IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 5542 - 5543 OF 2023

Celir LLP .....Appellant

Versus

Bafna Motors (Mumbai) Pvt. Ltd. & Ors. .....Respondent

On 21st September, 2023, the Hon'ble Supreme Court reiterated that the High Court cannot exercise its writ jurisdiction under Article 226 of the Constitution more particularly when alternative remedy is available under the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, [ SARFAESI Act ].

The Hon'ble Supreme Court also held that as per the amendment of the SARFAESI Act, if the borrower fails to tender the entire amount of dues to the secured creditor before the publication of auction notice, his right of redemption of mortgage is extinguished / waived on the date of publication of the auction notice in the newspaper.

The Appellant is the Auction purchaser, the Respondent No. 1 is the Borrower, the Respondent No. 2 is the Guarantor and the Respondent No. 3 is the Bank (Secured Creditor).

FACTS OF THE CASE:

The borrowers availed credit facility from the Bank on to the tune of Rs.

100 Crores with the respondent No. 2 standing as a guarantor. The Borrower also mortgaged immoveable property as collateral security by way of simple mortgage with the Bank.

The Borrower defaulted and the account was declared Non-Performing Asset [NPA] by the Bank.

The Bank issued a demand notice under Section 13(2) of the SARFAESI Act, for repayment of its dues. As the borrower & the guarantor failed to repay the outstanding amount, the Bank secured immoveable property [asset] under the provisions of the SARFAESI Act and attempted to auction the same. The Bank attempted eight auctions but all failed.

In the meantime, the borrowers preferred a Securitization Application before the Debt Recovery Tribunal-I, Mumbai (for short, "DRT") inter alia challenging the demand notice issued under Section 13(2) of the SARFAESI Act and also for quashing of the sale notice in respect of the secured asset.

The Bank published the auction notice for the 9th time for sale of the secured asset wherein the Appellant participated and deposited the earnest money. The Bank vide its email sent a "Sale Confirmation Letter" to the appellant, declaring him as the highest bidder.

The borrowers filed an Interim Application titled Redemption Application before the DRT-I, Mumbai for redemption of the mortgage by offering to pay the total outstanding sum. Meanwhile, the appellant herein deposited the balance sum of the bid amount which was duly received and accepted by the Bank. On the very same day, the redemption application referred to above was also heard by the DRT-I. which was opposed by both the appellant herein as well as the Bank. The DRT reserved its orders to be pronounced on a later date.

Before the DRT could pass orders on the redemption application, the borrowers approached the High Court and filed Writ Petition seeking directions to the Bank to permit them to redeem the mortgage of the secured asset on the premise that the borrowers had strong apprehension that the DRT may reject their redemption application and the entire matter would become infructuous more particularly, the Bank having accepted the total bid amount from the appellant.

The borrowers expressed their willingness to pay the entire outstanding amount, as well as Rs. 5 crores more, before the High Court. The total amount proposed to be paid by the Borrowers was Rs. 23.95 crores more than what was paid by the Appellants herein.

The appellant having come to know about such writ petition filed in the High Court preferred Interim Application for being impleaded in the writ petition, which was heard together with the writ petition and vide its impugned judgment and order allowed the writ petition and permitted the borrowers to redeem the mortgage of the secured asset subject to certain conditions, failing which the sale of secured asset in favour of the appellant herein would be confirmed.

The borrowers complied with the conditions and deposited the money and the Bank issued a "No Dues Certificate" to the Borrower.

Being aggrieved and dissatisfied with the aforesaid order passed by the High Court, the appellant filed the present appeals.

COURTS FINDINGS AND ANALYSIS

The Hon'ble Supreme Court was of the view that the failure on the part of the borrower in tendering the entire dues before the publication of the auction notice was sufficient to extinguish the right of redemption of mortgage.

The Hon'ble Supreme Court held that as per the amendment in SARFAESI Act, once the borrower fails to tender the entire amount of dues to the secured creditor before the publication of auction notice, his right of redemption of mortgage shall stand extinguished / waived on the date of publication of the auction notice in the newspaper.

The Court observed that while the secured creditor, borrower as well as the auction purchaser under the SARFAESI Act are equally bound by the provisions of the enactment and the auction purchaser is the most important factor of the enactment, as it is on him the success of the enactment resides. Thus, any interpretation which discourages the auction purchaser, has a direct bearing on the implementation of the enactment and recovery of public dues and the same has to be avoided. The only caveat being that after the success of the auction bid the auction purchaser is required to comply with all the rules.

The Court further reiterated; it is the duty of the courts to protect the sanctity of any auction conducted and the courts should refrain from interfering with auctions, otherwise it would frustrate the very object and purpose behind auctions and deter public confidence and participation in the same and the overall sanctity of the auction process would be frustrated thereby defeating the very purpose of the SARFAESI Act.

The Hon'ble Supreme Court reminded the High Courts that they should not entertain petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person under the provisions of the SARFAESI Act.

The Hon'ble Supreme Court also noted that the behaviour of the secured creditor i.e. the Bank was inconsistent. Before the DRT, they opposed the offer for redemption of mortgage while before the High Court they made a complete U-turn and accepted the offer.

It was an admitted fact that the entire bid amount was paid by the Appellant, and the Bank was legally bound to issue the sale certificate especially when there was no stay by any competent forum. Once the entire bid price is paid and there is no stay granted by any forum known to law, the Bank is duty bound to issue a valid Sale Certificate and hand over the physical possession of the secured asset to the auction purchaser.

Decision of the Court :

The Hon'ble Supreme Court allowed both the Appeals filed by the Appellant [Auction Purchaser] and held that the High Court was not justified in exercising its writ jurisdiction under Article 226 of the Constitution more particularly when the borrowers had already availed the alternative remedy available to them under the SARFAESI Act and that as per the amended provisions of the SARFAESI Act, it is clear that the right of the borrower to redeem the secured asset is extinguished on the date of publication of the notice for public auction.

The Hon'ble Court also held that the Bank having confirmed the sale could not have withhold the sale certificate and entered into a private arrangement with a borrower.

CONCLUSION:

The conduct of the Bank in not issuing the Sale Certificate in favour of the Auction purchaser despite receiving auction bid price, was in de hors the scheme of the law and contravened the binding verdicts of this Hon'ble Court. It defeated the purpose of the enactments which were especially enacted for speedy recovery of the dues to the Banks and for benefitting the public at large.

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