This Case Commentary is written by Anantha Mounika, a Fifth Year Law student of Telangana Social Welfare residential law college for women, Hyderabad

CASE DETAILS:

COURT: SUPREME COURT OF INDIA

BENCH:2 BENCH JUDGES, SURINDER SINGH NIJJAR, A.K. SIKRI

DECIDED ON: 22 APRIL,2014

PARTIES:

APPELLANT: VASU P. SHETTY

RESPONDENT: M/S HOTEL VANDANA PALACE & ORS.

JURISDICTION: CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4679 OF 2014 [ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO. 35168 OF 2011]

CITATION: (2014) 5 SCC 660, AIR 2014 SC 1947.

Abstract

The case of Vasu P. Shetty vs. M/s Hotel Vandana Palace & ors was decided by the Supreme Court of India. This case was a Landmark Judgement on matters of the Debt Recovery Tribunal. This Judgement was decided on 22 April 2014. This landmark judgment case on the matter of the Debt Recovery Tribunal is about the sale certificate of mortgage property secured to the Bank and being auctioned by the Bank. The Bank auctioned mortgaged property due to default in repayment of loan and action taken under the SARFAESI ACT. Such Bank actions as well as the sale of mortgage property were challenged before the court by the Borrower. The court affirmed with order of the Karnataka high court to set aside the sale and give certain conditions to the Borrower to obey and pay to the auctioneer and bank within the 2-month due period then only the property of the Borrower will be reverted to him. This appeal was dismissed by the court on the opinion of lack of merits.

Facts of this case

In this case, M/s Hotel Vandana Palace & Ors is the Respondent / Borrower. Vasu P. Shetty is the Appellate/ Auctioneer. Respondent 2 is the Authorised officer of the bank. The Borrower availed a loan from the bank of Rs.1,84,70,000/- for the construction of a hotel in Belgaum. Later on, the Borrower failed to repay the loan and the Bank acted under sections 13(2)&(3) of SARFAESI ACT by Respondent 2. The auction was successful on the third attempt.

The first auction was published on 11.9.2004 fixing date of 15.10.2004 and the reserve price was fixed at Rs.3.50 crores. The borrower filed a petition in High Court to grant a stay on the scheduled auction but the court granted a stay on the sale certificate rather than on the scheduled auction.

The second auction date was fixed on 27.7.2004. but Respondent 2 got a notice from the Borrower to pay Bank of Rs.43,01,100/-. So, the reserve price to Rs. 2.9 Crores and issued a fresh auction notice on 9.3.2005 fixing the date to 21.3.2005.

But the highest bid was less than the reserve price of Rs. 2.25 crores and this sale notice was less than 30 days. The Borrower didn't respond to any letters sent by the Bank. The borrower responded to the Bank that he would make a one-time settlement and also failed to do so. Respondent 2 was published on 27.4.2006 and held on 8.5.2006 the highest bid price of Rs. 2.16 crores was accepted. The Bank gave the sale certificate to the auctioneer on 26.5.2006.

The sale certificate of the property auctioned was challenged before the lower courts (HC, DRT, High Court of Karnataka). The order of the high court of Karnataka was challenged. In Appeals, the court gave an order to set aside the sale of property by the division bench. This order was challenged by the auctioneer in the Supreme Court of India.

Issues raised in this case

1. Whether the sale certificate given to the purchaser by the bank on the auctioned property is followed under the law?

2. Whether the auction notice is given under the laws of the SARFAESI ACT?

3. Did the bank follow the Mandatory requirements on the auction and sale of the mortgaged property?

4. Whether there could be a waiver of the aforesaid mandatory conditions?

5. Whether this waiver can be discerned in the present case?

Contention on behalf of the Appellant

● Sale in favour of the appellant was a nullity under Rule 8(8) is ‘sale by any method other than the public auction or public tender, shall be on such terms as may be settled between the parties in writing’.

● The provisions of the SARFAESI ACT and Rules, 2002 are being violated, this matter can't be said that the view of the High Court is perfunctory or flawed.

● The submission of the contrary view is taken by this court on Sri Siddeshwara Co-Operation Bank Ltd and Anr Vs. Ikbal & Ors. Held that mandatory provision of 30 days’ notice can be waived by the Borrower in such eventually, the sale can't be voided.

Contention on behalf of the Respondent

● The bank shall show the details of the payment made by the appellant for the confirmation of sale consideration on or before 15 days under Rule 9(3) which shows whether the purchaser was bonafide or not.

● The sale of property under Rule 8(8) was not there between the parties in writing' not a private treaty. Respondents 1 and 2 were not called to the joint meeting between the bank and Respondent 3. The sale is illegal.

● The sale of auctioned property shall benefit the Borrower as well as the Bank for the Maximum benefit under the SARFAESI ACT and Rules.

● The sale is null and void being in violation of the provisions of section 13 of the SARFAESI ACT,2002, and Rules 8 and 9 of the Rules,2002.

● No point was pointed out on the waiver of rights by the borrower. But the Appellant's side is rested with hammering and blaming the borrower for the observation of DRT to effect that Borrower adopts Dilatory Tactics.

● The Appellant shall be a bonafide purchaser to be balanced rather in favour of the Appellant and Borrower is not entitled to any reliefs because of his intemperate conduct.

Related provisions

1. Securitization and Reconstruction of Financial Asset and Enforcement of Security Interest Act,2002 are-

● Default in repayment of loan -

Section 13(2): It allows the secured creditor (typically a bank or financial institution) to issue a notice to the borrower if they have defaulted in repaying the loan. The notice gives the borrower 60 days to repay the outstanding dues.

Section 13(4): If the borrower fails to repay within 60 days, the secured creditor can take possession of the secured asset, sell or lease it, or appoint a manager to manage the asset to recover the dues.

2. Rule 8-Sale of Immovable Secured Assets

1. Notice of Sale (Rule 8(6)):

The secured creditor must issue a public notice of the intended sale. This notice should be published in two newspapers (one in the local language and one in English) and should also be posted at a conspicuous place on the property.

The notice must contain details like the description of the property, the reserve price, and the date and time of the auction.

2. Valuation of Property (Rule 8(5)):

The secured creditor should obtain a valuation of the property from an approved valuer before issuing the sale notice.

They should also fix a "reserve price" below which the property cannot be sold. Which will not be fair to the Borrower. The sale of the property can be whole or part by any method under this subsection.

3. Other Provisions:

The sale can be by public auction, private treaty, or tender, and the borrower is entitled to redeem the secured asset up to the date of sale by paying the outstanding dues.

3. Rule 9-Time of Sale, Issue of Sale Certificate, and Delivery of Possession, etc.-

1. Time of Sale (Rule 9(1)):

No sale should take place before 30 days from the date of public notice is published in newspapers. The sale should be completed within seven days of the confirmation of the sale by the secured creditor.

2.Conformation of sale :

The sale of property shall be confirmed by the authorized officer as well as the bank in favour of the purchaser in the auction sale. No sale can be confirmed if the sale price is less than the reserve price.

3. Payment Terms (Rule 9(3)):

The purchaser must deposit 25% of the sale price on the date of sale and pay the remaining 75% within 15 days.

If the purchaser defaults on the balance payment, the amount deposited is forfeited, and the property may be resold.

4. Sale Certificate (Rule 9(6)):

After the full payment of the sale price, the secured creditor must issue a sale certificate to the purchaser and hand over possession of the property.

5. Delivery of Possession (Rule 9(7)):

Once the sale certificate is issued, the secured creditor is required to deliver physical possession of the property to the purchaser.

Related cases

● In Mathew Varghese v. M. Amrita Kumar & Ors,2014 (2) SCALE 331. held that when there is a breach of the said mandatory requirement the sale is to be treated as null and void.

● In J. Rajiv Subramaniyam &Anr V. M/s Pandiyas & Ors- the judgment of the Mathew Varghese case was followed under this case.

● Sri Siddeshwara Co-Operation Bank Ltd and Anr V. Ikbal & Ors.

● State of Punjab v. Davinder Pal Singh Bhullar & Ors.

Key elements of Judgement

● The mandatory requirements of provisions shall be followed by the secured creditor and authorized officer under the SARFAESI ACT.

● Rule 8 (6) shall be required to follow for the auction notice that 30 days is required mandatory, which is breached.

● The authorized officer shall be published in 2 newspapers(1 in English and the other in vernacular language). Before 30 days from the auctioned date under Rule 9(1).

● No waiver of their rights which were mandatory conditions under the SARFAESI ACT.

● As per section 13(8) under SARFAESI Act any sale of auctioned property without complying with the requirements is null and void. It includes Rules 8 and 9(1) and shall comply if such sale is unconstitutional, null, and void.

Conclusion

The case Vasu P. Shetty vs. M/s Hotel Vandana Palace & Ors was decided by the Supreme Court of India. The Supreme Court of India affirmed the order of the Karnataka High Court to set aside the sale of property purchased by the purchaser or auctioneer. In any case, everyone shall follow the mandatory requirements specified under the law(SARFAESI ACT). The given orders to the borrower that he shall pay the sum of rupees 49,91,000+2,86,078 only then can the borrower revert his property within the 2-month due period. If the borrower fails to pay the amount to both the bank and auctioneer, then the bank can act under the law on the borrower.

The appeal was dismissed by the court on the opinion of lack of merit.

Reference

● A. Sikri, Vasu P. Shetty vs MLS Hotel Vandana Palace & ors,(2014), Indiankanoon,https://indiankanoon.org/doc/139101201/ 22 April,2014.