PRESENTATION By Richik Dadhich

HOW IS VALUATION OF
ASSETS DONE?
The valuation of properties by bank has to be understood in two parts.
Different banks follow different policies for valuation of properties and appointment
of valuers for the purpose.
For this, the RBI has released notifications and circulars to put in place a
system/procedure for realistic valuation of fixed assets and also for empanelment of
valuers for the purpose.
RBI Notification RBI No.2006-2007/224 provides guidelines for valuation of
properties by banks [attached in Google Drive]
3 POINTS TO BE CONSIDERED
ACC. TO RBI 2007
Banks should have a Board approved policy in place for valuation of properties
including collaterals accepted for their exposures.
The valuation should be done by professionally qualified independent valuers i.e. the
valuer should not have a direct or indirect interest.
The banks should obtain minimum two Independent Valuation Reports for properties
valued at Rs.50 crore or above.
More details could be found in the amended 2015 version and guidelines [in google
drive]
EMPANELMENT OF VALUERS
BY BANK
Banks should have a procedure for empanelment of professional valuers and
maintain a register of 'approved list of valuers'.
Banks may prescribe a minimum qualification for empanelment of valuers. Different
qualifications may be prescribed for different classes of assets (e.g. land and
building, plant and machinery, agricultural land, etc.). While prescribing the
qualification, banks may take into consideration the qualifications prescribed under
Section 34AB (Rule 8A) of the Wealth Tax Act, 1957.
Banks may also be guided by the relevant Accounting Standard issued by the
Institute of Chartered Accountants of India.
WHO IS AN INDEPENDENT
VALUER ?
RBI 2007 Circular 2(a)(ii) provides that the valuer should not have a direct or
indirect interest in the property.
The circular also provides that two valuation reports must be prepared for properties
valued over 50 Crore INR
Qualifications for valuer have been provided in Section 8A of Wealth Tax Rules,
1957.
Valuer may be an individual or a proprietary concern or a partnership firm or a
company. However, u/s 34AC of the Wealth Tax Act 1957, companies or other body
corporate are not eligible for undertaking the functions of registered valuer.
RELEVANT STATUTES FOR
VALUATION
Section 7, Wealth Tax Act 1957
CPWD Manual : Guidelines for Valuation of Property Released by Directorate of
Income Tax
APPLICABILITY OF RDDBFI
ACT AND IT ACT
Any banking institution could file an application under Section 19 of RDDBFI Act
fro recovery of debts due to them.
For this, a recovery officer would be appointed under Section 7(1)
A sale by distraint could take place in accordance with Section 29 of the RDDBI Act
and Schedule 2 of the IT Act. Rule 53 of Schedule 2 which says that a proclamation
of sale of immovable properties shall be drawn up after notice to the defaulter.
Under the SARFAESI Act, the Bank classifies the loan account as ‘NPA’ as per the
RBI guidelines, gives a demand notice under section 13 (2) of the Act asking the
borrower/s to pay the entire outstanding, deal with the objections if any from the
borrower/s under section 13 (3A), will take the symbolic possession of the property
under section 13
As per SARFAESI Act, 2002 and Rule 8(5) of Security In- terest (Enforcement)
Rules, 2002, before affecting sale of immovable property, authorised officer is
required to obtain valuation of property from an approved valuer. With its partners
being ‘Registered Valuers’ under Wealth Tax Act, 1957.
ARUMUGUSWAMY V. UBI,
2017, MADRAS HC
This case is directly relevant for the present issue.
Here, which is wroth above Rs. 14 - 15 Crores and the valuation report of the Bank
during 2009 fixed it at Rs. 7.5 Crores but sold for a meager sum of Rs. 5.50 Crores
during the pendency of the Writ Petition along with stay.
Reserve Price = Upset Price = Lowest possible selling price for a property in an
auction
Security Interest Enforcement Rules – Rule 8 and 9
MCMANUS V. FORTESCUE 1907
VOL.II K.B
The reserve puts a limit on the authority of the auctioneer. He cannot accept a price
below the upset/reserve price. That he could refuse the bid which is below the upset
price.
in the case Dr. A. U. Natarajan & another v. Indian Bank, Madras reported in [AIR
1981 Madras 151] it has been held that the expressions "value of a property" and
"upset price" are not synonymous but have different meanings. That the term "upset
price" means lowest selling price or reserve price. That unfortunately in many cases
the word "value" has been used with reference to upset price. That the sale has to
commence at the higher price and in the absence of bidders, the price will have to be
progressively brought down till it reaches the upset price. That the upset price is
fixed to facilitate the conduct of the sale. That fixation of upset price does not
preclude the claimant from adducing proof that the land is sold for a low price.
 K. RAMASELVAM V. IOC, 2007,
SUPREME COURT
A bare reading of Rule 9(2) makes it clear that three contingencies can arise
when an auction takes place. Those are, (i) the bidder offers an amount, which is
more than the upset price, (ii) the bidder offers an amount, which is less than the
reserve price, and (iii) the bidder offers an amount, which is neither less nor more
than the upset price. If the amount offered by the highest bidder is more than the
upset price fixed under Rule 8(5) the sale shall be confirmed in favour of such
higher bidder. This however, is subject to confirmation by the Secured Creditor. If
the bid amount is less than the upset price, no sale shall be confirmed as
contemplated under the first proviso to Rule 9(2). The second proviso makes it clear
that if the authorised officer fails to obtain a price higher than the reserve price, the
sale can be confirmed only with the consent of the borrower and the secured
creditor. It is thus obvious that if the price offered is same as the reserve price, it
cannot be said that the Authorised Officer has obtained a price higher than the
reserve price. A combined reading of all the provisions contained in Rule 9(2)
makes it clear that if the price offered is higher than the reserve price, it shall be
If however, price offered is not higher than the reserve price, which means it
may be on par with the reserve price or less than the reserve price, the auction
can be confirmed only with the consent of the borrower and the Secured
Creditor and not otherwise.
CIRCLE RATE
Circle rates are the speculative prices at which a commercial property/an apartment/a built-up house is
sold or transferred. This rate is set by the state government’s revenue department.
The stamp duty has to be paid on this pre-decided circle rate. In some states, this rate is also called as
Ready Reckoner or Guidance Value or stamp duty value, i.e, the rate on which the stamp duty is to be
paid. 
Nadeem Apartments v. State of UP (2004) 2 UPLBEC 2049
 “Circle rate is only meant for the realization of the stamp duty for the purposes of registration and it has
nothing to do with the actual market value of the property”
Also re-affirmed in Surbhi Chemicals v. State Bank of Patiala 2009 SCC OnLine DRAT 74. Circle rate
does not indicate the market value of the property.
In this connection reliance can be placed on the Jawajee Nagnatham v. The Revenue Divisional Officer,
JT 1994 (2) SC 604 and Krishi Utpadan Mandi Samiti, Sahaswan, Distt Badaun through its Secretary v.
Bipin Kumar, I (2004) SLT 422 : (2004) 2 SCC 283. 
Pravesh Kumar v. State of UP
Circle rates are merely guidelines, qua minimum value of the property and once market
value of the property has to be seen then there are various factors to be taken into account.
Object of auction is to get best price. There could not merely be a pretence or a cover up in
form of collusive proceedings to deprive lawful owners of their property by misusing the
legal umbrella and the totality of circumstances clearly indicates that such action are
outcome of extraneous consideration
Ram Khelawan v. State of U.P. 2005 (98) 511, the Court had taken the view that circle rate
is relevant only and only for the purposes of referring the document by Registration Officer
to Collector before registration and as far as market value is concerned same has to be
decided but in accordance with general principles of determination of market value as
applicable in land acquisition cases or through registered valuers.
HOW IS CIRCLE RATE
RELEVANT?
Union Bank of India v Official Liquidator, Civil Appeal No. 3109 of 1998, Cal HC
Before sanctioning the sale of its assets, the Court is required to exercise judicial
discretion to see that properties are sold at a reasonable price. For deciding what
would be reasonable price, valuation report of an expert is must. Not only that, it is
the duty of the Court to disclose the said valuation report to the secured creditors and
other interested persons including the offerors. Further, it is the duty of the Court to
apply its mind to the valuation report for verifying whether the report indicates
reasonable market value of the property to be auctioned, even if objections are not
raised.
Similar stance was taken in Ram Kishun v. State of UP, 2012 where the Court held
that There must be application of mind by the authorities, legal obligation to fetch
the best price.
The right to property is a constitutional right protected under Article 300A. No
person can be deprived of this right unreasonably.
If the property is being sold at a price below the circle rate, a combined reading of all
the case laws and provisions should be done to strengthen the arguements.
APPEAL
Appeal against recovery officer can be filed under Section 30 of RDBFI Act
Akshay Bipin v. Union of India, W.P.(C) 4616/2018 – The case involved an appeal against
the recovery officer. Respondents took the defence of good faith under section 33 of
RDBFI Act. The defence of good faith can not be taken in the existence of moral turpitude
and corruption and the veil of good faith can be lifted.
INDIAN BANK ASSOCIATION v. DEV KALA CONSULTANCY SERVICES (2004
(11) S.C.C.,1): (Para 28) "It is well settled that when a procedure is laid down Statutory
Authority must exercise its power, in the manner prescribed or not at all."
The law on the subject was considered in extenso in the three-Judge Bench decision of 
Union of India v. K.K. Dhawan, (1993) 2 SCC 56 wherein it was noted that the view that
no disciplinary action could be initiated against an officer in respect of judicial or quasi-
judicial functions was wrong.
It was further said that the officer who exercises judicial or quasi-judicial powers acting
negligently or recklessly could be proceeded against by way of disciplinary action. The Court
listed six instances when such action could be taken:
"(i) where the officer had acted in a manner as would reflect on his reputation for integrity or good
faith or devotion to duty;
(ii) if there is prima facie material to show recklessness or misconduct in the discharge of his duty;
(iii) if he has acted in a manner which is unbecoming of a government servant;
(iv) if he had acted negligently or that he omitted the prescribed conditions which are essential for
the exercise of the statutory powers;
(v) if he had acted in order to unduly favour a party;
(vi) if he had been actuated by corrupt motive, however small the bribe may be because Lord
Coke said long ago though the bribe may be small, yet the fault is great
The Court, however, made it clear that ultimately the matter would have to depend upon the facts
of a particular case. The present case would fall squarely within the fourth instance listed above."
HOW TO CHALLENGE THE
VALUATION REPORT
In order to challenge the valuation report, the appellant must have his own valuation
report from an independent valuer to form a basis of his claims.
INDIAN BANK ASSOCIATION v. DEV KALA CONSULTANCY SERVICES
 (2004 (11) S.C.C.,1): (Para 28) "It is well settled that when a procedure is laid down
Statutory Authority must exercise its power, in the manner prescribed or not at all."
PROCEDURE FOR
CHALLENGING THE
VALUATION
Appeal under Section 17 of the SARFAESI Act
DISTRESS SALE VALUE
A distress sale—also called a distressed sale—occurs when a property, stock, or
other asset must be sold quickly.
Distressed Value means the value of Collateral calculated on the assumption that
there is a need for immediate liquidation.