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SUPREME COURT OF INDIA
Vikram Nath, Satish Chandra Sharma, JJ.
Govind Kumar Sharma & Anr. – Appellants
Versus
Bank of Baroda & Ors. – Respondents
Civil Appeal No. 5028 of 2024 (Arising out of S.L.P.(C) No.24155 of 2018)
Decided On : 18-04-2024
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Section 13(4) – Recovery of debt – Auction sale of secured asset – Appellants were tenants in premises in question which had been put up for auction – Their possession and status as tenants were converted into that of owners after sale was confirmed and sale certificate issued – In view of concurrent finding based on admission by Bank that mandatory notice of 30 days was not given to Borrower before holding auction/sale, setting aside of auction/sale by DRT and later on by DRAT cannot be faulted with – Same has to be approved – Once sale is set aside, status of appellants as owners would automatically revert to that of tenants – Status of possession at best could have been altered from that of an owner to that of tenants but Bank would not have any right to claim actual physical possession from appellants nor would appellants be under any obligation to handover physical possession to Bank – Direction issued by DRT that Bank will first take possession and thereafter refund auction money with interest applicable to fixed deposits, is not a correct direction – Entire controversy has arisen because of Bank not following prescribed mandatory procedure for conducting auction sale and, therefore, Bank must suffer and should be put to terms for unnecessarily creating litigation – As of date dues of Bank have been fully discharged and additional amount of auction money is lying with Bank since 2009 – This amount is to be returned to appellants – Award of interest on auction money at the rate applicable to fixed deposits is not a correct view – Rate of interest deserves to be enhanced – Interest of justice would be best served if auction money with 12 per cent per annum compound interest is returned to appellants. (Paras 11, 12 and 13)
Facts of the case:
In recovery proceedings, Recovery Officer conducted an open auction. Appellants were highest bidder. Their bid was accepted and they made good deposits as per terms of this auction. Accordingly, sale certificate was issued in their favour on 30.03.2009. Appellants were tenants of borrower in premises in question which had been put to auction. As such status of appellants changed from that of tenants to that of owners after sale was confirmed and sale certificate was issued.
Findings of Court:
Borrower Respondent nos.3 and 4 and the Bank–Respondent nos.1 and 2, would streamline their accounts and Bank upon settlement of same will issue a No Dues Certificate to the Borrower.
Result : Appeal disposed of with directions.
JUDGMENT :
VIKRAM NATH, J.
Leave granted.
2. The appellants herein have assailed the correctness of the judgment and order dated 02.07.2018 passed by the Allahabad High Court dismissing the Writ Petition of the appellants, confirming the orders passed by the Debt Recovery Tribunal1[DRT] as also the Debt Recovery Appellate Tribunal2[DRAT], whereby the auction sale held in favour of the appellants had been set aside and the appeal was dismissed.
Brief facts in nutshell are as follows:
3. The firm-respondent no.3, had taken a loan from the respondent no.1-Bank. However, as it went into default, the Bank initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 20023[SARFAESI Act]. In the said recovery proceedings, the Recovery Officer conducted an open auction. The appellants were the highest bidder. Their bid was accepted and they made good the deposits as per the terms of this auction. Accordingly, a sale certificate was issued in their favour on 30.03.2009. It may be noted here that the appellants were tenants of the borrower in the premises in question which had been put to auction. As such the status of the appellants changed from that of tenants to that of owners after the sale was confirmed and sale certificate was issued.
4. The borrower-respondent nos.3 and 4 filed a securitization application under Section 17 of the SARFAESI Act for setting aside the sale on the ground that the Bank had not followed the statutory procedure prescribed under the Security Interest (Enforcement) Rules, 20024[2002 Rules], in particular, the notice as required under Rules 8(6) and 8(7) which required a mandatory notice of 30 days to the borrower, had neither been issued nor served upon the borrower.
5. The DRT, after examining the matter, came to the conclusion that the Bank itself had admitted that the statutory compliance under the above rules had not been made and as such proceeded to set aside the sale vide order dated 21.04.2015. The operative portion of the order passed by the DRT is reproduced hereunder:
xxx xxx xxx”
6. In effect the DRT, after setting aside the sale, further proceeded to direct the Bank to refund the auction money with interest as applicable to fixed deposits only after receiving possession of the property from the auction purchaser within 15 days thereof. The borrower was directed to pay the dues of the Bank within 15 days with up to date interest, failing which the Bank would be at liberty to proceed further under the SARFAESI Act for recovery of its dues.
7. The appellants preferred an appeal before the DRAT registered as Appeal No. R-57 of 2015, which came to be dismissed, vide order dated 19.04.2018. Thereafter the appellants approached the High Court by way of a Writ Petition registered as Writ Petition (C) No.20266 of 2018, which has since been dismissed
Once auction sale is set aside, all consequent developments will have to be undone.
The appeal highlights the necessity for strict compliance with procedural laws in auction proceedings to prevent injustice, alongside principles of equity.
The court affirmed that procedural infractions in auction proceedings under the SARFAESI Act do not invalidate the auction unless they result in injustice.
Mandatory compliance with procedural requirements under the SARFAESI Act is essential; failure to adhere prejudices borrowers' rights and invalidates auction proceedings.
The High Court cannot entertain a writ petition under Article 226 when an effective alternative remedy exists under the SARFAESI Act, emphasizing the need for exhaustion of statutory remedies.
(1) Auction sale of secured asset – Validity of auction is not to be tested on equitable considerations but strictly on the touchstone of governing statutory regime.(2) Auction sale of secured asset ....
Auction sale under SARFAESI Act upheld; simultaneous civil proceedings do not invalidate the completed transaction, and allegations of undervaluation found unsubstantiated.
Order of the Tribunal it is not discernible as to whether any application for condonation of delay was filed or how the Tribunal dealt with the belated approach of the borrowers.
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