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Punjab-Haryana High Court
Punjab Breeders Limited Through ... vs Punjab & Sind Bank on 27 September, 2012CWP No.4792 of 2011 1 IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH CWP No.4792 of 2011 (O & M) Date of decision:27.09.2012 Punjab Breeders Limited through its Authorized Representative, Sh.Rajan Mittal .....Petitioner Versus Punjab & Sind Bank, Patiala through its Chief Manager & another .....Respondents CORAM : HON'BLE MR.JUSTICE AJAY KUMAR MITTAL HON'BLE MR.JUSTICE G.S.SANDHAWALIA Present: Mr.Anand Chibbar, Sr.Advocate, with Mr.Lalit Thakur, Advocate, for the petitioner, Mr.Yogesh Goyal, Advocate, for respondent No.1, Mr.Puneet Bali, Sr.Advocate, with Ms.Priyanka Ahuja, Advocate, for respondent No.2. ******
1. The present writ petition has been filed under Articles 226/227 of the constitution of India for issuance of writ in the nature of certiorari for quashing the letter dated 03.03.2011 (Annexure P-1) whereby respondent- Bank proposed to sell the mortgaged property of the petitioner-Company under private treaty under the Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for brevity, the SARFAESI Act') despite the fact that one time settlement proposal, as submitted by the petitioner-company, was pending with the respondent- Bank.
2. The pleaded case of the petitioner is that it was incorporated with the active participation of Punjab Agro. Industries Corporation Limited (for brevity, the 'Corporation') for poultry breeding and hatchery business. Due to the epidemic disease of bird flu in the year 2000, there was large scale CWP No.4792 of 2011 2 mortality of parent birds and the company incurred huge losses and could not meet the loan obligations of the respondent-Bank who had advanced loans to the petitioner-company. The bank filed recovery proceedings in the year 2003 before the Debt Recovery Tribunal, Chandigarh which is still pending adjudication. The company had mortgaged land measuring 23,711 Sq.yards along with construction of building sheds and machinery situated at A-3, Focal Point, District Rajpura, Patiala and the said property was taken over on 16.12.2004 under Section 13(4) of the SARFAESI Act and possession was still with the respondent. Petitioner had submitted the OTS proposal which was still pending with the Bank. However, the Bank issued letter dated 03.03.2011 whereby it intended to sell the mortgaged property by private treaty for which it had received an offer of `5.4 crores. Accordingly, the petitioner was given advance notice through the said letter to adjust the account in full and final shape or offer amount of more than `5.4 crores by 16.03.2011. The proposed action was in view of the fact that the Bank had conducted auctions five times but could not finalize the sale. The petitioner, vide letter dated 10.03.2011, had represented against the proposed sale through private treaty on the ground that it was in violation of Rule 8 Sub-clauses (6) & (8) of the Security Interest (Enforcement) Rules, 2002 (for brevity, the 'Rules'). Thereafter, the petitioner approached this Court on 16.03.2011 and was directed to deposit `1 crore with the Bank on or before 24.03.2011.
3. The petitioner also placed on record letter dated 01.03.2012 wherein the Bank had approved the OTS proposal on various terms and conditions and the account was to be settled at `5.42 crores. A further condition was put by the Bank that the mortgaged property shall not be sold CWP No.4792 of 2011 3 within a period of 3 years and if it is sold, the parties would obtain prior permission of the Bank and would share 50% of the increase in the fair market value of the property which was `8.82 crores. The securities were to be released after the full and final adjustments of the account. The petitioner, thereafter, filed CM No.7374 of 2012 challenging the conditions regarding the bar from alienating the property on the ground that the petitioner had paid 2.96 crores out of the settled amount of `5.42 crores including `1 crore which was deposited under the order of this Court. It was contended in the application that as per the OTS, the petitioner was to pay the amount within 12 months of the sanction without interest for which cheques were to be given in advance and the petitioner was willing to pay the entire OTS amount if the Bank was ready to hand-over the title deed of the property and delete the condition of bar of alienating the property within a period of 3 years. One, M/s Shiv Trading Company filed an application for impleadment as respondent No.2 on the ground that it had entered into an agreement to sell dated 30.03.2012 with the petitioner for a total sale consideration of `4.95 crores for sale of 11,855.5 Sq.Yards out of the land measuring 23,711 Sq.Yards which was the mortgaged property. The said applicant had paid a sum of `50 lacs on 16.03.2011, `5 lacs on 17.03.2011 and `45 lacs on 21.03.2011 and `5 lacs on 04.04.2011 through Bank RTGS for payment to the Punjab & Sind Bank regarding the settlement. The application was allowed and the said respondent was impleaded as respondent No.2 on 29.08.2012.
4. The Bank was given an opportunity to file written statement but it chose not to do so and had only placed on record the OTS offer dated 01.03.2012 and had filed reply to the application of the petitioner whereby it CWP No.4792 of 2011 4 had challenged the clause regarding the bar of sale of the property for a period of 3 years. In the reply to the application filed by the Senior Manager, Punjab & Sind Bank, Patiala, Rajpura Road, it was averred that the aim of the Corporation was not only to protect the interest of the Bank but also to support the companies in the business of poultry as this project served the economic and social development goal of the State of Punjab. The Corporation wanted the project to continue and, therefore, the Bank had taken a middle path and reduced its demand subsequently and reduced the loan amount to `5.42 crores only by imposing the condition that the property should not be sold within a period of 3 years. In case the property was sold, the Bank was to share 50% of the amount over and above the fixed market value. This condition had only been imposed to ensure that the private party involved in the project should not first settle the account and then sell the property at a very high cost in order to make profits and close down the project. The amount of `5.42 crores had been settled only with a public interest in mind. The Bank had reduced its demand from `12 crores to `5.42 crores and the Directors and promoters of the company wanted to wriggle out of the condition and wanted to make huge profits. Reference was made to the letter dated 07.03.2012 wherein the petitioner had requested that the period of bar of alienation was on the higher side and that they would deposit the amount by way of bank drafts in two six-monthly instalments. The proposed buyer and respondent No.2 also placed on record affidavit of Puran Chand Grover, its partner who had deposed that he had agreed to buy 50% of the property for a sum of `4.95 crores but was not aware of the bar of sale for 3 years. The applicant had already paid a sum of `1.05 crores to the bank for which receipt had been issued. It was further CWP No.4792 of 2011 5 deposed that an amount of `3,59,80,000/- had been paid by 24.08.2012 and `16,90,000/- on behalf of the petitioner to the Bank and the petitioner had also paid an amount of `15,60,000/-. It was further deposed that it would not sell the property for a period of 3 years as settled in the OTS since it had already paid substantial amount of the OTS amount and settled the dues of the petitioner-company.
5. The Bank filed reply to the said proposal of respondent No.2 on the ground that it was mala fide and in connivance with the petitioner. The Bank had sought to sell the property in the year 2011 for `5.42 crores by private treaty and had written a letter to the petitioner. The petitioner had approached the respondent-Bank for a compromise and thus the Bank had introduced the clause of bar of selling the property for 3 years and that the Bank was in a position to get a far better price for the property. The Bank was ready to set aside this entire settlement and effect the recovery of the entire amount in view of the remedy available in law as the petitioner had not abided by the terms of the OTS. The agreement dated 30.03.2012 which had been entered into without taking into consideration the terms and conditions of the OTS had vitiated the entire agreement and respondent No.2 had no contract with the Bank and, therefore, the Bank was not willing to accept the proposal as the same was mala fide.
6. Counsel for the petitioner has submitted that the OTS proposal was pending before the Bank and the Bank had wrongly issued notice dated 03.03.2011 whereby it proposed to sell the property of the petitioner illegally by way of private treaty in violation of the statutory provisions of the Act. The Bank was supposed to give clear 30 days notice in advance before the sale proceedings. But it had only given notice of 12 days and CWP No.4792 of 2011 6 secondly, the sale by private treaty could only be effected if the parties agreed in writing under Sub-clause (8) of Rule 8 of the Rules. It was further pleaded that the Bank itself had communicated to the petitioner to get a buyer for more than `5.40 crores or adjust the account in full and final shape. In order to show its bona fides, it had deposited a sum of `1 crore in view of the orders of this Court dated 16.03.2011. It was further contended that the OTS was agreed to by the Bank on 01.03.2012 only on the account that it had failed to sell the property on five instances from the year 2007 onwards. Therefore, once the account was being settled as per the OTS, the Bank could not oppose the agreement between the petitioner and respondent No.2.
7. Counsel for respondent No.2, on the other hand, submitted that it had paid the majority of the dues and, therefore, the claim of the Bank under the OTS stood satisfied well before the period of one year and it had also given up to contest the bar of alienation of property for a period of 3 years by filing an affidavit.
8. The Bank, on the other hand, opposed the said arrangement of payment on the ground that the agreement between the petitioner and respondent No.2 had been entered into without taking it into confidence.
9. After hearing counsel for the parties and perusing the record and keeping in view the facts and circumstances which has been enumerated above, this Court is of the opinion that the Bank is blowing hot and cold at the same time. Admittedly, vide the letter dated 03.03.2011, the Bank, after having failed to sell the mortgaged property on 03.05.2007, 20.07.2009, 30.08.2009, 05.02.2010 and 24.06.2010, had itself asked the petitioner to get a buyer for more than `5.40 crores by 16.03.2011 and in case it failed to CWP No.4792 of 2011 7 do so, the Bank would confirm the sale for `5.40 crores and possession would be delivered to the buyer or adjust the account in full and final shape. Relevant portion of the letter reads as under:
"The last minimum price for the sale of the property was Rs.4.40 Crores but even then no bidder participated. Now the bank is intending to sell the property through private treaty for which the bank has received a concrete offer of Rs.540 Lacs (5.40 Crores). So, we are giving you advance notice through this letter to adjust your account in full and final shape or offer amount of more than Rs.5.40 Crore if you have any General buyers in this regard upto 16.03.2011 positively. This action is being taken on account of failure of Auction by five times conducted by the bank under SARFAESI Act.
Please note that if you fail to bring any offer amount of more than Rs.5.40 Crores upto 16.03.2011 then we shall confirm the sale of the above mentioned property for the amount of Rs.5.40 Crore for which the bank has already received the offer. After confirmation of the sale, the possession of the said property shall also be delivered to the buyer.
Please acknowledge the same under intimation to us."
10. The Rules provide that the authorized officer is to give a notice of 30 days for the sale of assets under Sub-rule (5) of Rule 8 after getting the evaluation and in case of sale by a private treaty other than public auction or public tender, it has to be on such terms as settled between the parties in writing. Sub-rule (6) & (8) of Rule 8 of the Rules reads as under:
8. Sale of immovable secured assets.
xxxx xxxx xxxx (6) The authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5): Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers; one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include,--
(a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor;
(b) the secured debt for recovery of which the property is to be sold;CWP No.4792 of 2011 8
(c) reserve price, below which the property may not be sold;
(d) time and place of public auction or the time after which sale by any other mode shall be completed;
(e) depositing earnest money as may be stipulated by the secured creditor;
(f) any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property.
xxxx xxxx xxxx (8) Sale by any method other than public auction or public tender, shall be on such terms as may be settled between the parties in writing."
11. In the present case, there was a violation of the said rules as a clear period of 30 days was not given and sale could only be by way of public auction or public tenders in absence of any agreement between the parties. The petitioner had approached this Court with the grouse that its OTS application was still pending. This fact has not been denied by the Bank by filing any written statement and rather it offered the OTS subsequently vide letter dated 01.03.2012 which it has itself placed on record. The terms of the OTS reads as under:
"REG: OTS OF Rs.542.00 LACS IN THE ACCOUNT OF M/S PUNJAB BREEDERS LTD. B.O.RAJPURA Z.P.PATIALA.
Keeping in view the recommendations of B/O Rajpura, your office & L.H.O., Chandigarh and Competent Authority has approved the subject OTS proposal on the following terms & Conditions:
(i) An application for execution of decree be immediately filed in the concerned court (if not already filed).
(ii)Simultaneously the court is to be informed of the settlement terms agreed by the Bank alongwith an application that if party honours the settlement, the decree shall be deemed to have been satisfied and in case of default by the party normal execution proceeding would continue.
(iii)The account is to be settled at Rs.542.00 lacs (Rs.Five hundred forty two lacs only) of which a sum of Rs.271 lacs (50% of the settlement amount) to be deposited by 31.03.2012 including CWP No.4792 of 2011 9 Rs.100.00 lacs lying in no lien account and balance in equated monthly installments within 12 months of intimation of sanction without interest for which cheques are to be obtained in advance. It is noted that a sum of Rs.100.00, has been kept in no lien account as per orders dated 16.03.2011 of Hon'ble Court of Punjab & Haryana Chandigarh. The same is to be appropriated immediately. The cheques so obtained are to be presented for payment on due dates and in case of dishonor of the cheque(s), action under section 138 of Negotiable Instruments Act, is to be initiated immediately. REG:OTS OF Rs.542.00 LACS IN THE ACCOUNT OF M/S PUNJAB BREEDERS LTD. B.O.RAJPURA Z.O.PATIALA.
The OTS shall be subject to Bank's right of recompense that the mortgaged properties shall not be sold within a period of three years and if the properties are sold within the next three years:
(a) The parties obtain prior permission of the bank.
(b) The parties shall share with the bank 50% of increase in FMV of the properties which is Rs.882.00 lacs at the time of sanction of this settlement.
(iv)Concessions are to be credited in the a/c only at the time of full and final adjustment of the account.
(v)Securities held in the account are to be released only after the full and final adjustment of the account. Before release of securities, BM/ZM to further ensure that there are no other outstanding connected accounts of the party/guarantors.
(vi)The party/guarantors are not to be accommodated in any way in future.
(vii)Since, the bank has already taken action under SARFAESI Act, Tamsuk Deed in terms of H.O.Law Circulatory Letter No.08/2008 dated 22.5.2008, to be got executed from the party.
(viii)The party to withdraw all proceedings, if any, initiated against the bank which might be pending in any court of law or before any judicial forum.
(ix)In case the party fails to repay the settled amount as per the terms of settlement, without any valid and justifiable reason, steps be taken to declare it is 'Wilful Defaulter' which may also be communicated to the party.
(x)The terms of the settlement are to be conveyed to the party through bank's counsel handling the case.
Yours faithfully, DY.GEN.MANAGER (L&R)"
12. Initially, the petitioner had objected to the terms of the OTS CWP No.4792 of 2011 10 regarding the condition of the bar of alienation for a period of 3 years on the ground that it was unreasonable restriction once it was honouring the terms of the OTS and prior to the period of one year. The Bank has also, now, received the total amount of `5.42 crores and a sum of `31,20,000/- and `1,01,40,000/- were paid today by way of bank drafts and bankers cheque produced by the petitioner and respondent No.2. Once the Bank has received its settled amount under the OTS, its objection that the amount has not been paid by respondent No.2 is without any basis. It had itself written to the petitioner to get a better buyer since it was selling the property for `5.40 crores. The petitioner has produced a buyer who has also parted with large sums of money in view of the agreement dated 30.03.2012. The said respondent had also undertaken that it will not alienate the property for a period of 3 years and filed an affidavit to that effect. Once the terms and conditions of the OTS have been fully met, it would not be justified for the Bank to urge that the amount was paid to the Bank by respondent No.2. The Bank is only concerned with the amount which it itself consented to as per the OTS and once it has asked the petitioner to get a better buyer of the property after having failed to sell it for the last 5 years, it now cannot turn around and say that it was not willing to accept the amount from respondent No.2.
13. The petitioner has managed to sell half the mortgaged property for `5.42 crores, whereas the bank was disposing off the whole property for a sum of `5.40 crores only putting the petitioner to serious financial loss. It is to be further noticed that the Bank had also filed a recovery suit in the Debt Recovery Tribunal, Chandigarh since the year 2003 but the same has not been finally adjudicated so far and during its pendency it has resorted to the CWP No.4792 of 2011 11 provisions of the SARFAESI Act and had taken over the possession of the property. Thus, it was well aware that it was not in a position to recover its outstanding amount which were allegedly to the tune of `12,8,54,000/- upto 28.02.2011 and it had opted for settling the dues with the petitioner- company under OTS proposal. The Hon'ble Apex Court in M/S Sardar Associates & others Vs. Punjab & Sind Bank & others (2009) 8 SCC 257 has held that the guidelines issued by the Reserve Bank of India are binding upon the Banks and deviation could not be done. It has been held as under:
"42. If in terms of the guidelines issued by the Reserve Bank of India a right is created in a borrower, we see no reason as to why a writ of mandamus could not be issued. We would assume, as has been contended by Mr. Singh, that while exercising its power under Article 226 of the Constitution of India, the High Courts may or may not issue such a direction but the same, in our opinion, by itself, would not mean that the High Court would be correct in interfering with an order passed by the Appellate Tribunal which was entitled to consider the effect of such one time settlement.
43. The question pertaining to the present matter is regarding whether or not a circular issued by a statutory body for the governance and regulation of certain agreements confers a legal right upon the aggrieved party in case of non-compliance or complete and absolute deviation from the said guidelines by the body formulating such circulars. Alternately, can the aggrieved party, then, claim its right of judicial review under Article 32 or 226 to quash the said circular in case of discriminatory application of such rules/guidelines so mentioned in the circular.
44. In Union of India and Anr. v. Azadi Bachao Andolan it was held that a circular issued by the Central Board of Direct Taxes(CBDT) was not inconsistent with the provisions of the Income-Tax Act and was valid and efficacious. The assessing officers chose to ignore the guidelines and hence the CBDT was justified in issuing "appropriate guidelines" under Circular No. 789. The said Circular does not in any CWP No.4792 of 2011 12 way crib, confine or cabin the powers of the assessing officers with regard to any particular assessment. It merely formulates broad guidelines to be applied in the matter of assessment of the assesses covered by the provisions of the Indo - Mauritius Double Taxation Avoidance Convention, 1983.
45. In Commissioner of Income Tax v. Anjum M.H. Ghaswala, it was pointed out that the circulars issued by CBDT under Section 119 of the Income Tax Act have statutory force and would be binding on every income-tax authority although such may not be the case with regard to press releases issue by the CBDT for information of the public.
46. In UCO Bank v. CIT, this Court opined that "the circulars as contemplated therein cannot be adverse to the assessee"(SCC p.605, para 9). Thus, the authority which wields the power for its own advantage when required to wield it in a manner it considers just by relaxing the rigour of the law or in other permissible manners as laid down in Section 119. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest.
47. In BSNL v. BPL Mobile Cellular Ltd., it was held that "39......the directions contained in the said circular letters are relevant for the officers who are authorised not only to grant licenses but also enter into contracts and prepare bills. The circular letters having no statutory force undoubtedly would not govern the contract."
48. A distinction, thus, must be made between statutory and non-statutory guidelines. A distinction must also be made between the circular which are relevant but not binding on the third parties and which are imperative in character.
49. As regards the Reserve Bank of India guidelines, it was the direction of the Appellate Tribunal that the Respondent- Bank should settle the case of the appellants under the RBI guidelines through a One Time Settlement and should invite a proposal for settlement and recovery of the agreed amount.
50. The Appellate Tribunal in passing its order followed the dicta laid down in Constitution Bench judgment in Central Bank of India, wherein it was held that:CWP No.4792 of 2011 13
"56.....RBI directive have not only statutory flavour, any contravention thereof or any default in compliance therewith is punishable under sub- section (4) of S. 46 of the Banking Regulation Act, 1949."
51. We, therefore, are of the opinion that the impugned judgment cannot be sustained. It is set aside accordingly. The appeals are allowed. However, in the facts and circumstances of the case, there shall be no order as to costs."
14. In view of the above and the fact that the petitioner and respondent No.2 have cleared all the dues as per the OTS Scheme dated 01.03.2012, the present writ petition is allowed, letter dated 03.03.2011 (Annexure P-1) issued by the Bank is quashed. A writ of mandamus is issued directing the Bank to accept the amount of `5.42 crores received by it under the OTS proposal by it vide letter dated 01.03.2012 and release the sale deed of the petitioner within a period of 2 weeks from the receipt of a certified copy of this order. The possession of the mortgaged property shall also be delivered to the petitioner within the said period. The petitioner and respondent No.2 shall, however, be restrained from alienating the property for a period of 3 years from 01.03.2012 as per the OTS Scheme. The Bank will be free to get the said conditions entered into with the revenue authorities to ensure compliance.15. Writ petition is, accordingly, disposed of in the above-said terms. (G.S.Sandhawalia) JUDGE 27.09.2012 (Ajay Kumar Mittal) sailesh JUDGE
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