Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: ss. 13(2), 13(4), 14, 17(1), 18 – e-auction sale - Respondent availed three loan facilities after executing necessary security documents - Another Respondent stood as guarantor and created an equitable mortgage over her immovable property as security for due repayment of the said loan amount - Respondent borrowers committed default in repaying the outstanding loan amount as also the interest - Loan accounts classified as non-performing assets-NPA – Initiation of recovery proceedings by the respondent Bank-secured creditor under the provisions of the SARFAESI Act – Issuance of demand notice calling upon the respondent borrowers/guarantor to repay and discharge the outstanding loan amount – Bank then took physical possession of the property from the borrowers - Possession challenged by the respondent borrowers by filing a Securitization Application before the Debts Recovery Tribunal – Same was dismissed and the order attained finality - Bank issued notice prior to e-auction to the respondent borrowers calling upon the borrowers/guarantor to repay the outstanding loan amount as demanded – Thereafter, issuance of e-notice by the Bank – Challenged by the respondents - By interim order Tribunal directed the respondent Bank to proceed with the auction sale of the secured asset scheduled with a further direction not to issue the sale certificate provided the respondent deposits certain amount within 15 days, however, the respondent failed to deposit the same – Bank then proceeded with the auction sale - Appellant declared the highest bidder, and sale certificate was issued in his favour - Before tribunal, respondent borrowers raised two primary objections that there was an error in the description of mortgaged property indicated in the e-auction sale notice resulting in low value in auction; and that the auction purchaser did not deposit the auction price within the specified time, as such breach of r. 9(4) of the Rules 2002 - Tribunal dismissed the applications filed by the respondents - Respondent borrowers then filed writ petition before the High Court u/Art. 226 - Division Bench of the High Court set aside the order passed by the tribunal holding that error in the description of the scheduled property in eauction sale notice was a serious infirmity in the process and cannot be sanctified; and that the auction purchaser failed to deposit balance bid amount within the stipulated time - Proceedings initiated from the stage of s. 13(2) of the SARFAESI Act, 2002 till the delivery of physical possession of the scheduled property set aside – On appeal, held: No documentary evidence placed on record to substantiate the kind of prejudice in value of property - Mere typographical error due to inadvertence which has not caused any prejudice to the borrowers, could not be considered to be the ground to annul the process held by the secured creditor - Four days’ delay which was caused in terms of the original auction notice, in no manner, would frustrate or annul the auction proceedings – Finding returned by the tribunal was well reasoned and duly supported with the material on record - Interference made by the High Court under the judgment while recording a finding that it was in breach of Rule 9(4) of the Rules, 2002 is not legally sustainable in law and is set aside – Practice of entertaining the writ application by the High Court in exercise of jurisdiction u/Art 226 without exhausting the alternative statutory remedy available under the law is deprecated – Respondent borrowers initially approached the Debts Recovery Tribunal by filing an application u/s. 17, but the order of the tribunal indeed was appealable u/s. 18 subject to the compliance of condition of pre - deposit and without exhausting the statutory remedy of appeal, the respondent borrowers approached the High Court by filing the writ application u/Art. 226 of the Constitution - This was to avoid the condition of pre-deposit - Security Interest (Enforcement) Rules 2002 – rr. 8(5), 8(6) & 9(4) – Judicial deprecation.
Allowing the appeal, the Court
HELD :1.1 The practice of entertaining the writ application by the High Court in exercise of jurisdiction under Article 226 of the Constitution without exhausting the alternative statutory remedy available under the law is deprecated. This circuitous route appears to have been adopted to avoid the condition of pre-deposit contemplated under 2nd proviso to Section 18 of the Act 2002. [Para 34][1124-G-H]
1.2 The borrower failed to demonstrate that because of a typographical inadvertent error in door number, as indicated above, the property could not have fetched the value as it ought to have fetched and that apart, there was no documentary evidence placed on record to substantiate the kind of prejudice, if any, being caused. [Para 36][1125-E-F]
1.3 Secured creditor is under an obligation to undertake the exercise and cross-check the description of the mortgaged property at the stage when the initial proceedings under Section 13(2) are initiated or in the later consequential proceedings, but at the same time, mere typographical error due to inadvertence which has not caused any prejudice to the borrowers, that in itself could not be considered to be the ground to annul the process held by the secured creditor which, in our view, is in due compliance with the requirement as contemplated under the provisions of Rules, 2002. Mere mentioning of the door number “12-3-393” instead of “12-3-39” is inconsequential and does not vitiate the auction proceedings. [Para 37][1125-F-H; 1126-B]
1.4 It is relevant to note that amendment was made in Rule 9(4) and Rule 9(5) of the Rules, 2002 of which reference has been made by GSR No.1046(E) dated 3rd November, 2016 effective from 4th November, 2016. Pre- amended Rule 9(4) refers to the period of 15 days for confirmation of sale or such extended period, but the outer limit has not been defined and that appears to be not as sacrosanct and the period can be extended, as agreed upon in writing between the parties. If the time stands extended, the auction purchaser would not be considered to be a defaulter as referred to under Rule 9(5) of the Rules. As the auction in the instant case was held in March 2015, fact remains that by an amendment, the legislature with its consciousness has clarified that the agreement has to be between the purchaser and the secured creditor exceeding 15 days, but in any case may not exceed three months although who are the parties to the agreement are not clear in the pre-amended Rule 9(4) of the Rules. [Paras 38, 39 & 40][1126-F; 1127-C-E]
2.1 The four days’ delay which was caused in terms of the original auction notice, in no manner, would frustrate or annul the auction proceedings. Debts Recovery Tribunal has rightly held that because in such state of flux, particularly when the bank/secured creditor requested the auction purchaser to wait for some time because the borrowers are negotiating with the bank in the light of interim order dated 26th March, 2015 of the Tribunal, delay in depositing 75% of the bid amount by four days in no manner would frustrate the rights of the parties inter se, more so, when the conduct of the borrowers in getting extension orders on two different occasions and still not depositing Rs.6 lakhs in terms of the order of the Tribunal would clearly reflect that the intention of the borrowers was only to frustrate the auction sale by one reason or the other ,which they could not succeed. [Para 44][1128-F-H; 1129-A]
2.2 The finding returned by the Tribunal was well reasoned and duly supported with the material on record and the interference made by the High Court under the impugned judgment while recording a finding that it was in breach of Rule 9(4) of the Rules, 2002 is not legally sustainable in law and deserves to be set aside. The appeal deserves to succeed and is accordingly allowed. The judgment impugned of the High Court is hereby quashed and set aside. [Paras 45 & 47][1129-B, E-F] General Manager, Sri Siddeshwara Cooperative Bank Limited and Another vs. Ikbal and Others (2013) 10 SCC 83: 2013 (8) SCR , United Bank of India vs. Satyawati Tondon & Others (2010) 8 SCC 110: 2010
(9) SCR 1 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.