised for purchase of plots from the Goshree Islands Development Authority and for development thereof. It is the case of the learned Senior Counsel that the financial assistance was extended for the purpose of “acquisition and development of land and for constructing commercial and residential complexes, industrial logistics, warehouses”. Initially, the proposal was for purchase and development of 47 acres of land at the Marine Drive in Ernakulam village belonging to the Goshree Islands Development Authority. However, only a total extent of 22 acres 17.760 cents could be acquired. Therefore, the borrowers had submitted a revised proposal for development of the said land at a total estimated cost of Rs. 1318.28 Crores, requesting to keep the loan amount at the originally sanctioned level of Rs. 477 Crores. The request was acceded to by the consortium. The balance amount had to be brought in by the borrowers. However, it is not in dispute that the project did not materialise as planned and what has been constructed is only one tower of 21 floors, a portion of another tower and the piling of a third one. Anticipating the completion of the project, it appears that intending purchasers of apartments have been persuaded to part with substantial amounts of money, the total amount of which comes to about Rs. 33.5 Crores. Ext.P19 is stated to be a list of the persons, who have invested, with the details of the amounts paid by them. That payments so made have been admitted by the counsel for respondents 3 to 17 in W.A. No.999/2018.
5. Since the project had failed to materialise, the repayment of the amounts availed as loan from the banks was defaulted, and the accounts of the borrowers were declared as non performing assets. Proceedings under the SARFAESI Act followed. The properties that were purchased utilising the funds of the banks were brought to sale and we are informed that the bank has already recovered an amount of Rs. 308 Crores from the sale of plot Nos.B, C3 and C4. Since substantial amounts are still remaining to be recovered, it is contended that it is necessary to auction plot No.C5 also. As already noticed above, the earlier proceedings have permitted the appellants to proceed with the auction of plot No.C5 also as per Ext.P26 order dated 30.03.2017. However, this Court had observed in the said order that the said proceedings would have to be pursued “keeping in mind the interest of the individual members of the association”. The association referred to is the petitioner in W.P.(C) No.34521/2017.
6. According to the learned Senior Counsel, the proper remedy of the home buyers is to file petitions under Section 17 of the SARFAESI Act. Since no such applications have been filed, it is contended that the writ petitioners were not entitled to be granted any relief. Reliance is also placed on the decision of the Apex Court in Authorised Officer, SBT and another v. Mathew K.C. [(2018) 3 SCC 85]. Apart from the above, it is pointed out that they have the remedy of arbitration for which a specific Clause has been incorporated in Ext.P21 agreement in W.P. (C) No.34521/2017. Clause 21 is relied upon in support of the contention. It is contended that a similar Clause is contained in Ext.P20 agreement also. The learned Senior Counsel further points out that though the auction had been scheduled earlier, the same could not be conducted for the reason that there were no buyers. Mentioning of the claims made by the home buyers would further diminish the chances of sale of the plot at a reasonable price. Going by the judgment of the learned Single Judge, it is pointed out that the bank would have to specify the liability of the home buyers in the auction notice and the successful bidder would have to either settle the claims or allot apartments to such persons. Insistence on such onerous conditions would dissuade any prospective buyer from coming forward to bid at the auction. It is pointed out that the liabilities on the property could be ascertained by any prospective buyer either from the Registrar of Companies or from other sources. Therefore, it is absolutely unnecessary to insist that all such details should find a place in the auction notice issued by the bank. On the above grounds, the learned Senior Counsel seeks interference with the judgment appealed against.
7. Per contra, Advocate Santhosh Mathew, who appears for respondents 1 and 2 in W.A. No.999/2018, points out a number of instances where the banks instead of taking action against the defaulting borrowers had sanctioned additional amounts to meet their interests and commitments. The property that initially belonged to a partnership firm was subsequently permitted to be transferred to a company. Mutation of Revenue recoords was also effected and initiation of recovery steps was reviewed for no reason whatsoever. Finally, it was only in 2015 that action was initiated under the SARFAESI Act though the account had become NPA in 2009. From 2009 to 2011, no action was taken by the bank to recover the defaulted amount. Added to that, it is a fact that in 2007 an additional amount of Rs. 62 Crores was sanctioned for the period from 01.01.2007 to 31.03.2008. The accumulation of interest has, therefore, been a direct consequence of the studied inaction on the part of the banks, according to the counsel. It is only appropriate that the remaining land on which the apartment complex has been partially constructed, is also not lost. The investors, who had parted with their hard earned money in the hope of purchasing a home of their own, should not be left high and dry. Since the borrowers submitted that they had received an amount of Rs. 1,19,69,941.80 from the home buyers, which was adjusted by the bank towards interest, it is necessary that any action to recover the amounts due to the bank is proceeded with only safeguarding the interests of the investors. The counsel places reliance on Chitra Sharma and others v. Union of India (UOI) and others [2018 (9) SCALE 490] in support of this contention.
8. Advocate Praveen K. Joy, who appears for the 1st respondent in W.A. No.1041/2018 representing other home buyers, places reliance on Ext.P10 to point out that an amount of Rs. 85,80,384/- has been received by the borrowers from his clients. He is entitled to have the amount paid by him protected, in view of the decision in Vishal N. Kalsaria v. Bank of India and others [(2016) 3 SCC 762].
9. Advocate Lisa P. Cherian, who appears for the borrowers, has addressed elaborate arguments questioning the acts of the bank at various stages of implementation of the project. According to the learned counsel, an amount of Rs. 477 Crores had been sanctioned for the project. But, after initially disbursing Rs. 255 Crores, no further amount was disbursed. The entire amount that was received as loan was utilised for the purchase of the property leaving very little amount for carrying out the construction. It was because of the unfriendly attitude of the banks that the project could not take off. Had sufficient funds been disbursed, at least up to the sanctioned limit, it would have been possible for the project to be completed. According to the learned counsel, there are no allegations of misutilisation of the funds disbursed. There is also no allegation of siphoning off of the funds for other purposes. All the amounts disbursed have been invested in the property itself. For the various omissions and non compliance with the statutory provisions, the sale, according to the learned counsel, conducted in respect of the other plots is also vitiated. The counsel places reliance on the decisions in Haryana Financial Corporation and another v. Rajesh Gupta [(2010) 1 SCC 655] and Mathew Varghese v. M.Amritha Kumar and others [(2014) 5 SCC 610] to contend that all details regarding the property, that was proposed to be auctioned, would have to be mentioned in the notice of auction.
10. Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as 'the Enforcement Rules') is relied upon to point out that all matters that the authorised officer considers necessary for a purchaser to know in order to assess the nature and value of the property would have to be mentioned in the auction notice. Therefore, it is contended that the judgment of the learned Single Judge does not suffer from any infirmity warranting interference in the writ appeal.
12. We have anxiously considered the arguments advanced by the respective counsel. It is true that the bank has advanced substantial amounts of money to the borrowers for implementation of the project. We are reminded of the fact that the money so disbursed form part of public funds, and, therefore, it is imperative that such amounts are recovered in full from the defaulting borrowers. We notice at the same time that the amounts that were advanced by the bank were intended to be utilised for the project that was being implemented by the borrowers. As already noticed, the proposal for which the amount was advanced was for development of the land and construction of buildings and apartments. The buildings and apartments were intended to be sold to third parties. It was with the expectation that the project would be completed successfully and that they would be able to own a home of their own, that the home buyers had invested their money in the project. Therefore, while ensuring that the appellants as well as the consortium of banks recovered the amounts disbursed by them, it should be ensured that the rights of the home buyers are also safeguarded. It is not in dispute that all the other plots that formed part of the project have already been sold and plot No.C5 that remains is the only plot that has not been sold. We are told that other properties of the borrowers have already been attached and are being proceeded against though details of such properties are not available in these proceedings. We also bear in mind the fact that though the auction had been scheduled on 12.03.2018, the auction could not take place on that day for want of buyers. Therefore, the procedure for scheduling an auction would have to be initiated afresh. It would be appropriate that in such process, provision is made for safeguarding the interests of the home buyers also.
13. The Apex Court has in Chitra Sharma (supra) taken note of the peculiar situation in which the home buyers are placed when projects like the present one fail to materialise, plunging the promoters into litigations with banks and other financial institutions. When such banks and financial institutions recover the amounts due to them by sale of the properties mortgaged to them, the home buyers are given a raw deal. But, according to the Apex Court, though the home buyers cannot be placed at the same level as secured creditors, it is not right to ignore their claims altogether. The Apex Court has found that no direction for preferential treatment could be given or for reimbursement of the amounts invested by them, in preference to the claims of other creditors. Apart from the fact that the banks are secured creditors, since the funds disbursed by them originate in the deposits collected by them, it was seen that such banks are answerable to the stakeholders, the individual depositors. The law requires their claims to prevail.
14. In the above scenario, the only cour
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se that could be pursued is to make the prospective buyer aware of the claims of the home buyers also. Such a course is necessary not merely to safeguard the interests of the home buyers but also to make the prospective buyer aware of the existence of the claims of the home buyers in respect of the land that he was proposing to purchase. In the absence of such information being supplied, the buyer could also be taken unawares, if he is saddled with claims of the home buyers after he purchases the property. Whether the proposed buyer would settle the claims of the home buyers and the manner in which he would resolve their claims are matters with respect to which it is not necessary for us to make any observations at this stage. With respect to the observation of the learned Single Judge that the prospective purchaser would have to settle the claims of the home buyers, we vacate the said portion of the judgment appealed against. It shall be sufficient to clarify that the bank shall specify in the auction notice the details of the claims made by the home buyers though they are not established. The admitted claim of the home buyers being in the region of Rs. 33.5 Crores, it shall be sufficient that the claim of the home buyers is specified at the said amount in the auction notice. In the result, these writ appeals are disposed of directing the appellants to specifically mention in the auction notice the existence of a claim to the tune of about Rs. 33.5 Crores that is in existence, from the persons who had advanced money for purchasing apartments from the borrowers in the completed project, also. Needless to say that the auction notice shall be issued in compliance with all the other statutory provisions.