2024 (12) TMI 879 - SC - Indian Laws

Principles of Constructive res judictata - Seeking to initiate contempt proceedings against the respondents / alleged contemnors for wilful disobedience - Section 2(B) of the Contempt of Court Act, 1971 read with Article(s) 129 and 142(2) of the Constitution - default in repayment of loan - handing over physical possession along with the original title deeds of the Secured Asset to the petitioner herein - clear title to the said property - absence of any registration in accordance with Section 52 of the TPA as amended by the State of Maharashtra renders the lis pendens inapplicable. Concept of Abuse of Process of Court and Collateral challenge to judgments that have attained finality - HELD THAT - When the impugned order of the High Court was challenged before this Court in the Main Appeals, the scope of proceedings before us also entailed the issue of validity of the Bank s actions under the SARFAESI Act. As discussed by us in the foregoing paragraphs of this judgment, that the Borrower for reasons best known to it, never agitated the validity of the proceedings under the SARFAESI Act including the legality of the 9th auction notice. Not once did the Borrower submit either in the course of its arguments or in its written submissions that the very auction process is allegedly illegal and in contravention of the SARFAESI Act. Since, no challenge had been raised to the measures taken by the Bank under the SARFAESI Act and the 9th auction notice by the Borrower, this Court proceeded to determine only the issue of right of redemption under Section 13 sub-section (8) of the SARFAESI Act. Accordingly, this Court held that under the unamended Section 13(8) of the SARFAESI Act, the right of the borrower to redeem the secured asset was available till the sale or transfer of such secured asset. However, under the amended provisions of Section 13(8) of the SARFAESI Act the right of the borrower to redeem the secured asset would be available only till the date of publication of the notice under Rule 9(1) of the SARFAESI Rules and not till the completion of the sale or transfer of the secured asset in favour of the auction purchaser. It is material to note that even in the review petition preferred by the Borrower including the application for additional grounds of review therein, the contention of the Borrower in the present contempt petition as to the illegality of the SARFAESI proceedings including the 9th auction or the contravention of the 30 / 15 days statutory period, does not figure. In fact, the Borrower in the review petition did not even lay any challenge to the direction of this Court to issue the sale certificate in the Main Appeals - the Borrower having admittedly failed to even remotely indicate the aforesaid issues to this Court let alone contend it in both the Main Appeals and the review thereof, the only question that now remains to be answered is whether it is permissible for the Borrower to raise it and again litigate the same subsequently either in the present contempt petition or in the S.A. No. 46 of 2022 which is still pending before the DRT. The Henderson Principle as a corollary of Constructive Res - Judicata - HELD THAT - The Henderson Principle is a foundational doctrine in common law that addresses the issue of multiplicity in litigation. It embodies the broader concept of procedural fairness, abuse of process and judicial efficiency by mandating that all claims and issues that could and ought to have been raised in a previous litigation should not be relitigated in subsequent proceedings. The extended form of res-judicata more popularly known as Constructive Res Judicata contained in Section 11, Explanation VII of the CPC originates from this principle. The fundamental policy of the law is that there must be finality to litigation. Multiplicity of litigation benefits not the litigants whose rights have been determined, but those who seek to delay the enforcement of those rights and prevent them from reaching the rightful beneficiaries of the adjudication. The Henderson Principle, in the same manner as the principles underlying res judicata, is intended to ensure that grounds of attack or defence in litigation must be taken in one of the same proceeding. A party which avoids doing so does it at its own peril. In deciding as to whether a matter might have been urged in the earlier proceedings, the court must ask itself as to whether it could have been urged - In holding that a matter ought to have been taken as a ground of attack or defence in the earlier proceedings, the court is indicating that the matter is of such a nature and character and bears such a connection with the controversy in the earlier case that the failure to raise it in that proceeding would debar the party from agitating it in the future. The doctrine itself is based on public policy flowing from the age-old legal maxim interest reipublicae ut sit finis litium which means that in the interest of the State there should be an end to litigation and no party ought to be vexed twice in a litigation for one and the same cause. The Henderson Principle is a core component of the broader doctrine of abuse of process, aimed at enthusing in the parties a sense of sanctity towards judicial adjudications and determinations. It ensures that litigants are not subjected to repetitive and vexatious legal challenges. At its core, the principle stipulates that all claims and issues that could and should have been raised in an earlier proceeding are barred from being raised in subsequent litigation, except in exceptional circumstances. This rule not only supports the finality of judgments but also underscores the ideals of judicial propriety and fairness. Both logic and principle support the approach that the judicial determination of an entire cause of action is in fact the determination of every issue which is fundamental to establishing the entire cause of action. Thus, the assertion that the determination is only on one of the issues is flawed as it is nothing but an indirect way of asserting that the whole judgment is flawed and thereby relitigating the entire cause of action once more. The effect of a judicial determination on an entire cause of action is as if the court had made declarations on each issue fundamental to the ultimate decision. Applicability of Lis Pendens in the absence of any registration as required under the State Amendment to Section 52 of the TPA - HELD THAT - As per the Doctrine of lis pendens, nothing new can be introduced during the pendency of a petition and if at all anything new is introduced, the same would also be subject to the final outcome of the petition, which would decide the rights and obligations of the parties - The doctrine of lis pendens is duly recognized in Section 52 of the TPA which states that during the pendency in any court of any suit in which any right to immovable property is directly and specifically in question, the property cannot be transferred or otherwise dealt with by any party to the suit or proceedings. The explanation to the provision states that for the purposes of the Section, the pendency of a suit or proceedings shall be deemed to commence from the date of the presentation of the plaint or institution of the proceeding in a Court, and shall continue until the suit or proceeding is disposed by a final decree or order and complete satisfaction of the order is obtained, unless it has become unobtainable by reason of the expiry of any period of limitation. The doctrine of lis pendens, which Section 52 of the TPA encapsulates, bars the transfer of a suit property during the pendency of litigation. The only exception to the principle is when it is transferred under the authority of the court and on terms imposed by it. Where one of the parties to the suit transfers the suit property (or a part of it) to a third-party, the latter is bound by the result of the proceedings even if he did not have notice of the suit or proceeding. In the present case, it has been canvassed on behalf of the Subsequent Transferee that it is a bona-fide third party purchaser of the Secured Asset since it was neither arrayed as a party to proceedings in the Main Appeals nor issued a notice of the said proceedings either by the petitioner or by the Bank - In Sanjay Verma v. Manik Roy 2006 (12) TMI 559 - SUPREME COURT this Court held that the principle of lis pendens enshrined in Section 52 of the TPA is not only based on equity, good conscience and justice but is also a principle of public policy and as such no party can claim exemption from the application of this doctrine on the ground of bona fide or good faith. Since, in the present case the Special Leave Petitions were already instituted and pending before this Court as on 28.08.2023 i.e., the date of execution of the Assignment Agreement for the transfer of the Secured Asset in favour of the Subsequent Transferee, the said Assignment Agreement dated 28.08.2023 and the transfer thereto is beyond a shadow of doubt hit by lis pendens. The execution of the Assignment Agreement dated 28.08.2023 and the transfer of the Secured Asset in pursuance thereto in favour of the Subsequent Transferee is hit by lis pendens despite the fact that no notice of pendency was registered in terms of the amended Section 52 of the TPA - Section 52 of the TPA does not render transfers affected during the pendency of the suit void but only render such transfers subservient to the rights as may be eventually determined by the court. Since in the present case, the Assignment Agreement dated 28.08.2023 whereby the Secured Asset was transferred in favour of Greenscape / the Subsequent Transferee herein was effected by the Borrower on the strength of its right of redemption pursuant to the High Court s impugned order which was ultimately set-aside by this Court in its judgment and order dated 21.09.2023 in the Main Appeals, the same rendered Borrower s right to transfer the Secured Asset non-est and by extension the Assignment Agreement void. Whether any contempt is said to have been committed by the respondents herein? - HELD THAT - The expression or word wilful means act or omission which is done voluntarily or intentionally and with the specific intent to do something which the law forbids or with the specific intent to fail to do something the law requires to be done, that is to say with bad purpose either to disobey or to disregard the law. It signifies a deliberate action done with evil intent or with a bad motive or purpose - Article 129 of the Constitution declares this Court as a a court of record and states that it shall have all the powers of such a court including the power to punish for contempt of itself. The provisions of the Act, 1971 and the Rules framed thereunder form a part of a special statutory jurisdiction that is vested in courts to punish an offending party for its contemptuous conduct. In Ram Kishan v. Tarun Bajaj Ors. 2014 (1) TMI 1897 - SUPREME COURT it was held that the contempt jurisdiction conferred on to the law courts power to punish an offender not only for his wilful disobedience but also for contumacious conduct or obstruction to the majesty of law. It further observed that such power has been conferred for the simple reason that the respect and authority commanded by the courts of law are the greatest guarantee to an ordinary citizen that his rights shall be protected and the entire democratic fabric of the society will crumble down if the respect of the judiciary is undermined. Any contumacious conduct of the parties to bypass or nullify the decision of the court or render it ineffective, or to frustrate the proceedings of the court, or to enure any undue advantage therefrom would amount to contempt. Attempts to sidestep the court s jurisdiction or manipulate the course of litigation through dishonest or obstructive conduct or malign or distort the decision of the courts would inevitably tantamount to contempt sans any prohibitory order or direction to such effect - the mere conduct of parties aimed at frustrating the court proceedings or circumventing its decisions, even without an explicit prohibitory order, constitutes contempt. Such actions interfere with the administration of justice, undermine the respect and authority of the judiciary, and threaten the rule of law. While the initial acts of the Borrower and the Subsequent Transferee are in violation of this Court s judgment and order dated 21.09.2023, yet the efforts on their part to take steps and make amends by withdrawing the Special Civil Suit No. 5 of 2024 along with their belated unconditional undertaking to comply with any further order that this Court may deem fit and proper to pass, demonstrates their effort and willingness to purge themselves of their contemptuous conducts. Circumstances when a sale of property by auction or other means under the SARFAESI Act may be set-aside after its confirmation - HELD THAT - In LICA (P) Ltd. v. Official Liquidator 1993 (1) TMI 242 - SUPREME COURT this Court held that the purpose of an open auction is to get the most remunerative price with the highest possible public participation, and as such the courts shall exercise their discretion to interfere where the auction suffers from any fraud or inadequate pricing or underbidding that too with circumspection, keeping in view the facts of each case - This Court in Valji Khimji 2008 (8) TMI 562 - SUPREME COURT held that once an auction is confirmed the objections to the same should not ordinarily be allowed, except on very limited grounds like fraud as otherwise no auction would ever be complete. In the present lis, it is not the case of the Borrower herein that the 9th auction conducted by the Bank was a result of any collusion or fraud either at the behest of the Bank or the Successful Auction Purchaser herein. Aside from the lack of any 15-days gap between the notice of sale and the notice of auction, no other illegality has been imputed to the aforesaid auction proceedings. It is also not the case of the Borrower that due to the absence of the aforesaid statutory period, any prejudice was caused or that it was prevented from effectively exercising its rights due to such procedural infirmity. Despite a total of eight auctions being conducted by the Bank from April, 2022 to June, 2023, not once did the Borrower express its desire to redeem the mortgage - given the fact that although the S.A. No. 46 of 2022 was still pending, yet since there was nothing before this Court to doubt the validity of the 9th auction, this Court in the Main Appeals confirmed the sale in favour of the petitioner and brought the auction proceedings to its logical conclusion by directing the issuance of the sale certificate. The Borrower never raised the issue of the validity of the 9th auction notice despite having sufficient opportunities to do so even after the pronouncement of the decision in the Main Appeals, and that such pleas are being raised only after the auction was confirmed in favour of the petitioner, we find no good reason to interfere with the 9th auction conducted by the Bank. In the present lis, apart from the want of statutory notice period, no other challenge has been laid to the 9th auction proceedings on the ground of it being either collusive, fraudulent or vitiated by inadequate pricing or underbidding, thus, the auction cannot be said to suffer from any fundamental procedural error, and as such does not warrant the interference of this Court, particularly when the plea sought to be raised to challenge the same could have been raised earlier. The legality and validity of the 9th auction proceedings conducted pursuant to the notice of sale dated 12.06.2022 is upheld. The sale of the Secured Asset to the petitioner is hereby confirmed and the title conferred through the Sale Certificate dated 27.09.2023 is declared to be absolute - The Borrower and the Bank shall immediately take steps for the cancellation of the Release Deed dated 28.08.2023 within a period of one week from the date of pronouncement - Let this matter be notified once again before this Bench after a period of two weeks to report compliance of the aforesaid directions.

Summary

Issues Involved:

1. Whether any act of contempt could be said to have been committed by the respondents of the judgment and order dated 21.09.2023 passed by this Court in Civil Appeal Nos. 5542-5543 of 2023?
2. Whether the proceedings arising out of S.A. No. 46 of 2022 could have continued after this Court's judgment and order dated 21.09.2023 directing the issuance of the Sale Certificate of the Secured Asset to the petitioner?
3. Whether the transfer of the Secured Asset in favour of the Subsequent Transferee by way of the Assignment Agreement dated 28.08.2023 is hit by lis pendens?
4. Circumstances when a sale of property by auction or other means under the SARFAESI Act may be set-aside after its confirmation.

Detailed Analysis:

I. Contempt of Court:

The court examined whether the respondents committed contempt by not complying with the judgment dated 21.09.2023. The judgment had set aside the High Court's order allowing the borrower to redeem the mortgage after the auction notice. The court held that the confirmation of the sale by the Bank vested the petitioner with a right to obtain the sale certificate of the Secured Asset. The Borrower and the Subsequent Transferee were found to have committed contempt by not complying with the judgment, as they engaged in actions to undermine the court's decision, such as addressing letters to authorities to prevent the transfer of the Secured Asset and filing suits to declare the sale certificate invalid. However, the court provided an opportunity for the respondents to purge their contempt by complying with the directions issued in the present contempt petition.

II. Continuation of Proceedings in S.A. No. 46 of 2022:

The court analyzed whether the proceedings in S.A. No. 46 of 2022 could continue after the judgment directing the issuance of the Sale Certificate. It was held that the Borrower had waived its right to pursue the S.A. No. 46 of 2022 by not raising any challenge to the auction process during the proceedings before the High Court and this Court. The court applied the Henderson Principle, which prevents parties from raising issues in subsequent proceedings that could have been raised earlier. The court concluded that the proceedings before the DRT had been rendered infructuous by the issuance of the Sale Certificate.

III. Applicability of Lis Pendens:

The court examined whether the transfer of the Secured Asset to the Subsequent Transferee was hit by lis pendens. It was held that the doctrine of lis pendens applied, as the transfer occurred during the pendency of the Special Leave Petitions before this Court. The court rejected the argument that the absence of registration of a notice of pendency under the State Amendment to Section 52 of the TPA rendered lis pendens inapplicable. The court emphasized that the doctrine is based on public policy and ensures that the subject matter of litigation is not altered during the pendency of proceedings.

IV. Setting Aside a Confirmed Sale:

The court reiterated that once a sale is confirmed, it should not be set aside except on grounds of fraud, collusion, or fundamental procedural error. In this case, no such grounds were established, and the auction was conducted in compliance with the statutory requirements. The court upheld the validity of the 9th auction proceedings and confirmed the sale of the Secured Asset to the petitioner.

Final Order:

The court issued several directions, including the cancellation of the Release Deed and the Assignment Agreement, withdrawal of the S.A. No. 46 of 2022, and handing over of possession and title deeds of the Secured Asset to the Bank. The Borrower and the Subsequent Transferee were given an opportunity to comply with these directions to avoid being held guilty of contempt. The court also clarified that the Subsequent Transferee is not entitled to recover any amount from the petitioner. The matter was scheduled for a compliance report after two weeks.