REVALUATION ON CONFIRMED SALE AUCTION OF ‘DRT’

In Om Sakthi Sekar Versus V. Sukumar & Ors. - 2026 (3) TMI 734 - Supreme Court, Indian Bank, the 6^th respondent in the present appeal entered into an agreement dated 30.11.1992 with respondent No. 7 for ‘at par facility’ for the cheques issued by them. The only condition, in this regard, is that the respondent No. 7 shall maintain a cushion fund at all times during the subsistence of the agreement. The respondent no. 7 did not comply with the said condition and there was shortfall in the maintenance of cushion fund. However, the bank continued to honour the cheques presented.

The respondent Nos. 3 and 4 created an equitable mortgage by depositing the title deeds of Schedule A, B and C properties admeasuring 12572 sq. meters, as security for the shortfall. The properties in the Schedule of D and E are also deposited. The bank issued a legal notice on 31.01.1998 to respondent No. 7 and others. The respondent No. 7 failed to pay the amount. The bank filed an application before Debts Recovery Tribunal (‘DRT’ for short) for the recovery of the sum Rs.45.66 lakhs, the dues as on 10.02.1998 along with interest @ 20.91% from the date of filing to the date of realisation.

The DRT, vide their order dated 12.01.2010, held that the bank is entitled for recovery certificate against the respondents for the sum Rs.45.66 lakhs along with 10% interest from 10.02.1998 till the date of realisation. On 20.08.2010, the DRT passed an order of attachment and issued the letter of proclamation of sale on 21.09.2010. The appellant was the successful bidder in the auction. The appellant paid Rs. 55 lakhs as advance payment out of the total sale value Rs.2.11crores. The DRT confirmed the sale of properties in the schedule A to E and the sale certificate was executed in favour of the appellant by the Recovery Officer.

Against the order of dated12.01.2010, the respondent nos. 1 to 5 filed an appeal before Debt Recovery Appellate Tribunal (‘DRAT’ for short). The DRAT, vide their order dated 12.11.2010 restraining the Recovery Officer from confirming the auction sale. The DRAT remanded the matter back to DRT for fresh consideration.

The appellant filed a writ petition before the High Court for the return of money paid by the them during the course of auction. The High Court remitted the matter back to DRAT for re-appreciation of evidence.  The High Court granted liberty to the appellant to approach DRAT for the refund of money and the DRAT to consider the same.

On remand the DRAT affirmed the order of DRT holding that the defaulters cannot take advantage of their internal disputes. The DRAT further held that the banks are custodians of public money, and interest of the third-party bidder purchaser should also be protected who had spent more than Rs. 2 crores in the year 2010 as a bona fide purchaser. The respondent Nos. 1 to 5 filed writ petitions before the High Court challenging the said order. The High Court held that there was an equitable mortgage and since the amounts were not repaid, the bank was entitled to recover the due from Respondent Nos. 1 to 5 along with others jointly and severally and liquidate the assets to satisfy the dues. Regarding the valuation for the properties A to E in the schedule has to be decided by the DRT afresh and in case, the properties have been sold for a lower value, the appellant may be directed to pay for the same. Thus, the High Court upheld the conclusion arrived at by the DRT and DRAT while remitting the case to the DRT for the limited purpose of valuation of Schedule A to E properties in the recovery proceedings.

Against the said order, the appellant filed the present appeal before the Supreme Court. The appellant submitted the following before the Supreme Court-

• The High Court, despite upholding the validity of the auction and the rights of the appellant as a successful auction purchaser, remanded the matter to the DRT for revaluation of the properties nearly ten years after the auction sale had been concluded.
• The High Court erred in directing revaluation without assigning any cogent reasons.
• The Engineers’ Valuation Report Summary dated 08.09.2010, pertaining to Schedule A to E properties, was prepared in accordance with law and reflected prevailing market rates in the year 2010.
• The valuation report was never challenged by the respondents.
• The appellant paid the entire value of sale proceeds and the sold properties were transferred to the appellant.
• The proclamation of sale, auction etc., have not been challenged at any point of time.
• The appellant made developments in the said properties and paid taxes, EB bills etc.
• The DRAT, in their order dated 24.10.2017 held that defaulters cannot take advantage of internal disputes, that banks are custodians of public money, and that interest of the third-party bona fide auction purchaser who had invested over Rs. 2 crores in 2010 must be protected.
• The interest of a stranger purchaser is protected even if the underlying decree is subsequently set aside or otherwise.
• If every confirmed auction sale were to be reopened on the basis of a higher offer or speculative revaluation, no court sale would ever attain finality.
• Where the auction was conducted with due publicity and no irregularity in the conduct of the sale is alleged or established, interference after confirmation would undermine certainty and finality in judicial sales.
• While directing revaluation, the High Court assigned no reason for doubting the Engineer’s valuation report dated 08.09.2010, nor did it record any finding of material irregularity in the conduct of sale.
• The direction for revaluation nearly 14 years after the auction would cause grave prejudice, since determining the 2010 market value at this belated stage would be speculative and inherently uncertain.
• If the court is reluctant to confirm the auction, then the appellant has no other way except to return the entire properties to DRT and seek refund of the entire sale consideration along with the interest.

In view of the above, the appellant prayed the Supreme Court to set aside the impugned order of High Court.

The respondents 1 to 5, 7 and 14 submitted the following before the Supreme Court-

• The auction sale itself bad in law.
• The appellant / auction purchaser failed to comply with the mandatory requirements governing auction sales, inasmuch as he neither paid 25% of the bid amount on the date of auction nor remitted the balance 75% within 15 days.
• The validity of the final order passed by the DRT, Chennai itself is not admitted by the respondents.
• Since there is no subsisting Recovery Certificate in force. Therefore, the final amount allegedly due in O.A. No. 536 of 1998 must first be determined afresh through a valid Recovery Certificate.
• In the absence of a subsisting Recovery Certificate, all consequential proceedings, including the auction and valuation, are vitiated for want of jurisdiction.
• Since the auction sale itself is void and non est, the appellant lacks locus standi to maintain the present proceedings or seek any relief before the Supreme Court.

In view of the above, the above said respondents prayed that the appeal be dismissed holding that the auction sale is illegal and that the appellant has no enforceable right in the subject properties.

The respondent No. 6, the bank submitted the following before the Supreme Court-

• The auction sale in the present case, was not conducted under the provisions of the SARFAESI Act, 2002, but was carried out by the Debts Recovery Tribunal.
• The sale process was conducted in a transparent and lawful manner strictly in accordance with the statutory procedure.
• The DRT had ordered attachment of the borrower’s properties on 20.08.2010 on account of default in repayment of a sum of Rs.1,03,42,523.91 due to the Bank, in compliance with Debts Recovery Certificate.
• Since the auction sale itself is void and non est, the appellant lacks locus standi to maintain the present proceedings or seek any relief before this Court.
• Despite the lapse of nearly fourteen years, the borrowers have not approached the DRT seeking release of the surplus amount lying with the Tribunal. The borrowers have thus failed to take appropriate steps in accordance with law for claiming the said amount.
• The issues relating to valuation are essentially questions of fact, and where the valuation is based on relevant material on record, the same ordinarily does not warrant interference.
• The Bank shall abide by any direction that may be passed by this Court in the interest of justice.
• The Bank has acted strictly in accordance with law and the recovery already effected pursuant to the auction proceedings ought not to be disturbed.

The Supreme Court considered the entire submissions of the parties to the present appeal and analysed the facts of the case and also the impugned judgment of High Court.

The Supreme Court observed that the appellant does not assail the impugned judgment of the High Court in its entirety. The challenge in the present appeal is confined only to that part of the judgment whereby the High Court directed reconsideration of the valuation of the Schedule A to E properties by the DRT, notwithstanding the fact that the auction sale had already been concluded and confirmed in accordance with law. The limited grievance of the appellant is that after confirmation of the sale, the High Court ought not to have remitted the issue of valuation for fresh consideration by the DRT, as such a direction unsettles a concluded auction process and is contrary to the settled principles governing finality of court-confirmed sales. The record indicates that the valuation report dated 08.09.2010 was obtained prior to issuance of the proclamation of sale. It is the settled proposition that the rights of a bona fide auction purchaser deserve due protection and that confirmed court sales should not ordinarily be interfered with, it is equally well established that such protection is not absolute. Where credible issues are raised regarding the adequacy of valuation or the fairness of the process leading to the fixation of the reserve price, the supervisory jurisdiction of the Court may be invoked to ensure that the recovery proceedings have been conducted in a manner that secures the best possible value of the property. The objective of recovery proceedings is not merely to complete the sale but to realise the maximum value of the secured asset so as to balance the interests of the creditor and the borrower.

The Supreme Court further observed that the High Court, upon examining the record, was of the view that the question relating to valuation of the property and the fixation of the reserve price warranted closer scrutiny. Significantly, the High Court has neither set aside the auction sale nor questioned the participation of the auction purchaser; rather, it has confined its direction to a reconsideration of the issue of valuation by the DRT. Such a limited

remand does not prejudge the rights of the auction purchaser, but enables the DRT to assess whether the valuation and fixation of the reserve price were in accordance with law. Further, the remand does not disturb the recovery already effected by the bank nor does it render the auction proceedings void. Therefore, such a limited remand for fresh consideration by the DRT cannot be said to be legally untenable.

The Supreme Court held that no error can be found in the course adopted by the

High Court in remitting the matter to the DRT for reconsideration of the issue of valuation, which reflects a balanced exercise of jurisdiction and does not require interference by the Supreme Court.