2016 (11) TMI 1764 - SC - Indian Laws

Default in repayment of loan - Validity of auction sale - it is common ground that the debtor did not prefer application for setting aside the sale, inconformity with the remedy provided in that behalf in terms of Section 89A of the Karnataka Cooperative Societies Act, 1959 read with Rule 38 of the Karnataka Cooperative Societies Rules - HELD THAT - The debtor cannot be heard to claim benefit of the proceedings in the form of Writ Petitions followed by Writ Appeals filed by the auction purchaser and the Bank. For, it is noticed that the Division Bench in its order dated 24th August 2011 determined the liability of the debtor to pay Rs. 59,46,965/- along with solatium and interest thereon. At least in terms of that decision, the debtor ought to have paid the entire amount. However, there was still a shortfall of Rs. 18,75,791.40. The debtor, instead, represented before the ARCS that he was not liable to pay any further amount in excess of the amount already deposited by him until 22nd September 2011 totalling Rs. 61,89,125/-. In the facts of the present case, it is only upon deposit of the entire awarded amount, the request of the debtor to absolve him of his liability could be entertained. Once the auction sale is confirmed by the Competent Authority, it is not open to the Authority to exercise power under Rule 38(6), to set aside the sale. That would be against the spirit of legislative intent of giving finality to the auction sale process upon passing of an order of confirmation of sale. The writ appeal having been disposed of, in the guise of clarification, the Division Bench could not have passed any order at the instance of the debtor who had failed to challenge the decision of the Deputy Registrar. The writ appeals were filed by the auction purchaser and the Bank assailing the wrongful rejection of their Writ Petitions by the learned Single Judge. As the decision of the Deputy Registrar deserves to be set aside, the debtor cannot succeed on the basis of some observations made in the impugned judgments of the Division Bench or for that matter by the learned Single Judge and including some infirmity in the letter of the Assistant Registrar (CS) dated 21st December 2011. The order passed by the Deputy Registrar (dated 18.7.2009); and of the High Court (dated 11.01.2010; 24.8.2011, 8.6.2012 and 29.6.2012) confirming the order of the Deputy Registrar of setting aside the sale of the subject mortgage property in favour of the auction purchaser, are hereby set aside - Appeal allowed.

Summary

Issues Involved:

1. Delay in repayment of loan and execution of recovery proceedings.
2. Validity of auction sale and objections raised by the debtor.
3. Jurisdiction of the Deputy Registrar in setting aside the auction sale.
4. Compliance with statutory requirements for setting aside the sale.
5. Interpretation and application of relevant legal provisions and rules.
6. Calculation and payment of the awarded amount and interest.

Detailed Analysis:

1. Delay in Repayment of Loan and Execution of Recovery Proceedings:

The debtor defaulted on a loan repayment to Mahalakshmi Co-operative Bank Limited, resulting in recovery proceedings. An award was passed for recovery of Rs. 13,65,899.70 with interest at 19% per annum. The debtor's failure to comply led to execution proceedings and subsequent auction notices. Despite multiple opportunities and conditional stays granted by the Karnataka Appellate Tribunal and the High Court, the debtor failed to deposit the required amounts, leading to continued execution actions.

2. Validity of Auction Sale and Objections Raised by the Debtor:

The auction sale of the debtor's mortgaged property was contested by the debtor's brother, claiming it was joint family property. His objections were dismissed. The debtor's repeated attempts to challenge the auction sale through writ petitions were unsuccessful. The High Court provided conditional interim protection, but the debtor consistently failed to meet the conditions, resulting in the auction sale proceeding. The auction purchaser emerged as the highest bidder, and the sale was confirmed by the Assistant Registrar of Co-operative Societies (ARCS).

3. Jurisdiction of the Deputy Registrar in Setting Aside the Auction Sale:

The debtor filed an appeal with the Deputy Registrar of Co-operative Societies (DRCS), who set aside the sale on grounds of undervaluation, despite the debtor's non-compliance with the payment conditions. The Supreme Court found that the DRCS lacked jurisdiction to entertain the appeal against the order of confirmation of sale, as no appeal provision existed under Section 106 of the Karnataka Cooperative Societies Act against such confirmation.

4. Compliance with Statutory Requirements for Setting Aside the Sale:

The debtor did not file an application for setting aside the sale as per Rule 38 of the Karnataka Cooperative Societies Rules, which required depositing the awarded amount with interest. The application for setting aside the sale was dismissed by ARCS, and the debtor's appeal to DRCS was deemed without jurisdiction. The Supreme Court emphasized the necessity of complying with statutory provisions for setting aside a sale.

5. Interpretation and Application of Relevant Legal Provisions and Rules:

The Supreme Court highlighted the legislative intent of Rule 38, which provides a mechanism for setting aside sales, including the requirement of depositing the awarded amount and interest. The Court noted that once the sale is confirmed, the authority cannot set aside the sale under Rule 38(6), emphasizing the finality of the auction process upon confirmation.

6. Calculation and Payment of the Awarded Amount and Interest:

The High Court's direction for the debtor to deposit Rs. 59,46,965/- with interest was not fulfilled, resulting in a shortfall. The debtor's argument of calculation errors was dismissed by the Supreme Court, which found no merit in the debtor's claims. The Court underscored the importance of fulfilling financial obligations as per judicial orders and statutory requirements.

Conclusion:

The Supreme Court set aside the orders of the Deputy Registrar and the High Court that had favored the debtor, reinstating the confirmation of the auction sale in favor of the auction purchaser. The debtor's appeals were dismissed, and the Appropriate Authority was directed to proceed with the disbursement of amounts in accordance with the law. The judgment reinforced the necessity of adhering to statutory processes and judicial directions in recovery and auction proceedings.