NSEL Property Auction Must Be Re-run Transparently

The Bombay High Court, in a common order disposing of multiple connected criminal appeals, has set aside a Sale Certificate dated 31 August 2020 issued in respect of properties attached under the Maharashtra Protection of Interest of Depositors (MPID) Act in the NSEL scam. The Division Bench of Justice A.S. Gadkari and Justice Kamal Khata found serious irregularities in the valuation and auction process and directed a complete reset of the sale mechanism.

Background

The appeals arose from the auction of properties attached by the Competent Authority under the MPID Act in connection with the National Spot Exchange Limited (NSEL) fraud. Primezone Developers Private Limited was one of the appellants, along with Union Bank of India and other stakeholders. Rudraveerya Developers Limited was the auction purchaser. The valuation had been carried out by Quiker Realty Ltd.

The core grievance was that the auction process was vitiated by inadequate publicity, questionable valuation, and procedural irregularities that suppressed competitive bidding and resulted in an inadequate price for the attached properties.

Holding and Directions

The Court set aside the Sale Certificate and issued the following comprehensive directions. The State was ordered to appoint a new Competent Authority within four weeks from the date of the order. The new Competent Authority must appoint a fresh valuer for the valuation and sale of the attached NSEL scam properties. A fresh auction must be conducted with wide publicity through both local newspapers and electronic media to ensure maximum participation of intending bidders.

The amounts received from Rudraveerya Developers Ltd. were directed to be returned within four weeks of the order being uploaded. The attachment over the properties was ordered to continue pending the re-auction.

The Court further directed the State to investigate and take appropriate action against the members of the previous Competent Authority and the valuer Quiker Realty Ltd. A compliance affidavit was required to be filed six months after the order.

Reasoning

The Bench observed that when publicity and access to intending bidders is restricted or curtailed, the possibility of fraud, underbidding, and securing an inadequate price looms large. The Court held that it is the duty of the Court to exercise its discretion wisely and with circumspection, keeping in view the facts and circumstances of each case, to ensure that public auction processes achieve the highest realizable value of the property.

Appeal No. 932 of 2022 was allowed, and the remaining connected appeals and interim applications were disposed of in the same terms.

Practical Takeaway

Competent Authorities conducting auctions of attached properties under the MPID Act must ensure wide and verifiable publicity through multiple media channels. Failure to do so risks judicial nullification of the sale and potential investigation into the conduct of the authority and its appointed valuers.