Karnataka High Court cancels 233-acre estate auction over major irregularities, orders company to pay successful bidder ₹10 crore

The petitioner, which owned a coffee estate, defaulted on provident-fund dues.

The Employees’ Provident Fund Organisation (EPFO) attached estate property and auctioned it on 26 July 2006 to recover the dues.

The successful bidder, respondent No. 2, bid ₹1.8 crore.

The petitioner challenged the auction and the sale certificate issued in 2009; after pursuing civil proceedings and other remedies, it filed this writ petition.

The petition was later amended to raise additional challenges concerning the bidder’s late payment, the reduction in reserve price, the extent and description of the property sold, and the failure to sell only property sufficient to satisfy the dues.

The Court allowed the amendment in 2024 and, after considering the parties’ submissions and the auction record, identified irregularities in the sale process.

1. Whether the sale could validly be confirmed when the successful bidder failed to pay the balance purchase price within 15 days of the auction.

2. Whether the auction and sale certificate were invalid because of irregularities in the reserve price, the extent and identification of the property, and the failure to consider selling only the portion necessary to recover the dues.

3. Whether the petitioner could pursue relief under Articles 226 and 227 despite an alternative remedy and delay in challenging the sale.

Section 8G of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 applies the Second and Third Schedules to the Income-tax Act, 1961, and the Income-tax Certificate Proceedings Rules, 1962, to recovery of provident-fund arrears.

Rule 57 of the Second Schedule requires the successful bidder to deposit 25% immediately and pay the balance within 15 days; Rule 58 provides for resale on default.

The Court treated these payment requirements as mandatory, relying on Sardara Singh (Dead) by LRs. v. Sardara Singh (Dead) and Others, which held that failure to pay the balance within the prescribed period renders the sale void and requires resale.

Rule 52 permits sale of only such portion of attached immovable property as is necessary to satisfy the recovery certificate.

The Court also referred to M.R. Vasumathi v. The Authorized Officer and Others on the mandatory character of statutory auction timelines.

An alternative remedy does not, by itself, bar a writ petition that has been admitted and pursued before the Court.

The Court found that the auction notice required payment of the balance within 15 days, but the bidder paid the full amount only on 22 November 2006.

The challenge to confirmation of the sale in another writ petition had stayed confirmation, not payment; accordingly, it did not prevent the bidder from paying on time.

The sale could not therefore be confirmed after the payment deadline had passed.

The Court further found that the reserve price had been reduced from ₹2.65 crore to ₹1.52 crore without a stated basis; that a substantial extent was auctioned despite the dues being about ₹72 lakh; and that the sale certificate covered property at Karkeshwara village although the attachment and sale notice concerned property at Jayapura village.

The description also included unspecified vacant land.

These defects, considered with Rule 52’s requirement to sell only the portion necessary to satisfy the certificate, vitiated the sale.

Although the petitioner had pursued other proceedings and delayed in seeking relief, the Court declined to dismiss the admitted writ petition solely because of an alternative remedy.

It also considered the bidder’s loss from being deprived of the use of ₹1.8 crore and the petitioner’s prolonged litigation when fashioning relief.

The auction held on 26 July 2006 and the sale certificate dated 15 April 2009 were quashed; the EPFO was directed to notify the Sub-Registrar to cancel the certificate’s registration, and related revenue-record transfers were to be reversed.

The relief was made conditional on the petitioner paying respondent No. 2 ₹10 crore as compensation, inclusive of the ₹66 lakh already deposited with the Court; the deposited amount was to be released to respondent No. 2, and the petitioner was directed to deposit the remaining ₹9.34 crore within eight weeks.

The Court also directed the Deputy Commissioner, Chikkamagaluru, to take action in accordance with law concerning alleged encroachments over specified lands.