A co-operative recovery auction cannot affect a non-borrower’s property interest without notice.

Respondent Bank obtained an award under Section 70 of the Karnataka Co-operative Societies Act, 1959, to recover loan dues secured against the disputed property, and the property was sold at auction for ₹1.41 crore to respondent No. 10.

The appellant, who claimed an interest in the property under a compromise decree in a partition suit and asserted that he was neither a borrower nor a guarantor, objected to the sale and appealed under Section 106 of the Act.

The Deputy Registrar of Co-operative Societies (DRCS) set aside the auction, citing, among other matters, the appellant’s interest, lack of notice, and undervaluation; the writ court reversed that order and confirmed the sale.

The appellant challenged the writ court’s decision in this intra-court appeal.

1. Whether the DRCS’s order setting aside the auction sale was in accordance with law.

2. Whether the writ court’s order, particularly its findings in paragraph 8, was sustainable in law.

Section 70 of the Karnataka Co-operative Societies Act, 1959, provides the basis for resolving specified disputes involving co-operative societies, while Section 106 provides an appeal against relevant orders under the Act.

The court applied the principles of natural justice and procedural fairness: a person whose established interest in property may be affected by auction proceedings must be given notice and a fair opportunity to object.

It also applied the rule that judicial decisions must rest on evidence and material on the record, not conjecture or private information.

Relying on M/s Doggalli Malakappa & Sons v. Shiv Sahakari Bank (W.A. No. 464/2012), it noted that an auction and its confirmation may be set aside where the property’s actual market value was not considered and the sale process violated the applicable law.

It also referred to W.P. No. 3927/2007 for the principle that a sale proclamation can convey only the borrower’s interest in the property, not the interests of others.

The DRCS had considered the appellant’s objection, the compromise decree recognizing his interest in the property, and the valuation material.

The property had a recorded government bid of ₹3 crore; the respondents’ own recorded valuation was ₹1,46,19,266, and a private valuation placed it at ₹5.21 crore, whereas the auction price was ₹1.41 crore.

The court found that the appellant’s claimed interest had not been displaced by any challenge to the compromise decree and that the auction proceeded without adequate consideration of his objection and right to notice.

The writ court, by contrast, had reversed the DRCS’s reasoned decision on the basis of unsupported assertions and conjecture; the appellate court also inspected the original auction record and rejected the claim that the ₹3 crore entry had been interpolated.

It allowed the appeal, set aside the writ court’s judgment dated 19 February 2018, and confirmed the DRCS’s order dated 6 July 2013, directing the parties to comply with that order; it made no order as to costs.