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SUPREME COURT OF INDIA
A.K. Patnaik & Fakkir Mohammed Ibrahim Kalifulla, JJ.
Mathew Varghese
Vs.
M. Amritha Kumar & Ors.
Civil Appeal Nos. 1927-1929 of 2014 [@ SLP (C) No(s). 21433-21435 of 2010]
Decided On : 10 February, 2014
SARFAESI Act - Section 13 - Security Interest (Enforcement) Rules, 2002 - Rules 8 and 9 - Immovable property - Payment of amount - Respondents created an EQUITABLE MORTGAGE in favor of Respondent Bank by depositing title deeds of their property bearing Survey cents)and Survey cents situated in Kana South Village District Kochi Kerala hereinafter referred to as mortgage property - When transaction became non performing asset Respondent Bank filed recovery along with interest annum – Respondent Bank also issued notice Section Act on Respondent Bank is stated to have taken possession of mortgaged property by invoking Section read along with Rules and of Rules– Held, Sale already effected by Respondent Bank shall stand cancelled automatically without any further reference to this Court - Eventually sale consideration deposited by Appellant with Respondent Bank shall be refunded to him after deducting amount due and payable by borrower as on date of previous sale balance amount alone shall be refunded to Appellant - Further Respondent Bank shall bring property for auction afresh following provisions - Thereafter from and out of money realized from sale Respondent Bank shall refund amount retained by it towards amounts due from borrower to Appellant - After paying said amount to Appellant it shall arrange for refund of balance amount Respondents after meeting whatever tax liability to Income Tax Department or any other statutory dues for which any demand was already raised and pending with Respondent Bank – Appeal dismissed
The borrower's "trustee" argument invokes the secured creditor's duty under Rule 8(3) of the Security Interest (Enforcement) Rules, 2002, to safeguard the secured asset while in custody, taking "as much care of the property... as an owner of ordinary prudence would" during the enforcement process.[1000540330030][1000540330031] This duty prevents arbitrary or whimsical exercise of powers under the SARFAESI Act but focuses on preservation and protection until sale, not an absolute obligation to maximize sale price like a court auctioneer under CPC provisions.[1000540330025][1000540330026][1000540330030] The Act empowers the secured creditor to enforce security interest without court intervention, subject to statutory procedure, with borrower protections centered on redemption rights under Section 13(8) rather than post-notice price optimization.[1000540330023][1000540330025][1000540330027]
A single bid (or sole valid bid) at or near reserve price does not inherently breach this duty if the bank complies with mandatory steps: obtaining valuation from an approved valuer, fixing reserve price in consultation with the secured creditor, publishing public notice in two newspapers (one vernacular) detailing property, debt, reserve, terms, and inviting tenders/auction, and serving 30 days' individual notice to the borrower.[1000540330022] (!) (!) (!) [1000540330027][1000540330028][1000540330049] Here, the bank published notices on 23.08.2007 in leading papers, fixed reserve at Rs. 1.25 crore based on valuation, received two tenders (one withdrew post-court order), accepted the highest valid bid of Rs. 1.27 crore (above reserve), and confirmed after partial deposit—steps deemed procedurally initiated correctly until vitiated by postponement without fresh notice.[1000540330005][1000540330007][1000540330020][1000540330049][1000540330050]
The judgment invalidated the sale primarily for failing to re-notify after court-ordered postponement beyond 30 days (requiring fresh proclamation akin to allied rules), denying borrower's Section 13(8) redemption opportunity—not inadequate marketing or low price.[1000540330027][1000540330047][1000540330048][1000540330049][1000540330050] Even recognizing later higher offers (Rs. 2.03 crore), the Court confirmed the original sale with equitable adjustment (additional Rs. 76 lakh from purchaser), prioritizing stabilized rights post-procedure over endless re-bidding.[1000540330057][1000540330058] (!) (!) [1000540330060] Borrower cannot leverage "best price" to unwind compliant process; challenge lies in DRT under SARFAESI, not writ jurisdiction absent fundamental irregularity.[1000540330015][1000540330039]
To rebut: Demand proof of undervaluation (e.g., independent valuation > reserve) or non-compliance (e.g., no publication/notice); single bid reflects market response post-advertisement, not negligence.[1000540330028][1000540330029] Emphasize constitutional property protection via notice/redemption, not ex post price guarantees.[1000540330025][1000540330026]
JUDGMENT
Fakkir Mohammed Ibrahim Kalifulla, J.
1. Leave granted.
2. This appeal by the purchaser, in a tender-cum-auction sale held by the 4th Respondent-Bank, is directed against the judgements and final orders dated 08.03.2010 in Writ Appeal No. 1555 of 2009, Order dated 18.06.2010 in I.A. No. 437 of 2010 in Writ Appeal No. 1555 of 2009 and Order dated 08.07.2010 in I.A. No. 507 of 2010 in Writ Appeal No. 1555 of 2009 passed by the High Court of Kerala at Ernakulam.
3. The interesting but very serious question that arises for consideration in this appeal is as regards the interpretation of Section 13(8) of the SARFAESI Act read with Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as 'the Rules, 2002').
4. The 1st and 2nd Respondents herein stood as guarantors in respect of a credit facility to the tune of Rs. 30,00,000/- granted by the 4th Respondent-Bank in favour of a company called 'Jerry Merry Exports Private Limited'. As guarantors, the 1st and 2nd Respondents created an EQUITABLE MORTGAGE in favour of 4th Respondent-Bank by depositing the title deeds of their property bearing Survey No. 150/12A (40.20 cents), Survey No. 150/12C (11 cents) and Survey No. 150/13 (26 cents) totaling 77.20 cents situated in Padivattom Kana, Edappally South Village, Kanayanoor Taluk, Ernakulam District Kochi, Kerala (hereinafter referred to as 'the mortgage property'). When the transaction became a NON-PERFORMING ASSET, the 4th Respondent-Bank filed O.A. No. 31 of 2002 for recovery of Rs. 33,77,053/- along with interest @ 18% per annum. The 4th Respondent-Bank also issued a notice under Section 13(2) of the SARFAESI Act on 11.08.2006 for a sum of Rs. 70,77,590/-. On 20.02.2007, the 4th Respondent-Bank is stated to have taken possession of the mortgaged property by invoking Section 13(4) of SARFAESI Act, read along with Rules 8 and 9 of the Rules, 2002.
5. The 1st and 2nd Respondents filed a Securitisation Application i.e. S.A. No. 20 of 2007, before the Debt Recovery Tribunal (hereinafter referred to as 'the DRT') Ernakulam, challenging the possession notice dated 20.02.2007 and additionally also for an Order to restrain the 4th Respondent-Bank from evicting Respondents 1 and 2. Between 09.05.2007 and 24.07.2007 the attempts made for One Time Settlement (hereinafter referred to as 'OTS') also failed and the 4th Respondent-Bank withdrew its offer of OTS, which was in a sum of Rs. 55,00,000/-.
6. On 14.08.2007, the 4th Respondent-Bank issued a notice to Respondents 1 and 2, as well as others of its intention to sell the property under Rule 8(6) of the Rules, 2002 by fixing a reserve price of Rs. 1,25,00,000/-. On 23.08.2007, the 4th Respondent-Bank published its notice of sale of property in Indian Express and Mathrubhoomi, inviting tenders-cum-auction from the public. The 1st and 2nd Respondents were informed by the 4th Respondent-Bank by its notice dated 30.08.2007, about the publication made on 23.08.2007 and also enclosed a tender form along with the terms and conditions for participation in the tender. The Appellant and one M/s Kent Construction stated to have submitted their tenders on 30.08.2007 and 01.09.2007.
7. On 20.09.2007, the 1st and 2nd Respondents filed W.P. No. 27182 of 2007 challenging the proceedings initiated under the SARFAESI Act. The said writ petition was disposed of by a learned Single Judge of the Kerala High Court by Order dated 20.09.2007. By the said order, the High Court after taking note of the O.A. filed by the 4th Respondent-Bank, as well as S.A. filed by the 1st and 2nd Respondents, directed the DRT to hear the parties and dispose of both the cases or at least the Securitisation Application filed by the 1st and 2nd Respondents without any delay. The High Court also noted that at that point of time, the DRT had fixed 12.10.2007 as the date for disposal of both the applications. While issuing the said directions, the learned Judge gave liberty to the parties to settle the liabi
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