Recovery of Debts Due to Banks and Financial Institutions Act, 1993 – s.29, 19 – Income Tax Act, 1961 – r.53 of Second Schedule thereto – Income Tax (Certificate Proceedings) Rules, 1962 – r.16 – Appellant-DDA allotted subject plot to Respondent No.2-Club, lease deed executed – Subject plot was mortgaged with the Bank, Club defaulted in payment of the loan taken from the Bank – E-auction notice was issued by the Bank without disclosing inter alia that DDA had an encumbrance i.e. the claim for an amount of unearned increase in respect of subject plot – Subject plot purchased by auction purchaser – Writ Petition filed by DDA for setting aside the e-auction conducted by the Recovery Officer in pursuance of the e-auction notice and to set aside the acts and omissions of the Bank and the club w.r.t the subject plot – High Court dismissed the Writ Petition without adverting to the validity of the auction – Challenge to:
Held: 1.1 Under Clause 5(a) and 5(b) of the lease deed executed between the lessee and the Club, the DDA had the right of pre-emption – The fact that the subject plot had been allotted on lease to the Club by the DDA was within the knowledge of the Bank – However, DDA was not impleaded as a party in the said proceedings u/s.19 of the 1993 Act – In pursuance of Recovery Certificate issued by DRT, for recovery of sum of Rs.86,46,790.37, the Recovery Officer issued notice for drawing up the proclamation of sale and settling the terms thereof and informed, the Bank to bring to its notice, the encumbrances, charges, claims of liabilities attached to the said property. [Para 26]
1.2 DDA filed an objection before the Recovery Officer on the ground that no permission was granted by it to mortgage subject plot to the Bank – However, the aforesaid objection was rejected by the Recovery Officer – The Recovery Officer without directing the DDA to quantify its claim on account of unearned increase in relation to the subject plot and without ascertaining the same, directed, that sale proclamation be issued. [Para 26]
1.3 An e-auction notice was issued on 27.09.2012 – In the said e-auction notice, sale price was fixed at Rs.8.85 crores – However, the fact that DDA has an encumbrance i.e. the claim for an amount of unearned increase in respect of subject plot was not disclosed in the e-auction – The Bank also failed to disclose the terms and conditions of the lease executed between the DDA and the Club, to the Recovery Officer which, it was under an obligation to do so in view of the statement made by it before the High Court, as recorded in the order dated 05.11.2012 pass in W.P. (C) No. 6972 of 2012. [Para 27]
1.4 Thus, e-auction notice was issued in violation of r.53 of the Second Schedule to the 1961 Act as well as r.16 of the Rules, 1962 – Therefore, no sanctity can be attached to the e-auction sale notice and proclamation of sale as well as confirmation of sale and sale certificate issued in favour of the Auction Purchaser. [Para 27]
1.5 High Court without adverting to the validity of the auction which was per se illegal as the same was conducted in violation of the terms and conditions of the lease deed and the provisions of the 1961 Act and 1962 Rules, erred in dismissing the Writ Petition on the ground that the same was barred by the principles analogous to s.11 of the CPC. [Para 29]
1.6 Impugned order passed by the High Court, the e-auction notice as well as the e-auction conducted by the Recovery Officer, DRT, the confirmation of sale and sale certificate issued in favour of the Auction Purchaser are quashed and set aside – Balance amount deposited by the Auction Purchaser which is with the bank be returned to the Auction Purchaser with an interest at the rate of 9% per annum. [Para 32]
Civil Procedure Code, 1908 – s.11 – Res judicata – Inapplicability of – Writ Petition filed by DDA for setting aside the e-auction conducted by the Recovery Officer in pursuance of the e-auction notice and to set aside the acts and omissions of the Bank and the club w.r.t the subject plot – High Court dismissed the Writ Petition without adverting to the validity of the auction inter alia holding that issues raised in the instant petition by the DDA and in the Writ Petition (C) No.6972 of 2012, which was dismissed as withdrawn on 05.11.2012 and the subsequent writ petition are same:
Held: The earlier writ petition i.e. Writ Petition (C) No.6972 of 2012 filed by the DDA was withdrawn in view of the undertaking furnished by the bank that the auction shall take place in accordance with terms and conditions of the lease – It was not decided on merits – In view of undertaking furnished by the bank, as recorded by High Court in its order dated 05.11.2012, DDA had a right to insist that auction is held in accordance with terms and conditions of the lease – However, auction was held in violation of terms of the lease – Therefore, DDA had a fresh cause of action to approach the Court – High Court without adverting to the validity of the auction which was per se illegal as the same was conducted in violation of the terms and conditions of the lease deed and the provisions of the 1961 Act and 1962 Rules, erred in dismissing the Writ Petition on the ground that the same was barred by the principles analogous to s.11 of the CPC. [Para 29] Unjust enrichment/unjust benefit – Principle of restitution: Held: Auction Purchaser entered the auction in good faith, placed its bid and deposited its hardearned money in the belief that the law clothed the auction with legitimacy – It neither breached the covenant nor failed in diligence and did not seek to profit from the illegality – Bank having advanced the money of an illegal mortgage and having chosen to auction what it never lawfully possessed, bears the responsibility for the consequences. [Para 31]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Divya Pandey. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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