In a recent legal case under the SARFAESI Act, the court’s analysis of compliance with statutory provisions and the application of waiver and estoppel principles plays a crucial role. The judgment provides valuable insights into the complexities of enforcing rights under the Act and the considerations surrounding relief sought by the parties involved. Let’s explore the intricate legal analysis and implications of this case.
Facts
- (xi) The Bank filed a petition under Section 14 of the SARFAESI Act to take possession of the secured asset, which was granted on 3 May 2017.
- (xii) The Bank issued a notice for auctioning the Subject Property with a reserve price of Rs.2,78,10,000/- on 1 June 2017.
- (xiii) The Borrower did not respond to the auction notice or make any payment to halt the process.
- (xiv) Previous auctions on 6 October 2017 did not attract any bidders, leading to further auction attempts.
- (xv) The Borower’s appeals for regularisation of the account failed as no bidders participated in the auctions.
- (xvi) Despite reminders and restructuring proposals, the Borrower did not comply with the Bank’s requests to submit necessary documents.
- (xvii) The Borrower sought regularisation of the account but faced non-compliance and failure.
- (xviii) The Borrower submitted a restructuring proposal along with an undated cheque for Rs.25,00,000/-.
- (xix) The Borrower did not challenge the sale of the Subject Property after Basa Chandramouli made the payment.
- (xx) The Borrower did not respond to the fourth auction notice with a reduced reserve price of Rs.2,60,00,000/-.
- (xxi) The Subject Property was eventually sold to Basa Chandramouli at a bid price of Rs.2,91,20,000/- in an auction on 11 September 2018.
- The Division Bench of the High Court of Telangana at Hyderabad allowed Writ Petition No 13936 of 2019 by M/s. Alphine Pharmaceuticals Private Limited and Bejjenki Bhaskara Chary (the Borrower)
- The judgment set aside and quashed the proceedings initiated by M/s.
- The judgment favored the Borrower on the first four points, and reinstated the physical possession of the Subject Property to the Borrower
- Stated that the Bank (secured creditor) could proceed to recover its dues from the Borrower only in accordance with the SARFAESI Act and the Rules
Also Read: Land Auction Dispute Resolution
Issue
- (a) The obligation of the 1 respondent Bank to comply with Section 13(3A) of the Act and respond to the petitioners’ representation.
- (b) Determining if any reliefs claimed in the O.A. by the petitioners are barred by limitation.
- (c) The propriety of the 1 respondent Bank not separately valuing the machinery in the subject property before selling it to the 2 respondent.
- (d) The necessity for the 1 respondent Bank to obtain a fresh valuation certificate before the e-auction sale held on 11.09.2018.
- (e) Entitlement of the petitioners to any relief.
Also Read: Analysis of Bail Conditions in Criminal Appeal No. INSC 48/2024
Arguments
- The petition deserves to be allowed based on arguments from both the petitioner and the State.
- The learned counsel for both parties have been heard and considered.
- The judgment favors the petitioner and rules in their favor.
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Analysis
- Bank issued possession notice under Section 13(4) of the SARFAESI Act without making reference to borrower’s representations.
- Borrower’s representations sought extension of moratorium and more time for repayment, despite not specifically mentioning response to notice under Section 13(2).
- Principle of equitable estoppel bars borrower from complaining of violation as creditor considered representations and granted sufficient opportunities for repayment.
- Waiver can be contractual or by express conduct in consideration of compromise.
- Bank considered borrower’s request for extension of moratorium period, but borrower failed to provide viability report and additional collateral security.
- Borrower’s repeated positive acts post notices under Sections 13(2) and (4) of the SARFAESI Act waived remedy, putting the bank in a position of delay and laches.
- High Court concluded violation of Section 13(3A) of the SARFAESI Act by the bank, but subsequent events and borrower’s conduct during negotiations displayed disingenuous behavior.
- Challenging actions prior to 2 July 2018 not barred by limitation, as they form part of the same cause of action.
- Auction sale price higher than fair market valuation of land, building, and machinery.
- The principle of waiver and estoppel discussed in the context of borrower’s conduct and bank’s actions.
- Waiver of a right is subject to certain exceptions, such as when prohibited by statute or against public policy.
- A person cannot waive a right of a third party.
- Courts have the discretion to grant relief based on the specific circumstances of each case.
- The general approach is to grant relief to a successful claimant, but courts may decide to withhold or modify the remedy based on what is fair and just in the particular case.
- Waiver is the abandonment of a right and can be implied from conduct or acquiescence.
- Waiver of a mandatory requirement of a statute can be permitted if the provision is for the benefit of a party and not contrary to public policy.
- Waiver of a personal privilege or right can be allowed, but the courts may be reluctant to apply waiver when the provision is based on public policy.
- Relief may be granted selectively, addressing specific aspects of a case rather than all claims.
- Challenging actions taken by a secured creditor under SARFAESI Act is possible at various stages, including up to the auction and sale confirmation.
- The lender knows its interests and how to secure the best value of the property to recover debts.
- The mortgaged property had to be sold for the recovery of debts due to the bank.
- The date of the valuation report does not favor the borrower.
Decision
- The reserve price was reduced from Rs.2,78,10,000 to Rs.2,60,00,000.
- The successful bid in the fourth auction was Rs.2,91,20,000, higher than the reserve price and fair market value.
- The appeals were allowed and the impugned order was set aside.
- Attempts to sell the property were made on 28 March 2018 and 14 June 2018 without success.
- The valuation report is dated 19 February 2018.
- The order upholding the procedure and sale of the Subject Property under SARFAESI Act is upheld.
- No order as to costs in the present case.
Case Title: ARCE POLYMERS PVT. LTD. Vs. M/S ALPHINE PHARMACEUTICALS PVT. LTD. (2021 INSC 820)
Case Number: C.A. No.-007372-007372 / 2021
