Fresh Proclamation Necessary In Case Of Stay Of Auction By Higher Authorities Under Maharashtra Co-Operative Societies Rules - SC

In this case, the director i.e. Respondent No.1 of Vaishnavi Hatcheries Company Limited - Borrower borrowed a loan from the Appellant-Bank and one Vaidanath Nagari Sahakari Bank. As a security to the said loan, four properties, i.e., survey nos. 102, 440, 437 & 439 were mortgaged. Moreover, the borrower defaulted in payment of the appellant-bank and Vaidanath Bank in the year 2010. Both the banks initiated separate recovery proceedings against Respondent No.1 and the borrower. A proclamation as per Rule 107(11) of the MCS Rules, 1961 was issued giving 30 days' time to Respondent No.1 to pay the amount. Thereafter, Respondent No.1 challenged the auction proceedings before the Divisional Joint Registrar which was dismissed. Respondent No. 1 further appealed before the Bombay High Court which was also dismissed.

Feeling aggrieved and dissatisfied with the order passed by the Single Judge the Respondent No.1 preferred a Letters Patent Appeal which came up for hearing before the Division Bench. However, Respondent No.1 withdrew the said Letters Patent Appeal and therefore the said LPA came to be dismissed as withdrawn. From the impugned judgment and order passed by the High Court, it appeared that the High Court had set aside the auction sale on the ground that there was a non-compliance of mandatory provisions of Rule 107(11) (e) (f) and Rule 107(11)(h) of the MCS Rules, 1961. Thus, the appellant bank, as well as the auction purchaser both, had preferred the appeals to the Supreme Court.

Counsel Shri Sudhanshu S. Choudhari, appeared on behalf of the Appellants, Counsel Shri Nishant Katneshwarkar, represented the auction purchaser while Senior Advocate, Shri Santosh Paul, appeared on behalf of Respondent No.1 before the Apex Court.

The primary issue in this case was –

• Whether the Bombay High Court had committed a grave error in observing the breach of Rules 107(11)(e), (f) & (h) of the Maharashtra Co-operative Societies Rules, 1961.

It was contended by the Appellant Bank that once held by the High Court that since Respondent No.1 did not exercise the right under Rule 107(13), the Revision Application under Section 154 of the MCS Act, 1960 was not maintainable, and thereafter it was not open for the High Court to pass the impugned judgment and order in the writ petition in which the order passed in the revision application was under challenge. Moreover, the High Court had erred in observing and holding that there was a breach of Rules 107(11)(e), (f) & (h) of the Maharashtra Co-operative Societies Rules, 1961 Also, it was argued that the High Court had committed a grave error in observing and holding that in terms of Rule 107(11)(e) and (f), there was no gap of thirty days between the proclamation and the sale.

Additionally, the auction purchaser submitted that the High Court had erred in observing that the auction purchaser did not deposit the 85% of the balance amount of sale consideration within the stipulated time provided under the Rules. It was urged that the High Court had committed a grave error in setting aside the entire sale which was held in 2010/2011.

The Supreme Court noted that what was challenged before the High Court was the order passed by the Divisional Joint Registrar passed in Revision Application under Section 154 of the MCS Act, 1960. However, the High Court in the impugned judgment had specifically observed that as the borrower did not exercise the right under Rule 107(13) of the MCS Rules, it was not competent for the borrower to prefer revision before the Divisional Joint Registrar under Section 154 of the MCS Act, 1960.

Thus, according to the Court, once the revision application before the Divisional Joint Registrar under Section 154 of the MCS Act, 1960 was held to be not maintainable and/or competent at the instance of the borrower i.e. the Respondent No.1 herein, the High Court could not consider the writ petition on merits.

Additionally, the Court held that on merits also, the High Court had erred in entertaining the writ petition filed by the borrower and quashing and setting aside the auction sale/sale on the grounds that – "firstly, that after conducting the auction sale and sale of the property in favour of the auction purchaser, the borrower never applied to the Recovery Officer to set aside the sale on the grounds of material irregularity, mistake or fraud in publishing or conducting it; secondly, as per proviso to Rule 107(14)(i) of the MCS Rules, no sale shall be set aside on the ground of irregularity or fraud unless the Recovery Officer is satisfied that the applicant has sustained substantial injury by reason of such irregularity, mistake or fraud; and thirdly, as per Rule 107(14)(iii), on the expiration of thirty days from the date of sale, if no application to have the sale set aside is made or if such application has been made and rejected, the Recovery Officer shall make an order confirming the sale."

The Court further observed that setting aside of auction sale/sale by the High Court was just contrary to the proviso to Rule 107(14)(i) of the MCS Rules, 1961. Moreover, the High Court had also observed and held that as the auction was held/conducted within a period of thirty days from the date of issuance of proclamation, the same according to the Apex Court, was in violation of Rule 107(11)(f) of the MCS Rules.

The Court noted that if the contention/submission on behalf of the borrower was accepted that second proviso to Rule 107(11)(f) did not state that the fresh proclamation was not necessary if there was a stay of the auction by higher authorities/Courts, in that case, every dishonest borrower who wanted to scuttle or delay the auction/sale would approach the Court/appropriate authority at the eleventh hour and obtain a stay of the auction which may continue for more than seven days and he would then contend that as more than seven days had passed, the fresh proclamation had to be issued. Thus, the aforesaid position was not accepted by the Supreme Court.

Thus, the impugned judgment and order passed by the Bombay High Court was hereby quashed and set aside, and consequently the petition filed by the borrower- Respondent No.1 was dismissed. The appeals were allowed.

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