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]