2024 (5) TMI 364 - SC - Indian Laws

Right of the Bonafide purchasers - Auction sale held in favour of appellant - sale challenged on the ground that the Bank had not followed the statutory procedure prescribed under the Security Interest (Enforcement) Rules, 2002 - notice as required under Rules 8(6) and 8(7) had neither been issued nor served upon the borrower - HELD THAT - In view of the concurrent finding based on the admission by the Bank that mandatory notice of 30 days was not given to the Borrower before holding the auction/sale, the setting aside of the auction/sale cannot be faulted with. The same has to be approved - Once the sale is set aside, the status of the appellants as owners would automatically revert to that of tenants. The status of possession at best could have been altered from that of an owner to that of tenants but Bank would not have any right to claim actual physical possession from the appellants nor would the appellants be under any obligation to handover physical possession to the Bank. The DRT fell in error on the said issue. Therefore, the direction issued by the DRT that the Bank will first take possession and thereafter refund the auction money with interest applicable to fixed deposits, is not a correct direction. The entire controversy has arisen because of the Bank not following the prescribed mandatory procedure for conducting the auction sale and, therefore, the Bank must suffer and should be put to terms for unnecessarily creating litigation. As of date the dues of the Bank have been fully discharged and an additional amount of the auction money is lying with the Bank since 2009. This amount is to be returned to the appellants. In such facts and circumstances of the case, the award of interest on the auction money at the rate applicable to fixed deposits is not a correct view. The rate of interest deserves to be enhanced. Thus, the setting aside of the auction sale is affirmed - status of the appellants as tenants shall stand restored leaving it open for the borrower as owner of the property to evict the appellants in accordance to law - entire auction/sale money lying with the Bank (R-1 2) shall be returned to the appellants along with compound interest @12 per cent per annum to be calculated from the date of deposit till the date of payment - Borrower Respondent nos.3 and 4 and the Bank Respondent nos.1 and 2, would streamline their accounts and the Bank upon settlement of the same will issue a No Dues Certificate to the Borrower. The impugned order is modified - appeal disposed off.

Summary

Issues involved:
The judgment deals with the correctness of the judgment and order passed by the Allahabad High Court dismissing the Writ Petition of the appellants, confirming the orders passed by the Debt Recovery Tribunal (DRT) as well as the Debt Recovery Appellate Tribunal (DRAT) regarding the auction sale held in favor of the appellants.

Issue 1 - Compliance with Statutory Procedure:
The borrower filed a securitization application under Section 17 of the SARFAESI Act to set aside the auction sale due to the Bank's failure to follow the statutory procedure prescribed under the Security Interest (Enforcement) Rules, 2002. The DRT set aside the sale due to non-compliance with Rules 8(6) and 8(7) of the 2002 Rules, directing the Bank to refund the auction money with interest upon receiving possession of the property from the auction purchaser.

Issue 2 - Rights of Appellants as Purchasers:
The appellants contended that they were bonafide purchasers for value and had invested significantly in developing the property post-sale. They sought compensation for the improvements made by them in case the sale was set aside. The Bank argued that the appellants, having enjoyed the property during the litigation, were not entitled to additional compensation for improvements made.

Issue 3 - Resolution and Directions:
The Supreme Court affirmed the setting aside of the auction sale due to the Bank's failure to provide mandatory notice to the borrower. The status of the appellants as tenants was restored, and the auction money along with compound interest was ordered to be returned to the appellants. The Bank and the borrower were directed to streamline their accounts, with the Bank issuing a No Dues Certificate upon settlement.

This judgment highlights the importance of adherence to statutory procedures in auction sales, the rights of purchasers in such transactions, and the resolution of disputes between borrowers, purchasers, and financial institutions in cases of non-compliance with legal requirements.