Sapthagiri Pee Gee Fruits Processing (P) Ltd., Vs UCO Bank

IN THE DEBT RECOVERY APPELLATE TRIBUNAL AT CHENNAI

DATED THE 14^TH SEPTEMBER, 2004

PRESENT:  HON’BLE JUSTICE DR. PRATIBHA UPASANI

CHAIRPERSON

MA-35/2004

(IA-750/2002 in TA-68/1996-DRT-I, Chennai)

BETWEEN:

M/s. Sapthagiri Pee Gee Fruits Processing (P) Ltd.,

Rep. by its Managing Director Mr. M.G. Sekar,

607, 7^th Street, Gopalapuram,

Chennai-600 086.

…  Appellant

            (Counsel:  Mr. M.G.C. Prabhakar)

AND

UCO Bank,

730, Mount Road (Anna Salai),

Chennai-600 002.

…  Respondent

            (Counsel:  Mr. Srinath Sridevan)

:  O R D E R  :

1.         This Miscellaneous Appeal is filed by the Appellant/Third party purchaser/Auction purchaser M/s. Sapthagiri Pee Gee Fruits Processing (P) Ltd., being aggrieved by the Common Order dated 24.12.2003 passed by the Learned PO of DRT-I, Chennai, on the Interim Application IA No.750/2002.  By the impugned Order the Ld. PO rejected the application made by the auction purchaser in which a prayer was sought that the DRT should pass order directing the Recovery Officer/Bank that the amount of Rs.2,91,255/- out of Rs.75 lakhs deposited by the auction purchaser towards the sale proceeds, be paid directly to the Tamil Nadu Electricity Board (for the sake of brevity hereinafter referred to as TNEB), Dharmapuri Circle, Dharmapuri.  Apprehension was expressed that if these arrears of electricity were not paid, then the auction purchaser might face disconnection of electricity supply.

2.         Few facts which are required to be stated are as follows.

3.         Property belonging to the Certificate debtor M/s. Dharmapuri Steel Castings Ltd., Dharmapuri, which was mortgaged to the applicant Bank namely, UCO Bank, was purchased by the present appellant at auction held by the Recovery Officer during the course of recovery proceedings initiated against the Certificate debtor.  The property consisted of land along with building and old machinery equipment etc.  While tenders were invited by the Recovery Officer for sale of the Steel castings factory of the Certificate debtor, they were invited on ‘as is where is basis’.  The bid of the present appellant was accepted.  The amount paid by the auction purchaser/present appellant was Rs.75 lakhs.  The appellant later on came to realise that there were electricity dues by TNEB to the tune of Rs.2,91,255/-.  As per rules of the TNEB, if this amount was not paid the auction purchaser would have faced disconnection of electricity supply.  Therefore, application came to be made by the appellants/auction purchaser that this amount of Rs.2,91,255/- out of the deposit of Rs.75 lakhs made by the auction purchaser towards sale proceeds in the Tribunal/Bank be paid directly to the TNEB.  It was this application which came to be rejected by the Ld. PO of DRT-I, Chennai. 

4.         I have heard Mr. Mr. M.G.C. Prabhakar, Advocate for the appellant and Mr. Srinath Sridevan, Advocate for the respondent Bank.  I have also gone through the proceedings including the impugned Order, the offer inviting tenders by the Recovery Officer for sale of the mortgaged property and the terms and conditions under which sealed tenders were invited.  In the said text, description of the property is given and it is specifically and categorically mentioned that tenders are invited for sale on ‘as is where is basis’ for realising the dues of M/s. Dharmapuri Steel Castings (Certificate debtor).  Thus the said invitation leaves no room for doubt that the premises were to be purchased in the auction by the auction purchaser on ‘as is where is basis’.  The appellants, therefore, ought to have been on their guard, ought to have been vigilant and alert and should have made enquiries whether there were any encumbrance on the property. Since the appellants, in spite of being businessmen did not make any such enquiry which reasonably any prudent businessmen would have made, it was revealed later on that TNEB had dues of Rs.2,91,255/- by way of outstandings.

5.         Clause-6.10 of the terms and conditions of supply of electricity of TNEB specifically says that in such a contingency the intending purchaser has to pay the arrears.  Clause-6.10 can be reproduced below for the sake of  convenience :-

                        “The Board will refuse to supply electricity to an intending consumer who has defaulted in payment of dues to the Board in respect of any other service connection held in his name.

                        In case of services which have been disconnected / dismantled for non-payment of arrears and if the services are to be availed by other parties in the same premises either by purchase or transfer or in auction or on lease basis then in such cases the services will be effected only on clearance of the dues outstanding against such disconnected / dismantled service by the intending consumers.”

6.         The above Rule makes it clear that the sole responsibility to clear the outstandings of TNEB is of the auction purchaser/appellant only.  Now, the appellant wants to adjust this amount of Rs.2,91,255/- from Rs.75 lakhs which he has paid to the Bank towards the purchase of the mortgaged property.  This, of course, is unreasonable and not acceptable.

The appellants are trying to avoid the additional burden of paying the outstanding and want that amount to be adjusted from the amount which they have already paid towards the purchase of the mortgaged property.  But the Bank towards whose dues the property is auctioned should not be deprived of the amount which rightfully is due to the Bank.  The lapse has to be totally attributed to the negligent appellants who did not verify before making offer to purchase the property with respect to the encumbrance upon the said property which they wanted to purchase.  The property and plant and machinery was not promised by the Tribunal to be sold as free from any encumbrance.  The property was to be sold on the ‘as is where is basis’.  Nothing was suppressed or was kept in the dark from the intending purchaser about the status of the factory, condition of plant and machinery and the same were offered for sale on ‘as is where is basis’.  It was then the responsibility of the intending purchaser as a prudent businessman and buyer to make relevant enquiries with respect to the property.  Once the auction purchaser has purchased the property with his eyes open, now he cannot deprive the Bank of its dues by submitting that the electricity dues should be paid from the sale proceeds.  That will not be fair.  The auction purchaser has to pay the outstanding of TNEB by making payment to TNEB if he wants to enjoy the premises with electricity supply.  Another peculiar thing is that the TNEB has not made any application that their dues should be paid by the Bank, and rightly so, because the Bank is not responsible to pay any arrears of electricity dues of the property sold to the third party.  The property was mortgaged with the Bank and it was the borrower who had committed default and not the Bank.  For realising the debt the property was sold.  The application about adjustment of the outstanding dues of TNEB is made by the auction purchaser to reduce his burden.  But he has to thank himself for this situation.  Had he made proper enquiries he would have come to know about the dues payable to TNEB and accordingly he would have changed the offer made by him or would have sought some adjustment towards the electricity dues of TNEB.

7.         Section-55(1)(a) of the Transfer of Property Act says that at the time of sale the seller has to disclose to the buyer any material defect in the property of which the seller is and the buyer is not aware and which the buyer could not with ordinary care discover.  In the present case at hand, the notice inviting sealed tenders reveals that all the relevant information to the intending purchaser was revealed and nothing was suppressed.  It was categorically mentioned that the property as well as the plant and machinery were being sold only on ‘as is where is basis’ which clearly means that the Tribunal/Bank was selling the machinery at its face value at present condition, situation and subject to prior dues, charges or encumbrances, if any, that may be found to be paid by the purchaser, as the Tribunal was not aware of the dues/charges.  Interested buyers were at liberty to make any enquiries and have inspection of the property in question.

….5/

8.         In view of the above discussion, I find no infirmity in the impugned Order passed by the Ld. PO of DRT-I, Chennai.  The appeal, therefore, will have to be rejected.  The said Order, therefore, will have to be upheld and the appeal will have to be dismissed.  Accordingly, following Order is passed.

9.         Miscellaneous Appeal MA No.35/2004 is dismissed.

(Dictated to PS & the transcript signed by me today the 14^th September, 2004)

                                                                                                                                                                                                                                                                        Sd/-

[ JUSTICE  DR. PRATIBHA UPASANI ]

CHAIRPERSON