How Is Fair Price Of A Court-Executed Property Auction Calculated?

The Bombay High Court has ruled that when the court executes an auction, the valuation of the property will be obtained by the Pronthonotary (principal clerk) and the Senior Master of the High Court. This would then be sent as an authenticated copy to the office of the Collector with the sale certificate.

Reason behind the verdict

In the Pinak Bharat and Co. and Bina Advani case, the property was put on auction thrice but failed to get any response twice. Thereafter, the price offered for the property to be auctioned in Dadar was set at Rs 15.30 crore. The counsel however later quoted that the price that was set was tentative but a new quote post additional information brought the price of property to Rs 35 crore.

It is important to note here that an auction may, by leave of the Court be by public auction or private treaty. In the case of a public auction, the court always obtains a valuation to set a reserve price so that the property is not sold lower than the benchmark price or is undervalued or heads for some kind of bid-rigging. Keeping in tandem with the Maharashtra Stamp Act (Article 16), Justice GS Patel held that, “I do not see why such a sale or transaction should stand on any different footing from those that are part of the proviso to sub-rule (6) of Rule 4 of the Maharashtra Stamp Rules.”

The court also pointed out that in case of a private treaty, the adjudicating authority shall establish the true market value of the property. However, in case of a public auction, the valuation is obtained by the court.

So, now as per the rule, “the Deputy Sheriff will need to ensure that on each occasion when a sale certificate is lodged for adjudication as to stamps, it is accompanied by an authenticated copy of the applicable valuation. That authentication will be done by the Prothonotary and Senior Master of the High Court at the time of issuance of confirmation of sale certificate and it is the sale certificate as accompanied by the valuation that will be taken up.”

Summing up

In case of a private auction, rules as per Maharashtra Stamp Act will be followed. For court-executed auctions, the office of the Sheriff will be involved. In case, a value had been arrived at previously, if the selling price is the same or below the valuation obtained by the court, the court’s valuation will be taken as the current market price.

If the previous valuation is higher than court’s valuation then for purposes of stamp duty, the previous valuation or the final bid would be established as the market value.

In case there are multiple valuations, the highest, most reasonable and befitting the current market scenario of sale should be taken as the price.