Supreme Court upholds that auction under SARFAESI Act Can't Be Stayed Just Because Sale Agreement Holder Offered To Pay Dues and when Borrower Hasn't Invoked S.13(8).

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.3152­3153 of 2023

(@ SLP (Civil) Nos.5973­5974 of 2018)

 G. VIKRAM KUMAR                                                                                                                                                                                 ...Appellant(s)

Versus

STATE BANK OF HYDERABAD 

& ORS.                                                                                                                                                                                                              ...Respondent(s)

J U D G M E N T

M. R. Shah, J.

1. Feeling   aggrieved   and   dissatisfied   with   the impugned   judgment   and   order   dated 08.09.2017   passed   by   the   High   Court   of Judicature   at   Hyderabad   for   the   State   of Telangana and Andhra Pradesh passed in Writ Petition No.31098 of 2016 and the subsequent order   dated   08.12.2017   passed   in   Review Petition   No.45031   of   2017   in   Writ   Petition No.31098   of   2016,   the   appellant   and   the auction   purchaser   has   preferred   the   present appeals. 

2. The   facts   leading   to   the   present   appeals   in nutshell are as under:

2.1 That the respondent no.3 herein – builder had taken loan from respondent no.2 – Bank for the development   of   the   multi­storey   housing project.  That the respondent no.3 (hereinafter referred to as the borrower) was not able to repay   the  security   interest   to   the   Bank,   the Bank   initiated   proceedings   against   the borrower under Section 13 of the Securitization and   Reconstruction   of   Financial   Assets   and Enforcement   of   Security   Interest   Act,   2002 (hereinafter referred to as ‘the SARFAESI Act, 2002).  The Bank attached the properties of the borrower under Section 13(4) of the SARFAESI Act.  Against the measures taken by the Bank under Section 13(4) of the SARFAESI Act, the borrower filed S.A. No.253 of 2012 before the Debt   Recovery   Tribunal   (DRT),   Hyderabad. S.A. No.253 of 2012 was listed before the DRT on 19.02.2016, when the borrower was given liberty to file a list of intending buyers of the property and bring forth with the buyers so to enable the Tribunal to consider the same for the repayment of the dues of the Bank.   On 25.02.2016,   the   DRT   passed   an   order permitting the Bank to go ahead with the sale as proposed excluding flat to be identified and communicated by the borrower to the Bank by 29.02.2016 with full details of all purchasers to the bank officials on affidavit so as to enable the bank officer to exclude those flats, provided the remaining flats are sufficient for recovery of the dues.  The Tribunal directed that the bank may   proceed   with   the   sale   but   shall   not confirm the sale till the next date of hearing. At this stage it is required to be noted that the aforesaid order was passed by the Tribunal in view of the submissions made by the borrower that  he had sold seven flats out of 37 flats which were to be sold by the Bank to some third persons.  Flat No.6401 – flat in question was not amongst the said seven flats.

2.2 A Memorandum of Understanding (MoU) was entered into between the respondent no.1 and the borrower with respect to the sale of Flat No.6401   on   10.04.2016   for   a   lumpsum consideration of Forty­five lakhs.  It is pertinent to   note   that   in   the   MoU   itself   there   was   a reference to some proceedings going on before the DRT and that the Bank and the borrower will obtain clearance in order to process the agreement to sale.  That an agreement to sale was   executed   between   the   bank   and   the borrower   for   a   sale   of   Flat   No.6401   on 16.06.2016.  At this stage, it is required to be noted   that   the   said   agreement   to   sale   was executed   by   the   borrower   without informing/obtaining any consent from the DRT as well as the Bank and the permission, if any, given to the borrower earlier obtained only to the seven flats which were already recognized by the DRT on 25.02.2016.

2.3 That thereafter the Bank issued a public notice on 28.07.2016 for auctioning the properties of the borrower.  The said notice was published in the newspaper on 29.07.2016.  The property in question, i.e. Flat No.6401 was also subjected to auction.  It was placed in Lot No.1 for which the e­auction was proposed on 30.08.2016.

2.4 The   borrower   filed   an   application   before   the DRT praying for stay on all proceedings of the Bank   pursuant   to   the   auction   notice   dated 28.07.2016.     On   24.08.2016   the   DRT   was pleased to reject the application for stay filed by   the   borrower.     While   rejecting   the   stay application and refusing to grant the stay as prayed, the DRT observed as under:

“…Pending the decision, this Tribunal has directed   to   sell   the   property   and   the Applicant   now   has   entered   into   an agreement to be sold for some other flats. This   is   utter   violation   of   the   SARFAESI action   as   also   the   direction   of   the Tribunal.” “7.     As   stated   hereinabove,   it   is   also question   of   great   concern   that   the Applicant has entered into an agreement with third party in respect  of few other flats i.e. Flat No.3202, 6401, 7101, 7202 and 3201 without the permission of the Respondent   Bank   or   this   Tribunal. Hence, any such transaction is declared as void.”

2.5 That thereafter e­auction was conducted by the Bank   on   31.08.2016   in   which   the   appellant also participated.   The appellant was declared as   a   successful   bidder   with   respect   to   Flat No.6401 in Lot No.1.  Accordingly, he made a payment   of   25%   of   the   bid   amount   i.e. Rs.6,45,250/­.     The   Bank   also   issued   a confirmation   receipt   to   the   appellant   on 31.08.2016.

2.6 That thereafter the respondent no.1 filed a Writ Petition   No.31098   of   2016   before   the   High Court on 14.09.2016 challenging the e­auction notice   dated   28.07.2016   to   the   extent   it concerns Flat No.6401.  The said writ petition was filed much after the auction was complete and the appellant was declared as a successful bidder.   The respondent no.1 did not disclose in the writ petition that the auction has already taken place.  The appellant herein was also not made party. By impugned judgment and order dated 15.09.2016 the High Court stayed the auction qua Flat No.6401 as notified under the e­auction   sale   notice   subject   to   respondent no.1 (original wit petitioner) paying to the bank not less than 25.81 lakhs before the scheduled date and time of the auction, failing which, the Bank shall be free to proceed with the auction. The Bank issued a letter to the appellant dated 20.09.2016   stating   that   the   High   Court   has stayed the auction proceedings with respect to Flat   No.6401   and   that   the   respondent   no.1 herein has paid the amount to the Bank as directed by the High Court.

2.7 On becoming aware of the pending proceedings in Writ Petition No.31098 of 2016 the appellant herein   filed   an   application   for   getting impleaded in the said writ petition and filed the counter affidavit.  In the counter affidavit it was specifically stated that the DRT has declared the   agreement   of   sale   executed   between   the respondent no.1 and the borrower as void and that   the   appellant   is   the   successful   auction purchaser and that the respondent no.1 had not disclosed the complete and correct facts of the case.   It was also stated that the right, if any, available to the respondent no.1 (original writ petitioner) would have been under Section 17   of   the   SARFAESI   Act   and   not   the   writ petition filed by him.   It was also stated that the   respondent   no.1   had   not   informed   the Court   that   the   auction   proceedings   were already over at the time when the stay order was passed.   The Bank also filed the counter affidavit in the writ petition seeking dismissal of the writ petition primarily on the ground that an alternative remedy under Section 17 of the SARFAESI Act was available.  The High Court allowed the impleadment application.  Despite the   above,   by   the   impugned   judgment   and order   the   High   Court   has   allowed   the   writ petition filed by respondent no.1 herein.  That thereafter   the   appellant   herein   the   auction purchaser filed the review petition which has been   dismissed   by   the   High   Court.     Hence, against the final decision of the High Court in the   main   writ   petition   allowing   the   same   in favour   of   the   respondent   no.1   herein   and rejecting   the   review   application   filed   by   the appellant, the appellant – successful auction purchaser has preferred the present appeals.

3. Shri   A.   Sirajudeen,   learned   Senior   Advocate has appeared on behalf of the appellant.  Shri Buddy A. Ranganadhan, learned counsel has appeared   on   behalf   of   respondent   no.1   – original   writ   petitioner   and   Shri   Ananga Bhattacharyya, learned counsel has appeared on behalf of respondent no.3

4. Shri   A.   Sirajudeen,   learned   Senior   counsel appearing on behalf of the appellant has made the following submissions:

(i) That the High Court has materially erred in entertaining the writ petition filed by respondent   no.1   which   was   against  the steps taken by the Bank under Section 13(4) of the SARFAESI Act namely against e­auction notice;

(ii) That   the   respondent   no.1   being   the agreement to sale holder had no right title in the flat in question and therefore could not have filed the writ petition challenging e­auction   notice   on   the   basis   of   the agreement to sale in his favour;

(iii) Even if the respondent no.1 had any right, if any, in that case also he had alternative efficacious   statutory   remedy   available under   Section   17   of   the   SARFAESI   Act challenging the e­auction notice;

(iv) That   there   was   suppression   of   material facts on the part of respondent no.1 which was   specifically   pointed   out   by   the appellant in the counter affidavit that at the time when the writ petition was filed and the interim relief was obtained the auction   had   taken   place   in   which   the appellant   was   declared   the   successful bidder;

(v) That in fact the DRT in the earlier order dated   24.08.2016   declared   the   sale agreement   in   favour   of   the   respondent no.1 by the borrower as void as the same was entered into without prior permission of the DRT or even the Bank; and

(vi) The High Court has materially erred in relying   upon   Section   13(8)   of   the SARFAESI Act.

4.1 It   is   further   submitted   by   learned   counsel appearing on behalf of the appellant that the High Court has not properly appreciated the fact that a sale agreement holder cannot seek redemption of a property under Section 91 of the Transfer of Property Act, 1882 and cannot be   treated   at   par   with   an   auction­sale purchaser under Section 54 of the Transfer of Property   Act   makes   it   clear   that   no   interest /charge is created upon a property only by way of sale­agreement.  It is stated that in fact the impugned judgment passed by the High Court that   the   respondent   no.1   be   able   to   seek redemption of the subject property which was attached by the Bank.  It is submitted that the bank   attached   the   property   as   against   the borrower and the respondent No.1 was only the sale­agreement holder.  It is submitted that as such by virtue of the impugned judgment and order, the High Court has granted the decree for  specific  performance   of  the  agreement   to sale which is not permissible while exercising the   powers   under   Article   226   of   the Constitution of India

4.2 It   is   further   submitted   by   learned   counsel appearing on behalf of the appellant that the High Court has materially erred in observing that   the   equity   would   be   in   favour   of respondent no. 1 as he has deposited the entire amount as directed.   It is submitted that the High Court has materially erred in observing that   if   the   sale   is   confirmed  the   respondent no.1 will suffer greater hardship and if the sale is not confirmed at the most, the appellant may lose interest on Rs.6,45,250/­.

4.3 It is further submitted that as such there is no clarity in   the  impugned  judgment  and   order passed by the High Court on what exact relief the High Court has granted except observing that the writ petition is allowed.

5. While   opposing   the   present   appeal   learned counsel appearing on behalf of the respondent no.1   has   vehemently   submitted   that   in   the present case Section 13(8) of the SARFAESI Act shall    be   applicable   and  therefore   when  the respondent no.1 being the agreement to sale holder   of   the   flat   in   question   agreed   to pay/deposit the entire sale consideration the High   Court   has   not   committed   any   error   in entertaining the writ petition under Article 226 of the Constitution of India challenging the eauction notice.

5.1 It is submitted that as soon as respondent no.1 came to know that the flat in question which was agreed to be sold in favour of respondent no.1 for which part consideration was paid is put to auction, immediately he filed the writ petition showing his inclination to deposit the entire amount of sale consideration which is permissible   under   Section   13(8)   of   the SARFAESI Act.  It is submitted that the object and purpose of Section 13(8) of the SARFAESI Act is to save the property from auction in case the borrower and/or the person interested in the property agrees to clear the dues.

5.2 It is submitted that in the present case at the relevant time there was no concluded sale in favour of the appellant, as at the relevant time the appellant deposited only 25% of the auction sale consideration.  It is submitted that as per the   catena   of   decisions   unless   the   full   sale consideration is paid; the sale deed is executed and/or the sale certificate is issued in favour of the auction purchaser there is no concluded sale.   It is submitted that if the sale is not concluded, Section 13(8) of the SARFAESI Act shall be applicable and/or can be invoked.  In support of his submissions, he has relied upon the   decisions   of   this   Court   in   the   case   of Mathew   Varghese   v.   M.   Amritha   Kumar, (2014)   5   SCC   610   (para   38);  Narandas Karsondas  vs.  S.A.  Kamtam,  (1977)  3  SCC 247; B. Arvind Kumar vs. Govt. of India & Ors.,  (2007)  5  SCC  745  (para  12).   He has also relied upon the decision of the Punjab and Haryana High Court in the case of Pal Alloys &   Metal   India   Pvt.   Ltd.   &   Ors.   vs. Allahabad  Bank & Ors.,  2021 SCC  OnLine P&H   2733 as   well   as   the   decision   of   the Andhra Pradesh High Court in the case of M/s India   Finlease   Securities   Ltd.   vs.   Prasad Indian Overseas Bank, 2012 SCC OnLine AP 205. 

5.3 It   is   further   submitted   by   learned   counsel appearing   on   behalf   of   the   respondent   no.1 that   the   respondent   no.1   has   subsequently died   and   his   heirs   including   the   widow   are residing in the flat in question since long and that they have paid/deposited the entire sale consideration and therefore if now the appeal is allowed in that case, they have to vacate the premises   which   will   not   be   equitable Therefore, it is prayed to dismiss the present appeal.

6. Learned   counsel   appearing   on   behalf   of   the Bank   has   though   opposed   the   writ   petition before the High Court, has stated that whatever the decision, the Bank shall abide by the same.

7. Heard learned counsel appearing on behalf of the respective parties at length.

8. At the outset, it is required to be noted that what was challenged before the High Court by respondent no.1 in a writ petition under Article 226   of   the   Constitution   of   India   was   the   eauction   notice   which   was   pursuant   to   the action   initiated   by   the   Bank   in   exercise   of powers under Section 13(4) of the SARFAESI Act.  At this stage it is required to be noted that e-­auction was held/conducted on 31.08.2016 in which the appellant participated and was declared as a successful bidder and he made a payment of 25% of the bid amount on the very day i.e., on 31.08.2016.   However, thereafter the   respondent   no.1   filed   the   writ   petition before the High Court challenging the e­auction notice dated 28.07.2016 on 14.09.2016 that is after conducting of the auction.  It is required to be noted that against any steps taken by the Bank under Section 13(4) of the SARFAESI Act the aggrieved party has a remedy under the SARFAESI Act by way of appeal under Section 17 of the SARFAESI Act to approach the DRT. Therefore,   in   view   of   the   availability   of   the alternative statutory remedy available by way of proceedings/appeal   under   Section   17   of   the SARFAESI Act, the High Court ought not to have entertained the writ petition under Article 226 of the Constitution of India in which the eauction notice was under challenge.  Therefore, the High Court has committed a very serious error   in   entertaining   the   writ   petition   under Article   226   of   the   Constitution   of   India challenging the e­auction notice issued by the Bank in exercise of power under Section 13(4) of the SARFAESI Act. 

8.1 Even otherwise it is required to be noted that the respondent no.1 – original writ petitioner filed   the   writ   petition   as   agreement   to   sale holder of the flat in question.  At this stage it is required to be noted that earlier against the measures   taken   by   the   Bank   under   Section 13(4) of the SARFAESI Act the borrower filed S.A.No.253 of 2012 before the DRT, Hyderabad. The   DRT,   Hyderabad   by   order   dated 19.12.2016 gave the liberty to the borrower to file the list of intending buyers of the property and to bring forth with the buyers so as to enable the Tribunal to consider the same for repayment   of   the   dues   of   the   Bank.     That thereafter on 25.02.2016 the DRT passed the following order:

"The Bank is directed to go ahead with the sale as proposed excluding the Flat to be identified   and   communicated   by   the Applicant   to   the   Respondent   Bank   by 29.02.2016   with   full   detailed   of   all   the Purchasers   to   the   Bank   Officers   on affidavit so as to enable the Bank Officer to   exclude   those   Flats,   provided   the remaining Flats are sufficient for recovery of the dues. The Bank may proceed with the sale but shall not confirm the same till the next date of hearing."

8.2 At this stage it is required to be noted that the flat in question namely Flat No.6401 was not the seven flats identified by the borrower to be kept out of the auction proceedings.   At the relevant time the flat in question was not sold amongst the seven flats mentioned before the Tribunal.  That thereafter during the pendency of   the   S.A.   No.253   of   2012   and   without obtaining prior approval and/or intimation to the   DRT   and   even   the   bank,   the   borrower entered   into   the   sale   agreement   with   the respondent no.1 on 16.06.2016.  At this stage, it is required to be noted that in the MoU dated 10.04.2016   between   the   borrower   and   the respondent   no.1   in   Clause   No.4   it   was specifically provided that first the party should obtain clearance of sale from DRT/SBH so that they   can   process   with   further   agreement   to sale.   Thus, as such respondent no.1 at the relevant   time   was   aware   about   the   pending DRT   proceedings.     Still   the   respondent   no.1 entered   into   the   agreement   to   sale   with   the borrower on 16.06.2016.   At this stage, it is pertinent to note that thereafter when the Bank issued   a   public   notice   on   28.07.2016   for auctioning   the   properties   of   the   borrower. Before the date of auction, on 24.08.2016 the borrower filed an application before the DRT praying for stay of all proceedings of the Bank pursuant   to   the   auction   notice   dated 28.07.2016.  The DRT was pleased to reject said application for stay vide the order dated 24.08.2016 by observing that the sale of the flat in question without the permission of the Bank or the Tribunal is void.  The order dated 24.08.2016 is reproduced hereinabove.   Thus, as   such   the   transaction   in   favour   of   the respondent no.1 with respect to Flat no.6401 was already held to be void by the DRT.  That thereafter, after the borrower having failed to obtain   any   order,   the   respondent   no.1   had straightway filed the writ petition challenging the e­auction notice which the borrower failed to   get   any   relief   before   the   DRT.     If   the respondent   no.1   would   have  approached  the DRT   against   the   e­auction   notice   he   would have   been   non­suited   in   view   of   the   earlier order   passed   by   the   DRT   dated   24.08.2016. Therefore,   calculatively   the   respondent   no.1 filed  the   writ  petition   before  the   High   Court challenging the e­auction notice and that too after   conducting   of   the   e­auction   on 31.08.2016   and   the   sale   in   favour   of   the appellant was confirmed.   The aforesaid facts were pointed out before the High Court and despite the same the High Court has allowed the writ petition which is not sustainable at all. By  the   impugned  order   the  respondent   no.1 has got the relief which as such the borrower failed to get from the DRT.   On the aforesaid grounds   the   impugned   judgment   and   order passed by the High Court is unsustainable.

8.3 Even   otherwise   it   is   very   debatable   whether Section   13(8)   of   the   SARFAESI   Act   shall   be applicable in favour of a person who is only an agreement to sale holder or Section 13(8) of the SARFAESI Act shall be applicable only in case of the borrower who is ready and willing to pay the   entire   debt.     In   the   present   case   the borrower failed to get any relief from the DRT. The   borrower   did   not   apply   and/or   invoke Section 13(8) and did not agree to clear the entire dues.  Therefore, also the High Court has materially erred in allowing the writ petition.

8.4 Even otherwise it is required to be noted that as such what exact relief is granted by the High Court is not clear.  The High Court has simply stated   that   the   writ   petition   is   allowed. However, it is required to be noted that what was challenged before the High Court was the e­auction notice dated 28.07.2016 which was already conducted on 31.08.2016.   Therefore, the   writ   petition   was   filed   much   after conducting the e­auction on 31.08.2016.   No consequential relief has been granted by the High   Court.     Therefore,   also   the   impugned judgment and order passed by the High Court is unsustainable.

8.5 Now so far as the submission on behalf of the respondent no.1 that the respondent no.1 has paid/deposited   the   amount   of   sale consideration and now the respondent no.1 has died his heirs will have to vacate the flat in question and on the other hand the appellant shall   be   entitled   to   return   the   amount   of Rs.6,45,250/­   deposited   at  the   relevant   time being   25%   of   the   auction   sale   consideration with interest is concerned, at the outset it is required   to   be   noted   that   as   such   the transaction between the respondent no.1 and the borrower pursuant to the agreement to sale dated   16.06.2016   was   absolutely   illegal   and behind the back of the Tribunal as well as the Bank   and   during   the   pendency   of   the proceedings   before   the   Tribunal.     In   order dated   24.08.2016   the   Tribunal   had   in   fact already held the sale transaction as void.   As observed hereinabove even at the time when the respondent no.1 entered into the agreement to   sale/MoU   he   was   aware   about   the proceedings pending before the DRT which is apparent from Clause 4 of the MoU referred to hereinabove.     Therefore,   respondent   no.1 and/or his heirs cannot be permitted to get the benefit   of   his   own   wrong   and   cannot   be permitted   to   get   the   benefit   of   a   void transaction.

9. In view of the above and for the reasons stated above,   the   impugned   judgment   and   order passed by the High Court is hereby quashed and set aside.   It is directed that on the full payment of the auction sale consideration by the appellant (after deducting the 25% of the amount   already   deposited   earlier)   with   9% interest from the date of auction till the actual amount is paid, to be paid within a period of four weeks from today, the sale certificate be issued in favour of the appellant with respect to Flat No.6401.  Whatever the amount is already deposited   by   the   respondent   no.1/his   heirs shall be returned to the respondent no.1 (now his heirs) with the interest at 9% from the date of such deposit till the actual date of return which shall be returned within a period of four weeks   from   today.     The   heirs   of   original respondent   no.1   are   granted   three   months’ time   to   vacate   the   flat   in   question   and   are directed to hand over the peaceful and vacant possession of the Flat No.6401 to the appellant within a period of three months from today as ordered above. Present appeals are allowed.   However, in the facts and circumstances of the case there shall be no order as to costs.

                                                                                                                                                                                                                                                                                ……………………………J.                                                                                                                                                                                                                                                                                        (M. R. SHAH)

                                                                                                                                                                                                                                                                                ……………………………J.                                                                                                                                                                                                                                                                                      (C.T. RAVIKUMAR)

New Delhi,  May 2, 2023