Arce Polymers Private Limited vs M/s. Alphine Pharmaceuticals Private Limited and Others

SARFAESI Act : ss.13(2) and (4) – Failure of Borrower to repay loan as per payment schedule – Loans declared NPA – Notice issued by Bank under s.13(2) calling upon Borrower to discharge its liability – However, Borrower neither made any payment nor responded by way of reply – Thereafter, Borrower wrote letter in which while accepting defaults and non payment enlisted reasons for not being able to adhere to payment schedule and requested to grant further moratorium – Bank granted further moratorium and deferred action under SARFAESI Act to enable Borrower to submit detailed project/viability report – Borrower failed to fulfill promise made – Post this default also there were negotiations with assurances and promises by the Borrower – Displaying forbearance, the Bank granted indulgence as action under the SARFAESI Act was deferred for nearly one year – Thereafter Bank issued notice under s.13(4) and took symbolic possession of subject property – After several attempts to auction the property, fourth attempt was successful and property was sold and sale certificate issued – Before auction, Borrower was given notice of auction – Thereafter borrower filed petition before DRT challenging the enforcement proceedings in respect of the subject property including all steps taken right from issue of notice under s.13(2) of the SARFAESI Act – DRT dismissed borrower ’s application – Borrower preferred writ petition – Meanwhile auction purchaser sold the property to second purchaser – High Court held that the Borrower can challenge the possession notice, taking of symbolic possession notice, taking of physical possession, sale notice and sale certificate as they all form part of the same cause of action – High Court concluded that compliance with s.13(3A) being mandatory, Bank had failed to respond with reasons to the representations made by the Borrower – Instant appeal filed by second purchaser – Held : It is correct that waiver being an intentional relinquishment is not to be inferred by mere failure to take action, but the instant case is of repeated positive acts post the notices under ss.13(2) and (4) of the SARFAESI Act – Not only did the Borrower not question or object to the action of the Bank, but it by express and deliberate conduct had asked the Bank to compromise its position and alter the contractual terms – The Borrower wrote repeated request letters for restructuring of loans, which prayers were considered by the Bank by giving indulgence, time and opportunities – The Borrower, aware and conscious of its rights, chose to abandon the statutory claim and took its chance and even procured favourable decisions – Borrower’s conduct had put the Bank in a position where they have lost time, and suffered on account of delay and laches, which aspects are material – Action on the subject property was delayed by more than a year as at the behest of the Borrower, the Bank gave them a long rope to regularise the account – To ignore the conduct of the Borrower would not be reasonable to the Bank once third party rights have been created – In this background, the principle of equitable estoppel as a rule of evidence bars the Borrower from complaining of violation – The Borrower challenged the actions taken by the Bank after the Subject Property had changed hands and third party interests had been created – Thus, the Borrower waived and is estopped from challenging violation of s.13(3A) of the SARFAESI Act. Judgment/Order: Remedy/relief – Grant of, scope – Held: Power of the courts/judicial authorities to mould relief – While holding that the general approach is that the claimant who succeeds in establishing the unlawfulness of administrative action is entitled PHARMACEUTICALS PVT. LTD.

to grant of remedial order, the general proposition does not undermine the discretion which the courts or judicial authorities have in assessing “what is fair and just to do in the particular case to withhold the remedy altogether or to mould the remedy by grant of a declaration rather than a more coercive quashing, prohibiting or mandatory order or injunction which may have been sought” – Relief may be granted in respect of one aspect and not others – The general approach, therefore, is that a complainant who succeeds in establishing unlawfulness of an action is entitled to a remedial order, but the court has discretion in the sense of determining what is fair and just to do in a particular case.

Allowing the appeals, the Court

HELD: 1. Waiver is an intentional relinquishment of a known right. Waiver applies when a party knows the material facts and is cognizant of the legal rights in that matter, and yet for some consideration consciously abandons the existing legal right, advantage, benefit, claim or privilege. Waiver can be contractual or by express conduct in consideration of some compromise. However, a statutory right may also be waived by implied conduct, like, by wanting to take a chance of a favourable decision. The fact that the other side has acted on it, is sufficient consideration. It is correct that waiver being an intentional relinquishment is not to be inferred by mere failure to take action, but the present case is of repeated positive acts post the notices under Sections 13(2) and (4) of the SARFAESI Act. Not only did the Borrower not question or object to the action of the Bank, but it by express and deliberate conduct had asked the Bank to compromise its position and alter the contractual terms. The Borrower wrote repeated request letters for restructuring of loans, which prayers were considered by the Bank by giving indulgence, time and opportunities. The Borrower, aware and conscious of its rights, chose to abandon the statutory claim and took its chance and even procured favourable decisions. Even if we are to assume that the Borrower did not waive the remedy, its conduct had put the Bank in a position where they have lost time, and suffered on account of delay and laches, which aspects are material. Action on the Subject Property was delayed by more than a year as at the behest of the Borrower, the Bank gave them a long rope to regularise the account. To ignore the conduct of the Borrower would not be reasonable to the Bank once third party rights have been created. In this background, the principle of equitable estoppel as a rule of evidence bars the Borrower from complaining of violation. [Para 14][1076-G-H; 1077-A-E]

ITC Limited v. Blue Coast Hotels Limited and Others (2018) 15 SCC 99 : [2018] 5 SCR 516 – relied on.

Commissioner of Customs, Mumbai v. Virgo Steels, Bombay and Another (2002) 4 SCC 316 : [2002] 2 SCR 934; AL.AR. Vellayan Chettiar (Decd.) and Others v. Government of the Province of Madras, Through the Collector of Ramnad at Madura, and Another AIR 1947 PC 197; S. Raghbir Singh Gill v. S. Gurcharan Singh Tohra and Others (1980) Supp SCC 53 : [1980] SCR 1302; Krishan Lal v. State of J&K (1994) 4 SCC 422 : [1994] 2 SCR 149; Martin & Harris Ltd. v. VIth Additional Distt. Judge and Others (1998) 1 SCC 732 : [1997] 6 Suppl. SCR 380; Bank of India and Others v. O.P. Swarnakar and Others, (2003) 2 SCC 721 : [2002] 5 Suppl. SCR 438; Shri Lachoo Mal v. Shri Radhey Shyam (1971) 1 SCC 619; Pravesh Kumar

Sachdeva v. State of Uttar Pradesh and Others (2018)

10 SCC 628 : [2018] 11 SCR 504 – referred to.

2. In consideration of the facts of the present case, another important aspect to be duly noted is the power of the courts/judicial authorities to mould relief. While holding that the general approach is that the claimant who succeeds in establishing the unlawfulness of administrative action is entitled to grant of remedial order, the general proposition does not undermine the discretion which the courts or judicial authorities have in assessing “what is fair and just to do in the particular case – to withhold the remedy altogether or to mould the remedy by grant of a declaration rather than a more coercive quashing, prohibiting or mandatory order or injunction which may have been sought.” Relief may be granted in respect of one aspect and not others. The general approach, therefore, is that a complainant who PHARMACEUTICALS PVT. LTD.

succeeds in establishing unlawfulness of an action is entitled to a remedial order, but the court has discretion in the sense of determining what is fair and just to do in a particular case. [Para 17][1078-F-G; 1079-A-B]

Beg Raj Singh v. State of U.P. and Others (2003) 1 SCC

726 : [2002] 5 Suppl. SCR 530; Rameshwar and Others v. Jot Ram and Another (1976) 1 SCC 194 : [1976] 1 SCR 847 – referred to.

3. In the present case, it is clear from a bare perusal of the letter dated 7th November 2016 sent by the Bank to its Zonal Manager that the Bank actively considered the Borrower’s request for extension of the moratorium period. The Borrower did not submit the viability report and failed to bring in Rs. 45,00,000/- (Rupees forty five lakhs only). Post this default also there were negotiations with assurances and promises by the Borrower. Displaying forbearance, the Bank granted indulgence as action under the SARFAESI Act was deferred for nearly one year from 7th November 2016 till 6th October 2017. Thereafter, negotiations were held on 30th October 2017, 6th November 2017 and 8th November 2017. The email dated 30th November 2017 addressed by the Bank to the Borrower highlights the dilatory and tricky approach of the Borrower as it had failed to submit details of the additional collateral security offered along with the legal opinion and the engineer’s valuation report. Even visit to the proposed collateral security property was not arranged. The Borrower again tried its luck and submitted a restructuring proposal vide communication dated 18th December 2017, but this did not fructify into an acceptable settlement. The Bank having lost faith could not rely on the Borrower. Only thereafter, the Bank proceeded with the auctions under the SARFAESI Act on

28 th March 2018 and 14 th June 2018. The Borrower then kept silent. As the earlier auctions failed, the Bank issued notice dated 20th August 2018 informing the Borrower about the fourth auction to be held on 11th September 2018 at a reduced reserve price. The Borrower challenged the actions taken by the Bank after the Subject Property had changed hands and third party interests had been created. Taking into consideration the entire facts of the case, which perspicuously reflect disingenuous conduct on part of the Borrower to gain indulgence, unfulfilled assurances and promises, their unwillingness to pay, the Borrower has waived and is estopped from challenging violation of Section 13(3A) of the SARFAESI Act and hence, the first issue is decided in favour of the Bank. [Para 18][1080-A-G]

4. With regard to the issue of the valuation of the machinery and the adverse finding of the High Court on the question of valuation before the machinery was sold in auction, it is to be noticed that the valuation report which has been placed on record is dated 19th February 2018, values the land, the building and the machinery separately. The machinery has been valued with specific reference to as many as 55 separate items under the Heading ‘Description of Machinery’. The valuation report itself has not been disputed or challenged. We do not agree with the High Court that the machinery should have been separately auctioned or sold. This would be putting fetters and restrictions on the Bank by baring the Bank from selling the machinery along with the building and the land. Prejudice and loss caused to the Borrower is not shown and established. Auction sale as confirmed was at a price higher than the fair market valuation of the land, the building and the machinery. Whether or not the price of the machinery should be accounted for the purpose of payment of stamp duty on a composite sale wherein the land, the building and the machinery located in the building are sold, would not be of any relevance and importance as the issue in question does not concern payment of stamp duty and the principles applicable. On the other hand, the law recognises that the lender knows its interests and how to secure best value of the property given the fact that the mortgaged property had to be sold for recovery of the debts due and payable to the Bank. [Para 19][1081-B-F]

5. The next issue relating to the date of the valuation report also does not help the Borrower. The valuation certificate or report is dated 19th February 2018. As held above, attempts to sell the property were made thereafter on 28th March 2018 and

14 th June 2018 but without success as there were no bidders. Accordingly, it was decided to reduce the reserve price from Rs.2,78,10,000/- to Rs.2,60,00,000/-. However, in the fourth PHARMACEUTICALS PVT. LTD.

auction the successful bid given by Basa Chandramouli was for Rs.2,91,20,000/-, which is much higher than the reserve price of Rs.2,60,00,000/- or the fair market value of Rs.2,73,80,000/- in terms of the valuation report. [Para 20][1081-F-H; 1082-A]

Blue Coast Hotels Limited v. IFCI Limited and Another 2016 SCC OnLine Bom 2663; Authorised Officer,

Indian Overseas Bank and Another v. Ashok Saw Mill (2009) 8 SCC 366 : [2009] 11 SCR 599 – referred to.