2023 (5) TMI 131 - SC - Indian Laws

Supreme Court voids e-auction sale agreement, questions SARFAESI Act applicability

The Supreme Court held that the High Court erred in entertaining a writ petition challenging an e-auction notice under Article 226 of the Constitution of ... Right of the auction purchaser - Validity of Auction of properties of borrower by the Bank - decree for specific performance of the agreement to sale - Section 13(4) of the SARFAESI Act - an agreement to sale was executed between the bank and the borrower for a sale of Flat No.6401 on 16.06.2016. At this stage, it is required to be noted that the said agreement to sale was executed by the borrower without informing/obtaining any consent from the DRT as well as the Bank and the permission, if any, given to the borrower earlier obtained only to the seven flats which were already recognized by the DRT on 25.02.2016. - Thereafter, the said property was auctioned by the bank following the due procedure. HELD THAT:- It is required to be noted that in the MoU dated 10.04.2016 between the borrower and the respondent no.1 in Clause No.4 it was specifically provided that first the party should obtain clearance of sale from DRT/SBH so that they can process with further agreement to sale. Thus, as such respondent no.1 at the relevant time was aware about the pending DRT proceedings. Still the respondent no.1 entered into the agreement to sale with the borrower on 16.06.2016. At this stage, it is pertinent to note that thereafter when the Bank issued a public notice on 28.07.2016 for auctioning the properties of the borrower. Before the date of auction, on 24.08.2016 the borrower filed an application before the DRT praying for stay of all proceedings of the Bank pursuant to the auction notice dated 28.07.2016. Calculatively the respondent no.1 filed the writ petition before the High Court challenging the e-auction notice and that too after conducting of the e-auction on 31.08.2016 and the sale in favour of the appellant was confirmed. The aforesaid facts were pointed out before the High Court and despite the same the High Court has allowed the writ petition which is not sustainable at all. By the impugned order the respondent no.1 has got the relief which as such the borrower failed to get from the DRT. On the aforesaid grounds the impugned judgment and order passed by the High Court is unsustainable. Even at the time when the respondent no.1 entered into the agreement to sale/MoU he was aware about the proceedings pending before the DRT which is apparent from Clause 4 of the MoU. Therefore, respondent no.1 and/or his heirs cannot be permitted to get the benefit of his own wrong and cannot be permitted to get the benefit of a void transaction - It is directed that on the full payment of the auction sale consideration by the appellant (after deducting the 25% of the amount already deposited earlier) with 9% interest from the date of auction till the actual amount is paid, to be paid within a period of four weeks from today, the sale certificate be issued in favour of the appellant with respect to Flat No.6401. Whatever the amount is already deposited by the respondent no.1/his heirs shall be returned to the respondent no.1 (now his heirs) with the interest at 9% from the date of such deposit till the actual date of return which shall be returned within a period of four weeks from today. The impugned judgment and order passed by the High Court is hereby quashed and set aside - Appeal allowed. Issues Involved:1. Legality of the High Court entertaining the writ petition under Article 226 of the Constitution of India.2. Validity of the agreement to sale executed without the consent of the DRT or the Bank.3. Applicability of Section 13(8) of the SARFAESI Act to an agreement to sale holder.4. Equity considerations and relief granted by the High Court.Summary:1. Legality of the High Court entertaining the writ petition under Article 226 of the Constitution of India:The Supreme Court observed that the High Court erred in entertaining the writ petition under Article 226 of the Constitution of India challenging the e-auction notice. The respondent had an alternative remedy under Section 17 of the SARFAESI Act to approach the DRT. Hence, the High Court should not have entertained the writ petition.2. Validity of the agreement to sale executed without the consent of the DRT or the Bank:The agreement to sale executed between the borrower and the respondent without informing or obtaining consent from the DRT or the Bank was declared void by the DRT. The DRT had previously given liberty to the borrower to identify and communicate certain flats to be excluded from the auction, but Flat No.6401 was not among those identified. The transaction was held to be in violation of the SARFAESI Act and the directions of the Tribunal.3. Applicability of Section 13(8) of the SARFAESI Act to an agreement to sale holder:The Supreme Court questioned whether Section 13(8) of the SARFAESI Act, which allows the borrower to redeem the property by paying the entire debt, is applicable to an agreement to sale holder. The borrower did not invoke Section 13(8) to clear the entire dues. The Court noted that the High Court materially erred in allowing the writ petition on this ground.4. Equity considerations and relief granted by the High Court:The Supreme Court found that the High Court erred in observing that equity was in favor of the respondent who had deposited the entire amount. The High Court did not provide clarity on the exact relief granted. The Supreme Court held that the transaction between the respondent and the borrower was illegal and void. The respondent and his heirs could not benefit from a void transaction. The Supreme Court directed the appellant to pay the remaining auction sale consideration with interest, and the sale certificate should be issued in favor of the appellant. The heirs of the respondent were given three months to vacate the flat.Conclusion:The Supreme Court quashed and set aside the High Court's judgment, allowing the appeals. The appellant was directed to complete the payment for the auctioned flat, and the respondent's heirs were ordered to vacate the property within three months. No order as to costs was made.