Full Judgment Text
NONREPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S). OF 2023
(Arising out of SLP(Civil) No(s). 17470 of 2019)
MOHD. SHARIQ ….APPELLANT(S)
VERSUS
PUNJAB NATIONAL BANK AND OTHERS ….RESPONDENT(S)
J U D G M E N T
Rastogi, J.
1. Leave granted.
2. The present appeal is directed against the judgment and order
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dated 10 March, 2016 passed by the Division Bench of the High
Court of Uttarakhand, Nainital whereby the High Court while
reversing the finding returned by the learned Single Judge under its
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order dated 21 July, 2015 upheld the reauction proceedings
Signature Not Verified
Digitally signed by
Jayant Kumar Arora
Date: 2023.04.11
18:15:08 IST
Reason:
initiated by the first respondent(Punjab National Banksecured
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st
creditor) held on 1 May, 2014 and granted liberty to the appellant
to initiate independent proceedings before the competent forum for
recovery of the amount which stood forfeited by the first
respondent.
3. The seminal facts culled out from the record and relevant for
the purpose are that the third respondent borrowed money from the
first respondent. However, the third respondent later became
defaulter and its bank accounts became NPA and ultimately notice
under Section 13(2) of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act,
2002(hereinafter being referred to as the “Act 2002”) was issued
and thereafter assets of the borrower were taken into possession
under Section 13(4) of the Act, 2002. In furtherance thereof,
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auction notice was published by the Bank on 18 June, 2013 with
reserve price of Rs.1.19 crores inviting the bids in reference to the
mortgage property of the borrower.
4. The appellant who was the successful bidder furnished his bid
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of Rs.2,01,00,000/ on 22 July, 2013 and deposited earnest
money of Rs.11,19,000/ as per the condition of the bid/auction
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which successful bidder has to deposit (25% of the bid amount) on
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acceptance of the bid and that was deposited on 27 July, 2013.
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5. On 25 July, 2013, the borrower(third respondent) preferred
an appeal before the Debt Recovery Tribunal, Lucknow(hereinafter
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being referred to as “DRT”) assailing the auction notice dated 18
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June, 2013. DRT vide order dated 26 July, 2013, after hearing the
counsel for the borrower, passed an interim order directing that
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since auction is to be held on that day itself (i.e. 26 July, 2013),
the Bank is at liberty to proceed with the auction but confirmation
of the sale shall be kept in abeyance and await further orders of
DRT.
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6. The auction was held on 26 July, 2013. It is an admitted fact
that the appellant was completely unaware of the interim order
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passed by DRT on 26 July, 2013. As the highest bidder, the
appellant had to deposit 25% of the bid amount which he deposited
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on 27 July, 2013 amounting to Rs.38,35,000/ (balance of 25% of
the bid) which the first respondent accepted.
7. In total, the appellant deposited an amount of Rs.50,25,000/
which included earnest money and 25% of the bid amount. The
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th
DRT later vacated the interim order due to nonprosecution on 14
October, 2013 but the substantive proceedings before the DRT
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remained pending and were posted for 18 October, 2013. Since
the appellant was completely unaware of the pending proceedings
before the DRT initiated at the instance of the third
respondent(borrower) and it was nowhere indicated in the auction
notice which ordinarily in the instant fact situation would not have
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been possible but the date when auction was held on 26 July,
2013 and the appellant was called upon to deposit the earnest
money and 25% of the bid amount, no such information was
extended to the appellant about the pending proceedings in
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reference to the auction notice published on 18 June, 2013 before
the DRT.
8. The appellant was, for the first time, informed by a
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communication dated 18 October, 2013 wherein he was asked to
pay the balance amount as interim relief has been rejected by DRT.
The appellant responded to the communication made and
submitted that he volunteers to pay the balance amount provided
the matter pending with DRT is decided. Certain communications
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were made between the appellant and the first respondent.
However, the first respondent later informed the appellant by
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communication dated 28 October, 2013 that if he fails to deposit
the balance amount of the auction bid, the first respondent may
forfeit the earnest money.
9. There is no material on record to substantiate that the first
respondent ever passed the order to forfeit the money deposited by
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the appellant pursuant to the communication dated 28 October,
2013 of which a reference has been made.
10. Without awaiting any further action, the first respondent
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initiated the reauction proceedings pursuant to notice dated 5
March, 2014. Immediately, when this fact came to the notice of the
appellant, he approached the High Court by filing writ petition
under Article 226 of the Constitution seeking Mandamus to
withhold reauction proceedings which has been initiated by the
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first respondent pursuant to notice dated 5 March, 2014 and
further prayed directing the first respondent to execute the sale
deed in favour of the appellant on deposit of the balance money of
the auction bid or in alternative, refund the amount which the
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appellant had deposited pursuant to the auction proceedings
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initiated in reference to notice dated 18 October, 2013.
11. On the request made by the appellant, the High Court, by
interim order permitted the reauction proceedings to proceed
further, but made the auction subject to the outcome of writ
proceedings. It reveals from the record that in the pending
proceedings before the High Court, to test bona fides of the
appellant, the High Court directed the appellant to deposit Rs.1.77
crores, after adjustment of the sum already deposited with 10%
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interest, which indisputedly the appellant deposited on 10 March,
2015. It is informed that the highest bid of Rs.1,70,50,000/ in
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reauction held on 5 March, 2014 against Rs.1.70 Crore as a
reserve price was confirmed and the sale deed was executed by the
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first respondent in favour of the subsequent purchaser on 1 May,
2014.
12. Taking note of the bona fides of the appellant, as a final bid
amount was deposited in compliance of order of the High Court, the
learned Single Judge keeping in view the paramount principle that
the mortgaged property must fetch the maximum realizable value
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on which the security interest was created, set aside the reauction
proceedings and directed the first respondent to execute the sale
deed in favour of the appellant and directed that the amount
deposited by the appellant, i.e., of Rs.1.77 crore be adjusted by the
first respondent and money deposited by the subsequent auction
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purchaser be returned with 10% interest under its order dated 21
July 2015.
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13. The extract of the order dated 21 July, 2015 passed by the
learned Single Judge is referred as under:
“Consequently, writ petition succeeds and is hereby allowed.
Reauction held pursuant to the reauction notice dated
05.03.2014 in favour of respondents nos.07 and 8 sale dated
executed in favour of respondent no.7 and 8 on 27.05.2014 is
hereby held invalid. Consequently, sale certificate dated
01.05.2014 issued in favour of respondent nos. 7 and 8 and sale
deed executed in favour of respondent no. 7 and 8 on 27.05.2014
is hereby declared void and non est. Mandamus is issued against
the Bank to execute sale deed in favour of the petitioner at the
earliest, in any case, within two weeks from today. Bank shall be
at liberty to withdraw Rs.1,77,00,000/ deposited by the petitioner
with the Registrar General of this Court. Bank is further directed
to refund the amount taken from respondents no.7 and 8 along
with 10% interest thereon within two weeks from today. It is,
however, made clear that sale in favour of the petitioner shall be
subject to the final decision in the case pending before the D.R.T.
No cost.”
14. The order of the learned Single Judge came to be challenged
by the subsequent auction purchaser before the Division Bench of
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the High Court. The High Court, after hearing the parties, was of
the view that no error was committed in the reauction proceedings
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initiated pursuant to notice dated 5 March, 2014 and at least the
subsequent auction purchaser was not at fault and if there is no
error been committed in the decision making process adopted by
the first respondent, there appears no reason to set aside the re
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auction proceedings initiated in reference to notice dated 5 March,
2014 and accordingly while upholding the reauction proceedings
directed the first respondent to return the sum of Rs.1.77 crores
which was deposited by the appellant pending proceedings with
accrued interest before the learned Single Judge of the High Court
and so far as the amount which stands forfeited, liberty was
granted to the appellant to avail appropriate remedy for recovery as
admissible under the law. The operative part of the order of the
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Division Bench of the High Court dated 10 March, 2016 is quoted
hereunder:
“The upshot of the above discussion in that the appeal filed
must be allowed; the directions issued by the learned Single Judge
must be set aside; and the writ petition must be dismissed.
However, we would think that, in regard to the question about the
forfeiture of Rs.50,00,000/ which has been effected by the
respondent Bank, we should leave it open to the writ petitioner to
seek appropriate remedy before the competent forum, if advised.
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The amount, however, deposited by the writ petitioner in a sum of
Rs.1,77,00,000/, which has been directed to be put in Fixed
Deposit under orders of this Court, shall be returned to the writ
petitioner along with the accrued interest.”
15. The order of the Division Bench of the High Court became a
subject matter of challenge in appeal before us.
16. Learned counsel for the appellant has made a limited
submission that so far as the money which has been forfeited by
the first respondent is concerned, no finding to the contrary has
been recorded by the Division Bench of the High Court under the
impugned judgment that the appellant is not qualified to claim the
amount forfeited by the first respondent still left the appellant to
avail the remedy which the law permits.
17. Learned counsel further submits that there is no requirement
of adopting any other remedial mechanism when there is no dispute
either on facts or on law that the sum which was forfeited by the
first respondent pursuant to the auction proceedings initiated in
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reference to notice dated 18 June, 2013, the appellant is qualified
to seek refund of the amount forfeited and it is an apparent
manifest error committed by the High Court under the impugned
judgment and at least the appellant is entitled to refund of the
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amount deposited and if the appellant is being thrust upon to adopt
any other remedial mechanism, it will cause great injustice to him
and needs interference of this Court.
18. Per contra, learned counsel for the first respondent Bank
submits that as per terms and conditions of the auction notice
th
dated 18 June, 2013, since the appellant has failed to deposit the
balance amount of the auction bid within the time stipulated,
despite reasonable opportunity being afforded, the first respondent
is justified in taking a decision of forfeiture of the earnest money.
19. Learned counsel further submits that the decision taken by
the first respondent regarding forfeiture is in accordance with Rule
9(5) of the Security Interest(Enforcement) Rules, 2002(hereinafter
being referred to as the “Rules 2002”) and in the facts and
circumstances, no error was committed by the respondent Bank in
taking decision of forfeiture of the amount deposited in reference to
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auction notice dated 18 June, 2013.
20. Learned counsel further submits that earlier when the auction
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notice dated 18 June, 2013 was published, the highest bid of the
appellant was of Rs.2.01 crores but because of the litigation, the
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highest bid in the subsequent auction proceedings pursuant to
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notice dated 5 March, 2014 was of Rs.1,70,50,000/. Thus, it was
because of the appellant the distress value of the property was
deflated and thus it is only the appellant who is responsible to bear
the loss and if the first respondent is directed to refund the money
forfeited, it may be in contravention to Rule 9(5) of Rules, 2002,
thus the finding returned by the Division Bench of the High Court
needs no interference.
21. We have heard learned counsel for the parties and with their
assistance perused the material available on record.
22. We have already noticed the narration of facts but it will be
apposite to summarise for better appreciation. The auction notice,
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in the first instance, was published on 18 June, 2013 with the
reserve price of Rs.1.19 crores and the appellant’s bid of Rs.2.01
crores was the highest. The earnest money of Rs.11.19 lakhs was
nd th
deposited on 22 July, 2013 and the bid was finalized on 26 July,
2013 and 25% of the bid in terms of the auction notice of Rs.38.35
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lakhs was deposited by the appellant on 27 July, 2013. This fact
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has not been disputed that DRT passed an interim order on 26
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July, 2013 and the fact that the proceedings had been initiated and
pending on the date when the auction was held and the date on
which 25% of the bid amount was deposited by the appellant, i.e.,
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27 July, 2013, was never brought to the notice of the appellant
which would give him an option to revisit as to whether he may
proceed with the auction or withdraw at that stage.
23. This fact can be further corroborated which has come on
record that even when the correspondence was made by the first
respondent, the only request made by the appellant throughout was
that he had no difficulty to pay the balance amount provided the
matter is finally decided by DRT. Obviously, as a man of ordinary
prudence, one is always supposed to assess the value of the
property on which the auction was held by the secured creditor(first
respondent). To test the bona fide of the appellant, when the
subsequent auction proceedings at the later stage were initiated
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pursuant to notice dated 5 March, 2014 with the reserve price of
Rs.1.70 crores and the highest bid was of Rs.1,70,50,000/, just
Rs.50,000/ above the reserve price and pending proceedings before
the learned Single Judge, appellant was called upon to deposit the
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balance of Rs.1.77 crores(in terms of his bid of Rs.2.01 crores)
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without fail, it was deposited by him on 10 March, 2015 and that
was the reason which persuaded the learned Single Judge not only
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to set aside the subsequent auction held dated 5 March, 2014 but
further directed to the first respondent to execute the sale deed on
the final bid of Rs.2.01 crores being deposited, in favour of the
appellant.
24. The Division Bench of the High Court although has reversed
the finding so far as the subsequent auction proceedings held
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pursuant to notice dated 5 March, 2014 is concerned, the
appellant has no quarrel with the same. The only grievance of the
appellant is relegating him to avail remedy which the law permits
for recovery of the amount forfeited, there appears, in our view, no
justification in the facts and circumstances particularly when the
factual matrix is not in dispute and the money deposited by the
appellant towards earnest money and the first instalment of 25% in
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terms of the auction notice dated 18 June, 2013 is the accepted
fact by either party.
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25. We are of the considered view that once there is no dispute on
the facts came on record, there appears no reason for the appellant
to be relegated to avail other remedial mechanisms for recovery of
the indisputed amount and the Division Bench has committed a
manifest error in the facts and circumstances in not exercising its
power under Article 226 of the Constitution and instead of resolving
the dispute, the Division Bench under the impugned judgment has
kept the issue alive, permitting the parties to have a second innings
in reference to the dispute which stands crystalized/settled.
26. So far as the submission made by the first respondent in
reference to Rule 9(5) of the Rules, 2002 is concerned, that may not
be of any assistance for the reason that ordinarily if the highest
bidder fails to deposit the balance amount of the purchase price, in
terms of 9(4) within the stipulated period and commits default, its
consequence is stipulated under Rule 9(5) of the Rules, 2002. But
the instant case was not a case of simple default. The appellant
has come with the bona fide defence that he was never informed on
the date when the auction was held or day thereafter that the
substantive proceedings are pending before the DRT instituted at
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the instance of the borrower. As a man of ordinary prudence, if
someone has been called upon to participate in the bidding process,
the facts must be made clear to the parties for the reason that there
is always a high variance between market realizable value and the
distress value of the mortgaged property when put to public auction
under the provisions of the Act, 2002.
27. We further make it clear that since the appellant filed the
present appeal after a long delay which we have condoned as such,
he is not entitled to any interest on the amount forfeited by the first
respondent.
28. Consequently, the appeal succeeds and accordingly allowed.
The first respondent is directed to return the money of Rs.50.25
lakhs to the appellant deposited in reference to the auction notice
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dated 18 June, 2013 within a period of two months failing which it
shall carry interest @ 12% per annum until the date it is made over
to the appellant. No costs.
29. Pending application(s), if any, shall stand disposed of.
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…………………………….J.
(AJAY RASTOGI)
……………………………..J.
(BELA M. TRIVEDI)
NEW DELHI;
APRIL 11, 2023.
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