Court sets aside the proceedings

Holding that the auction sale of a property by a bank has been found to be vitiated on so many grounds, including fraud, the Madras High Court has directed the bank to entrust the matter with an investigation agency, preferably CB CID, which can investigate and proceed as per law.

Passing orders on a writ petition by two persons, a Division Bench, comprising Justices F.M. Ibrahim Kalifulla and N. Kirubakaran, said that for non-compliance of mandatory provisions of law, fraud, lack of fair play, bona fide and so on, the entire proceedings initiated by the bank in favour of a person got vitiated. It set aside the proceedings.

The Bench directed the property purchaser to hand over possession to the petitioners within a fortnight. It also imposed exemplary costs of Rs.50,000 payable by the bank to the petitioners.

In their petition, Sheeba Philominal Merlin, the first petitioner, and Esther Evelyan, second petitioner and her daughter, submitted that the former's husband K. Jayakumar died in September 2005.

The first petitioner said she came to know about an advertisement in newspapers about the sale of their property in State Bank Colony, Sembium, Perambur, for alleged collateral security offered by her husband for loan transaction of Path Finders Technology Pvt. Ltd. The 3,168 sq. feet property was stated to be worth more than Rs.1.5 crore.

The petitioners informed Repatriates Co-op Finance and Development Bank Ltd (Repco Bank) that Jayakumar had died and produced the death certificate and legal heir certificate. They contended that no notice under Section 13 (2) of the Securities and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) and under Section 13 (4) had been issued. However, the auction was conducted and the property sold to a person who offered the highest bid of Rs.33.50 lakh.

Hence, the present petition seeking to call for the records relating to the auction and quash the same and direct the bank to restore possession of the property to the petitioners.

The bank submitted that Jayakumar was absconding and it was not aware of his death and legal heirs. It claimed that notices had been issued.

G. Rajagopalan, senior counsel for the petitioners, said there was a violation of principles of natural justice as no notice was served on the legal heirs. Therefore, the entire proceedings were vitiated.

The Bench observed that it was a clear case of abuse and misuse of power by the bank officials, who had altered the bid amounts offered by other bidders. Records produced proved the absence of service of notice. Jayakumar had stood only as guarantor for the loan secured by the company. The bank's action resulted in loss to the bank as well as the guarantor as the property ex-facie was allegedly sold for a very low price.