The Supreme Court emphasized that the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as “the SARFAESI Act, 2002”) offered an alternative legal recourse through an appeal under Section 17.
This provision allowed individuals to approach the Debt Recovery Tribunal to challenge the actions taken by the Bank under Section 13(4) of the Act. Consequently, the High Court erred in entertaining the writ petition that contested the e-auction notice under Article 226 of the Indian Constitution. The Supreme Court deemed this decision as a significant mistake on the part of the High Court.
Brief Facts:
Respondent No.3 (“Builder/ Borrower”), had borrowed funds from Respondent No.2, a bank, for a multi-storey housing project. However, the Borrower failed to repay the loan, leading the bank to initiate proceedings under Section 13 of the SARFAESI Act.
The Bank attached the Borrower's properties under Section 13(4) of the SARFAESI Act. In response, the Borrower filed before the Debt Recovery Tribunal (hereinafter referred to as “DRT”), Hyderabad. The DRT allowed the Borrower to provide a list of potential buyers of the property for consideration in repaying the bank's dues.
During this period, an agreement was reached between Respondent No. 1 and the Borrower for the sale of the Flat. However, the Borrower failed to inform or obtain consent from the DRT or the bank regarding this agreement, which was limited to the previously recognized seven flats.
Subsequently, the Bank issued a public notice for the auction of the Borrower's properties, including Flat. The Borrower applied to the DRT seeking a stay on all bank proceedings related to the auction notice. The DRT rejected the application, noting that the Borrower had violated the SARFAESI Act and the Tribunal's directions by entering into agreements for the sale of other flats without the Bank's or the Tribunal's permission. Despite the ongoing legal proceedings, the auction took place, and the Appellant (the successful bidder) participated and paid 25% of the bid amount for Flat.
Brief Background:
However, Respondent No.1 filed a writ petition challenging the auction notice specifically concerning Flat. The High Court granted a stay on the auction, provided Respondent No.1 paid a specified amount to the Bank before the scheduled auction date. The Bank notified the Appellant about the stay and Respondent No. 1's payment. The Appellant applied to be impleaded in the writ petition and submitted a counter affidavit, highlighting the DRT's declaration of the sale agreement as void and stating the Appellant's position as the successful auction purchaser.
The Bank also filed a counter affidavit, asserting that an alternative remedy under Section 17 of the SARFAESI Act was available. The High Court allowed the Appellant's impleadment but ultimately ruled in favour of Respondent No.1, rejecting the Appellant's review petition. Consequently, the Appellant, as the successful auction purchaser, has appealed against the High Court's decision in the main writ petition and the dismissal of their review application
Contentions of the Appellants:
It was contended that Respondent No.1, as the agreement to sale holder, did not possess any right or title to the flat in question and therefore had no grounds to file a writ petition against the e-auction notice based on the agreement in their favour.
Even if Respondent No.1 had any rights, the appellant argued that they had an alternative and effective statutory remedy available under Section 17 of the SARFAESI Act to challenge the e-auction notice. It was revealed that at the time the writ petition was filed and interim relief was obtained, the auction had already taken place, and the Appellant had been declared the successful bidder.
Additionally, it was stated that a sale agreement holder, like Respondent No.1, cannot seek redemption of property under Section 91 of the Transfer of Property Act, 1882, and should not be treated the same as an auction-sale purchaser under Section 54 of the Transfer of Property Act.
Contentions of the Respondents:
It was submitted that as soon as the Respondent learned about the flat being put up for auction, a writ petition was filed which expressed willingness to deposit the entire amount of the sale consideration, which is permitted under Section 13(8) of the SARFAESI Act. It was argued that the purpose of this section is to prevent the auction of the property if the borrower or the person interested in the property agrees to clear the dues.
Furthermore, it was informed that the Respondent had passed away, and his heirs, including the widow, have been residing in the flat for a long time. It was asserted that the heirs had paid or deposited the entire sale consideration.
Observations of the Court:
The Supreme Court held that the SARFAESI Act provides an alternative statutory remedy through an appeal under Section 17 to approach the DRT against actions taken by the Bank under Section 13(4). Therefore, the High Court should not have entertained the writ petition challenging the e-auction notice under Article 226 of the Constitution of India.
The exact relief granted by the High Court was unclear. Although the writ petition challenged the e-auction notice, which had already been conducted, no consequential relief was specified. Hence, the judgment and order passed by the High Court was unsustainable. The Tribunal had already declared the sale transaction void in its previous order. It was held that Respondent no.1 and their heirs cannot benefit from their wrongdoing or a void transaction.
The Court further noted that whether Section 13(8) is applicable in favor of person who is only an agreement to sale holder or to borrower who is willing to pay entire debt is debatable. In the present case, the borrower failed to get any relief from DRT as it did not apply under Section 13(8). Hence, the writ petition should not have been allowed by the High Court.
The decision of the Court:
The Supreme Court quashed the impugned order and judgement of the High Court and accordingly, allowed the appeals.
Case Title: G.Vikram Kumar Vs. State Bank of Hyderabad & Ors.
Case No.: Civil Appeal Nos. 3152-3153 of 2023
Citation: 2023 Latest Caselaw 429 SC
Coram: Hon'ble Mr. Justice M.R. Shah, Hon'ble Mr. Justice Manoj Misra
Advocates for Petitioner: Advs. Mr. Venkateshwar Rao Anumolu, Mr. Sunny Kumar, Mr. Raushan Kumar, Mr. Tanmaya Agarwal
Advocates for Respondent: Advs.Mr. Buddy A. Ranganadhan, Mr. Raunak Jain, Mr. A. V. Rangam, M/s. Veritas Legis, Mr. Ananga Bhattacharyya, Mrs. Devahuti Tamuli, Mr. Vatsal Anand
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