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2025 Supreme(Online)(Ker) 59030
IN THE HIGH COURT OF KERALA AT ERNAKULAM
MR. NITIN JAMDAR, CJ, MR. S. MANU, J
M/S. EVERSPACE REALTY LLP. – Appellant
Versus
M/S. VASU COCO RESORTS PVT. LTD. – Respondent
WA NO. 2005 OF 2024 | WA NO. 2124 OF 2024 | WP(C) NO. 23464 OF 2024
For the Appellants/Petitioners: SRI. P.L. NARAYAN (SENIOR), SRI. K.I.SAGEER, SRI. J. OM PRAKASH (SENIOR), SRI. TOM K. THOMAS
For the Respondents: SMT. V. MOHANA (SENIOR), SRI. KARTHIK SUNDAR PANDEY, SRI. PRAVEEN K. JOY
The auction of secured assets under SARFAESI must adhere to procedural rules to ensure fairness and maximize recoverable value, requiring distinct treatment of movable and immovable properties.
Headnote:(A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002) - Mandatory provisions under Rules 5, 6, 8(5), and 9 violated - Writ petition allowed, setting aside auction sale for secured properties due to procedural flaws and lack of adherence to statutory requirements. (Paras 2, 10, 16, 44, 46)
(B) Legal principles - The auction sale of secured assets must comply with the statutory provisions ensuring fair procedure to protect the interests of borrowers. The court emphasized that the lender must act bona fide to maximize recovery from the assets. (Paras 12, 16, 36, 45)
(C)
Facts of the case:
Appeals were filed challenging the learned Single Judge's decision which set aside the auction sale conducted by the Bank, citing fundamental errors in the process. The Borrower contested the auction alleging violations of SARFAESI procedures and collusion. (Paras 1-4, 16, 46)
Findings of Court:
The court noted the absence of cognizable evidence for collusion and issues surrounding the valuation and procedure followed in the auction process. The court determined that remand to the Debt Recovery Appellate Tribunal (DRAT) was necessary for further inquiry into factual matters relevant to the auction. (Paras 45, 46)
Issues: Whether the learned Single Judge's findings regarding fraud, collusion, and undervaluation warranted setting aside the auction sale; whether the bank's procedural adherence in selling movable and immovable assets was compliant with statutory duties. (Paras 16, 36, 45)
Ratio Decidendi: The court concluded that the auction sale could not be set aside merely on insubstantial allegations of collusion or procedural errors without detailed consideration of evidence. It reinforced that auction sales must follow due process, highlighting the need for distinct treatment of movable and immovable assets. (Paras 24, 36, 45)
Result: Appeals partly allowed, with matter remanded to DRAT for further examination of factual issues on auction procedures and asset valuation. (Paras 46)
| Table of Content |
|---|
| 1. overview of appeals and proceedings. (Para 1 , 2 , 3 , 4 , 5 , 6) |
| 2. details of borrower’s objections and previous rulings. (Para 7 , 8 , 9) |
| 3. evaluation of auction validity and statutory compliance. (Para 10 , 14 , 15 , 34) |
| 4. arguments on collusion and legality of auction. (Para 11 , 20 , 22) |
| 5. decision to remand case for factual findings. (Para 12 , 35 , 46) |
| 6. court’s reasoning regarding statutory adherence. (Para 18 , 19 , 25) |
| 7. final orders and directions from the court. (Para 47 , 48) |
JUDGMENT
Dated this the 30th day of July, 2025.
Nitin Jamdar, C.J.
These two appeals are filed by the Creditor Bank and the Auction Purchaser challenging the judgment of the learned Single Judge by which the writ petition filed by the Borrower was allowed setting aside the orders passed by the Debt Recovery Tribunal and Debt Recovery Appellate Tribunal, and the sale of the secured assets.
2. W.A. No. 2124 of 2024 is filed by the Creditors, the Authorised Officer and the Deputy General Manager of the State Bank of India, (hereinafter referred to as 'the Bank'), and W.A. No. 2005 of 2024 is filed by the Auction Purchaser, M/s. Everspace Realty LLP., (hereinafter referred to as 'the Auction Purchaser').
3. These Appeals are against the judgment of the learned Single Judge dated 19 November 2024 in W.P.(C) No.23464 of 2024 filed by M/s. Vasu Coco Resorts Pvt. Ltd., and its Managing Director (hereinafter referred to as ‘the Borrower’). The learned Single Judge set aside the proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002) against the Borrower, which was confirmed in S.A. No.530 of 2022 of the Debt Recovery Tribunal, Ernakulam and affirmed in R.A.(SA) No.49 of 2023 of the Debt Recovery Appellate Tribunal, Chennai.
4. The Borrower is a private limited company. It approached the erstwhile State Bank of Travancore for financial assistance to construct and run a five star resort at Cherthala in Alappuzha District under the name and style “Vasundhara Resorts”. The State Bank of Travancore later merged with the State Bank of India, the Bank. The Borrower defaulted in repayment of the loan and the account was classified as a Non-Performing Asset (NPA). On 12 February 2018, a demand notice for a sum of ₹ 55,02,30,564/- was issued under Section 13 (2) of the SARFAESI Act, 2002, and it was recalled after the Borrower submitted objections. Again, a notice was issued on 18 August 2020 demanding a sum of ₹ 72,13,29,826.37. The Bank withdrew that notice also on the basis of the objection submitted by the Borrower. On 7 December 2021, another demand notice for a total sum of ₹ 82,76,71,281.45 was issued and the Borrower raised objection through a representation dated 10 February 2022. The Bank initiated measures under Section 13 (4) of the SARFAESI Act, 2002 and the symbolic possession of the secured assets was taken on 6 July 2022.
5. On 15 September 2022, sale notice was published by the Bank proposing to conduct an e-auction of the properties described in the demand notice. Fresh sale notice was issued on 29 October 2022 as the sale could not be conducted pursuant to the notice dated 15 September 2022. The Bank also approached the Chief Judicial Magistrate, Alappuzha, seeking assistance to take over physical possession of the secured assets. Sale was conducted on 30 November 2022 and the Auction Purchaser became the successful bidder. The Auction Purchaser has deposited the entire sale consideration. The Borrower has deposited an amount of 50 Crores pursuant to the order of the Hon’ble Supreme Court and statuo quo is maintained by which the Borrower is in possession.
6. There were several proceedings between the parties, however, for the purpose of this judgment, we will refer only to those which are directly relevant.
7. The Borrower instituted S.A. No.530 of 2022 under Section 17 of the SARFAESI Act, 2002 challenging the possession notice and l
