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IN THE HIGH COURT OF KERALA AT ERNAKULAM
N. NAGARESH, J.
Ajmal K.V. & Ors. - Petitioners
Versus
Union Bank of India, Represented by its Authorized Officer & Ors. - Respondents
W.P.(C) Nos.24087 and 27867 of 2023
Decided On : 05-03-2024
Auction purchasers - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(8), Rule 9(1) of the Security Interests (Enforcement) Rules - The court discussed the right of redemption of a mortgagor, the power of the secured creditor to enforce security interest, and the implications of One Time Settlement on auction sales. The court emphasized that the right of redemption is curtailed under the present statutory regime and highlighted the discretion of the Bank to cancel auction sales and the necessity of Sale Certificate for concluding a sale.
Fact of the Case:
The petitioners are auction purchasers who bought secured assets in an e-auction conducted by the bank. The bank granted One Time Settlement to the borrowers and cancelled the sale in favor of the petitioners. The petitioners sought a writ of mandamus to issue a sale certificate or refund the auction amount with interest.
Finding of the Court:
The court found that the auction sales were not concluded as the bank did not confirm the sales or issue Sale Certificates due to interim orders from the Debts Recovery Tribunal and subsequent One Time Settlement with the borrowers. The court declined the prayer to compel the bank to issue Sale Certificates but directed the bank to refund the amount deposited by the petitioners with interest.
Issues: The issues revolved around the legality of the bank's cancellation of auction sales, the right of redemption of mortgagor, the impact of One Time Settlement on auction sales, and the entitlement of auction purchasers to Sale Certificates.
Ratio Decidendi: The court held that the right of redemption is curtailed under the present statutory regime, and auction sales are not concluded until the bank confirms the sales and issues Sale Certificates. The court emphasized the discretion of the bank to cancel auction sales and the necessity of Sale Certificate for concluding a sale.
Final Decision: The court declined the prayer to compel the bank to issue Sale Certificates but directed the bank to refund the amount deposited by the petitioners with interest.
The legal document clarifies that the sale of a secured asset through auction is not considered concluded until the bank confirms the sale and issues a Sale Certificate (!) (!) . Although successful bidders may deposit the purchase amount, their rights and interests over the property only crystallize upon the bank's final confirmation and issuance of the Sale Certificate. If the bank does not confirm the sale, the auction is deemed incomplete, and the bidders do not acquire any legal interest or title in the property (!) (!) . Additionally, the document emphasizes that interim orders or proceedings, such as those by a tribunal, can prevent the issuance of a Sale Certificate, and until such confirmation, the sale remains unfinalized (!) (!) .
JUDGMENT :
The petitioners in these writ petitions are auction purchasers who had purchased secured assets which were put for sale by the 1st respondent-Union Bank of India. The petitioners deposited the entire auction amount. The 1st respondent-Bank, however, granted One Time Settlement facility to the borrowers and cancelled the sale in favour of the petitioners.
2. In respect of the e-auction sale that was conducted on 21.12.2022 by the 1st respondent-Bank, certain applicants, who mortgaged the properties in question to the Bank, approached the Debts Recovery Tribunal-I, Ernakulam filing SA Nos.414/2022 and 415/2022, assailing the e-auction sale notice bearing reference No.RO/KOZ-SALE/2022-2023. In the said applications, the Tribunal recorded that e-auction sale was conducted on 21.12.2022 in favour of the petitioners. The Tribunal initially passed interim orders staying confirmation of the e-auction sale. The SAs were amended challenging the e-auction sale conducted on 21.12.2022.
3. The SAs were taken up for hearing on 20.06.2023. The petitioners in the SA filed affidavit stating that proposal submitted by the 1st respondent-Bank for One Time Settlement has been accepted by the Bank as per sanction order dated 08.05.2023 and that the Bank has decided to discontinue recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The applicants requested the Tribunal to pass orders on sanction of One Time Settlement Scheme and closure of SAs in view of the OTS sanction. The Tribunal dismissed the SAs stating that the SAs have become infructuous in view of the sanctioning of OTS by the 1st respondent-Bank.
4. It is evident from the pleadings and arguments raised at the Bar that the petitioners in W.P.(C) No.24087/2023 have paid Rs.2,88,50,000/- by 05.01.2023 in respect of Schedule Item No.19 property. The petitioners in W.P.(C) No.27867/2023 paid Rs.4,35,52,000/- towards purchase of Schedule Item No.15 property. The petitioners state that they had requested the Bank to confirm the sale in their favour. However, the 1st respondent-Bank replied as per communication dated 24.07.2023 that the Bank has cancelled the sale and returned the bid amount since a One Time Settlement has been arrived at between the Bank and the borrower.
5. Counsel for the petitioners argued that the cancellation of sale is illegal and unsustainable. Section 13(8) of the SARFAESI Act incorporates the principle of right of redemption of a mortgagor. Till the year 2016, the right of redemption was available till date of sale. However, after amendment to the Act, the right of redemption of mortgagor comes to an end on the date of publication of notice for public auction.
6. Once auction notice is published, the mortgagor loses the right to redeem the secured asset. The statute has given a free hand to the secured creditor to enforce any security interest without the interruption of the court or Tribunal.
7. The petitioners state that the cancellation of e-auction sale and refusal of the Bank to issue Sale Certificate in favour of the petitioners, is unlawful and unprecedented and exposes unholy nexus between the Bank and mortgagors of the property. The Bank is not justified in cancelling the e-auction sale after the petitioners remitting in full the entire sale price.
8. The counsel for the petitioners pointed out that SA Nos.414/2022 and 415/2022 were dismissed by the Debts Recovery Tribunal without any specific observation against the e-auction conducted on 21.12.2022. Therefore, after the orders of the Debts Recovery Tribunal in the SAs, the right and claim of the petitioners as auction purchasers are fortified.
9. The petitioners therefore prayed to issue a writ of mandamus directing the 1st respondent to issue sale certificate in favour of the petitioners with respect to the properties bid in auction by them. Alternatively, the petitioners seek to direct the 1st respondent-Bank to return the s
The right of redemption of a mortgagor is curtailed under the present statutory regime, and auction sales are not concluded until the bank confirms the sales and issues Sale Certificates.
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.
The judgment established the availability of remedy under Section 17 of the SARFAESI Act, 2002 for aggrieved parties due to auction cancellation.
The right of redemption is available to the mortgagor until the sale is complete by registration of sale, and the violation of statutory rules may entitle the borrower to redeem the property.
The successful auction purchaser has a remedy under Section 17 of the SARFAESI Act if aggrieved by the cancellation of the auction, and the writ jurisdiction should not be exercised unless there are ....
The main legal point established in the judgment is the interpretation of Rule 9(4) and 9(5) of the Security Interest (Enforcement) Rules, 2002, highlighting the requirement for the purchaser to pay ....
Compliance with statutory notice requirements is imperative in mortgage auctions; failures may invalidate the sale, preserving the mortgagor's right of redemption until formal sale registration.
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