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2021 Supreme(Mad) 2990
IN THE HIGH COURT OF JUDICATURE AT MADRAS
SANJIB BANERJEE, P.D.AUDIKESAVALU, JJ.
Shanmugavelu Managing Director M/s. Sunbright Designers Private Limited- Appellant
Versus
The Authorised Officer Central Bank of India Corporate Finance Branch -Respondent
C.R.P. Nos.1892 & 2282 of 2021
Decided on : 27-10-2021
Advocate Appeared:
For the Respondent: Mr. G.Sethuraman, Mr.M.Devaraj
Headnote:
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 17, 35 - Security Interest (Enforcement) Rules, 2002 - Rule 9, 9(5) - Contract Act, 1872 - Section 74, 73 - Appeal - Time of sale, issue of sale certificate and delivery of possession, etc - Compensation for breach of contract where penalty is stipulated - Both secured creditor bank and original auction purchaser question propriety of an order passed by Debt Recovery Appellate Tribunal - Order impugned has been passed on an appeal by bank assailing an order passed by Debts Recovery Tribunal II, Chennai in proceedings under Section 17 - Whether any distinction may be made between an auction-purchaser who is in default to extent of 99% of bid amount and an auction purchaser who may be in default to extent of 1% of bid amount - Whether enhancement of amount forfeited was permissible – Held, there is another aspect that has to be referred to for completeness of discussion - Purpose of Act of 2002 is to ensure speedy recovery of debt due to secured creditors covered by such statute - Towards such end, provisions of said Act and Rules made there under give primacy to secured creditor in initially assessing quantum of debt due and in proceeding against securities furnished for realising such debt due - However, no secured creditor, not even by embracing provisions of said Act of 2002, can unjustly enrich itself or obtain any more by way of resorting to any of measures contemplated under Section 13(4) of Act or otherwise than debt that is due to it and costs that may have been incurred in course of trying to recover debt due - In a sense, if forfeiture provision in Rule 9(5) of said Rules is ready to imply what secured creditor in this case seeks to, it may result in a secured creditor unjustly enriching itself, which is not permissible - Appeal disposed of.
ORDER :
1. Both the secured creditor bank and the original auction purchaser question the propriety of an order dated July 30, 2021 passed by the Debt Recovery Appellate Tribunal in Chennai. The order impugned has been passed on an appeal by the bank assailing an order dated May 06, 2019 passed by the Debts Recovery Tribunal II, Chennai in proceedings under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
2. The appeal raises a fundamental issue and needs to be dealt with on first principles. At the center of the controversy is a provision of the Security Interest (Enforcement) Rules, 2002. Rule 9 of the said Rules pertains to the time of sale, issue of sale certificate and delivery of possession and the like of secured assets. Sub-rule (5) of Rule 9, which is relevant for the present purpose, provides as follows:
"9. Time of sale, issue of sale certificate and delivery of possession, etc. -
(1) ....
(5) In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold. ... "
3. In the present case, the property was put up for sale in December, 2016. The petitioner in CRP No.1892 of 2021 bid Rs.12.27 crore for the relevant immovable property at the auction conducted by secured creditor Central Bank of India on December 07, 2016. An initial deposit was made by the auction-purchaser and, subsequent to the bid, a total amount of Rs.3,06,75,000/- was tendered in total against the bid price of Rs.12.27 crore. Repeated requests from the secured creditor failed to elicit any further payment and, upon due notice to the said highest bidder, the same property was put up for sale again.
4. At the subsequent auction held on March 30, 2019, the highest bid received was of Rs.14.76 crore. There is no doubt that the sale has now been completed, the subsequent highest bidder has put in the entire consideration and the sale certificate has been issued in favour of such purchaser.
5. The issue that remained unresolved between the secured creditor and the initial auction-purchaser was how the amount that had been tendered by the initial auction-purchaser could be dealt with by the secured creditor. After all, a substantial part of the consideration, to the extent of Rs.3,06,75,000/- as indicated above, had been paid against the bid amount of Rs.12.27 crore. The secured creditor read Rule 9(5) of the said Rules to imply that it was entitled to forfeit the entire amount tendered. The initial auction-purchaser questioned such forfeiture before the DRT II.
6. By a judgment and order of May 06, 2019, the DRT II made a rough and ready estimate of the expenses that the secured creditor may have incurred in conducting the sale for a second time and allowed the secured creditor to retain a sum of Rs.5 lakh out of the entire money tendered by the initial auction-purchaser. As a consequence, the secured creditor was liable to refund a sum of Rs.3,01,75,000/- to the initial auction-purchaser in terms of the order of the Tribunal of May 06, 2019.
7. The secured creditor carried such order of the Tribunal to the appellate authority. By the judgment and order impugned dated July 30, 2021, the DRAT agreed in principle that the secured creditor was not entitled to forfeit the entire amount tendered by the defaulting initial auction-purchaser; but the Appellate Tribunal enhanced the amount permitted to be retained by the secured creditor from Rs.5 lakh to Rs.55 lakh. Both sets of parties have questioned the order dated July 30, 2021: the initial auction-purchaser on the ground that there is no basis for the enhancement of the quantum to be forfeited; and, the secured-creditor on the ground that the law permits the entire amount to be forfeited and neither the DRT nor the DRAT had any authority to question the
