S. Karthik & Ors. vs N. Subhash Chand Jain & Ors.

4.48 Crores for which Respondent No. 3 was entitled – DRT set aside the Second Sale Notice and the consequent sale of mortgaged properties – Directed Respondent-Bank to refund the amount paid by auction purchaser along with 10% Interest and refund of surplus sum of Rs. 4.48 Crores to the Respondent No. 3 along with 10% Interest – On appeal, DRAT, set aside the order of DRT, except in respect of payment of excess amount to third respondent – High Court upheld the order of the DRAT – Held: Sale scheduled on 27.02.2012 in pursuance of First Sale Notice could not take place on account of the interim orders Passed by the DRT on the representation of the guarantors – One of the properties was sold for Rs. 12.25 Crores through a private treaty, but this could not fulfil the entire claim – Hence, Second Sale Notice was issued which was in the continuation of the proceedings of the First Sale Notice, therefore providing of 30 days’ clear notice is not necessary – Order of the DRT was not sustainable insofar as setting aside the sale – DRAT has rightly reversed the same which was upheld by the High Court – Auction purchaser was the successful bidder and the sale was register in his favour – But for the 9 years, he could not enjoy the fruit of the said sale, therefore, the appellants are directed to handover the vacant and peaceful possession of the properties to the Auction purchaser along with the rent received by the appellants.

Litigation – Series of – Recourse to series of proceedings to block the enforcement of a security interest – Dilatory tactics – Held: Every attempt has been made to frustrate the purpose of the SARFAESI Act – Three rounds of litigation – It appears that the appellants were only interested in protracting the litigation as, they had more than one opportunity for redemption of mortgage however, they did not avail the opportunity – Sale in pursuance of First Sale Notice could not take place on their incorrect misrepresentation.

Dimissing the appeals, the Court

HELD:

1. It will be relevant to note that this Court in the case of Mathew Varghese itself has held that in the event of any such sale properly notified after giving a 30 days’ clear notice to the borrower does not take place as scheduled for the reasons, which are not solely attributable to the borrower, then the secured creditor cannot effect the sale and he will have to initiate the procedure de novo. [Para 56][1136-F-H]

2. It could be seen that immediately after the notice was issued on 21.1.2012, the guarantors approached the DRT, Chennai, by way of S.A. No. 69 of 2012. The guarantors gave an impression to the DRT, Chennai, that they can sell the property within 15 days and make the payment of the entire consideration within 15 days, and that the balance amount could be settled within one month. Acting on the representation of the guarantors, the DRT, Chennai, vide order dated 27.2.2012 granted interim stay for a period of 30 days, restraining the respondent-Bank from proceeding further, pursuant to the sale notice dated 21.1.2012. However, this was subject to deposit of 50% of the outstanding amount within the said period. It could thus be seen that the sale as per the notice dated 21.1.2012, which was scheduled to take place on 27.2.2012, could not take place on the scheduled date on account of interim orders passed by the DRT, Chennai, which were passed on the representation of the guarantors. [Para 57][1137-A-C]

3. It could thus be seen that the Second Sale Notice dated 9.7.2012 was in continuation of the proceedings of the First Sale Notice dated 21.1.2012, which sale could not be effected only on account of the interim orders passed by the DRT, Chennai, on the representation made by the appellants and respondent Nos.

2 to 4. It could further be seen that even in view of the law laid down by this Court in the case of Mathew Varghese, since the sale scheduled on 27.2.2012, as per the First Sale Notice dated 21.1.2012, could not be held due to the reasons attributable solely to the guarantors, there was no necessity of again following the same procedure of providing a 30 days’ clear notice. In any case, the respondent-Bank issued a fresh Second Sale Notice on 9.7.2012 to the appellants, scheduling the sale on 20.7.2012. There is a substantial distinction of facts in the present case as compared to those in the case of Mathew Varghese. In the case of Mathew Varghese after the dismissal of S.A., the respondentBank had surreptitiously accepted the tender of the auction purchaser on the very next day of dismissal of S.A. without issuing a notice to the guarantors/borrowers and also confirmed the sale, and only after the confirmation of sale and receipt of the entire amount, informed the borrowers/guarantors about the sale being confirmed. It is not the case here. In the present case, after the S.A. was dismissed on 2.7.2012, the respondent-Bank again issued a fresh Notice on 9.7.2012 scheduling the sale on 20.7.2012. [Para 60][1138-A-E]

4. The facts in the case of Mathew Varghese are also distinguishable inasmuch as though between the date of publication of notice in the newspapers and the date scheduled for sale, a clear 30 days’ period was provided, but insofar as the individual notice to the borrowers/guarantors and the date scheduled for sale, a 30 days’ clear period was not provided. And this was with regard to the very first notice. On the aforesaid premise, this Court in the case of Mathew Varghese held that the word ‘or’ used in Rule 9 of the said Rules will have to be read as ‘and’, and that there should be a clear 30 days’ period between the date of publication of notice in the newspapers as well as individual notice to the borrower/guarantor and the date scheduled for sale. Clearly, in the present case, there has been compliance with the same, insofar as the first notice is concerned, whereas in the case of Mathew Varghese, there was no 30 days’ period between individual notice and the date of sale. [Para 61][1138-E-H]

5. The appellants had an opportunity for redemption of the mortgage and clearing their properties from encumbrances. However, the appellants, even during this period, did not avail of the said opportunity. [Para 64][1139-E-F]

6. It is to be noted that in the meanwhile, the auction purchaser had bid for the properties at Items ‘A’ and ‘C’ in the Schedule of Properties in the Second Sale Notice dated 9.7.2012 (i.e. the properties at Items ‘A’ and ‘D’ in the Schedule of Properties in the First Sale Notice dated 21.1.2012). In the said sale, which was held on 20.7.2012, the auction purchaser was the successful bidder having bid for Rs.1,45,66,000/- and Rs.3,40,55,000/- respectively, in all totaling to Rs.4,86,21,000/-. Upon payment of the entire amount, the sale was confirmed on 21.7.2012. Not only that, the sale was duly registered on 14.9.2012 after the auction purchaser had spent a sum of Rs.38,89,880/towards the registration charges. It is to be noted that the appellants instead of complying with the directions, had filed I.A. No.437 of 2012 in S.A. No. 227 of 2012 seeking certain directions with regard to deposit of the amount in some other account. The DRT, Chennai, vide order dated 12.9.2012, dismissed the said I.A. No.437 of 2012, and thereby, granted liberty to the respondent- Bank to proceed with the sale. It is only thereafter, that the sale came to be registered in favour of the auction purchaser on 14.9.2012. It is, thus, clear that the sale came to be registered in favour of the auction purchaser in view of the liberty granted by the DRT, Chennai, in its order dated 12.9.2012. [Para 65][1139-F-H; 1140-A-B]

7. Even thereafter, the guarantors continued with their effort to prolong the proceedings. Various orders came to be passed in the Civil Revision Petitions, which we have already referred to hereinabove. In one of the orders passed by the High Court, i.e., the order dated 30.4.2013, the appellants were also directed to deposit the amount collected by way of rent before the DRT, Chennai. Finally, finding that after the confirmation of sale and after the issuance of the sale certificate, the Court could not interfere, the said Civil Revision Petitions came to be dismissed on 29.7.2013. [Para 66][1140-C-D]

8. It could thus be seen that the appellants had more than one opportunity for redemption of the mortgage. However, from their conduct, it appears that they were only interested in protracting the litigation. It is the appellants at whose intervention and on whose incorrect representation, the sale, which was scheduled to be held on 27.2.2012 in pursuance of the notice dated 21.1.2012, could not be held. Even after the dismissal of S.A. No. 69 of 2012 on 2.7.2012, the respondent -Bank again issued a Second Sale Notice on 9.7.2012 scheduling the sale on 20.7.2012 in which the auction purchaser emerged as a successful bidder. It is thus clear that the appellants had enough time from 21.1.2012 till 2.7.2012 for redemption of their mortgaged properties. However, they did not avail of that opportunity. Even after the auction purchaser emerged successful in the bid and had paid the bid money, an opportunity was given by the DRT, Chennai, vide order dated 7.8.2012, to the appellants to deposit the amount of Rs.4.80 crore within one month. However, without complying with the same, the appellants continued with their dilatory tactics by filing an application being I.A. No. 437 of 2012 in S.A. No. 227 of 2012. Even thereafter, they continued with the proceedings before the High Court, wherein certain interim orders were passed, and finally, the High Court, finding that in view of the sale being confirmed and the sale being registered no interference could be warranted, dismissed the Civil Revision Petitions. Thereafter again, they approached this Court by way of Special Leave Petitions, which were subsequently withdrawn. Ideally, the litigation ought to have stopped at least at that stage. [Para 68][1140-G-H; 1141-A-D]

9. The facts in the case of Mathew Varghese and the facts in the present case are totally different. In any case, in view of the observations made in paragraph 53 of the judgment of this Court in the case of Mathew Varghese, this Court is of the view that since the sale scheduled on 27.2.2012 in pursuance to the notice dated 21.1.2012 could not be held on account of the reasons solely attributable to the appellants/guarantors, there was no necessity to provide 30 days’ period in the Second Sale Notice dated 9.7.2012, which was in continuation of the First Sale Notice dated 21.1.2012. [Para 70][1141-F-G]

10. The appellants had ample opportunities for redemption of mortgage, they failed to avail of the said opportunities. [Para 73][1142-E]

11. Even if viewed from another angle, the claim of the appellants is not sustainable. The two judges Bench of This Court in the case of Mathew Varghese, has heavily relied on the judgment of the three judges Bench of this Court in the case of Narandas Karsondas. It has been held by this Court in the case of Narandas Karsondas, that the right of redemption, which is embodied in Section 60 of the Transfer of Property Act, is available to the mortgagor unless it has been extinguished by the act of parties. It has been held, that only on execution of the conveyance and registration of transfer of the mortgagor’s interest by registered instrument, that the mortgagor’s right of redemption will be extinguished. In the present case, the DRT, Chennai, vide order dated 12.9.2012, had granted liberty to the respondentBank to proceed with the sale. The sale came to be registered in favour of the auction purchaser on 14.9.2012. As such, in any case, the mortgagor’s right of redemption stood extinguished on 14.9.2012. The Division Bench of the Madras High Court had, therefore, rightly dismissed the Civil Revision Petitions, vide order dated 29.7.2013. The said order of the Madras High Court dated 29.7.2013 came to be challenged before this Court by way of Special Leave Petitions. This Court, vide order dated 7.7.2014, had issued limited notice in the said Special Leave Petitions. However, vide order dated 17.4.2015, the said Special Leave Petitions came to be dismissed as withdrawn. It is in the third round of litigation, that the DRT, Chennai, allowed the S.A. No.

227 of 2012, vide order dated 25.6.2018. Applying the law, as laid in the case of Narandas Karsondas and in the case of Mathew Varghese, the order passed by the DRT, Chennai, dated 25.6.2018, was not sustainable insofar as setting aside the sale notice dated 9.7.2012 and the consequent sale. The DRAT, Chennai, has rightly reversed the same, which has been upheld by the High Court vide the impugned judgment. [Para 74][1142-E-H; 1143A-C]

12. This Court will have to take into consideration the purpose with which the SARFAESI Act came to be enacted. Unlike international banks, the banks and financial institutions in India did not have power to take possession of securities and sell them. It was, therefore, noticed, that it had resulted in slow pace of recovery of defaulting loans and mounting levels of nonperforming assets of banks and financial institutions. It was also noticed that there were certain areas in which the banking and financial sector did not have a level playing field as compared to other participants in the financial markets in the world. It was further noticed that the existing legal framework relating to commercial transactions had not kept pace with the changing commercial practices and financial sector reforms. As such, the SARFAESI Act was enacted with the purpose for securitization and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the Court. [Para 76][1143-D-G]

13. In the present case, it would show that, every attempt has been made to frustrate the purpose of the SARFAESI Act. The respondent-Bank was required to indulge in three rounds of litigations, out of which, the two have reached upto this Court. [Para 77][1143-G-H]

14. Though the auction purchaser emerged as the successful bidder, in the bids held on 20.7.2012, and though the sale was confirmed on 21.7.2012, and though the sale has been registered in his favour on 14.9.2012, for a period of last 9 years, he could not enjoy the fruits of the said sale. Not only that, but the appellants continued to enjoy the rent of the properties, the ownership of which vests in the auction purchaser. [Para 78][1143H; 1144-A]

15. The excess amount, which remained with the respondent-Bank, has rightly been directed to be paid to respondent No. 3 by the DRT, Chennai, which has been concurrently upheld by the DRAT, Chennai, as well as the High Court. [Para 81][1144-E-F]

16. The appeals are therefore found to be without merit, and as such, are dismissed with costs. The appellants shall pay the costs quantified at Rs.1,00,000/- (Rupees One lakh only) payable each to the Respondent Bank and the auction purchaser. Pending applications, if any, shall also stand disposed of. [Para 83][1144-H]

17. While dismissing the appeals, taking into consideration the fact that, though the auction purchaser has be- come the owner of the properties at Items ‘A’ and ‘D’ of the Schedule of Properties in the First Sale Notice dated 21.1.2012, he could not enjoy the fruits of the same, and that the appellants have continued to enjoy the rent of the properties, we find that this is a fit case wherein the powers under Article 142 of the Constitution of India need to be invoked. [Para 84][1145-A-B]

18. This Court, therefore, direct the appellants to handover the vacant and peaceful possession of the properties at Items ‘A’ and ‘D’ of the Schedule of Properties in the First Sale Notice dated 21.1.2012, within a period of 8 weeks from the date of this judgment to the auction purchaser. We further direct the appellants to pay the rent, received by them, from the said properties, since 15.9.2012 till date, within a period of three months from the date of this judgment. However, in the facts of this case, this Court do not intend to pass any orders with regard to interest on the said amount. [Para 85][1145-C] Mathew Varghese v. M. Amritha Kumar and Others (2014) 5 SCC 610 : [2014] 2 SCR 736; Vasu P. Shetty v. Hotel Vandana Palace and Others (2014) 5 SCC 660 : [2014] 9 SCR 38; J. Rajiv Subramaniyan and Another v. Pandiyas and Others (2014) 5 SCC 651 : [2014] 3 SCR 1140; Kalpesh P.C. Surana v. Indian Bank (2010)

3 CTC 287; Dwarika Prasad v. State of Uttar Pradesh and Others (2018) 5 SCC 491 : [2018] 3 SCR 29; Shakeena and Anr. v. Bank of India & Ors. (2019) SCC Online SC 1059; Narandas Karsondas v. S.A. Kamtam and Another (1977) 3 SCC 247 : [1977] 2 SCR 341 – referred to.