1. Loan default — SARFAESI proceedings — Public auction — Sale certificate issued — Application for return of original title documents deposited with the Debts Recovery Tribunal. (Para 2 , 3 , 4 )
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2020 Supreme(SC) 327
SUPREME COURT OF INDIA
A.M. Khanwilkar, Ajay Rastogi, JJ.
M/s. Tripower Enterprises (Private) Limited – Appellant(s)
Versus
State Bank of India & Ors. – Respondent(s)
Civil Appeal No. 2373 of 2020 (Arising out of SLP(C) No. 30392 of 2019)
Decided on : 24-04-2020
Advocates Appeared:
For the Appellant :A. Radhakrishnan Advocate
For the Respondent:Sanjay Kapur, Aswathi M. K., S. Gowthaman, Advocates
For the Appellant :A. Radhakrishnan Advocate
For the Respondent:Sanjay Kapur, Aswathi M. K., S. Gowthaman, Advocates
IMPORTANT POINT
When validity of mortgaged is questioned, the property documents deposited for creating the equitable mortgage cannot be returned until the validity of the maortgage is decided.
Headnote:
(a) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(4) - Liability of guarantor - Guarantor admitting its liability and offering to pay the loan by borrower in terms of mortgage of its schedule properties - DRT therefore holding the guarantor liable to repay the loan - DRT order attaining finality - Guarantor cannot be allowed to reprobate and deny creation of mortgage on ground of having been created by unauthorised person. (Para 11, 12, 13)
(b) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13 - Secured asset auctioned by bank - Sale certificate issued - Original documents of title deposited with DRT need to handed over to auction purchaser - However competent Court declaring title of the land in favour of another person - Decree attaining finality - IA in the OA before DRT remitted back by High Court for fresh consideration and final order - In the circumstances title documents cannot be handed over until the said OA is disposed of. (Para 16)
Facts of the case:
Respondent No. 3 - M/s. Rukmini Mills Ltd. had availed of financial credit from the Bank, for which the respondent No. 2 - Associated Trading Corporation Pvt. Ltd. had offered its immovable property by way of mortgage to the Bank. The borrower committed default, as a result of which the Bank declared it as a Non-Performing Asset and then proceeded to file O.A. No. 11/2008 before the DRT. The Bank also issued notice for taking symbolic possession of the secured assets, on 13.5.2008 and after considering the reply of the guarantor, took symbolic possession of the secured assets on 15.10.2008.
The secured assets offered by the guarantor were eventually put up for public auction by the Bank. The appellant ultimately turned out to be the highest bidder in the e-auction conducted by the Bank on 28.2.2017. Sale certificate in respect of the secured assets purchased by the appellant in public auction conducted by the Bank, was issued on 29.4.2017. Before the auction was finalised in favour of the appellant, the Bank had already moved an application before the DRT being I.A. No. 995/2017 in O.A. No. 11/2008 for return of the original documents deposited with the DRT, as the Bank would be obliged to hand over the same to the auction purchaser upon issue of sale certificate. That application was rejected by the DRT on 9.11.2018.
The DRAT allowed the application preferred by the Bank and directed return of the original documents to the Bank. The High Court restored the order passed by the DRT.
Finding of the Court:
Original documents, except in respect of the land bearing Paimash No. 722/4 admeasuring 1.80 acres being subject matter of decree in O.S. No. 186/1976 ordered to be returned.
High Court ought not to have entertained the writ petition filed by the guarantor.
Result: Appeal allowed.
Legal Category Hierarchy
- banking law
- civil law
- practice and procedure
Table of Contents
2. Auction purchaser claims entitlement to title documents upon sale certificate; guarantor disputes mortgage validity and argues documents must remain until final adjudication of the original application. (Para 6 , 7 , 8 )
3. Guarantor cannot resile from previous admissions of mortgage validity and liability; however, a final civil court decree regarding specific property title must be respected. (Para 10 , 11 , 12 , 13 , 14 , 16 )
4. A party cannot approbate and reprobate by admitting liability in one proceeding and denying mortgage validity in another to obstruct the transfer of title documents. (Para 12 , 14 , 15 )
5. Appeal partly allowed — High Court order set aside — Original documents returned to Bank except those pertaining to property subject to a final civil court decree. (Para 20 , 22 )
6. Can a guarantor challenge the validity of a mortgage after admitting liability and offering to pay dues in previous proceedings?
No. A party cannot be permitted to approbate and reprobate by resiling from admissions of liability and mortgage existence made in successive proceedings to thwart the lawful recovery process. (Para 10 , 11 , 12 , 14 )
7. Is an auction purchaser entitled to original title documents upon the issuance of a sale certificate?
Yes. Once a public auction is concluded and a sale certificate is issued, the bank is under a legal obligation to hand over the original title documents to the purchaser. (Para 14 , 17 )
8. Does a sale certificate issued by a bank override a final decree of a competent civil court regarding property title?
No. A decree passed by a court of competent jurisdiction that has attained finality cannot be disregarded, and documents pertaining to such property should not be released until the decree is legally overturned. (Para 16 )
JUDGMENT
A.M. Khanwilkar, J.
Leave granted.
2. This appeal takes exception to the judgment and order dated 6.9.2019 passed by the High Court of Judicature at Madras (for short, "the High Court") in Writ Petition No. 11522/2019, whereby the High Court reversed the order dated 29.3.2019 passed by the Debts Recovery Appellate Tribunal (for short, "the DRAT") at Chennai in M.A. No. 90/2018 allowing the application filed by the respondent No. 1 - State Bank of India (for short, "the Bank") before the Debts Recovery Tribunal (for short, "the DRT") at Madurai being I.A. No. 995/2017 in O.A. No. 11/2008, directing return of original documents - Exhibits A110 to A114 deposited by the Bank before the DRT in O.A. No. 11/2008. In other words, the High Court affirmed the order of the DRT rejecting subject application.
3. Shorn of unnecessary factual matrix, suffice it to observe that the respondent No. 3 - M/s. Rukmini Mills Ltd. (for short, "the borrower") had availed of financial credit from the Bank, for which the respondent No. 2 - Associated Trading Corporation Pvt. Ltd. (for short, "the guarantor") had offered its immovable property by way of mortgage to the Bank. The borrower committed default, as a result of which the Bank declared it as a Non-Performing Asset (for short, "NPA") and then proceeded to file O.A. No. 11/2008 before the DRT at Madurai. The Bank also issued notice for taking symbolic possession of the secured assets, on 13.5.2008 and after considering the reply of the guarantor, took symbolic possession of the secured assets on 15.10.2008. The guarantor filed a petition being SA No. 225/2008 before the DRT at Madurai, challenging the possession notice dated 15.10.2008 issued by the Bank under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, "the 2002 Act"), which came to be rejected by the DRT on 10.2.2011. The guarantor then filed an appeal being AIR(SA) No. 222/2011 against this decision, which was dismissed on 8.2.2013 on the ground of non-payment of pre-deposit amount. The guarantor did not carry that matter any further.
4. The secured assets offered by the guarantor were eventually put up for public auction by the Bank for recovery of outstanding dues to the extent of Rs.350.12 lakhs. The appellant ultimately turned out to be the highest bidder in the e-auction conducted by the Bank on 28.2.2017. Sale certificate in respect of the secured assets purchased by the appellant in public auction conducted by the Bank, was issued on 29.4.2017. Before the auction was finalised in favour of the appellant, the Bank had already moved an application before the DRT being I.A. No. 995/2017 in O.A. No. 11/2008 for return of the original documents deposited with the DRT, as the Bank would be obliged to hand over the same to the auction purchaser upon issue of sale certificate. That application was rejected by the DRT on 9.11.2018, essentially on the ground that the issue raised by the guarantor that there was no valid mortgage in respect of the secured assets referred to as 'B' schedule properties and that equitable mortgage in respect of the said properties have been created by incompetent persons, was still to be examined by the DRT in the main proceedings being O.A. No. 11/2008. The DRT rejected the application for the following reasons:-
"4....... it was decided that the property absolutely belonged to them and that therefore, any mortgage created in respect of their property is illegal and void and that the petitioner bank has itself stated in para-5 & 6 of the counter proof affidavit that D-10 & D-11 have been added as parties to the OA, since they claim over a part of the 'B' schedule property mortgaged by D-4 company and that in order to avoid multiplicity of proceedings, D-8 to D-11 have been added as parties to the Original Application for better adjudication of respective claim over the mortgaged properties. The Ld. Counsel for R-10 further
