Secured Asset Can Be Sold U/s.13(8) Of SARFAESI Act Only On Deposit Of Entire Payment Of Dues Of Secured Creditor- Supreme Court

In this case, the Appellant bank granted a term loan of Rs.100 lakhs and a cash credit limit of Rs.95 lakhs to the Respondent–Borrower against the security of two mortgaged properties. The borrower failed to repay the term loan as per the terms and conditions of the agreement. A notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the SARFAESI Act, 2002) was served upon the borrower demanding a sum of Rs.1,85,37,218.80/­-.

The bank took symbolic possession of the immovable property/residential house and also issued a notice under Section 13(4) of the SARFAESI Act, 2002. An application was moved under Section 14 of the SARFAESI Act, 2002 which was allowed, and with the police assistance, the bank took possession of the residential house, which was one of the mortgaged properties of the borrower.

The borrower challenged the auction of the bank under Section 17 of the SARFAESI Act, 2002 before the DRT, Jaipur. The interim order passed by the DRT was challenged before the DRAT which dismissed the appeal. The order passed by the DRAT was appealed before a Single Judge of the Rajasthan High Court who set aside both the orders of DRT and DRAT vide its judgment primarily for the reason that the said orders were in contravention of Section 13(8) of the SARFAESI Act, 2002. This impugned order was challenged before the Division Bench of the High Court which allowed the said appeal and quashed and set aside the judgment and order passed by the learned Single Judge and directed the bank to release the secured property. The bank – financial institution – secured creditor had preferred the appeal before the Apex Court.

Counsel, Ms. Praveena Gautam appeared on behalf of the Appellant bank while Counsel, Mrs. Christi Jain represented the Respondents – Borrowers before the Supreme Court.

The primary issue in this case was –

• Whether the impugned judgment of the Division Bench of the Rajasthan High Court was contrary to Sub­section (8) of Section 13 of the SARFAESI Act, 2002.

It was submitted by the Appellant bank that the impugned judgment and order passed by the Division Bench of the High Court was just contrary to Sub­section (8) of Section 13 of the SARFAESI Act, 2002. It was contended that as per Sub­section (8) of Section 13 of the SARFAESI Act, 2002 only on deposit/payment of entire payment of dues of the secured creditor together with all costs, charges, and expenses incurred by a secured creditor to the secured creditor, at any time before the date of publication of notice for public auction or inviting quotations or tender from the public, the secured asset could not be sold by the secured creditor. It was thus argued that in the present case the amount due was much more than Rs.71 lakhs and hence, the Division Bench of the High Court had directed to release the secured property just on payment of a total sum of Rs.65.65 lakhs which was just contrary to Sub­ section (8) of Section 13 of the SARFAESI Act, 2002.

On the other hand, the Respondent borrowers contended that as the highest bid received by the bank in the public auction was Rs.71 lakhs which the borrower had agreed to deposit/pay and even earlier the borrower deposited a sum of Rs.48.65 lakhs as per the order passed by the DRT thereafter when the Division Bench of the High Court had directed the bank to release the residential property on deposit of a further sum of Rs.17 lakhs (total making it Rs.65.65 lakhs). Thus, the impugned judgment and order passed by the High Court was an equitable order which did not warrant any interference by the Supreme Court.

The Court, in this case, observed that even if the mortgaged property was sold in a public auction say for an amount of Rs.71 lakhs and the bank had realized Rs.71 lakhs by selling the mortgaged property, in that case also the liability of the borrower to pay the balance amount would still continue. According to the Court, selling the mortgaged property/secured property could not discharge the borrower from the entire liability outstanding against him. The liability of the borrower with respect to the balance outstanding dues would still be continued.

Moreover, it was observed by the Apex Court, that as such the bank had already initiated the proceedings under Section 13 of the SARFAESI Act, and even the possession of the mortgaged property was taken over by the bank under Section 14 of the SARFAESI Act and thereafter the mortgaged property was put to sale by a public auction and at that stage, the borrower wanted to stall the auction proceedings and restrain the secured creditor/bank from selling the property. In such a situation the bank/secured creditor could be restrained from selling the mortgaged property/secured property where the borrower deposits entire dues that were Rs.1,85,37,218.80/-­ as on with the secured creditor.

Additionally, according to the Court, when the auction proceedings were initiated under Section 13 of the SARFAESI Act and after the bank took over the possession under Section 14 of the SARFAESI Act as per Sub­section (8) of Section 13 of the SARFAESI Act the secured asset could not be sold and/or transferred by the secured creditor, where the amount dues of the secured creditor together with all costs, charges and expenses incurred by him was tendered by the borrower or debtor to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease assignment or sale of the secured assets.

In this case, the Court observed that while the dues were Rs.1,85,37,218.80/­ and the secured property was sold in a public auction the Division Bench of the High Court had directed to release the mortgaged property and handover the possession along with original title deeds to the borrower on the borrower depositing/paying a total sum of Rs.65.65 lakhs only.

Furthermore, the Court noted that Rs.65.65 lakhs was not the amount realized by selling the mortgaged property in a public auction. It was only the highest bid received and before any further auction proceedings were conducted, the DRT had passed an interim order directing to handover the possession and handover the original title deeds on payment of Rs.48.65 lakhs which was the base price, which was the subject matter before the DRAT and before the learned Single Judge. Therefore, the borrower did not deposit and was not ready to deposit the entire amount of dues with the secured creditor with all costs, charges, and expenses incurred by the secured creditor.

According to the Court, it was open for the secured creditor to sell the mortgaged property which was put as security, and realize the amount by selling it in a public auction. At this stage, it was required to be noted that even as per the Division Bench of the High Court the borrower made an offer to deposit/pay Rs.71 lakhs as a purchaser and not by way of redeeming the mortgaged property. Therefore, the impugned judgment and order passed by the Division Bench of the High Court directed to release the mortgaged property/secured property and to handover, the possession, as well as the original title deeds to the borrower on payment of a total sum of Rs.65.65 lakhs only, was contrary to Sub­section (8) of Section 13 of the SARFAESI Act.

Thus, the impugned judgment and order passed by the Division Bench of the Rajasthan High Court was quashed and set aside and the order passed by the Single Judge which had quashed and set aside the order passed by the DRT confirmed by the DRAT was restored.

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