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SUPREME COURT OF INDIA
(From the High Court of Judicature for Rajasthan Bench at Jaipur)
M.R. SHAH, SANJIV KHANNA, JJ.
Bank of Baroda - Appellant
Versus
M/s Karwa Trading Company & Anr. - Respondents
Civil Appeal No. 363 Of 2022
Decided on : 10-02-2022
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Section 13(2) – Security Interest (Enforcement) Rules, 2002 – Rules 8 and 9 – Auction sale of secured asset – Direction to release mortgaged property on deposit of certain amount – Bank had already initiated proceedings under Section 13 of SARFAESI Act and even possession of mortgaged property was taken over by bank under Section 14 of SARFAESI Act and thereafter mortgaged property was put to sale by a public auction and at that stage borrower wanted to stall auction proceedings and restrain secured creditor/bank from selling property – As such, interim relief order pending appeal under Section 17 of SARFAESI Act was not justified in directing to release mortgaged property and handover possession along with original title deeds to borrower on payment of Rs.48.65 lakhs only which was base price/ reserve price – Unless and until borrower was ready to deposit/pay entire amount payable together with all costs and expenses with secured creditor, borrower cannot be discharged from entire liability outstanding – Bank cannot be restrained from selling mortgaged property by holding public auction and realise amount and recover outstanding dues, unless borrower deposits/pays entire amount due and payable along with costs incurred by secured creditor as per Section 13(f) of SARFAESI Act – As such, no order could have been passed either by DRT and/or by Division Bench of High Court to discharge borrower from entire liability outstanding and to discharge mortgaged property and handover possession along with original title deeds to borrower – Single Judge rightly set aside orders passed by DRT as well as by DRAT considering Section 13(8) of SARFAESI Act – Division Bench of High Court has erred in interfering with order passed by Single Judge and has erred in directing to release mortgaged property/secured property and handover possession along with original title deeds to borrower on payment of a total sum of Rs.65.65 lakhs only – Order passed by Division Bench of High Court quashed and set aside and order passed by Single Judge quashing and setting aside order passed by DRT, confirmed by DRAT restored. (Paras 7.1, 7.2 and 8)
Facts of the case:
Feeling aggrieved and dissatisfied with the impugned judgment and order dated 20.09.2017 passed by Division Bench of the High Court of Judicature for Rajasthan Bench at Jaipur in D.B. Special Appeal Writ No.349 of 2017, by which the Division Bench of the High Court has allowed the said intra-court appeal and has quashed and set aside the judgment and order dated 12.01.2017 passed by Single Judge and has directed that if the respondent borrower deposits a further sum of Rs.17 lakhs to the bank, the bank shall release the property and handover possession along with title deeds of the residential/housing property in question to the borrower and by which the Division Bench of the High Court has further directed that the SA No.9/2014 filed by the borrower before Debt Recovery Tribunal (DRT) is restored to its original number to be heard on merits, the appellant herein Bank of Baroda – financial institution – secured creditor has preferred the present appeal.
Findings of Court:
On public auction being finalized and the mortgaged property is sold by bank the borrower has to handover the peaceful and vacant possession of the property to the bank and/or the auction purchaser. However, in the meantime the original title deeds of the mortgaged property be retained by bank.
Result : Appeal allowed.
The key points from the provided legal document are as follows:
The bank has the right to proceed with the sale of the mortgaged property through a public auction to recover outstanding dues unless the borrower deposits the entire amount payable along with all costs incurred by the secured creditor (!) (!) .
The borrower cannot be released from the entire liability by depositing only a part of the dues, even if the deposit matches the highest bid received in the auction, unless the full amount of dues, including costs, is paid (!) (!) .
The order to release the mortgaged property on partial payment (Rs.65.65 lakhs) is not justified because it does not discharge the entire liability, which was significantly higher at the time of the proceedings (!) (!) (!) .
The proceedings initiated under the relevant statutory provisions, including the interim orders, are subject to the condition that the entire dues are paid before the property can be released or the sale finalized (!) (!) .
The division of authority between the courts and the secured creditor emphasizes that unless the borrower deposits the full amount due, the bank remains entitled to sell the property and recover the dues (!) (!) .
The order to release the property on payment of a lesser amount (Rs.65.65 lakhs) is contrary to the statutory provisions and the principles governing the enforcement of security interests under the relevant Act (!) (!) .
The borrower’s offer to deposit a certain amount does not equate to discharging the entire liability; the full dues must be settled for the property to be released (!) .
The proceedings under the SARFAESI Act, including auction and possession, are to be carried out in accordance with law, and interim orders do not override the statutory requirement of full payment (!) (!) .
The appellate court has restored the earlier orders that restrict the sale of the property until the full dues are paid, emphasizing that partial payments cannot substitute for full settlement of liabilities (!) .
In the interim, the borrower is entitled to possession of the property, but the property cannot be transferred or alienated without full payment and finalization of the sale process (!) .
These points collectively underscore that the secured creditor’s right to sell the property and recover dues is protected unless the borrower deposits the full amount owed, including all costs, prior to the sale or transfer of the security interest.
JUDGMENT :
M.R. Shah, J.
1. Feeling aggrieved and dissatisfied with the impugned judgment and order dated 20.09.2017 passed by the Division Bench of the High Court of Judicature for Rajasthan Bench at Jaipur in D.B. Special Appeal Writ No.349 of 2017, by which the Division Bench of the High Court has allowed the said intra-court appeal and has quashed and set aside the judgment and order dated 12.01.2017 passed by the learned Single Judge and has directed that if the respondent borrower deposits a further sum of Rs.17 lakhs to the bank, the bank shall release the property and handover possession along with the title deeds of the residential/housing property in question to the borrower and by which the Division Bench of the High Court has further directed that the SA No.9/2014 filed by the borrower before the learned Debt Recovery Tribunal (DRT) is restored to its original number to be heard on merits, the appellant herein Bank of Baroda - financial institution - secured creditor has preferred the present appeal.
2. The facts leading to the present appeal in nutshell are as under:
2.1 That the appellant herein - bank granted term loan of Rs.100 lakhs and cash credit limit of Rs.95 lakhs to the respondent - borrower (hereinafter referred to as the borrower) against the security of two mortgaged properties namely (i) industrial plot situated at Chittor Road, Bundi measuring 500 Sq.Mtrs. and (ii) a residential/housing property situated at 1Ja27, Vikas Nagar, Bundi measuring 198 Sq.Mtrs. That the borrower failed to repay the term loan as per the terms and conditions of the agreement. The account of the borrower became NPA on 31.10.2012. A notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the SARFAESI Act, 2002) dated 07.01.2013 was served upon the borrower demanding a sum of Rs.1,85,37,218.80/The bank took symbolic possession of the immovable property/residential house and also issued a notice under Section 13(4) of the SARFAESI Act, 2002 on 22.08.2013. An application was moved under Section 14 of the SARFAESI Act, 2002 which came to be allowed on 08.11.2013 and with the police assistance the bank took possession of the residential house, which was one of the mortgaged properties of the borrower, on 25.11.2013.
2.2 That thereafter the bank issued a sale notice by public auction of the residential property dated 16.12.2013. The reserve price fixed was Rs.48.65 lakhs for sale of the said secured asset in terms of the procedure prescribed under Rule 8 read with Rule 9 of the Security Interest (Enforcement) Rules, 2002. The date of auction notified was 20.01.2014. The borrower challenged the auction of the bank by filing Securitisation Application (SA) No.09/2014 under Section 17 of the SARFAESI Act, 2002 before the DRT, Jaipur. An interim order was passed by the DRT that if the borrower deposits Rs.20 lakhs on 20.01.2014 by 12.00 noon, the bank shall accept the bids but not finalize the bids/confirm the sale of the secured asset and if the borrower commits default in payment of balance amount of Rs.28.65 lakhs, the restraint order shall stand vacated automatically. The DRT also observed that if the borrower deposits Rs.48.65 lakhs with the bank on or before 27.01.2014, the bank shall deliver the possession of the secured asset along with the original title deeds of the property in question. It is not in dispute that the borrower deposited Rs.48.65 lakhs with the bank.
2.3 That the aforesaid interim order passed by the DRT came to be challenged by the bank in appeal before the DRAT (Debt Recovery Appellate Tribunal). It was the case on behalf of the appellant bank that in public auction the bank had received bids up to Rs.71 lakhs and the amount of debt due against the borrower at that point of time was above Rs.2 crores and if at all the borrower is interested or keen to redeem the mortgaged property, he could do so by dischargin
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