Public action : Bank has discretion to sell property below reserve price : Security Interest (Enforcement) Rules 2002, Rule 9

In the instant case, the Bank invited bids for sale of the house and as per the Bank it had received highest bid of Rs.50 lakhs and reserved price of the house has been fixed at Rs.60 lakhs by the Bank. Question arose as to whether the Bank can sell the house in a price less than the reserve price ? The Court held that as per proviso of Rule 9(2) no sale under this rule shall be confirmed if the amount offered by sale price is less than the reserve price, however, the proviso to the aforesaid Rule further provides that if the authorised officer fails to obtain a price higher than reserve price, he may with the consent of the borrower and the creditor effect the sale at such price.

Question arose whether authorised officer is bound to sell the immovable property with the consent of the borrower and secured creditor, if he fails to obtain higher price than reserve price or it is the discretion of the authorised officer to obtain the consent of the borrower and secured creditor or without consent he can effect the sale at lower than the reserve price. The Court held that as per the aforesaid Rule the Bank is obliged not to auction sale the property below the reserve price. However, in the aforesaid Rule the word ‘may’ in the facts of the case cannot be interpreted as a mandatory dictate to the Bank not to sell the property below the reserve price. When the word ‘may’ has been used in statute or rule it cannot always be interpreted that it is a mandatory provision and in view of the provisions of the aforesaid Rule the word ‘may’ cannot be construed as mandatory, because the Act has been enacted to facilitate recovery of loan by financial institutions. It may be possible that in certain circumstances, as in the instant case, financial institution is not in a position to fetch or receive the reserve price, hence it has a discretion to sell the property below the reserve price of the property.

[Smt. Godawari Shridhar v. Union Bank of India & Anr., AIR 2009 Madhya Pradesh 13]