REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3865 OF 2014
(Arising out of S.L.P.(C) No.24915 of 2011)
J.Rajiv Subramaniyan & Anr. …Appellants
VERSUS
M/s. Pandiyas & Ors. ...Respondents
WITH
CIVIL APPEAL NO. 3866 OF 2014
(Arising out of S.L.P.(C) No.25448 of 2012)
J U D G M E N T
SURINDER SINGH NIJJAR,J.
1. Leave granted.
2. These special leave petitions are directed against the final
judgment and order dated 14th June, 2011 passed by the Madras High
Court (Madurai Bench) in W.A.No.417 of 2011 dismissing the aforesaid
Writ Appeal filed by the appellants.
3. We have heard the learned counsel for the parties at length.
4. Mr. Ashok Desai learned senior counsel appearing on behalf of the
appellants has submitted that although many issues have been raised in
the SLP, he is not pressing the point that the High Court erred in
entertaining the writ petition filed by respondent Nos.1 and 2. The
point with regard to the maintainability of the writ petition was
taken on the basis of a judgment of this Court in the case of United
Bank of India vs. Satyawati Tondon & Ors.[1]. It was urged before the
High Court that an alternative remedy being available to respondent
Nos.1 and 2 under the Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 (hereinafter
referred to as “SARFAESI Act, 2002), the writ petition would not be
maintainable. The second issue with regard to the maintainability was
based on the fact that earlier respondent Nos. 1 and 2 had filed Writ
Petition Nos.5027-28 of 2006 challenging the auction sale notice dated
23rd May, 2006. However, these writ petitions were withdrawn on 3rd
July, 2006. The High Court did not give any liberty to respondent Nos.
1 and 2 to file fresh writ petition. Mr. Desai very fairly submitted
that it is not necessary to examine the issues on maintainability of
the writ petition, as the entire issue is before this Court on merits.
5. Mr. Ashok Desai has pointed out that respondent Nos.1 and 2 had
taken various loans from respondent No.3-Bank. Upon failure of
Respondent Nos. 1 and 2 to repay the loan, the assets of respondent
Nos.1 and 2 which had been mortgaged with respondent No.3-Bank were
classified as non-performing assets (NPA). Inspite of such action
having been taken by respondent No.3-Bank, respondent Nos.1 and 2
failed to regularize the bank account. Therefore, on 8th June, 2005,
the bank-respondent No.3 issued notice under Section 13(2) of the
SARFAESI Act, 2002 followed by a possession notice on 12th January,
2006 under Section 13(4) of the said Act. Respondent Nos.1 and 2
challenged the aforesaid two notices by filing Writ Petition Nos.
4174/2006, 4175/2006, 5027/2006 and 5028/2006. In the meantime,
auction sale was fixed on 7th July, 2006. But no sale took place as
there were no bidders. On 28th August, 2006, respondent Nos.
1 and 2 sought cancellation of the auction notice and sought
permission of respondent No.3-Bank to sell the secured assets by
private Treaty. It was stated that as on that date the outstanding
balance due to the bank was a sum of Rs.1.57 crores. A request was
made to break up the aforesaid amount as follows :
(a) Machineries of M/s. Suruthi Fabrics - 0.40 lacs
(b) Land and building of M/s. Suruthi Fabrics - 0.70 lacs
(c) Pandias Garment Factory land and Building - 0.47 lacs
And Suruthi Fabrics 5.51 acres Land
6. Permission was sought to sell the assets as stated above within
six months. On 11th September, 2006, respondent Nos.1 and 2 made a
payment of Rs.42 lacs to respondent No.3-Bank, by selling machinery
with the permission of respondent No.3-Bank. A request was also made
for an extension of two moths for paying the remaining amount after
selling the secured assets. On 8th December, 2006, respondent No.3-
Bank gave approval for private sale of the immovable property to the
appellants and for issue of sale certificate. On the very same date,
the secured assets were sold in favour of the petitioner for a
consideration of 123.10 lacs. It is not disputed by Mr. Vikas Singh,
learned senior counsel appearing for Respondent No.3, that the sale
was affected through Ge-Winn Management Company, Resolution Agents.
This is also evident from the proceedings of the meeting held between
respondent No.3-Bank and Ge-Winn on 8th December, 2006.
7. We may point out here that the reserve price of the secured
assets was fixed at 123 lacs. Sale deed was executed in favour of the
appellants by respondent No.3 on 20th December, 2006, as the entire
considerations have been paid on 15th December, 2006. On 21st
December, 2006, respondent Nos.1 and 2 were informed by respondent
No.3-Bank that the secured assets had been sold for more than the
amount offered by them in the letter dated 28th August, 2006. At that
stage, respondent Nos.1 and 2 filed Writ Petition No.325 of 2007
without disclosing that the earlier Writ Petition Nos.5027-28/2006
challenging the auction notice dated 23rd May, 2006 had
been withdrawn without the court giving liberty to respondent Nos. 1
and 2 to file a fresh writ petition.
8. Upon completion of the proceedings inspite of the preliminary
objections taken by the appellants, the learned Single Judge allowed
the writ petitions. The sale in favour of the petitioner was held to
be vitiated on the ground that respondent No.3-Bank failed to follow
the mandatory provisions of Rules 8(5), 8(6) and 9(2) of the Security
Interest (Enforcement) Rules, 2002 (hereinafter referred to as ‘Rules,
2002’). But a direction was issued to refund the amount paid by the
petitioner i.e. Rs.1crore 41 lacs with interest at 9% per annum from
April, 2007.
9. Aggrieved by the aforesaid order, the appellants filed Writ
Appeal No.4127/2011 in the High Court, which has also been dismissed.
10. Mr. Ashok Desai submits that the petitioner is a bona fide
purchaser and has paid the full consideration. Sale deed has been duly
executed. Possession of the property is with the appellants since
2006. Therefore, respondent Nos.1 and 2 should not be permitted at
this stage to claim that the sale is vitiated on the ground that it
has been affected through an agent of respondent No.3-Bank, namely, Ge-
Winn. Mr. Desai submitted that the Single Judge as well as the
Division Bench have wrongly held that there has been violation of
Rules 8(5), 8(6), 8(8) and 9(2) of the Rules, 2002. Mr. Desai further
submitted that it would be equitable to permit the petitioner to keep
the plot which is adjacent to the property of the petitioner.
Respondent Nos.1 and 2 can be permitted to take the other plots.
11. Mr. Dhruv Mehta, learned senior counsel appearing on behalf of the
respondent Nos. 1 and 2 relying on the judgment of this Court in
Mathew Varghese Vs. M.Amritha Kumar & Ors. in C.A.No.1927-1929 of 2014
decided on 10th February, 2014 submits that the Rules, 2002 are
mandatory in nature. In the present case, the sale has been effected
in violation of the aforesaid rules. Both the learned Single Judge as
well as the Division Bench have come to the conclusion that the
provisions of the aforesaid rules have not been followed. It is not
disputed by any of the parties that there is no agreement between
respondent Nos. 1 and 2 and respondent No.3-Bank, in writing, to
affect the sale by Private Treaty. Mr. Vikas Singh, learned
senior counsel appearing for respondent No.3-Bank, however, pointed
out that the respondent Nos.1 and 2 had filed a review petition in
which it was averred that they may be permitted to sell the secured
assets by Private Treaty. Therefore, according to Mr. Vikas Singh,
respondent Nos. 1 and 2 cannot now be heard to say that they had not
given their consent to affect the sale by Private Treaty. We are
unable to accept the submission made by Mr. Vikas Singh that there is
no violation of the Rules, 2002. In our opinion, the findings recorded
by the learned Single Judge as well as the Division Bench of the High
Court that there has been a violation of Rules, 2002 are perfectly
justified.
12. This Court in the case of Mathew Varghese Vs. M.Amritha Kumar &
Ors.[2] examined the procedure required to be followed by the banks or
other financial institutions when the secured assets of the borrowers
are sought to be sold for settlement of the dues of the
banks/financial institutions. The Court examined in detail the
provisions of the SARFAESI Act, 2002. The Court also examined the
detailed procedure to be followed by the bank/financial institutions
under the Rules, 2002. This Court took notice of Rule 8, which
relates to Sale of immovable secured assets and Rule 9 which relates
to time of sale, issue of sale certificate and delivery of possession
etc. With regard to Section 13(1), this Court observed that Section
13(1) of SARFAESI Act, 2002 gives a free hand to the secured creditor,
for the purpose of enforcing the secured interest without the
intervention of Court or Tribunal. But such enforcement should be
strictly in conformity with the provisions of the SARFAESI Act, 2002.
Thereafter, it is observed as follows:-
“A reading of Section13(1), therefore, is clear to the effect
that while on the one hand any SECURED CREDITOR may be entitled
to enforce the SECURED ASSET created in its favour on its own
without resorting to any court proceedings or approaching the
Tribunal, such enforcement should be in conformity with the
other provisions of the SARFAESI Act.”
13. This Court further observed that the provision contained in
Section 13(8) of the SARFAESI Act, 2002 is specifically for the
protection of the borrowers in as much as, ownership of the secured
assets is a constitutional right vested in the borrowers and protected
under Article 300A of the Constitution of India. Therefore, the
secured creditor as a trustee of the secured asset can not deal with
the same in any manner it likes and such an asset can be disposed of
only in the manner prescribed in the SARFAESI Act, 2002. Therefore,
the creditor should ensure that the borrower was clearly put on notice
of the date and time by which either the sale or transfer will be
effected in order to provide the required opportunity to the borrower
to take all possible steps for retrieving his property. Such a notice
is also necessary to ensure that the process of sale will ensure that
the secured assets will be sold to provide maximum benefit to the
borrowers. The notice is also necessary to ensure that the secured
creditor or any one on its behalf is not allowed to exploit the
situation by virtue of proceedings initiated under the SARFAESI Act,
2002. Thereafter, in Paragraph 27, this Court observed as follows:-
“27. Therefore, by virtue of the stipulations contained under
the provisions of the SARFAESI Act, in particular,
Section 13(8), any sale or transfer of a SECURED ASSET, cannot
take place without duly informing the borrower of the time and
date of such sale or transfer in order to enable the borrower to
tender the dues of the SECURED CREDITOR with all costs, charges
and expenses and any such sale or transfer effected without
complying with the said statutory requirement would be a
constitutional violation and nullify the ultimate sale.”
14. As noticed above, this Court also examined Rules 8 and 9 of the
Rules, 2002. On a detailed analysis of Rules 8 and 9(1), it has been
held that any sale effected without complying with the same would be
unconstitutional and, therefore, null and void.
15. In the present case, there is an additional reason for declaring
that sale in favour of the appellant was a nullity. Rule 8(8) of the
aforesaid Rules is as under:-
“Sale by any method other than public auction or public tender,
shall be on such terms as may be settled between the parties in
writing.”
16. It is not disputed before us that there were no terms settled in
writing between the parties that the sale can be affected by Private
Treaty. In fact, the borrowers – respondent Nos. 1 and 2 were not
even called to the joint meeting between the Bank – Respondent No.3
and Ge-Winn held on 8th December, 2006. Therefore, there was
a clear violation of the aforesaid Rules rendering the sale illegal.
17. It must be emphasized that generally proceedings under the
SARFAESI Act, 2002 against the borrowers are initiated only when the
borrower is in dire-straits. The provisions of the SARFAESI Act, 2002
and the Rules, 2002 have been enacted to ensure that the secured asset
is not sold for a song. It is expected that all the banks and
financial institutions which resort to the extreme measures under the
SARFAESI Act, 2002 for sale of the secured assets to ensure, that such
sale of the asset provides maximum benefit to the borrower by the sale
of such asset. Therefore, the secured creditors are expected to take
bonafide measures to ensure that there is maximum yield from such
secured assets for the borrowers. In the present case, Mr. Dhruv
Mehta has pointed out that sale consideration is only Rs.10,000/- over
the reserve price whereas the property was worth much more. It is not
necessary for us to go into this question as, in our opinion, the sale
is null and void being in violation of the provision of Section 13 of
the SARFAESI Act, 2002 and Rules 8 and 9 of the Rules, 2002.
18. We, therefore, have no hesitation in upholding the judgments of
the learned Single Judge and the Division Bench of the High Court to
the effect that the sale effected in favour of the appellants on 18th
December, 2006 is liable to be set aside.
19. This now brings us to moulding the relief in the peculiar facts
and circumstances of this case.
20. As noticed earlier, Mr. Ashok Desai had emphasized on behalf of
the appellants that no blame at all can be attributed to them. The
bank had decided to sell the immovable properties to the appellants
for Rs.1,23,10,000/- against the reserve price of Rs.1,23,00,000.
This is evident from the joint meeting of the bank held with Ge-Winn
on 10th December, 2006, wherein it is observed as follows:-
“Referring to the above in the presence of the undersigned it
has been decided to effect the sale to M/s. Susee Automobiles
Pvt. Ltd., Madurai and Smt. Nirmala Jeyablan, W/o Shri
Jayabaaalan, No.4, S.V. Nagar, S.S. Colony, Madurai for a
consideration of Rs.123.10 lakhs (Rupees one crore twenty three
lakhs and ten thousand only) against the reserve price of
Rs.123.00 lakhs and issue Sale Certificate for registration
under private treaty.”
21. Mr. Desai had also pointed out that the borrowers -Respondent No.1
and 2 had evaluated the property at Rs.117 lakhs. The evaluation was
acknowledged by Respondent Nos. 1 and 2 in the letter dated
28th August, 2006. Therefore, the reserve price was fixed based
upon the aforesaid figures. The appellants bought the property for
more than the reserve price. The appellants paid the entire
consideration within three days of the sale, i.e., on 15th December,
2006. The Sale Deed was executed in their favour on 20th December,
2006. Possession was admittedly delivered on 20th
December, 2006 also. The appellants have also incurred substantial
loss as they have been unnecessarily dragged into litigation. He
pointed out that the appellants have in fact incurred losses of
Rs.3 crores as they were deprived of using the property in view of the
interim orders passed by the High Court and they were forced to take
other property on monthly rent of Rs.3 lakhs from January 2007. He,
therefore, submitted that the proposal made by the appellants for
being permitted to keep the plot adjacent to the property already
owned by them, be accepted. In the alternative, learned senior
counsel submitted that the High Court has unnecessarily reduced the
amount of interest on the amount deposited by the appellants with the
bank would bear only 4% interest. He submitted that the appellants
are entitled to 18% compound interest since the date the amount was
deposited till refund.
22. On the other hand, Mr. Dhruv Mehta pointed out that property of
Respondent No.1 has been sold for a ridiculously low price, as the
bank is interested only in regularizing the account of the borrower.
He has submitted that respondent Nos. 1 and 2 are prepared to
compensate the appellants, to a reasonable extent, but not to the
extent claimed by Mr. Desai.
23. On the other hand, Mr. Vikas Singh has submitted that in case
the sale is to be set aside and the properties have to be returned to
the borrowers, the dues of the bank also have to be secured, which are
now in the region of Rs.4 crores.
24. We have considered the submissions made by the learned counsel for
the parties.
25. Initially on our suggestion, respondent Nos. 1 and 2 had
quantified the amount in accordance with the directions issued by the
learned Single Judge. The learned Single Judge had ordered refund of
Rs.1,41,00,000/-, (Representing Rs.1,23,10,000/- towards Sale Price
and Rs.18,90,000/- towards Stamp Duty with interest @9% per annum from
April 2007). However, since we had accepted the second alternative
(partially) of Mr. Ashok Desai, the appellants and respondents have
jointly submitted the following chart:-
|Amount quantified by the |Interest@ 18% |Total |
|Learned Single Judge |from April 2007 | |
| |to 15.06.2014 | |
|Rs. 1,41,00,000/- |Rs. 1,84,00,500/-|Rs. 3,25,00,500/- |
|Rs. 1,23,10,000/- Sale Price| | |
|Rs. 18,90,000/- (Stamp Duty)| | |
26. Mr. Dhruv Mehta has stated that Respondent Nos. 1 and 2 are
prepared to refund the sale amount paid by the appellants as Sale
Price together with 18% simple interest from 1st July, 2007 till 15th
June, 2014. The total amount spent on Stamp Duty shall also be
refunded to the appellants. The total amount shall be paid to the
appellants by 15th June, 2014. Mr. Desai had pointed out that the
amount deposited with the bank, which is said to be lying in a FDR
Bearing 8.25% per annum ought to be refunded by the bank to the
appellants. Upon the entire amount being repaid to the appellants,
the possession of the property purchased by the appellants will be
delivered to the Respondent Nos.1 and 2.
27. Insofar as the submission of Mr. Vikas Singh learned senior
counsel is concerned we are unable to accept the same in the facts
and circumstances of this case It would be relevant to point out that
the learned Single Judge of the High Court after holding that the sale
in question was invalid, directed making of payments by respondent
Nos. 1 and 2 to respondent No.3 bank with clear direction that on such
payment, insofar as the bank is concerned its dues shall stand
settled. Not only respondent Nos. 1 and 2 made the payment as
directed which was accepted by respondent No.3 bank, insofar as
respondent No.3 bank is concerned it even accepted the said judgment
and did not file any appeal thereagainst. Only the appellant filed
the appeal. Though the order of the learned Single Judge about the
validity of the sale had been affirmed, the Division Bench interfered
with the other direction of the learned Single Judge which should not
have been done as bank had not challenged the order of the learned
Single Judge. We are, therefore, of the opinion that in the facts of
this case, once the payment is made to the appellant by respondent
Nos.1 and 2 in the manner stated hereinafter, the possession of the
property shall be delivered to the respondent Nos.1 and 2 with no
further liability towards the bank
28. In view of the aforesaid, we hold that the sale in favour of
the appellants dated 18th December, 2006 and the subsequent delivery
of possession to the appellants is null and void. The sale is
accordingly set aside. The appellants are directed to deliver the
possession of the property purchased by them under the Sale Deed dated
20th December, 2006 to Respondent Nos. 1 and 2 immediately upon
receiving the entire amount as directed hereunder:-
(i) The State Bank of India – Respondent No.3 directed to refund the
entire proceeds of the FDR in which the sale consideration was
deposited together with accrued interest forthwith.
(ii) The Respondent Nos. 1 and 2 will ensure that the entire amount
due to the appellants is paid on or before 15th June, 2014.
(iii) Upon receipt of the entire amount, the possession shall be
delivered to Respondent Nos. 1 and 2.
29. With these observations, the appeals are disposed of with no order
as to costs.
….………………………..J.
[Surinder Singh Nijjar]
…………………………..J.
[A.K.Sikri]
New Delhi;
March 14, 2014.
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[1] [2010 (8) SCC 110]
[2] 2014 (2) Scale 331
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