HC: If the actions of the secured Creditor are Arbitrary and Violates Article 14- A Writ Petition cannot be said to be not maintainable

  

The Punjab and Haryana HC was dealing with the writ petition to set aside the order dated 31.3.2021 and the sale of the residential property of the petitioners as well the sale certificate issued to the auction purchasers by bank.

Brief Facts:

The petitioners along with other co-borrowers had availed various credit facilities in 7 loan accounts from the 1st respondent. They mortgaged their residential House to the said Bank for providing the said facilities. Apart from this property, they also mortgaged three plots situated in Mohali. The loan account of the petitioners was declared as Non-Performing Asset in 2016 and notices under Section 13(2) of the `SARFAESI Act' were issued to the petitioners demanding `22,11,470/- within 60 days. In 2017, the petitioners had paid a sum of `18.05 Lacs to the bank by way of demand drafts with regard to four of the loan accounts. Subsequently, the Bank introduced a new One Time Settlement Scheme for the year 2020-21 in respect of NPA accounts upto `5 Crores, which OTS Scheme was to be in force upto 31.03.2021. After the said Scheme Petitioners requested that a sum of `18.5 Lacs already deposited by them earlier be treated as part of the aforesaid amount to be payable under the OTS Scheme framed by the Bank. The Bank then wrote back to the petitioners that the latest outstanding was `481.52 Lacs plus interest from the date of NPA till date and the OTS amount payable would be `281.15 Lacs. The Bank informed the petitioners that out of the upfront amount of `43.95 Lacs, the petitioners have deposited only `7.50 Lacs during previous OTS proposal and therefore, they should pay the remaining upfront amount of `36.45 Lacs. It mentioned in the said letter that till the loan accounts were resolved through payment of entire outstanding dues or through OTS, all recovery action will be continued as per process of law. The Bank then put the residential house of the petitioners to public auction proposing to sell the property on 08.01.2021.

Petitioner’s Contention:

The learned counsel for the petitioner has submitted that they met the officers of the Bank on several occasions and apprised them that they have deposited a sum of `18.50 Lacs with the Bank earlier towards earlier OTS proposal and the said amount should be adjusted towards upfront amount of`43.95 Lacs payable under the new OTS Scheme. They undertook to deposit the balance upfront amount of `25.5 Lacs after adjusting the amount of `18.50 Lacs at the earliest and in any case before March 31, 2021, i.e., the last date of operation of the OTS Scheme. The petitioners contended that the Bank did not inform them about its decision whether or not it would be ready to adjust the amount of `18.50 Lacs deposited by them towards the earlier OTS proposal. The petitioners contended that this action of the Bank in putting the said residential property to sale when the petitioners had time to deposit the OTS amount, as per new OTS Scheme floated by the Bank is arbitrary, illegal and unsustainable.

Present Writ Petition:

On 22.3.2021, the petitioners filed this Writ Petition contending that they will deposit balance OTS amount after deducting `18.50 Lacs already paid by them to the Bank in the earlier OTS proposal within the time stipulated in the OTS Scheme and, therefore, a direction be issued to Bank to settle the loan accounts of the petitioners, as per its OTS Scheme since the petitioners were admittedly eligible under the said Scheme; and to quash the order passed by the Tehsildar, informing about taking physical possession of the residential property of the petitioners.

It is admitted that the petitioners had deposited `36,45,000/-, which together with the `7.5 Lacs already lying with it, indicated that the petitioners had deposited a total upfront amount of ` 43.95 Lacs. But it is contended that the residential property of petitioners in Sector 37-D, Chandigarh, had already been sold in e-auction for `167.40 Lacs, that the auction purchasers had already deposited 25% initial amount, and for deposit of remaining 75% amount, extension was granted to him by the competent authority, as per the SARFAESI Act.

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HC’s observations:

After the submissions made by both the parties the HC observed that the OTS scheme makes it clear that the Scheme would be valid upto 31.03.2021 in respect of NPA accounts upto `5 Crores. If the scheme is applicable to NPA accounts upto `5 Crores, the Bank cannot arbitrarily change the date of eligibility to 23.3.2021, the date when the OTS proposal was allegedly made according to the 1st respondent. The HC stated that the OTS offer of the petitioner cannot be treated as having been made on 23.3.2021 at all as is being contended by the 1st respondent Bank. The petitioners' offer for consideration of their case under the OTS Scheme had been made on 14.09.2020/15.10.2020, and not on 21.3.2021. On account of the bank not clarifying as to whether it would treat the previous deposit of `18.5 Lacs as payment towards the upfront payment of `43.95 Lacs, the matter could not proceed further.

HC relied upon the case of Ramana Dayaram Shetty v. The International Airport Authority of India and others where the SC held that “it is well settled rule of administrative law that an executive authority must be rigorously held to the standards by which it professes its actions to be judged and it must scrupulously observe those standards on pain of invalidation of an act in violation of them.”

The plea of the bank is untenable because the bank could not have imposed any such condition in the said letter contrary to the OTS scheme which was valid upto 31.3.2021.

The HC stated that it was obligatory on its part to wait till 31.03.2021 to see whether the petitioners would comply with the terms of the OTS by that date by depositing the upfront amount before 31.3.2021 since it is not disputed that they were eligible for consideration under the OTS scheme if they were to deposit the same before the cut-off date of 31.3.2021.

HC held:

The HC after evaluating various submissions made by both the parties held that “the reasons assigned in the speaking order dt. 31.03.2021 passed by the bank are arbitrary and the said order is declared as arbitrary, illegal and violative of Art.14 of the Constitution of India and is set aside. The Bank has ignored the OTS scheme and the circumstances in which it was framed and has acted contrary to it. The action of the Bank in putting the residential property of the petitioners to sale on 08.01.2021 itself is illegal, said sale as well as sale certificate are liable to be set aside. The auction purchasers would be entitled for the refund of the total sale consideration paid with reasonable amount of interest.”

The HC allowed the writ petition.

Bench: Hon'ble Mr. Justice M.S. Ramachandra Rao and Mr. Justice Jasjit Singh Bedi

Case Title: Amit Mahajan and another v. Punjab National Bank and others

Case Details: CWP No.6809 of 2021

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