December 2008
Auction sale of property by bank held illegal and arbitrary — Valuation of house by bank at much lower rate than it was valued at time of taking loan : Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interest Act, S. 13.
By Dr. K. Shivaram, Ajay R. Singh, Advocates
New Page 2
12 Auction sale of property by bank held illegal and
arbitrary — Valuation of house by bank at much lower rate than it was valued at
time of taking loan : Securitisation & Reconstruction of Financial Assets and
Enforcement of Security Interest Act, S. 13.
The petitioner and his wife had taken a loan of Rs.4,80,000
from State Bank of Patiala for purchasing a double-storey constructed house. The
approved valuer of the bank valued the house at Rs.6,14,294. There was default
committed by the petitioner in payment of instalments and the account of the
petitioner and his wife was classified as NPA illegally and no satisfactory
explanation was given as to why the valuer gave the valuation of house in
question at Rs.4,16,000 in Sept. 2005 when the same was valued by the bank’s
approved valuer in June 2003 at Rs.6,14,294 and thereafter conducted auction
sale of property at throw-away price.
The Court held that wide powers have been given to the banks
under the provisions of the Act for selling the secured asset itself without
invoking adjudicatory process. Even the action taken by the bank under this Act
cannot be challenged in the Civil Court. Therefore, the statutory powers vested
under this Act with the banks and the financial institutions must be exercised
reasonably and bona fide. The presumption that public officials will
discharge their duties honestly, reasonably, bona fide and in accordance
with the law may be rebutted by establishing circumstances which reasonably
probabilise the abuse of that power. If there is no credible explanation
forthcoming, the Court can assume that the impugned action was improper.
The Courts observed that in the last five years the prices of
real estate have increased day by day. When a house was purchased in 2003 for
Rs.6,00,000, how its value was assessed at Rs.4,16,000 in the year 2005. The
valuation report was apparently a procured one. No reason has been given for
difference of valuation with the earlier report, and the house in question had
been sold for less than the value of valuation report given at a time when loan
was obtained by the borrower. Therefore, the above facts with unexplained
circumstances was sufficient to hold that the auction/sale was conducted
illegally, unreasonably, unfairly and mala fide and consequently the same
was declared to be illegal and void. In the instant case, the borrower was a
poor mason belonging to the lower strata of society and he had taken the small
house loan for purpose of purchasing the house in question and he was ready to
regularise his account with agreed interest within four months. The borrower
must therefore be given an opportunity to clear the defaulted instalments within
a period of four months; accordingly the auction sale of property conducted by
the bank, held illegal and arbitrary.
[ Bhupinder Singh v. State Bank of Patiala & Ors.,
AIR 2008 Punjab and Haryana 148]
