IMPORTANT POINT
Any sale in violation of section 13, SARFAESI Act, 2002 and Rules 8 and 9(1) of Security Interest (Enforcement) Rules, 2002 would be null and void.

Headnote:(a) SARFAESI Act, 2002 – Section 13(1) – Section 13(1) gives a free hand to the secured creditor, for the purpose of enforcing the secured interest without the intervention of Court or Tribunal – Such enforcement should, however, be strictly in conformity with the provisions of the Act. (Para 12)
       2014 (2) Scale 331 – Relied upon
       (b) SARFAESI Act, 2002 – Section 13(8) – Secured creditor cannot dispose of the secured asset without putting the borrowers on notice – Asset should be disposed of to provide maximum benefit to the borrowers. (Para 13)
       (c) SARFAESI Act, 2002 – Section 13 – Any sale without complying with Rules 8 and 9(1) of Security Interest (Enforcement) Rules, 2002 – Would be unconstitutional and therefore null and void. (Para 14)
       (d) Security Interest (Enforcement) Rules, 2002 – Rule 8(8) – Sale by private treaty – In absence of terms settled in writing – Is a nullity. (Para 15, 16)
       (d) Constitution of India – Article 136 – Molding of relief – In view of the sale being declared null and void, relief needs to be modified – Directions issued. (Para 27)
       (e) Constitution of India – Article 226 – LPA against order of writ Court – All parties not challenging order of writ Court – Division Bench ought not interfere with direction of writ Court concerning the absent party. (Para 27)
       Facts of the case:
       Respondent Nos.1 and 2 had taken various loans from respondent No.3-Bank. Upon failure of Respondent Nos. 1 and 2 to repay the loan, the assets of respondent Nos.1 and 2 mortgaged with the Bank were classified as non-performing assets (NPA).
       The bank issued notice under Section 13(2) of the SARFAESI Act, 2002 followed by a possession notice on 12th January, 2006 under Section 13(4) of the said Act. Respondent Nos.1 and 2 challenged the aforesaid two notices by filing Writ Petition. In the meantime, auction sale was fixed on 7th July, 2006. But no sale took place as there were no bidders. Thereafter respondent Nos. 1 and 2 sought cancellation of the auction notice and sought permission of the Bank to sell the secured assets by private Treaty within six months. As on that date the outstanding balance due to the bank was a sum of Rs.1.57 crores.
       On 11th September, 2006, respondent Nos.1 and 2 made a payment of Rs.42 lacs to the Bank, by selling machinery with the permission of the Bank. A request was also made for an extension of two moths for paying the remaining amount after selling the secured assets. On 8th December, 2006, the Bank gave approval for private sale of the immovable property to the appellants and for issue of sale certificate. On the very same date, the secured assets were sold in favour of the petitioner for a consideration of 123.10 lacs.
       Respondent Nos.1 and 2 filed Writ Petition without disclosing that the earlier Writ Petition challenging the auction notice had been withdrawn without the court giving liberty to respondent Nos. 1 and 2 to file a fresh writ petition.
       Upon completion of the proceedings in spite of the preliminary objections taken by the appellants, the learned Single Judge allowed the writ petitions. The sale in favour of the petitioner was held to be vitiated on the ground that the Bank failed to follow the mandatory provisions of Rules 8(5), 8(6) and 9(2) of the Security Interest (Enforcement) Rules, 2002. But a direction was issued to refund the amount paid by the petitioner i.e. Rs.1crore 41 lacs with interest at 9% per annum from April, 2007.
       Aggrieved by the aforesaid order, the appellants filed Writ Appeal No.4127/2011 in the High Court, which has also been dismissed.
       Finding of the Court:
       The sale in favour of the appellants dated 18th December, 2006 and the subsequent delivery of possession to the appellants is null and void.
       Result: Appeals disposed of.

JUDGMENT

SURINDER SINGH NIJJAR,J. –

1. Leave granted.

2. These special leave petitions are directed against the final judgment and order dated 14th June, 2011 passed by the Madras High Court (Madurai Bench) in W.A.No.417 of 2011 dismissing the aforesaid Writ Appeal filed by the appellants.

3. We have heard the learned counsel for the parties at length.

4. Mr. Ashok Desai learned senior counsel appearing on behalf of the appellants has submitted that although many issues have been raised in the SLP, he is not pressing the point that the High Court erred in entertaining the writ petition filed by respondent Nos.1 and 2. The point with regard to the maintainability of the writ petition was taken on the basis of a judgment of this Court in the case of United Bank of India vs. Satyawati Tondon & Ors.[ 2010 (8) SCC 110]. It was urged before the High Court that an alternative remedy being available to respondent Nos.1 and 2 under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "SARFAESI Act, 2002), the writ petition would not be maintainable.

The second issue with regard to the maintainability was based on the fact that earlier respondent Nos. 1 and 2 had filed Writ Petition Nos.5027-28 of 2006 challenging the auction sale notice dated 23rd May, 2006. However, these writ petitions were withdrawn on 3rd July, 2006. The High Court did not give any liberty to respondent Nos. 1 and 2 to file fresh writ petition. Mr. Desai very fairly submitted that it is not necessary to examine the issues on maintainability of the writ petition, as the entire issue is before this Court on merits.

United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110 [Para 4]

5. Mr. Ashok Desai has pointed out that respondent Nos.1 and 2 had taken various loans from respondent No.3-Bank. Upon failure of Respondent Nos. 1 and 2 to repay the loan, the assets of respondent Nos.1 and 2 which had been mortgaged with respondent No.3-Bank were classified as non-performing assets (NPA). In spite of such action having been taken by respondent No.3-Bank, respondent Nos.1 and 2 failed to regularize the bank account.

Therefore, on 8th June, 2005, the bank-respondent No.3 issued notice under Section 13(2) of the SARFAESI Act, 2002 followed by a possession notice on 12th January, 2006 under Section 13(4) of the said Act. Respondent Nos.1 and 2 challenged the aforesaid two notices by filing Writ Petition Nos. 4174/2006, 4175/2006, 5027/2006 and 5028/2006. In the meantime, auction sale was fixed on 7th July, 2006. But no sale took place as there were no bidders. On 28th August, 2006, respondent Nos. 1 and 2 sought cancellation of the auction notice and sought permission of respondent No.3-Bank to sell the secured assets by private Treaty. It was stated that as on that date the outstanding balance due to the bank was a sum of Rs.1.57 crores. A request was made to break up the aforesaid amount as follows :

(a) Machineries of M/s. Suruthi Fabrics - 0.40 lacs

(b) Land and building of M/s. Suruthi Fabrics - 0.70 lacs

6. Permission was sought to sell the assets as stated above within six months. On 11th September, 2006, respondent Nos.1 and 2 made a payment of Rs.42 lacs to respondent No.3-Bank, by selling machinery with the permission of respondent No.3-Bank. A request was also made for an extension of two moths for paying the remaining amount after selling the secured assets. On 8th December, 2006, respondent No.3- Bank gave approval for private sale of the immovable property to the appellants and for issue of sale certificate. On the very same date, the secured assets were sold in favour of the petitioner for a consideration of 123.10 lacs. It is not disputed by Mr. Vikas Singh, learned senior counsel appearing for Respon

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2014 Supreme(SC) 212

IMPORTANT POINTAny sale in violation of section 13, SARFAESI Act, 2002 and Rules 8 and 9(1) of Security Interest (Enforcement) Rules, 2002 would be null and void.

Cases Referred (1)

IMPORTANT POINT
Any sale in violation of section 13, SARFAESI Act, 2002 and Rules 8 and 9(1) of Security Interest (Enforcement) Rules, 2002 would be null and void.