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2015 (1) TMI 461 - SC - Companies LawValidity of auction sale - Right of the auction buyer - entitlements of the guarantors who stepped into the shoes of the borrowers as provided under Section 13(8) of the SARFAESI Act - appellant contended that once the sale has been effected and confirmed in accordance with law, merely because someone else can offer a higher amount, the Court should not have interfered with the already confirmed sale as that would become an unending affair if such approach made by parties are entertained. - Interpretation of Section 13(8) of the SARFAESI Act, read with Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002 - Violation of right of redemption - Denial of adequate opportunity and time to repay the borrowed sum - Auction of property without giving proper notice. Held that - Whole procedure followed by the 4th Respondent-Bank in effecting the sale on 28.12.2007 and the ultimate confirmation of the sale on 11.01.2008, stood vitiated as the same was not in conformity with the provisions of the SARFAESI Act and the Rules framed thereunder. Though, such a detailed consideration of the legal issues was not made by the Division Bench while setting aside the sale effected in favour of the Appellant, having regard to the construction of the provisions of the SARFAESI Act, the RDDB Act and the relevant Rules, we are convinced that the Judgment of the Division Bench 2010 (3) TMI 1050 - KERALA HIGH COURT , was perfectly justified and we do not find any infirmity with the same. Judgment passed in Writ Appeal No.1555 of 2009 dated 08.03.2010, was a self contained one and due to the failure of the 1st and 2nd Respondents in not handing over the Demand Draft for ₹ 2,00,00,000/- to the Appellant within the stipulated time limit, namely, on or before 08.06.2010, the sale effected in favour of the Appellant stood confirmed Inasmuch as we have found there was absolutely no justifiable grounds for the Division Bench to grant further time in its Order dated 18.06.2010, we are of the view that it will be travesty of justice if the earlier Judgment dated 08.03.2010, which worked itself out on 08.05.2010, is to be reversed for the flimsy grounds raised by the 1st and 2nd Respondents that they could not raise funds in spite of two months time granted to them for paying a sum of ₹ 2,00,00,000/- in favour of the Appellant. We have also found that while the time granted by the Division Bench expired by 08.05.2010, the application for extension was filed 40 days later, i.e. on 10.06.2010. Therefore, for such a recalcitrant attitude displayed by Respondents 1 and 2 in respect of a litigation which involved very high stakes, the Division Bench should not have come for their rescue in the absence of any weighty reasons. The reason adduced on behalf of Respondent 1 and 2 is the standard reason which any party used to plead while seeking for extension of time. Since very valuable rights of the Appellant were at stakes and the Order of the Division Bench also remained in force, insofar as it related to the cancellation of the sale deed, which existed in favour of the Appellant till 08.05.2010 and by virtue of the noncompliance of the conditions imposed in the said Judgment dated 08.03.2010 by the 1st and 2nd Respondents the ownership rights of the Appellant got crystallised on and after 09.05.2010, we fail to find any justification at all for the Division Bench to interfere with the said right in such a casual manner by accepting the flimsy reasons of the 1st and 2nd Respondents. Therefore, while upholding the Judgment of the Division Bench dated 08.03.2010 passed in Writ Appeal 1555 of 2009, for the reasons stated herein, the Orders dated 18.06.2010 and 08.07.2010 passed in I.A. Nos.437 and 507 of 2010 are set aside. Value of the property which was knocked out in favour of the Appellant in a sum of ₹ 1,27,00,101/- by confirming the sale by the 4th Respondent-Bank on 31.12.2007 and 11.01.2008, the same was found to be not in accordance with the provisions of the SARFAESI Act. Since the proper procedure for effecting the sale was not followed, it will have to be held that the price fetched through the Appellant cannot be held to be the correct price for the mortgaged property involved in these proceedings. Further, the very fact that in the year 2010 the property could fetch ₹ 2,03,00,000/-, we are of the view that in all fairness even while confirming the Order of the Division Bench, by which the sale in favour of the Appellant came to be confirmed, the difference in the sale price should be directed to be paid by the Appellant. While the price paid by the Appellant was ₹ 1,27,00,101/-, the price ultimately fetched at the instance of the 1st and 2nd Respondents was ₹ 2,03,00,000/-. Therefore, after giving credit to ₹ 1,27,00,000/-, the Appellant would still be liable to pay a further sum of ₹ 76,00,000/- to the 1st and 2nd Respondents. - Decided partly in favour of appellants.
Issues Involved:
1. Interpretation of Section 13(8) of the SARFAESI Act, read with Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002. 2. Validity of the sale process conducted by the 4th Respondent-Bank. 3. Rights of the borrower under Section 13(8) of the SARFAESI Act. 4. Application of other laws (RDDB Act, Income Tax Rules) in the context of the SARFAESI Act. 5. Jurisdiction and powers of the High Court under Article 226 of the Constitution in matters under the SARFAESI Act. 6. Validity of the orders passed by the Division Bench of the High Court extending time for the borrowers to deposit the amount. Detailed Analysis: 1. Interpretation of Section 13(8) of the SARFAESI Act: The Supreme Court examined the interpretation of Section 13(8) of the SARFAESI Act, which allows a borrower to tender dues to the secured creditor at any time before the date fixed for sale or transfer. The Court emphasized that this provision protects the borrower's valuable right to redeem the property, which is a constitutional right under Article 300A. The Court held that the secured creditor must inform the borrower of the date and time of the sale or transfer to provide an opportunity for the borrower to tender the dues and stop the sale. 2. Validity of the Sale Process Conducted by the 4th Respondent-Bank: The Court found that the 4th Respondent-Bank did not follow the mandatory requirements of giving a clear 30 days' notice to the borrower before the sale, as stipulated under Rules 8(6) and 9(1) of the Security Interest (Enforcement) Rules, 2002. The sale conducted on 28.12.2007 was held to be invalid as it did not comply with the statutory requirements. The Court noted that the initial notice issued for the sale on 25.09.2007 did not fulfill the 30 days' notice requirement and that no fresh notice was issued after the sale was postponed. 3. Rights of the Borrower Under Section 13(8) of the SARFAESI Act: The Court reiterated that the borrower's right to redeem the property under Section 13(8) is not extinguished until the sale is completed by registration. This right continues until the borrower is duly informed of the sale date and time, allowing them to tender the dues and stop the sale. The Court emphasized that this provision is designed to protect the borrower's ownership rights and ensure that the secured creditor does not exploit the borrower's vulnerable situation. 4. Application of Other Laws (RDDB Act, Income Tax Rules) in the Context of the SARFAESI Act: The Court held that the provisions of the RDDB Act and the Income Tax Rules, 1962, apply in addition to the SARFAESI Act. Specifically, Rule 15 of the Income Tax Rules, which requires a fresh proclamation of sale if the sale is adjourned for more than one calendar month, was found to be applicable. The Court concluded that the secured creditor must follow the procedure prescribed under these rules when effecting a sale under the SARFAESI Act. 5. Jurisdiction and Powers of the High Court Under Article 226 of the Constitution: The Court noted that the Division Bench of the High Court exercised its jurisdiction under Article 226 to set aside the sale conducted by the 4th Respondent-Bank. The Supreme Court upheld the High Court's decision, stating that the sale was not conducted in a fair and reasonable manner, and the borrowers' rights were seriously infringed. The Court emphasized that the High Court's intervention was justified to protect the borrowers' rights under the SARFAESI Act. 6. Validity of the Orders Passed by the Division Bench of the High Court Extending Time for the Borrowers to Deposit the Amount: The Supreme Court found that the Division Bench's orders dated 18.06.2010 and 08.07.2010, which extended the time for the borrowers to deposit the amount, were not justified. The Court noted that the initial two-month period granted by the High Court for the borrowers to deposit the amount expired on 08.05.2010, and the application for extension was filed only on 10.06.2010. The Court held that the borrowers' failure to comply with the initial deadline resulted in the automatic confirmation of the sale in favor of the appellant, and the subsequent extension of time was unwarranted. Conclusion: The Supreme Court upheld the High Court's decision to set aside the sale conducted by the 4th Respondent-Bank due to non-compliance with statutory requirements. However, the Court set aside the High Court's subsequent orders extending the time for the borrowers to deposit the amount, confirming the sale in favor of the appellant. The Court directed the appellant to pay the difference in the sale price to the borrowers and provided detailed instructions for the refund and adjustment of amounts by the 4th Respondent-Bank.
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