* Author
[2024] 4 S.C.R. 633 : 2024 INSC 326
Govind Kumar Sharma & Anr.
v.
Bank of Baroda & Ors.
(SLP (C) No. 24155 of 2018)
18 April 2024
[Vikram Nath* and Satish Chandra Sharma, JJ.]
Issue for Consideration
Whether an auction/ sale under the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (SARFESI Act) carried out without issuing
the mandatory 30-day notice to the borrower under Rules 8(6)
and 8 (7) of the Security Interest (Enforcement) Rules, 2002 is
liable to be set aside. If so, can the bona fide purchaser, who
was originally the tenant, be forced to hand over the physical
possession of the premises in order get the refund. Whether
the bona fide purchaser would be entitled to refund of the
auction money and interest, and compensation for improvement/
investments made by him.
Headnotes
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 – Security Interest
(Enforcement) Rules, 2002 – Appellants/ Original tenants in
physical possession of premises – Appellants were issued
sale certificate after auction- Bank admitted to procedural
lapse – DRT set aside sale and directed Bank to refund auction
money with interest as applicable to fixed deposit only after
receiving the possession of the premises – DRT found no
proof of improvements/investments – DRAT and High Court
confirmed.
Held: Supreme Court upheld the setting aside of the auction/sale
in view of concurrent findings and Bank’s admission- Supreme
Court modified DRT’s directions – Appellants were allowed to
retain physical possession in the capacity of tenants and borrower/
landlord could to evict as per law and Bank was directed to return
the auction money with 12% per annum compound interest.
[Paras 12-15]
634 [2024] 4 S.C.R.
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List of Acts
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002; Security Interest
(Enforcement) Rules, 2002.
List of Keywords
Rule 8(6), Rule 8 (7) of Security Interest (Enforcement) Rules, 2002;
Mandatory notice; Default; Non-compliance of statutory provisions;
Setting aside of auction/ sale; Refund; Physical possession.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No.5028 of 2024
From the Judgment and Order dated 02.07.2018 of the High Court
of Judicature at Allahabad in WC No. 20266 of 2018
Appearances for Parties
R. P. Shukla, Dhruv Shukla, Ms. Upasena Shukla, Ms. Aeishwarya
Sharma, Gaurav Chauhan, Ms. Megha Gaur, Piyush Kumarendra,
Vibhav Mishra, Vijay K. Jain, Advs. for the Appellants.
Arun Aggarwal, Ms. Anshika Agarwal, Deepti Jain, Shivam Saini,
Praful Rawat, Pramod Kumar Singh, Vijay Pal, Shiv Dutt Sharma,
Ms. Rekha Agarwal, Rajvir Singh, Bikash Chandra, Rameshwar
Prasad Goyal, Advs. for the Respondents.
Judgment / Order of the Supreme Court
Judgment
Vikram Nath, J.
Leave granted.
2. The appellants herein have assailed the correctness of the
judgment and order dated 02.07.2018 passed by the Allahabad
High Court dismissing the Writ Petition of the appellants, confirming
the orders passed by the Debt Recovery Tribunal1 as also the
1 DRT
[2024] 4 S.C.R. 635
Govind Kumar Sharma & Anr. v. Bank of Baroda & Ors.
Debt Recovery Appellate Tribunal2, whereby the auction sale held
in favour of the appellants had been set aside and the appeal
was dismissed.
Brief facts in nutshell are as follows:
3. The firm-respondent no.3, had taken a loan from the respondent no.1-
Bank. However, as it went into default, the Bank initiated proceedings
under the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 20023
. In the said recovery
proceedings, the Recovery Officer conducted an open auction. The
appellants were the highest bidder. Their bid was accepted and they
made good the deposits as per the terms of this auction. Accordingly,
a sale certificate was issued in their favour on 30.03.2009. It may
be noted here that the appellants were tenants of the borrower in
the premises in question which had been put to auction. As such
the status of the appellants changed from that of tenants to that of
owners after the sale was confirmed and sale certificate was issued.
4. The borrower-respondent nos.3 and 4 filed a securitization application
under Section 17 of the SARFAESI Act for setting aside the sale on
the ground that the Bank had not followed the statutory procedure
prescribed under the Security Interest (Enforcement) Rules, 20024
,
in particular, the notice as required under Rules 8(6) and 8(7) which
required a mandatory notice of 30 days to the borrower, had neither
been issued nor served upon the borrower.
5. The DRT, after examining the matter, came to the conclusion that
the Bank itself had admitted that the statutory compliance under the
above rules had not been made and as such proceeded to set aside
the sale vide order dated 21.04.2015. The operative portion of the
order passed by the DRT is reproduced hereunder:
“…The sale as pointed out earlier is liable to be quashed
for the non-compliance of Rule 8(6) and 8(7) of the
Security Interest (Enforcement) Rules, 2002. The auction
purchaser set up his case that he has spent huge money
on improvement of property in question. The auction
2 DRAT
3 SARFAESI Act
4 2002 Rules
636 [2024] 4 S.C.R.
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purchaser has not place on record any material to prove
the alleged improvements in the property. The auction
purchaser is enjoying this property since 2009 as such
auction purchaser is not entitled to any extra compensation.
However, Bank will be under obligation to refund the auction
money with interest as applicable to fixed deposit. The sale
is accordingly set aside and it is made clear that Bank will
refund the auction money only after receiving possession
of property from auction purchaser within 15 days from the
delivery of auction purchaser to the Bank. The applicant
is directed to pay the dues of the sic within 15 days with
upto date interest, failing which Bank will be at liberty to
proceed further under Securitization and Reconstruction
of Financial Assets and Enforcement of Security Interest
Act 2002 to recover its dues.
xxx xxx xxx”
6. In effect the DRT, after setting aside the sale, further proceeded to
direct the Bank to refund the auction money with interest as applicable
to fixed deposits only after receiving possession of the property from
the auction purchaser within 15 days thereof. The borrower was
directed to pay the dues of the Bank within 15 days with up to date
interest, failing which the Bank would be at liberty to proceed further
under the SARFAESI Act for recovery of its dues.
7. The appellants preferred an appeal before the DRAT registered
as Appeal No. R-57 of 2015, which came to be dismissed, vide
order dated 19.04.2018. Thereafter the appellants approached the
High Court by way of a Writ Petition registered as Writ Petition (C)
No.20266 of 2018, which has since been dismissed by the impugned
judgment and order, giving rise to the present appeal.
8. The submission advanced by learned counsel for the appellants is
two-fold: firstly, that they were bonafide purchasers for value and,
therefore, the DRT, the DRAT and the High Court erred in setting
aside the sale and confirming it. The second submission advanced
is that after the sale certificate was issued, the appellants have
developed the suit property and have invested approximately Rs.60
lacs and in case the sale is to be set aside, the appellants should
be suitably compensated not only by refund of the auction money
[2024] 4 S.C.R. 637
Govind Kumar Sharma & Anr. v. Bank of Baroda & Ors.
along with interest but also for the improvements made by them in
developing the property and investment made therein.
9. On the other hand, learned counsel for the respondent-Bank
submitted that although it had followed the procedure prescribed
but could not substantiate with any material to rebut the findings
recorded by the DRT, DRAT and the High Court that the Bank had
failed to follow the statutory provisions of notice under Rules 8(6)
and 8(7) of the 2002 Rules. It was further submitted that as the
appellants have enjoyed the property as it was already in their
possession, they cannot claim any additional compensation for the
improvements made by them as they were well aware of the litigation
initiated by the borrower by filing an application under Section 17 of
the SARFAESI Act and whatever improvements have been made
were at their own risk.
10. Further, learned counsel for the borrower (respondent nos.3 and 4)
submitted that they have already paid the entire outstanding dues
of the Bank without adjusting the auction money received by the
Bank which is lying separately in an escrow account because of
the litigation. It was also submitted that the Bank admits that the
entire dues have been paid but at the same time it has declined
to issue the No Dues Certificate because of pendency of the
litigation. It was also submitted that the Bank, without following
due procedure, had conducted the auction and, therefore, the DRT
rightly set aside the sale which has been confirmed by the DRAT
and the High Court.
11. From the facts, as narrated above and the arguments advanced,
the following is the admitted position:
(i). The appellants were tenants in the premises in question which
had been put up for auction. Their possession and status as
tenants were converted into that of owners after the sale was
confirmed and the sale certificate issued;
(ii). The borrowers have admitted that they were in default and that
the Bank had a right to recover its dues in accordance to law;
(iii). After the auction sale, the borrowers have deposited the entire
outstanding amount independent of the auction money which
is additionally lying with the Bank;
638 [2024] 4 S.C.R.
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(iv). The Bank has admitted that there was non-compliance of the
statutory provisions in conducting the sale and as such had
conceded before the DRT that the sale in question may be
set aside and the Bank be granted liberty to proceed afresh;
(v). The Bank has admitted that the auction money of Rs.12.40
lacs is lying in a separate fixed deposit and this amount is in
addition to the outstanding amount deposited by the borrower
after the auction sale.
12. Considering the above facts and circumstances and the arguments
advanced, we proceed to deal with the same:
(i). In view of the concurrent finding based on the admission by
the Bank that mandatory notice of 30 days was not given to
the Borrower before holding the auction/sale, the setting aside
of the auction/sale cannot be faulted with. The same has to be
approved.
(ii). Once the sale is set aside, the status of the appellants as
owners would automatically revert to that of tenants. The status
of possession at best could have been altered from that of an
owner to that of tenants but Bank would not have any right to
claim actual physical possession from the appellants nor would
the appellants be under any obligation to handover physical
possession to the Bank. The DRT fell in error on the said issue.
Therefore, the direction issued by the DRT that the Bank will first
take possession and thereafter refund the auction money with
interest applicable to fixed deposits, is not a correct direction;
(iii). The entire controversy has arisen because of the Bank not
following the prescribed mandatory procedure for conducting
the auction sale and, therefore, the Bank must suffer and
should be put to terms for unnecessarily creating litigation. As
of date the dues of the Bank have been fully discharged and an
additional amount of the auction money is lying with the Bank
since 2009. This amount is to be returned to the appellants. In
such facts and circumstances of the case, we are of the view
that the award of interest on the auction money at the rate
applicable to fixed deposits is not a correct view. The rate of
interest deserves to be enhanced.
(iv). We could have considered awarding 24 per cent per annum
compound interest on the auction money to be refunded to the
[2024] 4 S.C.R. 639
Govind Kumar Sharma & Anr. v. Bank of Baroda & Ors.
appellants in view of serious illegality committed by the Bank
in conducting the auction and driving the parties to litigation.
Considering the fact that the money of the Bank is also public
money, we feel that interest of justice would be best served if the
auction money with 12 per cent per annum compound interest
is returned to the appellants. Such interest be calculated from
the date of deposit till the date it is actually paid.
(v). There was some dispute between the Bank and the borrower
that there could be minor adjustments still left. We are of the
view that if any additional amount is lying with the Bank, the
same would be returned to the borrower and if any amount is
still due to be paid, the borrower would pay the said amount
to the Bank. The Bank and the borrower have both agreed for
making the said adjustments.
13. In view of the above discussion and analysis, the following directions
are issued:
a) setting aside of the auction sale is affirmed.
b) The status of the appellants as tenants shall stand restored
leaving it open for the borrower as owner of the property to
evict the appellants in accordance to law.
c) The entire auction/sale money lying with the Bank (R-1 & 2)
shall be returned to the appellants along with compound interest
@12 per cent per annum to be calculated from the date of
deposit till the date of payment.
d) The Borrower Respondent nos.3 and 4 and the Bank–
Respondent nos.1 and 2, would streamline their accounts and
the Bank upon settlement of the same will issue a No Dues
Certificate to the Borrower.
14. The impugned order shall stand modified as above. The appeal
stands disposed of accordingly.
15. Pending applications, if any, stand disposed of.
Headnotes prepared by: Result of the case:
Aishani Narain, Hony. Associate Editor Appeal disposed of.
(Verified by: Abhinav Mukerji, Sr. Adv.)
