Whether the property of the borrower can be released by paying highest bid amount without paying entire due of loan amount under sec.13[8] of SARFAESI Act? - No
Unless and until the borrower was ready to deposit/pay the entire
amount payable together with all costs and expenses with
the secured creditor, the borrower cannot be discharged
from the entire liability outstanding. Therefore, as such no
order could have been passed either by the DRT and/or by
the Division Bench of the High Court to discharge the
borrower from the entire liability outstanding and to
discharge the mortgaged property and handover the
possession along with original title deeds to the borrower.
As such the learned Single Judge rightly set aside the
orders passed by the DRT as well as by the DRAT
considering Section 13(8) of the SARFAESI Act.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.363 OF 2022
Bank of Baroda ..Appellant (S)
VERSUS
M/s Karwa Trading Company & Anr. ..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 20.09.2017 passed by the
Division Bench of the High Court of Judicature for
Rajasthan Bench at Jaipur in D.B. Special Appeal Writ
No.349 of 2017, by which the Division Bench of the High
Court has allowed the said intracourt appeal and has
quashed and set aside the judgment and order dated
12.01.2017 passed by the learned Single Judge and has
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directed that if the respondent borrower deposits a
further sum of Rs.17 lakhs to the bank, the bank shall
release the property and handover possession along with
the title deeds of the residential/housing property in
question to the borrower and by which the Division Bench
of the High Court has further directed that the SA
No.9/2014 filed by the borrower before the learned Debt
Recovery Tribunal (DRT) is restored to its original number
to be heard on merits, the appellant herein Bank of
Baroda – financial institution – secured creditor has
preferred the present appeal.
2. The facts leading to the present appeal in nutshell are as
under:
2.1 That the appellant herein – bank granted term loan of
Rs.100 lakhs and cash credit limit of Rs.95 lakhs to the
respondent – borrower (hereinafter referred to as the
borrower) against the security of two mortgaged properties
namely (i) industrial plot situated at Chittor Road, Bundi
measuring 500 Sq.Mtrs. and (ii) a residential/housing
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property situated at 1Ja27, Vikas Nagar, Bundi
measuring 198 Sq.Mtrs. That the borrower failed to repay
the term loan as per the terms and conditions of the
agreement. The account of the borrower became NPA on
31.10.2012. A notice under Section 13(2) of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (hereinafter
referred to as the SARFAESI Act, 2002) dated 07.01.2013
was served upon the borrower demanding a sum of
Rs.1,85,37,218.80/ The bank took symbolic possession of
the immovable property/residential house and also issued
a notice under Section 13(4) of the SARFAESI Act, 2002 on
22.08.2013. An application was moved under Section 14 of
the SARFAESI Act, 2002 which came to be allowed on
08.11.2013 and with the police assistance the bank took
possession of the residential house, which was one of the
mortgaged properties of the borrower, on 25.11.2013.
2.2 That thereafter the bank issued a sale notice by public
auction of the residential property dated 16.12.2013. The
reserve price fixed was Rs.48.65 lakhs for sale of the said
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secured asset in terms of the procedure prescribed under
Rule 8 read with Rule 9 of the Security Interest
(Enforcement) Rules, 2002. The date of auction notified
was 20.01.2014. The borrower challenged the auction of
the bank by filing Securitisation Application (SA)
No.09/2014 under Section 17 of the SARFAESI Act, 2002
before the DRT, Jaipur. An interim order was passed by
the DRT that if the borrower deposits Rs.20 lakhs on
20.01.2014 by 12.00 noon, the bank shall accept the bids
but not finalize the bids/confirm the sale of the secured
asset and if the borrower commits default in payment of
balance amount of Rs.28.65 lakhs, the restraint order
shall stand vacated automatically. The DRT also observed
that if the borrower deposits Rs.48.65 lakhs with the bank
on or before 27.01.2014, the bank shall deliver the
possession of the secured asset along with the original title
deeds of the property in question. It is not in dispute that
the borrower deposited Rs.48.65 lakhs with the bank.
2.3 That the aforesaid interim order passed by the DRT came
to be challenged by the bank in appeal before the DRAT
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(Debt Recovery Appellate Tribunal). It was the case on
behalf of the appellant bank that in public auction the
bank had received bids up to Rs.71 lakhs and the amount
of debt due against the borrower at that point of time was
above Rs.2 crores and if at all the borrower is interested or
keen to redeem the mortgaged property, he could do so by
discharging the entire liability and not by making payment
of Rs.48.65 lakhs, as ordered by the DRT. It was also the
case on behalf of the appellant – bank that order passed by
the DRT dated 17.01.2014 was in violation of Section 13(8)
of the SARFAESI Act, 2002. However, it was submitted on
behalf of the bank that the bank may not find any
difficulty in releasing the subject property provided the
borrower is ready to pay a sum of Rs.71 lakhs which is the
highest bid available with the bank. It was submitted that
even this amount would not ultimately go to discharge the
entire liability outstanding against the borrower but still if
the borrower deposits Rs.71 lakhs, the bank may not find
difficulty to release the subject property in question.
5
2.4 The DRAT dismissed the appeal by observing that as the
reserve price was Rs.48.65 lakhs which the borrower
deposited and the bank had received the bids ranging from
Rs. 61.50 lakhs to Rs.71 lakhs and the alleged bidders
failed to deposit the earnest money and when the borrower
is ready to purchase the said property for Rs.71 lakhs no
fault can be found with the order passed by DRT. The
order passed by the DRAT dismissing the appeal preferred
by the bank was the subject matter of challenge before the
learned Single Judge. The learned Single Judge set aside
both the orders of DRT and DRAT vide its judgment and
order dated 12.01.2017 primarily for the reason that the
said orders were in contravention of Section 13(8) of the
SARFAESI Act, 2002. The judgment and order passed by
the learned Single Judge was challenged before the
Division Bench of the High Court by the borrower by way
of present intracourt appeal. By the impugned judgment
and order, the Division Bench of the High Court has
allowed the said appeal and has quashed and set aside the
judgment and order passed by the learned Single Judge
and has directed the bank to release the secured property
6
(residential house) on the borrower depositing a further
sum of Rs.17 lakhs to the bank and handover the
possession along with the title deeds to the borrower.
2.5 Feeling aggrieved and dissatisfied with the impugned
judgment and order passed by the Division Bench of the
High Court, the bank – financial institution – secured
creditor preferred the present appeal.
3. Ms. Praveena Gautam learned counsel appearing on behalf
of the appellant – bank has vehemently submitted that in
the facts and circumstances of the case the Division Bench
of the High Court has committed a grave error in directing
the bank to release the property and handover the
possession along with the title deeds of the
residential/housing property in question to the borrower
on making a further payment of Rs.17 lakhs only.
3.1 It is vehemently submitted by learned counsel appearing
on behalf of the appellant – bank that even as observed by
the Division Bench of the High Court the borrower did not
come forward to redeem the property but to release the
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property in favour of the purchaser on payment of the
reserve price of the mortgaged property in terms of the
auction notice. It is submitted that therefore when the
dues were of Rs. 1,85,37,218.80/ at the time when the
notice dated 07.01.2013 under Section 13(2) of the
SARFAESI Act, 2002 was issued and served upon the
borrower, on payment of a sum of Rs.71 lakhs only the
borrower cannot be discharged from his liability to pay the
entire dues.
3.2 It is further submitted by learned counsel appearing on
behalf of the appellant – bank that what was understood
and agreed by the bank was that on payment of Rs.71
lakhs which was the highest bid received, the borrower
may be handed over the possession. It is submitted that
however, it was specifically made clear that on payment of
Rs.71 lakhs the said amount would not ultimately
discharge the entire liability outstanding against the
borrower. It is submitted that aforesaid has been
misinterpreted and/or misconstrued by the Division Bench
of the High Court and it is understood that on deposit of
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Rs.71 lakhs the bank agreed that the borrower be
discharged from his entire liability outstanding against
him.
3.3 It is further submitted that the Division Bench of the High
Court has also not property appreciated that the offer of
Rs.71 lakhs in the auction was received in the year
2013/2014 and thereafter the valuation has increased. It
is submitted that even the outstanding dues have also
gone up which was Rs. 1,85,37,218.80/ as on
07.01.2013. It is submitted that therefore the Division
Bench of the High Court has materially erred in treating
and/or considering Rs.71 lakhs as sale/purchase price
and/or the value of the residential property. It is
submitted that therefore when the Division Bench of the
High Court passed the judgment and order if the property
could have been auctioned it would have fetched much
more price than Rs.71 lakhs. It is submitted that on
deposit of Rs.71 lakhs only the borrower cannot be
discharged from his entire liability. It is submitted that the
impugned judgment and order passed by the Division
9
Bench of the High Court is just contrary to Subsection (8)
of Section 13 of the SARFAESI Act, 2002. It is submitted
that as per Subsection (8) of Section 13 of the SARFAESI
Act, 2002 only on deposit/payment of entire payment of
dues of the secured creditor together with all costs,
charges and expenses incurred by secured creditor to the
secured creditor, at any time before the date of publication
of notice for public auction or inviting quotations or tender
from public, the secured asset shall not be sold by the
secured creditor. It is submitted that in the present case
the amount due was much more than Rs.71 lakhs. It is
submitted that therefore the impugned judgment and
order passed by the Division Bench of the High Court
directing to release the secured property just on payment
of a total sum of Rs.65.65 lakhs is just contrary to Subsection (8) of Section 13 of the SARFAESI Act, 2002.
3.4 It is further submitted by learned counsel appearing on
behalf of the appellant – bank that when the subject
property was mortgaged to the bank in the housing loan
account borrowed by the borrower and without satisfying
10
the entire outstanding dues the mortgaged property cannot
be discharged.
3.5 It is further submitted by learned counsel appearing on
behalf of the appellant – bank that the Division Bench of
the High Court has failed to appreciate the reserve price of
Rs.48.65 lakhs was based on the valuation carried out by
the valuer of the bank and the process of the auction of
the subject property was through public auction in which
an actual market price could have been fetched. There
could not have been any directions for redemption of the
secured subject property on making payment of the
reserve price or having paid the average of the two highest
bid to the borrowers unless the entire dues including the
costs and expenses are paid.
3.6 It is further submitted by learned counsel appearing on
behalf of the appellant – bank that the Division Bench of
the High Court has not properly appreciated the fact that
the initial order passed by the DRT which was the subject
matter before the DRAT challenged by the bank by which
11
the DRT directed to release/handover the possession of the
mortgaged property to the borrower on deposit of Rs.48.65
lakhs which was the reserve price, was an interim order.
Therefore, the Division Bench of the High Court ought not
to have passed the final order discharging the borrower
from his entire liability just on payment of Rs.65.65 lakhs.
3.7 Making the above submissions it is prayed to allow the
present appeal.
4. The present appeal is vehemently opposed by Mrs. Christi
Jain learned counsel appearing on behalf of the
respondents – borrowers.
4.1 It is vehemently submitted by learned counsel appearing
on behalf of the borrower that as the highest bid received
by the bank in the public auction was Rs.71 lakhs which
the borrower agreed to deposit/pay and even earlier the
borrower deposited a sum of Rs.48.65 lakhs as per the
order passed by the DRT dated 17.01.2014, thereafter
when the Division Bench of the High Court has directed
the bank to release the residential property on deposit of a
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further sum of Rs.17 lakhs (total making it Rs.65.65 lakhs)
and thereafter has directed to handover the original title
deeds to the borrower, the impugned judgment and order
passed by the High Court is equitable order which does
not warrant any interference by this Court in exercise of
powers conferred under Article 136 of the Constitution of
India.
4.2 It is submitted that even the learned counsel appearing on
behalf of the appellant – bank agreed that on payment of a
total sum of Rs.65.65 lakhs the property in question may
be released. It is submitted that therefore the Division
Bench of the High Court has not committed any error
which warrants interference of this Court in exercise of
powers conferred under Article 136 of the Constitution of
India.
5. We have heard the learned counsel appearing on behalf of
the respective parties at length.
6. At the outset, it is required to be noted that by the
impugned judgment and order the Division Bench of the
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High Court has directed the bank – secured creditor to
release the secured property and handover the possession
along with original title deeds of the residential/housing
property in question to the borrower on payment of a total
sum of Rs.65.65 lakhs. Thus, by the impugned judgment
and order the Division Bench of the High Court has
released the secured property/mortgaged property on
payment of a total sum of Rs.65.65 lakhs against the total
dues which as such as on 07.01.2013 was
Rs.1,85,37,218.80/.
6.1 From the impugned judgment and order passed by the
High Court it appears that the Division Bench of the High
Court has treated and/or considered the market value of
the mortgaged property at Rs.71 lakhs. The DRT when
initially granted the interim relief in favour of the borrower
which was the subject matter before the DRAT and the
learned Single Judge and thereafter before the Division
Bench of the High Court, directed to handover the
possession of the mortgaged property to the borrower on
payment of Rs.48.65 lakhs which was the reserve
price/base price. The possession was taken over by the
14
bank under the provisions of the SARFAESI Act and after
following the proceedings as required under Section 13 of
the SARFAESI Act, the mortgaged property was put to
auction and at that stage the borrower preferred an
appeal/application before the DRT under Section 17 of the
SARFAESI Act and as such the said appeal can be said to
be technically pending as the order dated 17.01.2014
passed by the DRT was an interim order. When the
auction proceedings were initiated under Section 13 of the
SARFAESI Act and after the bank took over the possession
under Section 14 of the SARFAESI Act as per Subsection
(8) of Section 13 of the SARFAESI Act the secured asset
shall not be sold and/or transferred by the secured
creditor, where the amount dues of the secured creditor
together with all costs, charges and expenses incurred by
him is tendered by the borrower or debtor to the secured
creditor at any time before the date of publication of notice
for public auction or inviting quotations or tender from
public or private treaty for transfer by way of lease
assignment or sale of the secured assets. In the present
case though as on 07.01.2013 the dues were Rs.
15
Rs.1,85,37,218.80/ and without the secured property was
sold in a public auction the Division Bench of the High
Court has directed to release the mortgaged property and
handover the possession along with original title deeds to
the borrower on the borrower depositing/paying a total
sum of Rs.65.65 lakhs only. At this stage, it is required to
be noted that Rs.65.65 lakhs was not the amount realized
by selling the mortgaged property in a public auction. It
was only a highest bid received and before any further
auction proceedings were conducted, the DRT passed an
interim order directing to handover the possession and
handover the original title deeds on payment of Rs.48.65
lakhs which was the base price, which was the subject
matter before the DRAT and before the learned Single
Judge. Therefore, the borrower did not deposit and was not
ready to deposit the entire amount of dues with secured
creditor with all costs, charges and expenses incurred by
the secured creditor. Therefore, it was open for the secured
creditor to sell the mortgaged property which was put as a
security and realize the amount by selling it in a public
auction. At this stage, it is required to be noted that even
16
as per the Division Bench of the High Court the borrower
made an offer to deposit/pay Rs.71 lakhs as a purchaser
and not by way of redeeming the mortgaged property.
Therefore, the impugned judgment and order passed by
the Division Bench of the High Court directing to release
the mortgaged property/secured property and to handover
the possession as well as the original title deeds to the
borrower on payment of a total sum of Rs.65.65 lakhs only
is contrary to Subsection (8) of Section 13 of the
SARFAESI Act.
7. Even otherwise on making the payment i.e. Rs.65.65 lakhs
against the total dues Rs.1,85,37,218.80/ as on
07.01.2013 the entire liability outstanding against the
borrower cannot be said to have been discharged. Even if
the mortgaged property would have been sold in a public
auction say for an amount of Rs.71 lakhs and the bank
has realized Rs.71 lakhs by selling the mortgaged property,
in that case also the liability of the borrower to pay the
balance amount would still continue. By selling the
mortgaged property/secured property it cannot be said
17
that the borrower is discharged from the entire liability
outstanding against him. The liability of the borrower with
respect to the balance outstanding dues would still be
continued. Therefore, the Division Bench of the High Court
has erred in directing to release the mortgaged
property/secured property and to handover the possession
along with the original title deeds to the borrower on
payment of a total sum of Rs.65.65 lakhs only.
7. 1 At the cost of repetition it is observed that as such the
bank had already initiated the proceedings under Section
13 of the SARFAESI Act and even the possession of the
mortgaged property was taken over by the bank under
Section 14 of the SARFAESI Act and thereafter the
mortgaged property was put to sale by a public auction
and at that stage the borrower wanted to stall the auction
proceedings and restrain the secured creditor/bank from
selling the property. In such a situation the bank/secured
creditor can be restrained from selling the mortgaged
property/secured property where the borrower deposits
entire dues that was Rs.1,85,37,218.80/ as on
18
07.01.2013 with the secured creditor. Therefore, the DRT
in its order dated 17.01.2014 which as such was an
interim relief order pending the appeal under Section 17 of
the SARFAESI Act was not justified in directing to release
the mortgaged property and handover the possession along
with the original title deeds to the borrower on payment of
Rs.48.65 lakhs only which was the base price/ reserve
price, which the Division Bench of the High Court has
increased to Rs.65.65 lakhs on the ground that the highest
bid received was Rs.71 lakhs (which was not materialized
as the highest bidder did not come forward). Unless and
until the borrower was ready to deposit/pay the entire
amount payable together with all costs and expenses with
the secured creditor, the borrower cannot be discharged
from the entire liability outstanding. Therefore, as such no
order could have been passed either by the DRT and/or by
the Division Bench of the High Court to discharge the
borrower from the entire liability outstanding and to
discharge the mortgaged property and handover the
possession along with original title deeds to the borrower.
As such the learned Single Judge rightly set aside the
19
orders passed by the DRT as well as by the DRAT
considering Section 13(8) of the SARFAESI Act. The
learned Single Judge was right in setting aside the order
passed by the DRT confirmed by the DRAT. The Division
Bench of the High Court has erred in interfering with the
order passed by the learned Single Judge and has erred in
directing to release the mortgaged property/secured
property and handover the possession along with the
original title deeds to the borrower on payment of a total
sum of Rs.65.65 lakhs only.
7.2 However, at the same time the order dated 17.01.2014
passed by the DRT was an interim relief order in SA
No.9/2014 and therefore even if the interim relief order is
set aside by this Court the appeal/application will have to
be decided and disposed of on merits and on whatever
grounds which may be available to the borrower. However,
at the same time the bank cannot be restrained from
selling the mortgaged property by holding the public
auction and realise the amount and recover the
outstanding dues, unless the borrower deposits/pays the
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entire amount due and payable along with the costs
incurred by the secured creditor as per Section 13(f) of the
SARFAESI Act.
8. In view of the above and for the reasons stated above the
present appeal succeeds. The impugned judgment and
order dated 20.09.2017 passed by the Division Bench of
the High Court in DBSAW No.349/2017 is hereby quashed
and set aside and the order passed by the learned Single
Judge quashing and setting aside the order passed by the
DRT dated 17.01.2014 confirmed by the DRAT is hereby
restored.
It will be open for the appellant – bank to proceed
further with the auction proceedings of the mortgaged
property in auction i.e. residential house by inviting the
bids afresh and whatever the amount is already paid by
the borrower, may be in pursuance to the interim relief
order passed by the DRT and/or the impugned judgment
and order passed by the Division Bench of the High Court,
the same may be adjusted against the dues/total liability
of the borrower. At the same time DRT to decide and
21
dispose of SA No.09/2014 filed by the borrower under
Section 17 of the SARFAESI Act in accordance with law
and on its own merits and on the whatever grounds which
may be available to the borrower. It is also observed and
directed that in case pursuance to the orders passed by
the DRT and the Division Bench of the High Court if the
borrower is put into possession, considering the fact that
the mortgaged property is a residential property, till the
auction is finalized and the mortgaged property is sold in a
public auction, the possession of the borrower may not be
disturbed. However, it is directed that on public auction
being finalized and the mortgaged property is sold by the
bank the borrower has to handover the peaceful and
vacant possession of the property to the bank and/or the
auction purchaser. However, in the meantime the original
title deeds of the mortgaged property be retained by the
bank. In the meantime, and till the borrower remains in
possession of the mortgaged property as per the present
order and till the mortgaged property is sold in a public
auction, the borrower shall not transfer and/or alienate
the mortgaged property in any manner whatsoever
22
including the possession. The present appeal is allowed
with the above further observations and directions
accordingly. In the facts and circumstances of the case
there shall be no order as to costs.
…………………………………J.
(M. R. SHAH)
…………………………………J.
(SANJIV KHANNA)
New Delhi,
February, 10th 2022.
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