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VasuP.ShettyVs.M/s.HotelVandanaPalace&Ors.
[CivilAppealNo.4679of2014arisingoutofSpecialLeavePetition(Civil)No.35168of2011]
[C.A.No.4680/2014@SLP(C)No.6226of2012]
A.K.SIKRI,J.
1.Leavegranted.
2.RespondentNo.1hereinhadtakenloanfromSyndicateBank(hereinaftertobereferredasthe'Bank').Becauseofits
default in repaying the said loan, the bank took action under the provisions of the Securitization and Reconstruction of
Financial Asset and Enforcement of Security Interest Act, 2002 (SARFAESI Act). After taking formal possession of the
mortgagedpropertywhichwasgivenasasuretyforduedischargeoftheloan,thesaidpropertywasputtosale.
The appellant herein was the highest bidder whose bid was accepted resulting into issuance of the sale certificate.
RespondentNo.1(hereinafterreferredtoasthe'borrower')challengedthesaidsalebyfilingapplicationbeforetheDebt
RecoveryTribunal(DRT).Thisapplicationwasdismissed.TheborrowerfiledWritPetitionbeforetheHighCourtofKarnataka
againsttheorderofDRT.ThelearnedSingleJudgedismissedtheWritPetitionaswell.Undeterred,theborrowerappealed
againsttheorderofthelearnedSingleJudge.
Thistimeittriumphed,astheDivisionBenchhassetasidethesaleofthepropertyinfavouroftheappellant.Thereason
givenisthatthepublicnoticeissuedforthesaidsalewasdefectiveas30daystimewhichismandatorilyrequiredunder
Rules8and9ofSARFAESIActwasnotgiven.Concededlythepublicnoticewaspublishedinthenewspaperon28.4.2006,
fixingthedateforsaleas8.5.2006,invitingtendersfromprospectivebuyersat2.00p.m.on6.5.2006.
3.Thisfactthatinsufficientnoticewasgiven,is,therefore,notindispute.LegalpositionaboutthemandatorynatureofRule8
& 9 is also not agitated. Notwithstanding this legal possession, the appellants viz auction purchaser as well as the Bank
maintainthatthesalewasvalidbecauseofthereasonthatdelaywasentirelyattributabletotheborrowerwhobyitsconduct
waived the said mandatory requirement of the Rules. In this backdrop, the question that arises for consideration is as to
whethertherecouldbeawaiveroftheaforesaidmandatorycondition?Ifso,whetherthiswaivercanbediscernedinthe
presentcase?Beforeweanswerthesequestionsitwouldbeappositetohaveathoroughglimpseofthefactsonrecord.
4. The borrower had availed a loan of Rs. 1,84,70,000/. This loan was obtained from the bank to construct a hotel in a
prominentplaceinBelgaum.Theborrowerhasconstructedthehotelatthesaidplaceforalandmeasuring1825.25sq.mtrs.
withabuiltupareaof4749.64sq.mtrs.Atthetimeofsanctionoftheloan,thepremiseswerevaluedatRs.3.16crores.As
mentioned above, the borrower committed default in the repayment of these financial facilities granted to it. Notice under
Section13(2)oftheSARFAESIActtotakeformalpossessionofthepropertywasissued.Thereafter,theAuthorisedOfficerof
the Bank (Respondent No. 2)under SARFAESI Act proceeded to sell this property. Property could not be sold in the first
attemptandtheeffortswerefructifiedonlywhenitwasputtoauctionthirdtime.Sincetheearlierendeavourmadebythe
AuthorisedOfficerareusedasshieldagainsttheborrower'sattackonsaleinquestion,itbecomesnecessarytotakeanoteof
theseattemptsaswell.
5.Firstnoticeforauctionwaspublishedon11.9.2004fixingtheauctiondateas15.10.2004.ReservePricewasfixedatRs.
3.50crores.Thisnotice,admittedly,wasformorethan30days.Atthatstage,theborrowerfiledtheWritPetitionintheHigh
Courtchallengingthesaidnotice3daysbeforetheproposedsalei.e.on12.10.2004.ThoughtheHighCourtdidnotgrant
stayagainstthescheduledauction,itgrantedstayagainstconfirmationofsale.Aspertheappellant,inviewofthesaidpartial
stayorder,nobodycameforwardtoparticipateintheauctionandtheexercisewentintofutility.
6.TheWritPetitionfiledbytheborrowerwasdismissedbytheHighCourton28.2.2005upholdingnoticedated27.7.2004
issuedunderSection13(4)oftheSARFAESIAct.Inthemeantime,itcametothenoticeoftheAuthorisedOfficerofthebank
thattherewereencumbrancesintheformofstatutoryliabilitiestothetuneofRs.43,01,100/payablebytheborrowerand,
therefore,theReservePricefixedatRs.3.50croreshadtobereduced.Theborrowerwasinformedaboutit.TheBankissued
freshnoticeon9.3.2005forauctionofthepropertyfixingdateofauctionas21.3.2005withreducedReservePriceatRs.2.39
crores.
7.Intheauctionheldon21.3.2005thehighestofferwhichwasreceivedwasinthesumofRs.2.25croreswhichwasless
thaneventhereducedreserveprice.Itcanwellbediscussedthatthissalenoticewasforaperiodoflessthan30days.Beas
itmay,thebankwroteletterdated28.6.2005totheborroweraskingittoconveyitsconsentforthesaleofpropertyforasum
ofRs.2.25croreswhichwasthehighestbid.However,theborrowerdidnotrespondtothisletter.Thereafter,anotherletter
dated16.8.2005writtenbythebankstatingthereasonsastowhyitwasconstrainedtoreducetheReservePrice.
8.TheborrowerdidnotaccedetotherequestoftheBank.Instead,on15.11.2005,theborrowerexpresseditsintentionto
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settlethematterbymakingtheproposalunderOneTimeSettlement(OTS)schemeoftheRBI.Itwasfollowedbyletterdated
8.1.2006bytheborrowertotheBankrequestingforOTSatRs.2,13,93,320/.Thisproposaloftheborrowerwassanctioned
bytheBankon8.2.2006withfurtherstipulationthattheamountwouldbepaidonorbefore31.3.2006.ChequeofRs.20
lakhswhichwasgivenbytheborroweralongwithitsOTSproposalwasencashedbytheBankandwascreditedtothe'No
Lien Account'. However, on 31.3.2006, instead of paying the amount as per the agreed OTS, the borrower requested for
extension of time giving its own reasons. Time was extended upto 15.4.2006 for payment as a last chance. However, on
14.4.2006anotherrequestforextensionoftimebytwomonthswasmadewhichwasfollowedbyletterdated22.4.2006tothe
sameeffect.ThistimetheBankrejectedtherequestoftheborrowervideletterdated25.4.2006.Asaconsequence,theOTS
didnotfructify.
9.OnfailureofOTSduetothefaultoftheborrower,theAuthorisedOfficeroftheBanksprungintoactionandtookstepsfor
thesaleoftheproperty,inquestion.Noticedated27.4.2006waspublishedinIndianExpress(English)andinTarunBharat
(Marathi) on 7.5.2006 for the acution of the property. The Auction date was published as 8.5.2006. Auction was held on
8.5.2006whereinthebidoftheappellantinthesumofRs.2.16croresbeingthehighest,wasaccepted.Theappellantpaid
25 percent of the bid amount and the balance amount was paid on 24.5.2006. The appellant also made payment for the
encumbrancestotheconcernedstatutoryauthoritieswhichwasinthesumofRs.49.91lakhs.Inthiswaytheappellantmade
totalpaymentofRs.283,39,735/.Onreceivingthefullconsiderationaspertheauction,saledeedconveyingtheproperty
wasexecutedinfavouroftheappellanton26.5.2006followedbyissueofthesalecertificate.
10. It would be relevant to mention here that the borrower had filed the Writ Petition 6471/2006 challenging the auction
notice.However,itwithdrewthisWritPetitionon1.6.2006withlibertytoavailalternateremedytochallengetheauctionthatis
providedunderSARFAESIAct.Thereafter,itfiledtheappealunderSection18oftheSARFAESIActbeforetheDRT.This
appealwasdismissedbytheDRTon5.7.2007withtheobservationsthattheborrowerwasonlyadoptingdilatorytactics.This
order was challenged by the borrower in the form of writ petition filed before the High Court of Karnataka, Circuit Bench,
Dharwad.ThelearnedSingleJudgeechoedthereasoninggivenbytheDRTanddismissedtheWritPetitionvideorders
dated19.9.2011.Againstthisorder,theborrowerapproachedtheDivisionBenchbyfilingintracourtappealwhichhasbeen
allowedbytheHighCourt.Thesaleinquestionissetaside.
11.TheHighCourttookintoconsiderationprovisionsofthesubRule(5)and(6)ofRule8aswellasRule9oftheseRules
whichareasunder:"Rule8Saleofimmovablesecuredassets:
(5) Before effecting sale of the immovable property referred to in subrule (1) of rule 9 the Authorised Officer shall obtain
valuationofthepropertyfromanapprovedvaluerandinconsultationwiththesecuredcreditor,fixthereservepriceofthe
property and may sell the whole or any part of such immovable secured asset by any of the following methods: (a) By
obtainingquotationsfromthepersonsdealingwithsimilarsecuredassetsorotherwiseinterestedinbuyingthesuchassets
(b)Byinvitingtendersfromthepublic.
(c)Byholdingpublicauctionor
(d)Byprivatetreaty.
6)Theauthorisedofficershallservetotheborroweranoticeof30daysforsaleoftheimmovablesecuredassets,undersub
rule
(5):Providethatifthesaleofthesuchsecuredassetisbeingeffectedeitherinvitingtendersfromthepublicorbyholding
public auction, the secured creditor shall cause a public notice in two leading newspapers one in vernacular language
havingsufficientcirculationinthelocalitybysettingoutthetermsofsale,whichshallinclude:
(a) The decription of the immovable property to be sold, including the details of the encumbrances known to the secured
creditor
(b)Thesecureddebtforrecoveryofwhichthepropertyistobesold.
c)Reserveprice,belowwhichthepropertymaynotbesold.
(d)Timeandplaceofpublicauctionorthetimeafterwhichsalebyanyothermodeshallbecompleted.
(e)Depositingearnestmoneyasmaybestipulatedbythesecuredcreditor.
(f)Anyotherthingwhichtheauthorisedofficerconsidersitmaterialforapurchasertoknowinordertojudgethenatureand
valueoftheproperty.
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9.Timeofsame,issuesofsalecertificateanddeliveryofpossession,etc.
(1)Nosaleofimmovablepropertyundertheserulesshalltakeplacebeforetheexpiryof30daysfromthedateonwhichthe
publicnoticeofsaleispublishedinnewspapersasreferredtointheprovisotosubrule(6)ornoticeofsalehasbeenserved
totheborrower.
(2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or
quotationoroffertotheAuthorisedOfficerandshallbesubjecttoconfirmationbythesecuredcreditor.Providedthatnosale
underthisruleshallbeconfirmed,iftheamountofferedbysalepriceislessthanthereserveprice,specifiedundersubrule
(5)ofRule9.Providedfurtherthatiftheauthorisedofficerfailstoobtainapricehigherthanthereserveprice,hemay,withthe
consentoftheborrowerandthesecuredcreditoreffectthesaleatsuchprice.
(3)Oneverysaleofimmovableproperty,thepurchasershallimmediatelypayadepositof25percentoftheamountofthe
saleprice,tothepropertyshallforthwithbesoldagain.
(4) The balance amount of purchase price payable shall paid by the purchaser to the Authorised Officer on or before the
fifteenth day of confirmation of sale of the immovable property or such extended period as may be agree upon in writing
betweentheparties.
(5)Indefaultofpaymentwithintheperiodmentionedinsubrule(4),thedepositshallbeforfeitedandthepropertyshallbe
resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be
subsequentlysold.
(6) On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the Authorised
Officerexercisingthepowerofsaleshallissueacertificateofsaleoftheimmovablepropertyinfavourofthepurchaserinthe
formgiveninAppendixVtotheserules.
(7)Wheretheimmovablepropertysoldissubjecttoanyencumbrances,theauthorisedofficermay,ifthethinksfit,allowthe
purchasertodepositwithhimtheencumbrancesandanyinterestduethereontogetherwithsuchadditionalamountthatmay
besufficienttomeetthecontingenciesorfurthercost,expensesandinterestasmaybedeterminedbyhim.[Providedthatif
after meeting the cost of removing encumbrances and contingencies there is any surplus available out of the money
depositedbythepurchasersuchsurplusshallbepaidtothepurchasewithinfifteendaysfromthedateoffinalisationofthe
sale.
(8)OnsuchdepositofmoneyfordischargeoftheencumbrancestheAuthorisedOfficershallissueorcausethepurchaserto
issuenoticestothepersonsinterestedinorentitledtothemoneydepositedwithhimandtakestepstomakethepayment
accordingly.
(9)Theauthorisedofficershalldeliverthepropertytothepurchaserfreefromencumbrancesknowntothesecuredcreditor
ondepositofmoneyasspecifiedinsubrule(7)above.
(10)Thecertificateofsaleissuedundersubrule(6)shallspecificallymentionthatwhetherthepurchaserhaspurchasedthe
immovablesecuredassetfreefromanyencumbrancesknowntothesecuredcreditorornot."
12.TheHighCourthasfoundthefollowinginformatiesintheconductoftheimpugnedsale:
(i)Beforebringingthepropertyforsalevidenoticedated28.4.2006and5.5.2006freshvaluationofthepropertyfromthe
accruedvaluerwasnotobtainedbytheBankwhenthepropertyworthcroreshadtobesold.Therewasinfractionofsubrule
(5)ofRule8whichismandatory.
(ii) 30 days notice as required under subrule 6 of Rule 8 was not given thereby committing breach of this mandatory
provisionaswell.
iii)AccordingtotheHighCourtpublicationinTarunBharatMarathilanguagewaseffectedjustonedaypriorfromreceiving
fromtheprospectivebuyers.However,publicationinMarathilanguagecannotbeconsideredasvernacularlanguageasthe
BelgaumisinKarnatakawherethevernacularlanguageisKannadaandnotMarathi.
iv)Asperthesalenotice,theappellantwasrequiredtodepositentiresaleconsiderationwithin15daysfromthedateof
confirmationofthesale.Inthecounter,theBankhasstatedthattheappellanthasmadethepaymentwithinthetimeallowed
by the Authorised Officer. When the sale consideration is Rs. 2.16 crores, the bank was required to give details of the
paymentmadebytheappellantinordertoholdwhetherthepaymentwasmadewithinthetimestipulatedinthesaleand
whetherthetimewasextendedbytheOfficerbyacceptingthereasonablecauseshownbythepurchaserandwhetherthe
purchaserisbonafidepurchaserornot.Unfortunately,thebankhasfailedtoproducethesedocuments.
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13.Wemaypointout,attheoutset,thattheopinionoftheHighCourtontheinterpretationofsubRules(5)and(6)ofRule8of
the Rules is flawless. In this behalf it would be pertinent to mention that there is an imprimatur of this court as identical
meaningisassignedtotheseprovisions.InthecaseofMathewVarghesev.M.AmrithaKumarr&Ors.2014(2)SCALE331.
The aforesaid judgment has been followed by this very Bench of the Court in C.A. No. 3865 of 2014 titled as J. Rajiv
Subramaniyan & Anr. v. M/s Pandiyas & Ors. decided on March 14, 2014, wherein the earlier referred case has been
discussedinthefollowingmanner:
12.ThisCourtinthecaseofMathewVargheseVs.M.AmrithaKumar&Ors.examinedtheprocedurerequiredtobefollowed
bythebanksorotherfinancialinstitutionswhenthesecuredassetsoftheborrowersaresoughttobesoldforsettlementof
theduesofthebanks/financialinstitutions.TheCourtexaminedindetailtheprovisionsoftheSARFAESIAct,2002.TheCourt
alsoexaminedthedetailedproceduretobefollowedbythebank/financialinstitutionsundertheRules,2002.ThisCourttook
noticeofRule8,whichrelatestoSaleofimmovablesecuredassetsandRule9whichrelatestotimeofsale,issueofsale
certificateanddeliveryofpossessionetc.
WithregardtoSection13(1),thisCourtobservedthatSection13(1)ofSARFAESIAct,2002givesafreehandtothesecured
creditor,forthepurposeofenforcingthesecuredinterestwithouttheinterventionofCourtorTribunal.Butsuchenforcement
should be strictly in conformity with the provisions of the SARFAESI Act, 2002. Thereafter, it is observed as follows: "A
reading of Section13(1), therefore, is clear to the effect that while on the one hand any SECURED CREDITOR may be
entitled to enforce the SECURED ASSET created in its favour on its own without resorting to any court proceedings or
approachingtheTribunal,suchenforcementshouldbeinconformitywiththeotherprovisionsoftheSARFAESIAct."
13.ThisCourtfurtherobservedthattheprovisioncontainedinSection13(8)oftheSARFAESIAct,2002isspecificallyforthe
protectionoftheborrowersinasmuchas,ownershipofthesecuredassetsisaconstitutionalrightvestedintheborrowers
andprotectedunderArticle300AoftheConstitutionofIndia.Therefore,thesecuredcreditorasatrusteeofthesecuredasset
cannotdealwiththesameinanymanneritlikesandsuchanassetcanbedisposedofonlyinthemannerprescribedinthe
SARFAESIAct,2002.Therefore,thecreditorshouldensurethattheborrowerwasclearlyputonnoticeofthedateandtime
bywhicheitherthesaleortransferwillbeeffectedinordertoprovidetherequiredopportunitytotheborrowertotakeall
possiblestepsforretrievinghisproperty.
Suchanoticeisalsonecessarytoensurethattheprocessofsalewillensurethatthesecuredassetswillbesoldtoprovide
maximumbenefittotheborrowers.Thenoticeisalsonecessarytoensurethatthesecuredcreditororanyoneonitsbehalfis
notallowedtoexploitthesituationbyvirtueofproceedingsinitiatedundertheSARFAESIAct,2002.Thereafter,inParagraph
27, this Court observed as follows: "27. 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
informingtheborrowerofthetimeanddateofsuchsaleortransferinordertoenabletheborrowertotendertheduesofthe
SECUREDCREDITORwithallcosts,chargesandexpensesandanysuchsaleortransfereffectedwithoutcomplyingwith
thesaidstatutoryrequirementwouldbeaconstitutionalviolationandnullifytheultimatesale."
14.Asnoticedabove,thisCourtalsoexaminedRules8and9oftheRules,2002.OnadetailedanalysisofRules8and9(1),
ithasbeenheldthatanysaleeffectedwithoutcomplyingwiththesamewouldbeunconstitutionaland,therefore,nulland
void.15.Inthepresentcase,thereisanadditionalreasonfordeclaringthatsaleinfavouroftheappellantwasanullity.Rule
8(8)oftheaforesaidRulesisasunder:"Salebyanymethodotherthanpublicauctionorpublictender,shallbeonsuch
termsasmaybesettledbetweenthepartiesinwriting."
16.Itisnotdisputedbeforeusthattherewerenotermssettledinwritingbetweenthepartiesthatthesalecanbeaffectedby
PrivateTreaty.Infact,theborrowersrespondentNos.1and2werenotevencalledtothejointmeetingbetweentheBank
RespondentNo.3andGeWinnheldon8thDecember,2006.Therefore,therewasaclearviolationoftheaforesaidRules
renderingthesaleillegal.
17.ItmustbeemphasizedthatgenerallyproceedingsundertheSARFAESIAct,2002againsttheborrowersareinitiatedonly
whentheborrowerisindirestraits.TheprovisionsoftheSARFAESIAct,2002andtheRules,2002havebeenenactedto
ensurethatthesecuredassetisnotsoldforasong.Itisexpectedthatallthebanksandfinancialinstitutionswhichresortto
theextrememeasuresundertheSARFAESIAct,2002forsaleofthesecuredassetstoensure,thatsuchsaleoftheasset
providesmaximumbenefittotheborrowerbythesaleofsuchasset.
Therefore,thesecuredcreditorsareexpectedtotakebonafidemeasurestoensurethatthereismaximumyieldfromsuch
secured assets for the borrowers. In the present case, Mr. Dhruv Mehta has pointed out that sale consideration is only
Rs.10,000/ over the reserve price whereas the property was worth much more. It is not necessary for us to go into this
questionas,inouropinion,thesaleisnullandvoidbeinginviolationoftheprovisionofSection13oftheSARFAESIAct,
2002andRules8and9oftheRules,2002."
14.Thus,whenthematteristobeexaminedfromthisangleitcannotbesaidthattheviewoftheHighCourtisperfunctoryor
flawed. Procedure contained in the aforesaid Rules was admittedly not followed. Notwithstanding this position, Mr. Ranjit
Kumar,learnedSeniorCounselappearingfortheappellantsubmittedthatacontraryviewistakenbythisCourtinGeneral
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Manager,SriSiddeshwaraCooperativebankLimitedandAnr.v.Ikbal&Ors.(2013)10SCC83whereinitisheldthatthe
mandatoryprovisionof30daysnoticecanbewaivedbytheborrowerandinsuchaneventuality,thesalecannotbevoided.
15.Afterrecapitulatingthefactswhichhavealreadybeennarratedabove,hissubmissioninthisbehalfwasthattheborrower
had,inthepresentcase,delayedthesaleofthepropertyandhewasnotentitledtotakeadvantageofitsownwrong.He
dilatedthissubmissionbypointingoutthatfirstnoticeforauctionwhichwaspublishedon11.9.2004,clear30daysnotice
wasprovidedthereinasthedateofauctionwasfixedas15.10.2004.However,conductoftheborrowerinfilingfrivolousWrit
Petitionandobtaininginterimordertherein,desistedanyintendingpurchaserfromcomingforwardandparticipatinginthe
auction.
Further,evenwhensecondnoticeforauctionsalewaspublishedon28.2.2005andnoticeoflessthan30dayswasgiven
thereinfixingthedateofauctionas23.1.2005,theborrowerneverchallengedthevalidityofthisnotice.Instead,atthatstage
theborrowerexpresseditsintentiontosettlethematterbyofferingOTSproposal.Thebanksuccumbedtothisrequestofthe
borrower treating the same to be a bonafide offer and even accepted the OTS proposal of the borrower. Here again the
borrowercommitteddefaultandneverremittedthemoneyasperOTSarrangementagreedtobetweentheparties.
Inthisway,highlightingtheaforesaidblameworthyconductoftheborrower,Mr.RanjitKumarsubmittedthatitisestopped
from challenging the validity of the notice for auction. It was also pointed out that not only entire amount is paid by the
appellanttowardsthesaleconsideration,theappellanthasdischargedstatutoryliabilities/encumbrancesaswellsaledeed
registeredinitsfavourwaybackon26.5.2006salecertificateissuedandtheappellantisinpossessionofthispropertyever
since.Therefore,thesaleshouldnothavebeeninvalidated.Mr.A.B.Dial,learnedSeniorCounselfortheappellantBankin
otherappealalsoarguedonthesamelines.
16.LetusexaminetheaforesaidsubmissionoftheappellantinthelightofthejudgmentinthecaseofIkbalonwhichstrong
relianceisplacedbythelearnedSeniorCounsel.ThatwasacasewhereR1(theborrower)tookahousingloanfromthe
appellantBankbymortgagingcertainimmovableproperty.AsR1committeddefaultinrepaymentofthesaidhousingloan,
the Bank issued a notice to him on 30.6.2005 under Section 13(2) of the Securatisation and Reconstruction of Financial
AssetsandEnforcementofSecurityInterestAct,2002(theSARFAESIAct)informinghimthatifhefailedtodischargethe
outstandingdueswithin60days,theBankmaytakeactionunderSection13(4)andthemortgagedpropertyshallbesold.
On 18.12.2005 the Bank published the auction notice in the local newspapers and the public auction was conducted on
11.1.2006.ThebidoftheauctionpurchaserforRs.8,50,000wasacceptedbeingthehighestbid.Theauctionpurchaser
paid25%ofthesaleconsiderationimmediatelybuthedidnotmakethepaymentofremaining75%within15daysofthe
confirmationofsale.Hemadethefinalpaymenton13.11.2006andtheBankissuedthesalecertificateinhisfavour.Asthe
proceedsfromthesaleofthemortgagedpropertyfellshortofthetotaloutstandingamountagainsttheborrower,theBank
movedtheJointRegistrarofCooperativeSocietiesforrecoveryoftheoutstandingamount.Inthoseproceedings,anexparte
awardfortheoutstandingamountwaspassedagainsttheborrowerR1.
ItwasthenthatR1challengedthesalecertificateissuedinfavouroftheauctionpurchaserintwowritpetitionsbeforethe
HighCourt.TheSingleJudgeoftheHighCourtquashedthesalecertificateissuedinfavouroftheauctionpurchaseronthe
groundthatthemandatoryrequirementsofRule9ofthe2002Ruleswerenotfollowedand,therefore,despitetheremedyof
appealtotheborrowerprovidedunderSection17oftheSARFAESIAct,acasewasmadeoutforinterferenceunderArticle
226oftheConstitution,whichwasaffirmedbytheDivisionBenchoftheHighCourt.TheBankandtheauctionpurchaser
hadfiledtheappealschallengingthejudgmentsoftheHighCourt.
17.ThisCourt,afterinterpretingtheprovisionsofRule9,returnedacategoricalopinionthatthesaidprovisionismandatory
innature.ItwasfurtherheldthateventhoughthisRuleismandatory,thatprovisionisforthebenefitoftheborrower.The
Court held that it is a settled position in law that even if a provision is mandatory, it can always be waived by a party (or
parties)forwhosebenefitsuchprovisionhasbeenmade.TheprovisioninRule9(1)beingforthebenefitoftheborrowerand
the provisions contained in Rule 9(3) and Rule 9(4) being for the benefit of the secured creditor (or for the benefit of the
borrower), the secured creditor and the borrower can lawfully waive their rights. These provisions neither expressly nor
contextuallyindicateotherwise.Obviously,thequestionwhetherthereiswaiverornotdependsonthefactsofeachcase
andnohardandfastrulecanbelaiddowninthisregard.
18.Inthefactsofthatcaseitwasfoundthattheletterdated13.11.2006sentbytheborrowertotheBankclearlydepictedthat
theborrowerhadwaivedhisrightunderRule9(1)andtheprovisionscontainedinRule9(3)andRule9(4)aswell.Itwas
alsofoundthatatthetimeofauctionsaleon11.1.2006,theborrowerwaspresentbutdidnotobjecttotheauctionbeingheld
beforeexpiryof30daysfromthedateofwhichpublicnoticeofsalewaspublished.Notonlythis,heagreedthatthebidgiven
by the auction purchaser, which was the highest bid, be accepted as the auction purchaser happened to be his known
person.
Anotherimportantfeaturewhichwasnotedwasthattheborrowerexpresslygaveconsentinwritingthatthebalancesale
pricemaybeacceptedfromtheauctionpurchaserevenwhentenderedaftersomedelayandthesalecertificatebeissuedto
him.TherewasawrittenagreementbetweentheborrowerandtheBankforextensionoftimeupto15.4..2006withinwhich
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theauctionpurchaserhadmadethepayment.Onthesefacts,thecourtcametotheconclusionthatconditioninRule9(4)viz.
"suchextendedperiodasmaybeagreeduponinwritingbetweentheparties"wouldbetreatedassubstantiallysatisfied.
Again,pertinently,theWritPetitionwasfiledbytheborrowermorethan4yearsaftertheissuanceofthesalecertificate.On
thesefactsthecourtconcludedthattherewasawaiveroftheaforesaidmandatoryprovisionsbytheborrower.
19.Itcan,thus,beseenthatthereisnoconflictbetweenthetwosetsofjudgmentsnamelyMathewVarghesecasefollowed
inJ.RajivSubramaniyancaseontheonehandandIkbal'scaseontheotherhand.Inthefirstsetofcasestheinterpretation
giventoRule8and9oftheRulesholdthattheseRulesaremandatory.ItissoheldeveninIkbal'scase.However,Ikbal's
caseproceedsfurthertolaydowntheprinciplethatsincetheseprovisionsareforthebenefitoftheborrower,borrowercan
always waive those procedural requirements. This latter aspect never fell for consideration in the earlier two judgments.
Therefore, we see no force in the contention of the learned Senior Counsel of the appellant that judgment in Mathew
Varghese(supra)goescontrarytothelawlaiddowninIkbal'scase.
20.Theonlyquestion,therefore,isastowhetheritcanbeheldthattheborrowerinthepresentcasehadalsowaivedthe
mandatoryprovisionsofRules8and9oftheRules.WemayremarkthatitisexpresslyclarifiedinIkbal'scaseitselfthatthe
questionwhetherthereisawaiverornotdependsonthefactsoftheeachcaseandnohardandfastrulecanbelaiddownin
thisregard.
21.WewouldliketopointoutattheoutsetthattheargumentofwaiverwasnotraisedbytheappellantintheHighCourt.In
fact, this ground is not even raised in the Special Leave Petition. The appellant's case rested with hammering the
blameworthyconductoftheborrowerbyrelyingupontheobservationsoftheDRTtotheeffectthattheborrowerhadbeen
adoptingdilatorytacticsanddelayingtherecoveryofamountsduetothebanksomehowortheother.Itwasalsoarguedthat
the appellant is a bonafide purchaser and equities are in favour of the appellants which should be balanced and the
borrowerisnotentitledtoanyreliefbecauseofhisintemperateconduct.
22.Beasitmay.Sincetheargumentsispredicatedontheadmittedfactsappearingonrecord,weproceedtoexaminethe
sameonmerits.Ourexaminationrevealsthatnocaseofwaiverismadeout.
23.InStateofPunjabv.DavinderPalSinghBhullar&Ors.2011(14)SCC770theCourtexplainedthedoctrineofwaiveron
thebasisofearlierpronouncementswhicharetakennoteofdiscussedinthefollowingmanner:
"37.InManakLalthisCourtheldthatallegedbiasofaJudge/official/Tribunaldoesnotrendertheproceedingsinvalidifitis
shownthattheobjectioninthatregardandparticularlyagainstthepresenceofthesaidofficialinquestion,hadnotbeen
takenbythepartyeventhoughthepartyknewaboutthecircumstancesgivingrisetotheallegationsabouttheallegedbias
andwasawareofitsrighttochallengethepresenceofsuchofficial.TheCourtfurtherobservedthat:(SCCp.431,para8)"8.
...waivercannotalwaysandineverycasebeinferredmerelyfromthefailureofthepartytotaketheobjection.Waivercanbe
inferred only if and after it is shown that the party knew about the relevant facts and was aware of his right to take the
objectioninquestion."
38.Thus,inagivencaseifapartyknowsthematerialfactsandisconsciousofhislegalrightsinthatmatter,butfailstotake
thepleaofbiasattheearlierstageoftheproceedings,itcreatesaneffectivebarofwaiveragainsthim.Insuchfactsand
circumstances,itwouldbeclearthatthepartywantedtotakeachancetosecureafavourableorderfromtheofficial/courtand
whenhefoundthathewasconfrontedwithanunfavourableorder,headoptedthedeviceofraisingtheissueofbias.The
issueofbiasmustberaisedbythepartyattheearliest.(SeePannalalBinjrajv.UnionofIndiaandP.D.Dinakaran(1)v.
JudgesEnquiryCommittee.)
39.InPowerControlAppliancesv.SumeetMachines(P)Ltd.thisCourtheldasunder:(SCCp.457,para26)
"26.Acquiescenceissittingby,whenanotherisinvadingtherights....Itisacourseofconductinconsistentwiththeclaim....It
impliespositiveactsnotmerelysilenceorinactionsuchasinvolvedinlaches....Theacquiescencemustbesuchastolead
totheinferenceofalicencesufficienttocreateanewrightinthedefendant...."40.Inactionineverycasedoesnotleadtoan
inferenceofimpliedconsentoracquiescenceashasbeenheldbythisCourtinP.JohnChandy&Co.(P)Ltd.v.JohnP.
Thomas. Thus, the Court has to examine the facts and circumstances in an individual case. 41. Waiver is an intentional
relinquishment of a right. It involves conscious abandonment of an existing legal right, advantage, benefit, claim [pic]or
privilege,whichexceptforsuchawaiver,apartycouldhaveenjoyed.
Infact,itisanagreementnottoassertaright.Therecanbenowaiverunlessthepersonwhoissaidtohavewaived,isfully
informedastohisrightsandwithfullknowledgeaboutthesame,heintentionallyabandonsthem.(VideDawsonsBankLtd.
v. Nippon Menkwa Kabushiki Kaisha, Basheshar Nath v. CIT, Mademsetty Satyanarayana v. G. Yelloji Rao, Associated
HotelsofIndiaLtd.v.S.B.SardarRanjitSingh,JaswantsinghMathurasinghv.AhmedabadMunicipalCorpn.,SikkimSubba
Associatesv.StateofSikkimandKrishnaBahadurv.PurnaTheatre.)42.ThisCourtinMunicipalCorpn.ofGreaterBombay
v.DrHakimwadiTenants'Assn.consideredtheissueofwaiver/acquiescencebythenonpartiestotheproceedingsandheld:
(SCCp.65,paras1415)
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"14.Inordertoconstitutewaiver,theremustbevoluntaryandintentionalrelinquishmentofaright.Theessenceofawaiveris
an estoppel and where there is no estoppel, there is no waiver. Estoppel and waiver are questions of conduct and must
necessarilybedeterminedonthefactsofeachcase....
15.Thereisnoquestionofestoppel,waiverorabandonment.Thereisnospecificpleaofwaiver,acquiescenceorestoppel,
muchlessapleaofabandonmentofright.Thatapart,thequestionofwaiverreallydoesnotariseinthecase.Admittedly,the
tenantswerenotpartiestotheearlierproceedings.Thereis,therefore,noquestionofwaiverofrightsbyRespondents47
norwouldthisdisentitlethetenantsfrommaintainingthewritpetition."
24.Fromwhatisarguedbytheappellants,atbestitcanbeinferredthattheborrowertriedtothwarttheearlierattemptsofthe
Bankinsellingtheproperty.Whenthefirstnoticewasissued,theborrowerfiledthewritpetition.However,itistobebornein
mind that in the said Writ Petition no interim order was passed staking the auction on the stipulated date. The only stay
grantedwasagainstconfirmationofsale.Thatdidnotprecludeanybodyfromparticipatingintheauction.Wearemindfulof
the ground realities that many times pendency of such a Writ Petition challenging the auction notice and the kind of stay
granted,evenpartialinnature,detertheintendingbuyerstocomeforwardandparticipateintheauction.
Beasitmay,wefindoutthateveninthesecondattemptwhenthereservepricewasreducedtoRs.2.39crores,thehighest
bidreceivedwasinthesumofRs.2.25crores.Further,eventhebidoftheappellantwhichwasacceptedwasinthesumof
Rs.2.16crores.Likewise,afterthesecondauctionwhentheBankrequestedtheborrowertoacceptthebidofRs.2.25crores
givingitsreasonsandtheborrowerinsteadofdoingsotookinitiativeresultinginOTSbutdefaultedtherein,itwouldmerely
indicatethattheborrowerwasatfaultinnotadheringtotheOTS.BynologicitcanbededucedtherefromthattheBankwas
relieved from its obligation not to follow the mandatory procedure contained in the Rules, while taking fresh steps for the
disposaloftheproperty.
25.Themootquestionis,evenifthereweredelayingtacticsadoptedbytheborrowerinrespectoffirsttwoauctions,whether
that conduct of the borrower would amount to waiving the mandatory requirement of publishing subsequent notice dated
27.4.2006fixingthedateofauctionas8.5.2006?Ouranswerhastobeinthenegative.Theaforesaidconductcannotbe
takenaswaivertothemandatoryconditionof30daysnoticeforauctionaswellasotherrequirements.Forexaminingthe
plea of waiver, we will have to see as to whether by implied or express actions, the borrower has waived the aforesaid
mandatoryrequirementwhenthepropertywasputtosale.
Wedonotfind,noritissuggested,eventheslightestmoveonthepartoftheborrowerinthisregardwhichmayamountto
waiver either express or implied. On the contrary, when notice dated 27.4.2006 was published, the borrower immediately
filed the Writ Petition 6471 of 2006 challenging the auction notice. Thus, its conduct, far from waiving the aforesaid
requirement,wastoconfrontthebankbyquestioningitsvalidity.Itisadifferentmatterthatithadtowithdrawthesaidwrit
petitioninviewofavailabilityofalternateremedy.Immediately,itfiledapplicationunderSection18oftheSARFAESIAct.
Thereis,thus,notevenaniotaofmaterialsuggestinganywaiveronthepartoftheborrower.
26.ThemomentwefindthatthemandatoryrequirementoftheRuleshadnotbeenwaivedbytheborrower,consequencesin
lawhavetofollow.AsheldinMathewVarghese'scase,whenthereisabreachofthesaidmandatoryrequirementthesaleis
to be treated as null and void. Moreover, the appellant have no answer to many other infirmities pointed out by the High
Court.We,therefore,areoftheopinionthatpresentappealslackmerit.
27.Beforewepartwith,itisimperativetomentionthatthepurchaserhaspaidasumofRs.1.86crorestowardspurchaseof
propertyandRs.30lakhtowardsmoveableitemstotheBank.HehasalsospentRs.1,86,335/towardsregistrationfeeand
Rs.15,62,400/ towards stamp duty. In addition, dues towards municipal tax, Sales Tax liability, dues of Employees State
InsuranceCorporation,EmployeesProvidentFundandBelgaumIndustrialCooperativeBankhavealsobeenpaid.Atotal
whereofcomestoRs.49,91,000/.Theseweretheliabilitiesoftheborrower.Inthisway,totalamountofRs.2,83,39,735/is
paidbythepurchaser.HehasalsodischargedmunicipaltaxliabilityinthesumofRs.2,86,078/fortheperiod1.4.2007to
31.3.2009.
AswehaveaffirmedtheorderoftheHighCourtsettingasidethesale,wegranttwomonthstimetotheborrowertodischarge
the entire liability of the Bank. The borrower shall also reimburse the amount of registration fee and stamp duty to the
purchaser.Thedirectiontopaythisamountisgivenhavingregardtotheconductoftheborroweronearlieroccasions.Ifthe
borrowerpaystheamountduetotheBank,registrationcharges,stampdutyaswellasamountofencumbrancespaidbythe
purchaser,whichwastheliabilityoftheborroweri.e.asumofRs.49,91,000/+2,86,078/,thepropertyshallrevertbackto
theborrower.
Iftheaforesaidamountsarenotpaidwithintheaforesaidtwomonths,theBankshallbeatlibertytoproceedwiththesaleof
the property following due procedure under the law. In so far as the purchaser is concerned, he shall be refunded entire
amount spent by the purchaser, as mentioned above. We have consciously not granted interest to the purchaser on the
aforesaidamount,asthepurchaserhas,inthemeantime,utilizedthepropertyinquestion.
28.Subjecttotheabove,theappealsaredismissed.
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..............................J.(SurinderSinghNijjar)
..............................J.(A.K.Sikri)
NewDelhi,

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