Status Quo Order Not Served: Orissa HC Upholds Bank's SARFAESI Auction of Cashew Unit's Property [Read Order]
The High Court noted that much water had flowed under the bridge, with the sale deed having been executed and possession handed over to the auction purchaser in 2017.
Cashew - Unit's - Property - Taxscan
Cashew - Unit's - Property - Taxscan
In a recent ruling, the Orissa High Court dismissed a writ petition holding that a bank's auction under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) was valid as the alleged status quo order was never served on the bank, and the claims of undervaluation were baseless.
Jagannath Cashew Processing Unit (Loanee) & another, the petitioners is a proprietorship concern and its guarantor, challenged the order dated 15.11.2019 of the Debts Recovery Appellate Tribunal (DRAT), Kolkata. The DRAT had set aside the DRT's order and upheld the measures taken by the State Bank of India, including the auction sale of the petitioners' mortgaged property on 19.05.2017 for Rs. 29.04 lakhs. The case stemmed from a default on a cash credit facility that had been declared a Non-Performing Asset (NPA).
Counsel for the petitioners, Mr. Ramakanta Mohanty, argued that the auction was illegal as it was conducted during the subsistence of a status quo order passed by this Court on 12.05.2017. He further contended that the property was grossly undervalued and that the bank had acted mala fide by offering a One Time Settlement (OTS) after the sale.
Per contra, Mr. S.P. Mishra, Senior Advocate for the bank, vehemently opposed the petition, stating that the bank was not aware of the status quo order as it was never served. He argued that the rights of the innocent third-party auction purchaser had crystallized and that the undervaluation claim was unfounded, as the guarantor himself had previously agreed to sell the property for a mere Rs. 3 lakhs.
The Division Bench of Justice S.K. Sahoo and Justice Sibo Sankar Mishra undertook a detailed examination of the record. The Court found that the status quo order was passed ex-parte and there was no evidence to suggest it was ever communicated to the bank or its counsel before the sale certificate was issued on 12.06.2017. The bank only became aware of the order on 17.06.2017. Consequently, the Court held that this ground of attack "falls flat".
Regarding the allegation of undervaluation, the Court termed it "baseless", noting that the auction price of Rs. 29.04 lakhs was significantly higher than the Rs. 3 lakhs for which the guarantor had himself agreed to sell the same property. The Court also accepted the bank's explanation that the OTS proposal was a routine communication to defaulters and an "inadvertent error".
The High Court noted that much water had flowed under the bridge, with the sale deed having been executed and possession handed over to the auction purchaser in 2017. It observed that upsetting the sale at this belated stage would prejudice the bank and the innocent purchaser.
Finding no perversity in the DRAT's order, the Orissa High Court dismissed the writ petition, thereby upholding the bank's auction under the SARFAESI Act.
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