Supreme Court Directs Payment to Cooperative Bank in Auction Dispute: Ahmednagar District Central Cooperative Bank Ltd. vs. State of Maharashtra (2024) INSC 741 (27 September 2024)

Date of the Judgment: 27 September 2024
Citation: (2024) INSC 741
Judges: Dipankar Datta, J. and Prashant Kumar Mishra, J.
Can a cooperative bank be left without recourse when a property auction, meant to recover its dues, is allegedly undervalued? The Supreme Court of India recently addressed this question, examining the fairness of an auction sale of a society’s property and the conduct of the parties involved. This case highlights the importance of timely action in legal proceedings and the Court’s power to ensure complete justice. The judgment was delivered by a two-judge bench comprising Justice Dipankar Datta and Justice Prashant Kumar Mishra.

Case Background

The Ahmednagar District Central Cooperative Bank Ltd. (the appellant) had sanctioned a cash credit loan of ₹95 lakh to Mula Sahakari Soot Girni Ltd. (the society). When the society defaulted on the loan, the bank initiated a dispute case on March 7, 2001, before the Registrar of Cooperative Societies, Maharashtra, under Section 91 of the Maharashtra Cooperative Societies Act, 1960 (the 1960 Act), seeking to recover ₹1,05,98,710. The dispute case was decided in favor of the bank on June 24, 2011, entitling it to recover ₹1,05,98,710 with interest at 17.5% per annum from October 1, 2000.

Meanwhile, liquidation proceedings against the society had commenced. An initial order was passed on April 3, 2002, and a final order for winding up the society was issued on August 31, 2005, by the Additional Registrar under Section 102 of the 1960 Act. The District Collector, Ahmednagar, was appointed as the Liquidator and directed to take action under Section 105 of the 1960 Act. The bank had previously attached the society’s immovable property and obtained a valuation of ₹4.10 crore on January 21, 2012.

An auction sale notice was issued on August 24, 2013, with an upset price of ₹4.10 crore. The Agricultural Produce Market Committee, Rahuri (respondent no. 6), showed interest and deposited ₹25 lakh as earnest money. However, the sale did not materialize due to a lack of other bidders, and the earnest money was returned. The bank then submitted claims to the Liquidator in 2015 and 2016, but allegedly received no response. By July 2016, the amount recoverable by the bank had increased to ₹3,95,08,840.

A writ petition was pending before the High Court regarding the liquidation process and employee dues. On June 9, 2015, the High Court directed the Liquidator and Registrar to sell the society’s property within six months. Following this, a fresh valuation was done by the Sub-Registrar, Rahuri, at ₹87,33,200. The Liquidator also obtained an open market valuation of ₹2,47,48,000. The Director of Handlooms and Textile granted permission to proceed with the e-tender process on December 1, 2015.

An e-auction notice was published on February 12, 2016, with the auction scheduled for March 14, 2016. The bank informed the District Sub Registrar on March 2, 2016, of its dues of ₹3,78,82,837 as of January 31, 2016, with interest at 17.5%, requesting that the sale proceeds be credited to its account. The auction was postponed multiple times and finally held on May 25, 2016, where the respondent no. 6 emerged as the highest bidder with a bid of ₹2,51,48,000. The property was eventually sold and transferred to respondent no. 6.

The bank filed a writ petition on August 19, 2016, challenging the e-auction notice and the sale, alleging undervaluation and procedural irregularities. The High Court dismissed the petition, leading to the current appeal before the Supreme Court.

Timeline

Course of Proceedings

The High Court of Judicature at Bombay, Bench at Aurangabad, dismissed the writ petition filed by the appellant. The High Court found no merit in the appellant’s claims of undervaluation of the property and lack of participation of bidders in the auction. It also noted that no mala fide intent could be attributed to the auction process and that the auction purchaser was a statutory body. The appellant then approached the Supreme Court by way of a special leave petition.

Legal Framework

The case primarily involves the interpretation and application of the Maharashtra Cooperative Societies Act, 1960. Key provisions include:

• Section 91 of the Maharashtra Cooperative Societies Act, 1960: This section deals with disputes that can be referred to the Registrar of Cooperative Societies. It states: “Notwithstanding anything contained in any other law for the time being in force, any dispute touching the constitution, elections of the committee or its officers, conduct of general meetings, management or business of a society shall be referred by any of the parties to the dispute, or by a federal society to which the society is affiliated, or by a creditor of the society, to the Registrar, if both the parties thereto are one or other of the following: (a) a society, its committee, any past committee, any past or present officer, any past or present agent, any past or present servant or nominee, heir or legal representative of any deceased officer, deceased agent or deceased servant of the society, or the Liquidator of the society.”
• Section 102 of the Maharashtra Cooperative Societies Act, 1960: This section empowers the Registrar to make an order for the winding up of a society. It states: “If the Registrar, after an inquiry has been held under section 83 or an inspection has been made under section 84 or on receipt of an application made by three-fourths of the members of a society, or of his own motion, in the case of a society which has not commenced working or has ceased to work or which possesses share capital or working capital below the minimum prescribed, is of the opinion that the society ought to be wound up, he may, after giving the society a reasonable opportunity of being heard, make an order directing it to be wound up.”
• Section 105 of the Maharashtra Cooperative Societies Act, 1960: This section deals with the powers of the Liquidator. It states: “The Liquidator shall, subject to the control of the Registrar, have power to take all such measures, and do all such things, as may be necessary or expedient to wind up the affairs of the society and to distribute the assets.”

Arguments

Appellant’s Arguments:

• The appellant argued that the property was undervalued. The initial valuation by a government-approved valuer in 2013 was ₹4.10 crore, whereas subsequent valuations were significantly lower, which is illogical as property prices tend to increase over time.
• The procedure prescribed by the 1960 Act was not followed. The Liquidator did not ensure adequate publication of auction dates, leading to limited participation. The corrigenda postponing the auction dates were not published in newspapers.
• The appellant contended that only two bidders participated in the auction, whereas the law requires a minimum of three bidders.
• The appellant alleged mala fide, arguing that the officers of the Government of Maharashtra devised a plan to ensure the property was sold to respondent no. 6. The respondent no. 6 had shown interest in 2013 when the valuation was ₹4.10 crore and would have likely bid close to that amount.
• The appellant highlighted that despite the sale, it had not received any money towards its dues, which now exceed ₹5 crore.

Respondents’ Arguments:

• The State of Maharashtra and its officers argued that the sale process was conducted legally and there were no irregularities.
• They contended that three bidders had initially shown interest and made deposits, although only two participated in the final auction.
• Respondent no. 6 argued that the allegations of mala fide were unfounded, as none of the officers or the Chairman of the respondent no. 6 were parties to the writ petition. It claimed to be a bona fide purchaser and had developed the property after the purchase.
• They argued that the respondent no.6 was a willing participant in an open bid process and emerged successful having offered the highest bid.

Innovativeness of the argument: The appellant’s argument regarding the undervaluation of the property and the mala fide intent of the authorities was innovative, as it highlighted the discrepancy in valuations and the alleged collusion to favor a particular bidder.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issues that the court addressed can be summarized as follows:

1. Whether the auction sale of the society’s property was conducted fairly and in accordance with the law.
2. Whether the property was undervalued, and if so, what the implications are.
3. Whether the appellant’s conduct in not promptly challenging the sale process affected its right to relief.
4. Whether the respondent no. 6 was unduly favored in the auction process.
5. Whether the appellant is entitled to any relief, and if so, to what extent.

Treatment of the Issue by the Court

The following table demonstrates how the Court dealt with the issues:

Authorities

The judgment does not explicitly cite any cases or books. However, it does refer to the following legal provisions:

• Section 91 of the Maharashtra Cooperative Societies Act, 1960: Deals with disputes that can be referred to the Registrar of Cooperative Societies.
• Section 102 of the Maharashtra Cooperative Societies Act, 1960: Empowers the Registrar to make an order for the winding up of a society.
• Section 105 of the Maharashtra Cooperative Societies Act, 1960: Deals with the powers of the Liquidator.
• Article 142 of the Constitution of India: Grants the Supreme Court power to pass orders to do complete justice.

Judgment

How each authority was viewed by the Court:

• The Court considered the relevant provisions of the Maharashtra Cooperative Societies Act, 1960, to understand the legal framework governing the liquidation and auction process.
• The Court invoked Article 142 of the Constitution of India to ensure complete justice between the parties, directing the respondent no. 6 to pay a sum to the appellant.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by several factors. While acknowledging procedural lapses and the undervaluation of the property, the Court emphasized the appellant’s negligence in not promptly challenging the auction process. The Court also noted that the respondent no. 6 had benefited from the lower valuation, and the appellant, being a cooperative bank, deserved protection of its interests. The Court invoked Article 142 to balance these considerations and ensure complete justice.

Fact:Law Ratio:

Logical Reasoning:

The Court considered the procedural lapses and the undervaluation of the property but also noted the appellant’s negligence in not taking timely action. It also considered that the respondent no. 6 benefited from the undervaluation. The Court concluded that while the sale should not be overturned, the appellant was entitled to some relief.

The Court did not consider any alternative interpretations that would have led to overturning the sale. The Court was primarily concerned with balancing the equities and ensuring that the appellant, a cooperative bank, was not left without recourse.

The decision was reached by upholding the sale but directing the respondent no. 6 to pay a sum of ₹1,05,98,710 to the appellant. This was done to ensure that the appellant received at least the principal amount it was owed.

Reasons for the decision:

• The appellant was negligent in not promptly challenging the auction process.
• The respondent no. 6 benefited from the undervaluation of the property.
• The appellant, being a cooperative bank, deserved protection of its interests.
• The Court invoked Article 142 to do complete justice between the parties.

“If indeed valuation of the property of the society suffered from any infirmity, so much so that any reasonable person could form an opinion of the property being undervalued, what has surprised us is the conduct of the appellant in invoking the jurisdiction of the writ court late.”

“The appellant, so to say, was sitting on the fence and watching which direction the auction process proceeds.”

“For a reason different from the one assigned by the High Court, we do not propose to interfere with the sale effected in favour of the respondent no.6 by the Liquidator.”

There were no dissenting opinions in this case. The judgment was delivered by a two-judge bench comprising Justice Dipankar Datta and Justice Prashant Kumar Mishra.

The Court’s reasoning was based on a combination of legal principles, factual analysis, and equitable considerations. The Court balanced the need to uphold the sanctity of the auction process with the need to protect the interests of the appellant. The Court’s interpretation of the facts and application of Article 142 led to a decision that aimed to achieve complete justice.

The decision may have implications for future cases involving auction sales of cooperative societies’ properties, emphasizing the need for timely action and the Court’s power to intervene to ensure fairness and equity. The decision also highlights the importance of not only following the letter of the law but also ensuring that the spirit of the law is upheld.

No new doctrines or legal principles were introduced in this case. The Court relied on established principles of law and the power conferred by Article 142 of the Constitution.

Key Takeaways

• Timely action is crucial in legal proceedings. Delay in challenging a process can weaken a party’s case.
• Courts may invoke Article 142 of the Constitution to ensure complete justice, even if it means deviating from strict legal procedures.
• Undervaluation of property in auction sales can be a ground for intervention by the courts.
• Cooperative banks, being entities with specific public purposes, are entitled to protection of their interests.
• Even bona fide purchasers may be directed to make payments to ensure equitable outcomes.

Directions

The Supreme Court directed the respondent no. 6 to pay the appellant a sum of ₹1,05,98,710 (without interest) within three months from the date of the judgment. Failure to do so would result in the said sum carrying simple interest at 6% per annum until payment is made. The Court also directed the Liquidator to disburse the remaining balance of ₹29,78,499 to the other creditors as per priority, excluding the appellant, and if all other creditors have been paid, the said sum or any part of it may be disbursed to the appellant.

Specific Amendments Analysis

There is no discussion of any specific amendments in the judgment.

Development of Law

The ratio decidendi of the case is that while procedural lapses in an auction sale may not always lead to the sale being overturned, the courts can invoke Article 142 of the Constitution to ensure complete justice, especially when there is evidence of undervaluation and a party’s interests need to be protected. This case does not change any previous position of law but reinforces the court’s power to ensure equity and fairness in legal proceedings.

Conclusion

The Supreme Court upheld the auction sale of the society’s property to respondent no. 6 but directed the respondent to pay ₹1,05,98,710 to the appellant. This decision balances the need to respect the auction process with the need to protect the interests of the cooperative bank. The Court emphasized the importance of timely action in legal proceedings and the power of the courts to ensure complete justice.