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2025 Supreme(Online)(Mad) 26477
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Sunder Mohan, J
borrower – Appellant
Versus
bank – Respondent
W.P.No.15804 of 2017 | W.P.No.32845 of 2018 | W.P.No.2081 of 2019
For the Appellants/Petitioners: Mr.Raghunathan
For the Respondents: Mr.Benjamin George
Mandatory compliance with auction rules is essential; failure to adhere to payment timelines renders the sale invalid, and deviations are not merely procedural if they affect the rights of the parties involved.
Headnote:(A) Securitisation and Reconstruction of Financial Assets and Enforcement Act, 2002 - Section 13(2) - Security Interest (Enforcement) Rules, 2002 - Rules 8(3), 8(4), and 9(4) - Auction Sale - Validity of sale in favor of auction purchaser challenged - Bank's failure to comply with mandatory provisions of rules regarding payment timelines renders sale invalid - Borrower has not waived rights under the rules. (Paras 22-24)
(B) Judicial Review - Scope of review in auction sales - Minor deviations from rules do not invalidate sale unless fundamental procedural errors exist. (Paras 17-21)
Facts of the case:
Borrower defaulted on housing loan; property sold in auction; borrower challenged sale citing procedural violations by the bank in executing the sale deed without proper adherence to auction rules.
Findings of Court:
Sale in favor of auction purchaser set aside due to fundamental procedural errors by the bank; borrower entitled to negotiate with the bank regarding outstanding payments.
Issues: Whether the bank's actions constituted a valid auction sale and if procedural deviations warranted setting aside the sale.
Ratio Decidendi: The court held that the bank's failure to ensure compliance with mandatory rules regarding payment timelines invalidated the sale; the borrower did not waive her rights under the relevant rules.
Result: Writ petition of the borrower allowed; bank's writ petition dismissed with costs.
| Table of Content |
|---|
| 1. overview of the case and parties involved (Para 1 , 2 , 3 , 4) |
| 2. arguments presented by the borrower and bank (Para 5 , 6 , 7) |
| 3. court's analysis of procedural errors and legal standards (Para 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25) |
| 4. decision to set aside the sale (Para 26) |
| 5. final orders and costs awarded (Para 27 , 28 , 29 , 30) |
(Delivered by the Hon'ble Sunder Mohan J.)
All three writ petitions impugn the order dated 01.06.2017 passed by the Debts Recovery Appellate Tribunal, Chennai [hereinafter referred to as 'DRAT']. The petitioners in all the writ petitions are aggrieved by the impugned order for different reasons, which we shall elaborate later. Since the impugned order is the same, all the writ petitions are taken up together.
2. Petitioner in WP No.15804 of 2017 is the borrower [hereinafter referred to as 'borrower']. Petitioner in WP No.32845 of 2018 is the Authorised Officer of the Indian Overseas Bank [hereinafter referred to as 'bank']. Petitioner in WP No.2081 of 2019 is the auction purchaser [hereinafter referred to as 'auction purchaser'].
3. The brief facts leading to the filing of the writ petitions are as follows:
(a) On 17.05.2002, borrower availed a Housing Loan of Rs.6,50,000/- from the bank. On 01.12.2003, her husband one R.Dharmalingam availed a cash credit limit of Rs.5,00,000/-.
(b) According to the bank, the borrower and her husband defaulted in the repayment of the loan and the property which was offered as security for both the loans, viz., house property at Plot No.10, Panneerselvam Street, Kalinjur Special Village Panchayat, Katpadi Taluk, Vellore District, was brought to sale.
(c) On 04.07.2005, bank issued a demand notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement Act, 2002 [hereinafter referred to as 'SARFAESI Act'], calling upon the borrower to pay a sum of Rs.6,45,245/- as of 01.07.2004 together with interest at 14.5% per annum. Since the borrower did not make any payment, bank had issued an auction sale notice on 01.02.2006, fixing the date of sale as 06.03.2006.
(d) Auction purchaser was declared as a successful bidder for sale consideration of Rs.10,37,000/-.
(e) On 26.09.2006, bank had executed a sale deed to the auction purchaser for a total sale consideration of Rs.10,37,000/-.
(f) Aggrieved by the sale deed executed by the bank and holding that the bank had violated the rules and the terms and conditions of the auction sale while executing the sale deed in favour of the auction purchaser, the borrower filed a writ petition in WP No.1351 of 2007 before this Court. This Court by order dated 11.01.2007, disposed of the writ petition by observing that the sale cannot be put under challenge in a writ petition.
(g) Borrower preferred an appeal in W.A.No.1032 of 2007, before the Division Bench of this Court. The Division Bench by order dated 10.08.2007 held that the correctness or otherwise of the auction conducted by the bank cannot be gone into by this Court under Article 226 of the Constitution of India and observed that it is open to the borrower to resort to the alternative remedy available.
(h) Borrower thereafter filed S.A.No.64 of 2008 before the Debts Recovery Tribunal – III, Chennai [hereinafter referred to as 'DRT'], praying for setting aside the sale in favour of the auction purchaser, as bank had committed a fraud in executing the sale deed contrary to the rules and the terms and conditions of the auction sale.
(i) The bank had filed their reply stating inter alia that they have not committed any fraud; that it was the borrower who had continuously defaulted in the repayment of loan; that Rule 8(8) of Security Interest (Enforcement) Rules, 2002 [hereinafter referred to as 'Rules'] empowers secured creditors to sell the mortgaged property on mutually settled terms between the secured creditor and the purchaser and therefore, the delay in payment of the consideration by
