2022 (8) TMI 1440 - HC - Indian Laws

Court upholds bank's decision to cancel e-auction, accept OTS, borrower's redemption right preserved.

Amme Srisailam Versus Union Bank of India and Ors.

The court dismissed the writ petition, upholding the bank's decision to cancel the e-auction and accept the One Time Settlement (OTS). It emphasized that ... Sale/e-auction - Recovery of outstanding dues - whether sub-section (8) of Section 13 of the SARFAESI Act can restrain the secured creditor from realising the outstanding dues from the borrower after notice for public auction is issued? HELD THAT:- A Division Bench of this Court in Concern Readymix [2018 (12) TMI 1982 - TELANGANA HIGH COURT] noted the changes that were made to the SARFAESI Act by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 including the substitution of sub-section (8) of Section 13 of the said Act. Thereafter the Division Bench compared and analysed sub-section (8) of Section 13 as it stood before the amendment and as it stands post amendment. This Court noted the distinction between the unamended and the amended sub-section (8) of Section 13 holding that The first distinction between the unamended and amended sub-section (8) of Section 13 is that before amendment, the facility of repayment of the entire dues along with the costs, charges and expenses, was available to the debtor at any time before the date fixed for the sale or transfer. But after the amendment, the facility is available upto the time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty. The second distinction is that the unamended sub-section (8) did not provide for the contingency when the dues are tendered by the borrower before the date of completion of the sale or lease but after the issue of notice. But the amended sub-section (8) takes care of the contingency where steps have already been taken by the secured creditor for the transfer of the secured asset, before the payment was made. Except these two distinctions, there is no other distinction. After referring to the amendments brought to the Security Interest (Enforcement) Rules, 2002, this Court took the view that amended Section 13(8) merely prohibits the secured creditor from proceeding further with the transfer of the secured assets by way of lease, assignment or sale if the dues are paid before issuance of notice for public auction. Thereafter it has been held that a restriction on the right of the mortgagee to deal with the property is not exactly the same as the equity of redemption available to the mortgagor. Payment of the amounts mentioned in Section 13(8) ties the hands of the mortgagee (secured creditor) from exercising any of the powers conferred under the SARFAESI Act. Redemption comes later - this Court emphasised that the right of redemption is not lost immediately upon the highest bid made by the purchaser in an auction is accepted. On a careful application of Sections 35 and 37 of the SARFAESI Act, it is evident that the situation contemplated under Section 13(8) of the SARFAESI Act does not exclude application of Section 60 of the Transfer of Property Act, 1882. As explained by this Court in Concern Readymix, a restriction on the right of the mortgagee to deal with the property post issuance of notice for public auction is not the same as the right of redemption available to the mortgagor. In so far the present case is concerned, admittedly the bid amount of the petitioner was Rs. 57.00 lakhs. Though the auction was conducted on 16.03.2021 and payment was made by the petitioner within the stipulated period, there is clear dispute between the parties as regards issuance of sale certificate by respondent Nos. 1 and 2 in favour of the petitioner. However, admittedly there is no registration of any sale certificate - In this case, we have already come to the conclusion that third respondent had not lost the right of redemption upon publication of notice for auction sale. If that be the position, then it should be left to the discretion of the secured creditor as to which course of action would be more beneficial to it. Evidently, the OTS with the third respondent is much more beneficial to the secured creditors i.e., respondent Nos. 1 and 2 and as has been explained such a course of action is not restricted or extinguished by Section 13(8) of the SARFAESI Act. Right to property is a valuable right. Though no longer a fundamental right, it is still a constitutional right. The interpretation which we have adopted subserves such a right. That apart, third respondent had not lost the right of redemption upon publication of notice for auction sale; his right of redemption would have been lost only upon the sale certificate getting registered which admittedly has not taken place. Therefore, the action of respondent Nos. 1 and 2 in accepting the higher OTS amount of the third respondent though after publication of notice for public auction and auction is justified and cannot be faulted. The writ petition fails and is accordingly dismissed. Issues Involved:1. Quashing of sale/e-auction conducted on 16.03.2021.2. Validity of the cancellation of the e-auction due to One Time Settlement (OTS).3. Interpretation of Section 13(8) of the SARFAESI Act post-amendment.4. Right of redemption of the borrower under Section 60 of the Transfer of Property Act, 1882.Detailed Analysis:1. Quashing of Sale/E-Auction Conducted on 16.03.2021The petitioner sought quashing of the sale/e-auction conducted on 16.03.2021 for plot Nos. A11 to A15, Maheshwaram Revenue Village and Mandal, Ranga Reddy District. The petitioner participated in the auction, his bid was accepted, and he paid the full amount, after which he was issued a sale certificate on 25.03.2021. However, the sale was later canceled by the bank due to a One Time Settlement (OTS) with the borrower.2. Validity of the Cancellation of the E-Auction Due to One Time Settlement (OTS)The bank canceled the e-auction upon the borrower settling the loan under an OTS scheme. The petitioner contended that the sale was already concluded and that the bank could not legally cancel it. The bank argued that the authorized officer had the right to cancel the sale at any point without assigning reasons, as per clause 27 of the terms and conditions of the sale notice. The bank refunded the amount paid by the petitioner.3. Interpretation of Section 13(8) of the SARFAESI Act Post-AmendmentThe petitioner argued that post-amendment in 2016, Section 13(8) of the SARFAESI Act allows the borrower to redeem the property only until the date of the sale notice, not beyond. The court analyzed the amended Section 13(8), which states that if the dues are tendered before the publication of the auction notice, the secured asset shall not be sold. The court referred to multiple judgments and concluded that the right of redemption is not lost immediately upon the highest bid being accepted; it is extinguished only upon the registration of the sale certificate.4. Right of Redemption of the Borrower under Section 60 of the Transfer of Property Act, 1882The court examined Section 60 of the Transfer of Property Act, which provides the mortgagor the right to redeem the property until the sale certificate is registered. The court held that the borrower's right of redemption persists until the sale certificate is registered, and the bank's decision to accept the OTS was within its discretion and in its best interest.Conclusion:The court dismissed the writ petition, upholding the bank's decision to cancel the e-auction and accept the OTS. The court emphasized that the borrower's right of redemption was not extinguished until the sale certificate was registered, and the bank acted within its rights to accept a higher amount under the OTS, which was in the larger public interest. The interim order was vacated, and there was no order as to costs.