Once Sale Is Set Aside, Status Of Persons As Owners Would Automatically Revert To That Of Tenants: Supreme Court

The Supreme Court said that once a sale is set aside, the status of persons as owners would automatically revert to that of tenants.

The Court was deciding an appeal preferred against the judgment of the Allahabad High Court dismissing the writ petition and confirming the orders of the Debt Recovery Tribunal (DRT) as also the Debt Recovery Appellate Tribunal (DRAT) whereby the auction sale held in favour was set aside and the appeal was dismissed.

The two-Judge Bench comprising Justice Vikram Nath and Justice Satish Chandra Sharma remarked, “In view of the concurrent finding based on the admission by the Bank that mandatory notice of 30 days was not given to the Borrower before holding the auction/sale, the setting aside of the auction/sale cannot be faulted with. The same has to be approved. … Once the sale is set aside, the status of the appellants as owners would automatically revert to that of tenants.”

Advocate R.P. Shukla appeared for the appellants while AOR Arun Aggarwal appeared for the respondents.

In this case, the respondent firm, had taken a loan from the respondent Bank. However, as it went into default, the Bank initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). In the said recovery proceedings, the Recovery Officer conducted an open auction. The appellants were the highest bidder and their bid was accepted and they made good the deposits as per the terms of this auction. Accordingly, a sale certificate was issued in their favour and the appellants were tenants of the borrower in the premises in question was put to auction. As such the status of the appellants changed from that of tenants to that of owners after the sale was confirmed and sale certificate was issued. The borrowers filed a securitization application under Section 17 of the SARFAESI Act for setting aside the sale on the ground that the Bank had not followed the statutory procedure prescribed under the Security Interest (Enforcement) Rules, 20024, in particular, the notice as required under Rules 8(6) and 8(7) which required a mandatory notice of 30 days to the borrower, had neither been issued nor served upon the borrower.

The DRT, after examining the matter, came to the conclusion that the Bank itself had admitted that the statutory compliance under the above rules had not been made and as such proceeded to set aside the sale vide an order. In effect the DRT, after setting aside the sale, further proceeded to direct the Bank to refund the auction money with interest as applicable to fixed deposits only after receiving possession of the property from the auction purchaser within 15 days thereof. The borrower was directed to pay the dues of the Bank within 15 days and the appellants preferred an appeal before the DRAT, which was dismissed, vide an order and thereafter, the appellants approached the High Court by way of a Writ Petition which was dismissed, giving rise to the appeal before the Apex Court.

The Supreme Court in view of the above facts observed, “The status of possession at best could have been altered from that of an owner to that of tenants but Bank would not have any right to claim actual physical possession from the appellants nor would the appellants be under any obligation to handover physical possession to the Bank.”

The Court further said that the DRT fell in error on the said issue and therefore, the direction issued by the DRT that the Bank will first take possession and thereafter refund the auction money with interest applicable to fixed deposits, is not a correct direction.

“The entire controversy has arisen because of the Bank not following the prescribed mandatory procedure for conducting the auction sale and, therefore, the Bank must suffer and should be put to terms for unnecessarily creating litigation. … the award of interest on the auction money at the rate applicable to fixed deposits is not a correct view. The rate of interest deserves to be enhanced”, it noted.

“Considering the fact that the money of the Bank is also public money, we feel that interest of justice would be best served if the auction money with 12 per cent per annum compound interest is returned to the appellants. Such interest be calculated from the date of deposit till the date it is actually paid”, it added.

The Court also directed that if any additional amount is lying with the Bank, the same would be returned to the borrower and if any amount is still due to be paid, the borrower would pay the said amount to the Bank.

Accordingly, the Apex Court disposed of the appeal.

Cause Title- Govind Kumar Sharma & Anr. v. Bank of Baroda & Ors. (Neutral Citation: 2024 INSC 326)

Appearance:

Appellants: Advocates R. P. Shukla, Dhruv Shukla, Upasena Shukla, Aeishwarya Sharma, Gaurav Chauhan, Megha Gaur, Piyush Kumarendra, AORs Vibhav Mishra, and Vijay K. Jain.

Respondents: AOR Arun Aggarwal, Advocates Anshika Agarwal, Deepti Jain, Shivam Saini, Praful Rawat, Pramod Kumar Singh, Vijay Pal, Shiv Dutt Sharma, Rekha Agarwal, Rajvir Singh, Bikash Chandra, and AOR Rameshwar Prasad Goyal.

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