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2025 Supreme(Online)(Ker) 59031
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
For the Respondents: SMT. V. MOHANA (SENIOR), SRI. KARTHIK SUNDAR PANDEY, SRI. PRAVEEN K. JOY, SRI. J. OM PRAKASH (SENIOR), SRI. TOM K. THOMAS
The auction sale was invalid due to procedural violations, emphasizing the need for lenders to comply with statutory requirements and ensure buyer transparency.
Headnote:(A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Sections 13(2), 13(4), 17 - Security Interest (Enforcement) Rules, 2002 - Challenges to auction of secured assets - Court found that mandatory procedures for auction, including separate valuation of movable and immovable properties, were not followed, and auction sale was confirmed below the reserve price - Court emphasized need for lenders to act fairly and obtain maximum value without arbitrary proceedings. (Paras 10, 15, 46)
(B) Writ Jurisdiction - Scope - While the High Court will not engage in evidential re-appreciation, it may intervene if a fundamental legal error is established in the sale process - Court assertively rejected claims of collusion, stating the burden of proof lies on allegations of collusion and fraud, which must be substantiated with clear evidence. (Paras 12, 23, 44)
Facts of the case:
This appeal followed the judgment of a Single Judge, which set aside orders of the Debt Recovery Tribunal and Debt Recovery Appellate Tribunal that had upheld auction sales. The Borrower, who defaulted on loans, argued procedural violations in the auction process and the inclusion of third-party property in sale notices.
Findings of Court:
This court found that the learned Single Judge erred in declaring the auction sale as fraudulent and lacking due process, emphasizing that the auction sale process must be transparent and fair to protect rights of all parties involved.
Issues: 1) Severity of procedural violations in conducting the auction sale; 2) Whether the auction buyer was a bona fide purchaser; 3) The impact of including a third-party property in the sale notices.
Ratio Decidendi: The court ruled that there was no sufficient evidence to establish collusion or fraud; the auction process must conform to statutory requirements, and any interference by the court in commercial matters must be justified by clear legal grounds.
Result: Appeals partly allowed; issues remanded for reconsideration by DRAT.
| Table of Content |
|---|
| 1. background of the case and parties involved. (Para 1 , 2 , 3) |
| 2. default in loan repayment and the consequent legal actions. (Para 4 , 5) |
| 3. history of proceedings and judgments prior to the current appeal. (Para 6 , 8 , 10) |
| 4. arguments presented by the parties regarding the drt's decision. (Para 7 , 9) |
| 5. contentions regarding the scope of writ jurisdiction and appeal processes. (Para 11 , 12) |
| 6. need for reasoned judgments in appellate reviews. (Para 13 , 14) |
| 7. identification of key legal issues by the single judge. (Para 15 , 16) |
| 8. collusion, fraud, and procedural errors in auction. (Para 17 , 19) |
| 9. analysis of auction process and its implications. (Para 18 , 20) |
| 10. legal standings on advertised terms of sale and rights of the borrower. (Para 21 , 22) |
| 11. clarifying legal misconceptions and application of auction rules. (Para 23 , 24) |
| 12. ruling on the definition of movable and immovable properties. (Para 25 , 26) |
| 13. separate valves for movable/immovable properties in auctions. (Para 27 , 28) |
| 14. verification of proper valuation and public interest. (Para 29 , 30) |
| 15. analysis of pragmatic sales outcomes for the parties. (Para 31 , 32) |
| 16. duties of the bank within the auction process. (Para 33 , 34) |
| 17. judicial outcomes and conclusions relevant to the appeals. (Para 35 , 36) |
| 18. disputed items and issues related to auction sales. (Para 37 , 38 , 39 , 40) |
| 19. outcomes and conclusions drawn from the appeals. (Para 41 , 42 , 43) |
| 20. final ruling and implications for further proceedings. (Para 44 , 45 , 46) |
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 S
