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 ... Entertainment of writ petition under Article 226 despite availability of alternative statutory remedy under the SARFAESI Act - availability and primacy of remedy under Section 17 of the SARFAESI Act - validity of sale-agreement entered during pendency of DRT proceedings and effect of DRT holding such transaction void - applicability of Section 13(8) of the SARFAESI Act to a sale agreement holder - rights of a successful auction purchaser vis-a -vis incomplete payment and issuance of sale certificateEntertainment of writ petition under Article 226 despite availability of alternative statutory remedy under the SARFAESI Act - availability and primacy of remedy under Section 17 of the SARFAESI Act - High Court erred in entertaining the writ petition under Article 226 challenging the e-auction notice issued under Section 13(4) of the SARFAESI Act. - HELD THAT: - The Court held that steps taken by the Bank under Section 13(4) of the SARFAESI Act attract the statutory remedy of appeal under Section 17 to the DRT. Where such an efficacious statutory remedy exists, the High Court ought not to have entertained a writ under Article 226 to challenge the e-auction notice. The record showed that the e-auction had been conducted and the successful bidder declared before the writ was filed, and the High Court nevertheless entertained and allowed the writ petition - a serious error given the availability of the statutory forum and remedy under the SARFAESI Act. [Paras 8]Impugned High Court order allowing the writ petition was unsustainable on the ground that an alternative remedy under Section 17 was available and therefore should not have been entertained.Validity of sale-agreement entered during pendency of DRT proceedings and effect of DRT holding such transaction void - applicability of Section 13(8) of the SARFAESI Act to a sale agreement holder - The sale agreement in favour of respondent no.1, entered during pendency of DRT proceedings without permission, was void and respondent no.1 could not claim benefit under Section 13(8) based on that agreement. - HELD THAT: - The Court noted that the DRT had earlier declared transactions entered into without permission during the SARFAESI proceedings to be void. The respondent no.1 had entered into the agreement to sell while aware of pending DRT proceedings and contrary to the DRT's directions; therefore the transaction was tainted. The Court further observed that it was debatable whether Section 13(8) (which enables revival/redemption by payment of dues) applies to a mere sale agreement holder as distinct from the borrower who clears the debt; in any event, respondent no.1 could not derive equity from a transaction the DRT had already held void. [Paras 8]Respondent no.1's sale agreement was void; respondent no.1 (and heirs) cannot be permitted to retain benefit of that void transaction or claim protection under Section 13(8) on that basis.Rights of a successful auction purchaser vis-a -vis incomplete payment and issuance of sale certificate - Directed consequences as to completion of auction sale and return of amounts: quashing of High Court order and directions for completion of sale in favour of the successful auction purchaser upon full payment, with specified adjustments and time lines, and restoration of amounts paid by respondent no.1 to be returned to heirs with interest and vacating of possession. - HELD THAT: - The Court, having quashed the High Court order, provided final directions to resolve the competing equities: the successful auction purchaser (appellant) was directed to pay the remaining sale consideration (after adjusting the 25% already deposited) with interest at 9% from the date of auction within four weeks, whereupon the Bank was to issue the sale certificate in his favour. Amounts deposited by respondent no.1 (now his heirs) were to be returned with interest at 9% from the date of deposit within four weeks. The heirs were granted three months to vacate and hand over vacant possession to the auction purchaser. The directions embody the Court's practical resolution of rights arising from an auction sale where interim judicial intervention had improperly disturbed the sale process. [Paras 9]High Court order quashed; auction purchaser to complete payment and be issued sale certificate; amounts deposited by respondent no.1 to be returned with interest; heirs given time to vacate.Final Conclusion: The Supreme Court quashed the High Court's allowance of the writ petition, held that the statutory remedy under Section 17 of the SARFAESI Act should have been availed of, declared the sale agreement entered during the DRT proceedings to be void and without entitlement to benefit, and ordered completion of the auction sale in favour of the successful bidder upon payment with interest while directing refund to respondent no.1's heirs and timeline for vacating possession. 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.