2024 (12) TMI 879 - SC - Indian Laws

Supreme Court validates SARFAESI auction despite procedural defects, applies Henderson Principle, bars delayed challenges, voids subsequent asset transfer

The SC upheld the validity of a 9th auction under the SARFAESI Act despite procedural defects, applying the Henderson Principle and constructive res ... Contempt of court - Wilful disobedience - Lis pendens - Constructive res judicata / Henderson principle - Right of redemption under Section 13(8) of the SARFAESI Act - Sale certificate under SARFAESI and its effect - Effect of confirmed auctionContempt of court - Wilful disobedience - Whether respondent nos.1 and 2/4 committed contempt of this Court's judgment and order dated 21.09.2023 by acts aimed at frustrating its implementation. - HELD THAT: - The Court examined the conduct of the Borrower and the Subsequent Transferee after this Court's decision in Civil Appeals Nos. 5542-5543 of 2023. It found multiple acts (letters to public authorities and sub-registrar, filing of suit and applications, resisting handover of title deeds and possession, lodging complaints) which were deliberate steps to thwart implementation of this Court's directions. While the Court concluded that these acts amounted to contemptuous conduct intended to circumvent the judgment, it noted subsequent steps taken by the Borrower and Subsequent Transferee to withdraw proceedings and give undertakings. Applying the statutory test of civil contempt (wilful disobedience of an order), the Court held that contempts were committed but, exercising caution and in view of remedial steps and undertakings, declined to convict at this stage and instead gave directions to purge the contempt by compliance with the judgment. [Paras 208, 209, 223]Found that the Borrower and the Subsequent Transferee committed contumacious acts amounting to contempt, but gave them an opportunity to purge contempt by complying with specified directions rather than recording punishment at this stage.Sale certificate under SARFAESI and its effect - Right of redemption under Section 13(8) of the SARFAESI Act - Effect of confirmed auction - Whether the sale to the petitioner was confirmed and whether proceedings in S.A. No. 46 of 2022 survived after this Court's judgment of 21.09.2023. - HELD THAT: - The Court analysed the scope of the Main Appeals and held that the challenge before it concerned the cut-off for redemption under amended Section 13(8). Because no challenge to the 9th auction was pressed before this Court, it confined its decision to redemption and set aside the High Court order permitting redemption after publication of the sale notice. The Court directed payment by the petitioner and ordered issuance of the sale certificate under Rule 9(6). Consequentially, the confirmed sale and issuance of the sale certificate vested absolute title in the petitioner and rendered the pending securitization proceedings in S.A. No. 46 of 2022 infructuous; nothing remained in that S.A. after the judgment. [Paras 130, 132, 223]Held that the auction and sale were confirmed, the sale certificate conferred absolute title on the petitioner, and the DRT proceedings (S.A. No. 46 of 2022) were rendered infructuous in consequence of this Court's judgment.Lis pendens - Constructive res judicata / Henderson principle - Whether the Assignment Agreement dated 28.08.2023 (transfer to the Subsequent Transferee) is hit by lis pendens and whether absence of registration under the Maharashtra amendment to Section 52 TPA precludes application of lis pendens. - HELD THAT: - The Court held that Special Leave Petitions/Civil Appeals challenging the High Court order were instituted before this Court before the Assignment Agreement was executed; lis pendens doctrine therefore attached at the time of institution. Applying the principles in Section 52 and relevant precedents, the Court concluded the transfer was subject to the pending litigation. Addressing the State amendment requiring registration of notice of pendency, the Court observed that the registration requirement is a procedural device to assist third parties but does not render the doctrine inapplicable as a matter of right where a pending proceeding exists; courts retain discretion to apply lis pendens where facts warrant. Given the timing and the Borrower's conduct, the Assignment Agreement was declared void as being hit by lis pendens. [Paras 166, 176, 223]Held that the Assignment Agreement dated 28.08.2023 is hit by lis pendens and is void; the Subsequent Transferee must hand over possession and title deeds to the Bank.Final Conclusion: The Court upheld the 9th auction and confirmed the sale to the petitioner, declaring the sale certificate absolute; it held that the Borrower's transfer to the Subsequent Transferee is void as hit by lis pendens and that the Borrower and Subsequent Transferee engaged in contemptuous conduct, but granted them an opportunity to purge contempt by immediate compliance with specified directions (cancellation of Release Deed, withdrawal of S.A. No. 46, handing over possession and title deeds, refund directions) rather than recording punishment at this stage. Issues Involved:1. Whether any act of contempt could be said to have been committed by the respondents of the judgment and order dated 21.09.2023 passed by this Court in Civil Appeal Nos. 5542-5543 of 2023Rs.2. Whether the proceedings arising out of S.A. No. 46 of 2022 could have continued after this Court's judgment and order dated 21.09.2023 directing the issuance of the Sale Certificate of the Secured Asset to the petitionerRs.3. Whether the transfer of the Secured Asset in favour of the Subsequent Transferee by way of the Assignment Agreement dated 28.08.2023 is hit by lis pendensRs.4. Circumstances when a sale of property by auction or other means under the SARFAESI Act may be set-aside after its confirmation.Detailed Analysis:I. Contempt of Court:The court examined whether the respondents committed contempt by not complying with the judgment dated 21.09.2023. The judgment had set aside the High Court's order allowing the borrower to redeem the mortgage after the auction notice. The court held that the confirmation of the sale by the Bank vested the petitioner with a right to obtain the sale certificate of the Secured Asset. The Borrower and the Subsequent Transferee were found to have committed contempt by not complying with the judgment, as they engaged in actions to undermine the court's decision, such as addressing letters to authorities to prevent the transfer of the Secured Asset and filing suits to declare the sale certificate invalid. However, the court provided an opportunity for the respondents to purge their contempt by complying with the directions issued in the present contempt petition.II. Continuation of Proceedings in S.A. No. 46 of 2022:The court analyzed whether the proceedings in S.A. No. 46 of 2022 could continue after the judgment directing the issuance of the Sale Certificate. It was held that the Borrower had waived its right to pursue the S.A. No. 46 of 2022 by not raising any challenge to the auction process during the proceedings before the High Court and this Court. The court applied the Henderson Principle, which prevents parties from raising issues in subsequent proceedings that could have been raised earlier. The court concluded that the proceedings before the DRT had been rendered infructuous by the issuance of the Sale Certificate.III. Applicability of Lis Pendens:The court examined whether the transfer of the Secured Asset to the Subsequent Transferee was hit by lis pendens. It was held that the doctrine of lis pendens applied, as the transfer occurred during the pendency of the Special Leave Petitions before this Court. The court rejected the argument that the absence of registration of a notice of pendency under the State Amendment to Section 52 of the TPA rendered lis pendens inapplicable. The court emphasized that the doctrine is based on public policy and ensures that the subject matter of litigation is not altered during the pendency of proceedings.IV. Setting Aside a Confirmed Sale:The court reiterated that once a sale is confirmed, it should not be set aside except on grounds of fraud, collusion, or fundamental procedural error. In this case, no such grounds were established, and the auction was conducted in compliance with the statutory requirements. The court upheld the validity of the 9th auction proceedings and confirmed the sale of the Secured Asset to the petitioner.Final Order:The court issued several directions, including the cancellation of the Release Deed and the Assignment Agreement, withdrawal of the S.A. No. 46 of 2022, and handing over of possession and title deeds of the Secured Asset to the Bank. The Borrower and the Subsequent Transferee were given an opportunity to comply with these directions to avoid being held guilty of contempt. The court also clarified that the Subsequent Transferee is not entitled to recover any amount from the petitioner. The matter was scheduled for a compliance report after two weeks.