2024 (10) TMI 974 - SC - Indian Laws

Successful bidder gets 6% annual interest compensation after auction set-aside despite full debt payment by debtors

The SC modified HC orders regarding compensation for a set-aside auction sale. The HC had set aside the auction on equitable grounds after debtors ... Setting aside of auction sale - grant of adequate compensation to the appellant - submission of the learned counsel appearing for the appellant is that solatium at 5 per cent of the amount deposited by the appellant granted to the appellant is inadequate - HELD THAT:- The High Court set aside the auction sale not based on the provisions of the said Rules or on the ground that the auction was illegal. The High Court set aside the auction on equitable considerations, as the entire amount due and payable to the 4th respondent bank, including interest, was deposited by the 1st and 2nd respondents with the High Court within three months from filing the Writ Petition. There is no doubt that the appellant must be compensated as he was deprived of using the amount of Rs.81,20,000/- from 21st July 2019 till the date of actual refund due to no fault on his part. As stated earlier, the amount was transferred by the 3rd respondent to the 4th respondent on 13th October 2022. The appellant was entitled to receive interest on the said amount of Rs.81,20,000/- at the rate of 6 per cent per annum from the date of deposit of the said amount till the date of refund. It is an admitted position that the 3rd respondent conducted the auction of the property claimed by the 1st and 2nd respondents at the instance of the 4th respondent. Admittedly, the 4th respondent bank has not challenged the impugned orders and has thus accepted the finding that the appellant must be compensated. Therefore, the 4th respondent bank will be liable to pay interest to the appellant. The fact that the amount was lying deposited with the 3rd respondent is irrelevant as the auction was at the instance of the 4th respondent. The impugned judgments dated 5th September 2022 and 17th March 2022 are hereby modified by setting aside direction to pay an amount equivalent to 5 per cent of Rs.81,20,000/- to the appellant - the 4th respondent is directed to pay simple interest at the rate of 6 per cent per annum on the sum of Rs. 81,20,000/- to the appellant from 21st July 2019 till the date of the actual refund of the amount of Rs. 81,20,000/- to the appellant - appeal allowed in part. Issues:1. Setting aside of auction sale and compensation to the appellant.2. Applicability of Rules in auction proceedings.3. Entitlement to interest on the deposited amount.Analysis:Issue 1: Setting aside of auction sale and compensation to the appellantThe case involved a Co-operative Bank (4th respondent) filing for recovery of a loan amount against certain respondents. An auction sale was conducted where the appellant made the highest bid. However, the auction sale was set aside by the High Court based on equitable considerations, as the loan amount was deposited by the respondents within three months of filing a writ petition. The appellant claimed compensation for being deprived of using the deposited amount. The Single Judge and Division Bench directed the 4th respondent to refund the auction amount along with 5% extra. The Supreme Court found the compensation inadequate and modified the judgments, directing the 4th respondent to pay simple interest at 6% per annum to the appellant on the deposited amount until the actual refund.Issue 2: Applicability of Rules in auction proceedingsThe learned Single Judge noted the provisions of Rule 38 of the Karnataka Cooperative Societies Rules, 1960, which provide for setting aside an auction sale under certain conditions. The Rule specifies that a property owner can apply for setting aside the auction within 30 days and receive a refund along with 5% of the deposited amount. As the respondents did not apply for setting aside within the stipulated period, the Rule did not apply. However, the Single Judge exercised discretionary jurisdiction under Article 226 and directed compensation to the appellant, which was upheld by the Division Bench.Issue 3: Entitlement to interest on the deposited amountThe Supreme Court held that the appellant was entitled to receive interest on the deposited amount from the date of deposit until the actual refund. The Court emphasized that the 4th respondent, who did not challenge the impugned orders, must pay interest to adequately compensate the appellant for the period the amount was withheld. Despite the legality of the auction, the Court found the 4th respondent liable to pay interest due to the unique circumstances of the case.In conclusion, the Supreme Court partly allowed the appeal by modifying the judgments, setting aside the 5% compensation, and directing the 4th respondent to pay simple interest to the appellant at 6% per annum on the deposited amount within six weeks.