Dr. Tushar Kanti Karmakar Vs Shilabati Hospital Private Limited & Ors (Calcutta High Court)
Conclusion: The term “parties” under Rule 8(8) of the 2002 Rules confines to the secured creditor and the proposed purchaser; borrower’s or guarantor’s consent was not necessary for effecting sale of secured assets by private treaty. It was evident that under Rule 8(8), whether in its pre-amendment or post-amendment form, the term “parties” refers only to the Bank and the proposed purchaser.
Held: The Writ petitioners/Borrowers, being the Directors of M/s Shilabati Hospital Pvt. Ltd. approached the State Bank of India seeking a loan to facilitate medical treatment for the public through their hospital. The Bank sanctioned credit facilities as term loan of Rs. 200 lakhs to the Writ Petitioners upon mortgaging properties consisting of two adjacent Plots of land. The hospital building was erected on the first part of the borrower’s land, and the second part belonged to the Guarantor of the loan, Smt. Tanushree Manna, who also held 50% ownership in the 1st part of the land. The Loan account was, subsequently, classified as a Non-Performing Asset (NPA) due to non-repayment of the term loan availed by the mortgagors. A demand notice was issued under Section 13(2) of the SARFAESI Act, 2002 to the Writ Petitioners asking them to discharge the liability of Rs. 3,70,90,320.00/- in full within 60 days, but they failed. The Bank issued a possession notice under Section 13(4), maintaining all due process of law under the SARFAESI Act, 2002, covering both the hospital property and the adjacent land owned by Smt. Manna. Writ petitioners handed over the physical possession of property to the Bank without any objection. A fresh valuation was conducted assessing the value at Rs. 1,85,97,000.00/- for Land & Building and Rs. 1,64,00,000.00/- for Plant & Machinery (Total Rs. 3,50,57,000.00/-) and after getting such valuation report of the properties, Bank issued notice for public auction as per Rule 8(5) of Rules, 2002 at a reserve price of Rs. 3,75,00,000/-. However, no bids were received. The writ petitioners challenged the public auction notice before the D.R.T under section 17 which was ultimately dismissed for non-prosecution. In the year 2007, due to devastating flood, all the costly machines were defunct. Therefore, another valuation Report was sought from the Bank’s approved valuer. It was valued at Rs. 2.16 Crores for the Land & Building and Rs. 55 Lakhs for Plant & Machinery, both properties (Total comes to Rs. 2.71 Crores). Once possession of secured assets was taken by the Bank, an onerous duty of care was cast upon the secured creditor under Rule 8(3) of the Rules, 2002. The bank was obliged to take such care of the property as an owner of ordinary produce would take, under similar circumstances. Rule 8(4) of the 2002. The borrowers’ One-Time Settlement (OTS) proposal for ₹155 lakhs in 2008 was rejected by the Bank as inadequate. Subsequently, the Bank sold the mortgaged assets to Dr. Tushar Kanti Karmakar, the petitioner, through a private treaty after following the due procedure under Rule 8(8) of the 2002 Rules. The borrowers challenged the sale process before the High Court, contending that the Bank had not complied with the mandatory requirements of obtaining a written agreement among all “parties”, including borrowers and guarantors, before the sale under private treaty. According to writ petitioners, the sale of mortgaged property through private treaty violated Rule 8(8) of the 2002 Rules, as no written agreement was executed with all affected parties—the borrower, guarantor, and purchaser; the term “parties” in Rule 8(8) included not only the Bank and purchaser but also the borrower and guarantor, as they were directly affected by the sale; the borrower’s ownership rights were protected under Article 300A of the Constitution; therefore, the Bank was required to involve them in the sale process to ensure fair valuation and transparency. It was held that even prior to the 2016 amendment, the legislative intent behind Rule 8(8) was that the expression “parties” referred only to the secured creditor (Bank) and the proposed purchaser. The subsequent amendment merely clarified this position and removed ambiguity. If borrowers and guarantors were also included as “parties” in the agreement for sale, it would make the process unworkable, as any borrower could obstruct or delay the sale by refusing to sign or cooperate at the time of registration. The Court held that once the Bank had lawfully taken possession and followed all procedures under the SARFAESI Act, 2002, the borrowers’ participation in a private treaty sale is not mandatory. Borrowers may be treated as confirming parties only if they themselves propose to purchase the secured assets, but otherwise, their consent is not required. Since neither the borrower nor the guarantor came forward with a genuine offer or proposal to redeem the property, and no procedural lapse causing prejudice was established, the sale in favour of Dr. Karmakar was held valid and unimpeachable.
