under the SARFAESI Act, 2002 against the borrowers
are initiated only when the borrower is in dire-straits.
The provisions of the SARFAESI Act, 2002 and the
Rules, 2002 have been enacted to ensure that the
secured asset is not sold for a song. It is expected that
all the banks and financial institutions which resort to
the extreme measures under the SARFAESI Act, 2002
for sale of the secured assets to ensure, that such sale
of the asset provides maximum benefit to the borrower
by the sale of such asset. Therefore, the secured
creditors are expected to take bonafide measures to
ensure that there is maximum yield from such secured
assets for the borrowers.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3865 OF 2014
(Arising out of S.L.P.(C) No.24915 of 2011)
J.Rajiv Subramaniyan & Anr. …
Appellants
VERSUS
M/s. Pandiyas & Ors. ...Respondents
WITH
CIVIL APPEAL NO. 3866 OF 2014
(Arising out of S.L.P.(C) No.25448 of 2012)
J U D G M E N T
SURINDER SINGH NIJJAR,J.
Citation;AIR 2014 SC 1710
1. Leave granted.
2. These special leave petitions are directed against the
final judgment and order dated 14th June, 2011 passed
by the Madras High Court (Madurai Bench) in
W.A.No.417 of 2011 dismissing the aforesaid Writ
Appeal filed by the appellants.
3. We have heard the learned counsel for the parties at
length.
4. Mr. Ashok Desai learned senior counsel appearing
on behalf of the appellants has submitted that although
many issues have been raised in the SLP, he is not
pressing the point that the High Court erred in
entertaining the writ petition filed by respondent Nos.1
and 2. The point with regard to the maintainability of
the writ petition was taken on the basis of a judgment
of this Court in the case of United Bank of India vs.
Satyawati Tondon & Ors. 1 . It was urged before the
High Court that an alternative remedy being available
to respondent Nos.1 and 2 under the Securitization and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (hereinafter referred to as
“SARFAESI Act, 2002), the writ petition would not be
maintainable. The second issue with regard to the
maintainability was based on the fact that earlier
1 [2010 (8) SCC 110]
2
Page 3
respondent Nos. 1 and 2 had filed Writ Petition
Nos.5027-28 of 2006 challenging the auction sale
notice dated 23rd May, 2006. However, these writ
petitions were withdrawn on 3rd July, 2006. The High
Court did not give any liberty to respondent Nos. 1 and
2 to file fresh writ petition. Mr. Desai very fairly
submitted that it is not necessary to examine the issues
on maintainability of the writ petition, as the entire
issue is before this Court on merits.
5. Mr. Ashok Desai has pointed out that respondent
Nos.1 and 2 had taken various loans from respondent
No.3-Bank. Upon failure of Respondent Nos. 1 and 2 to
repay the loan, the assets of respondent Nos.1 and 2
which had been mortgaged with respondent No.3-Bank
were classified as non-performing assets (NPA). Inspite
of such action having been taken by respondent No.3-
Bank, respondent Nos.1 and 2 failed to regularize the
bank account. Therefore, on 8th June, 2005, the bankrespondent
No.3 issued notice under Section 13(2) of
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Page 4
the SARFAESI Act, 2002 followed by a possession notice
on 12th January, 2006 under Section 13(4) of the said
Act. Respondent Nos.1 and 2 challenged the aforesaid
two notices by filing Writ Petition Nos. 4174/2006,
4175/2006, 5027/2006 and 5028/2006. In the
meantime, auction sale was fixed on 7th July, 2006. But
no sale took place as there were no bidders. On
28th August, 2006, respondent Nos. 1 and 2 sought
cancellation of the auction notice and sought
permission of respondent No.3-Bank to sell the secured
assets by private Treaty. It was stated that as on that
date the outstanding balance due to the bank was a
sum of Rs.1.57 crores. A request was made to break up
the aforesaid amount as follows :
(a) Machineries of M/s. Suruthi Fabrics - 0.40 lacs
(b) Land and building of M/s. Suruthi Fabrics - 0.70 lacs
(c) Pandias Garment Factory land and Building - 0.47 lacs
And Suruthi Fabrics 5.51 acres Land
6. Permission was sought to sell the assets as stated
4
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above within six months. On 11th September, 2006,
respondent Nos.1 and 2 made a payment of Rs.42 lacs
to respondent No.3-Bank, by selling machinery with the
permission of respondent No.3-Bank. A request was
also made for an extension of two moths for paying the
remaining amount after selling the secured assets. On
8th December, 2006, respondent No.3-Bank gave
approval for private sale of the immovable property to
the appellants and for issue of sale certificate. On the
very same date, the secured assets were sold in favour
of the petitioner for a consideration of 123.10 lacs. It is
not disputed by Mr. Vikas Singh, learned senior counsel
appearing for Respondent No.3, that the sale was
affected through Ge-Winn Management Company,
Resolution Agents. This is also evident from the
proceedings of the meeting held between respondent
No.3-Bank and Ge-Winn on 8th December, 2006.
7. We may point out here that the reserve price of
the secured assets was fixed at 123 lacs. Sale deed was
5
Page 6
executed in favour of the appellants by respondent
No.3 on 20th December, 2006, as the entire
considerations have been paid on 15th December, 2006.
On 21st December, 2006, respondent Nos.1 and 2 were
informed by respondent No.3-Bank that the secured
assets had been sold for more than the amount offered
by them in the letter dated 28th August, 2006. At that
stage, respondent Nos.1 and 2 filed Writ Petition
No.325 of 2007 without disclosing that the earlier Writ
Petition Nos.5027-28/2006 challenging the auction
notice dated 23rd May, 2006 had been
withdrawn without the court giving liberty to
respondent Nos. 1 and 2 to file a fresh writ petition.
8. Upon completion of the proceedings inspite of the
preliminary objections taken by the appellants, the
learned Single Judge allowed the writ petitions. The sale
in favour of the petitioner was held to be vitiated on the
ground that respondent No.3-Bank failed to follow the
mandatory provisions of Rules 8(5), 8(6) and 9(2) of the
6
Page 7
Security Interest (Enforcement) Rules, 2002
(hereinafter referred to as ‘Rules, 2002’). But a
direction was issued to refund the amount paid by the
petitioner i.e. Rs.1crore 41 lacs with interest at 9% per
annum from April, 2007.
9. Aggrieved by the aforesaid order, the appellants
filed Writ Appeal No.4127/2011 in the High Court, which
has also been dismissed.
10. Mr. Ashok Desai submits that the petitioner is a
bona fide purchaser and has paid the full consideration.
Sale deed has been duly executed. Possession of the
property is with the appellants since 2006. Therefore,
respondent Nos.1 and 2 should not be permitted at this
stage to claim that the sale is vitiated on the ground
that it has been affected through an agent of
respondent No.3-Bank, namely, Ge-Winn. Mr. Desai
submitted that the Single Judge as well as the Division
Bench have wrongly held that there has been violation
7
Page 8
of Rules 8(5), 8(6), 8(8) and 9(2) of the Rules, 2002. Mr.
Desai further submitted that it would be equitable to
permit the petitioner to keep the plot which is adjacent
to the property of the petitioner. Respondent Nos.1 and
2 can be permitted to take the other plots.
11. Mr. Dhruv Mehta, learned senior counsel appearing
on behalf of the respondent Nos. 1 and 2 relying on the
judgment of this Court in Mathew Varghese Vs.
M.Amritha Kumar & Ors. in C.A.No.1927-1929 of
2014 decided on 10th February, 2014 submits that the
Rules, 2002 are mandatory in nature. In the present
case, the sale has been effected in violation of the
aforesaid rules. Both the learned Single Judge as well as
the Division Bench have come to the conclusion that
the provisions of the aforesaid rules have not been
followed. It is not disputed by any of the parties that
there is no agreement between respondent Nos. 1 and
2 and respondent No.3-Bank, in writing, to affect the
sale by Private Treaty. Mr. Vikas Singh, learned
8
Page 9
senior counsel appearing for respondent No.3-Bank,
however, pointed out that the respondent Nos.1 and 2
had filed a review petition in which it was averred that
they may be permitted to sell the secured assets by
Private Treaty. Therefore, according to Mr. Vikas Singh,
respondent Nos. 1 and 2 cannot now be heard to say
that they had not given their consent to affect the sale
by Private Treaty. We are unable to accept the
submission made by Mr. Vikas Singh that there is no
violation of the Rules, 2002. In our opinion, the findings
recorded by the learned Single Judge as well as the
Division Bench of the High Court that there has been a
violation of Rules, 2002 are perfectly justified.
12. This Court in the case of Mathew Varghese Vs.
M.Amritha Kumar & Ors.2 examined the procedure
required to be followed by the banks or other financial
institutions when the secured assets of the borrowers
are sought to be sold for settlement of the dues of the
2 2014 (2) Scale 331
9
Page 10
banks/financial institutions. The Court examined in
detail the provisions of the SARFAESI Act, 2002. The
Court also examined the detailed procedure to be
followed by the bank/financial institutions under the
Rules, 2002. This Court took notice of Rule 8, which
relates to Sale of immovable secured assets and Rule 9
which relates to time of sale, issue of sale certificate
and delivery of possession etc. With regard to Section
13(1), this Court observed that Section 13(1) of
SARFAESI Act, 2002 gives a free hand to the secured
creditor, for the purpose of enforcing the secured
interest without the intervention of Court or Tribunal.
But such enforcement should be strictly in conformity
with the provisions of the SARFAESI Act, 2002.
Thereafter, it is observed as follows:-
“A reading of Section13(1), therefore, is clear
to the effect that while on the one hand any
SECURED CREDITOR may be entitled to
enforce the SECURED ASSET created in its
favour on its own without resorting to any
court proceedings or approaching the
Tribunal, such enforcement should be in
conformity with the other provisions of the
SARFAESI Act.”
13. This Court further observed that the provision
contained in Section 13(8) of the SARFAESI Act, 2002 is
specifically for the protection of the borrowers in as
much as, ownership of the secured assets is a
constitutional right vested in the borrowers and
protected under Article 300A of the Constitution of
India. Therefore, the secured creditor as a trustee of
the secured asset can not deal with the same in any
manner it likes and such an asset can be disposed of
only in the manner prescribed in the SARFAESI Act,
2002. Therefore, the creditor should ensure that the
borrower was clearly put on notice of the date and time
by which either the sale or transfer will be effected in
order to provide the required opportunity to the
borrower to take all possible steps for retrieving his
property. Such a notice is also necessary to ensure
that the process of sale will ensure that the secured
assets will be sold to provide maximum benefit to the
borrowers. The notice is also necessary to ensure that
the secured creditor or any one on its behalf is not
allowed to exploit the situation by virtue of proceedings
initiated under the SARFAESI Act, 2002. Thereafter, in
Paragraph 27, this Court observed as follows:-
“27. Therefore, by virtue of the stipulations
contained under the provisions of the
SARFAESI Act, in particular, Section 13(8),
any sale or transfer of a SECURED ASSET,
cannot take place without duly informing the
borrower of the time and date of such sale or
transfer in order to enable the borrower to
tender the dues of the SECURED CREDITOR
with all costs, charges and expenses and any
such sale or transfer effected without
complying with the said statutory
requirement would be a constitutional
violation and nullify the ultimate sale.”
14. As noticed above, this Court also examined Rules 8
and 9 of the Rules, 2002. On a detailed analysis of
Rules 8 and 9(1), it has been held that any sale effected
without complying with the same would be
unconstitutional and, therefore, null and void.
15. In the present case, there is an additional reason
for declaring that sale in favour of the appellant was a
nullity. Rule 8(8) of the aforesaid Rules is as under:-
“Sale by any method other than public
auction or public tender, shall be on such
terms as may be settled between the parties
in writing.”
16. It is not disputed before us that there were no
terms settled in writing between the parties that the
sale can be affected by Private Treaty. In fact, the
borrowers – respondent Nos. 1 and 2 were not even
called to the joint meeting between the Bank –
Respondent No.3 and Ge-Winn held on 8th
December, 2006. Therefore, there was a clear violation
of the aforesaid Rules rendering the sale illegal.
17. It must be emphasized that generally proceedings
under the SARFAESI Act, 2002 against the borrowers
are initiated only when the borrower is in dire-straits.
The provisions of the SARFAESI Act, 2002 and the
Rules, 2002 have been enacted to ensure that the
secured asset is not sold for a song. It is expected that
all the banks and financial institutions which resort to
the extreme measures under the SARFAESI Act, 2002
for sale of the secured assets to ensure, that such sale
of the asset provides maximum benefit to the borrower
by the sale of such asset. Therefore, the secured
creditors are expected to take bonafide measures to
ensure that there is maximum yield from such secured
assets for the borrowers. In the present case, Mr.
Dhruv Mehta has pointed out that sale consideration is
only Rs.10,000/- over the reserve price whereas the
property was worth much more. It is not necessary for
us to go into this question as, in our opinion, the sale is
null and void being in violation of the provision of
Section 13 of the SARFAESI Act, 2002 and Rules 8 and 9
of the Rules, 2002.
18. We, therefore, have no hesitation in upholding the
judgments of the learned Single Judge and the Division
Bench of the High Court to the effect that the sale
effected in favour of the appellants on 18th December,
2006 is liable to be set aside.
19. This now brings us to moulding the relief in the
peculiar facts and circumstances of this case.
20. As noticed earlier, Mr. Ashok Desai had
emphasized on behalf of the appellants that no blame
at all can be attributed to them. The bank had decided
to sell the immovable properties to the appellants for
Rs.1,23,10,000/- against the reserve price of
Rs.1,23,00,000. This is evident from the joint meeting
of the bank held with Ge-Winn on 10th December, 2006,
wherein it is observed as follows:-
“Referring to the above in the presence of
the undersigned it has been decided to effect
the sale to M/s. Susee Automobiles Pvt. Ltd.,
Madurai and Smt. Nirmala Jeyablan, W/o Shri
Jayabaaalan, No.4, S.V. Nagar, S.S. Colony,
Madurai for a consideration of Rs.123.10
lakhs (Rupees one crore twenty three lakhs
and ten thousand only) against the reserve
price of Rs.123.00 lakhs and issue Sale
Certificate for registration under private
treaty.”
21. Mr. Desai had also pointed out that the borrowers
-Respondent No.1 and 2 had evaluated the property at
Rs.117 lakhs. The evaluation was acknowledged by
Respondent Nos. 1 and 2 in the letter dated
28th August, 2006. Therefore, the reserve price was
fixed based upon the aforesaid figures. The appellants
bought the property for more than the reserve price.
The appellants paid the entire consideration within
three days of the sale, i.e., on 15th December, 2006.
The Sale Deed was executed in their favour on 20th
December, 2006. Possession was admittedly delivered
on 20th December, 2006 also. The appellants
have also incurred substantial loss as they have been
unnecessarily dragged into litigation. He pointed out
that the appellants have in fact incurred losses of
Rs.3 crores as they were deprived of using the property
in view of the interim orders passed by the High Court
and they were forced to take other property on monthly
rent of Rs.3 lakhs from January 2007. He, therefore,
submitted that the proposal made by the appellants for
being permitted to keep the plot adjacent to the
property already owned by them, be accepted. In the
alternative, learned senior counsel submitted that the
High Court has unnecessarily reduced the amount of
interest on the amount deposited by the appellants
with the bank would bear only 4% interest. He
submitted that the appellants are entitled to 18%
compound interest since the date the amount was
deposited till refund.
22. On the other hand, Mr. Dhruv Mehta pointed out
that property of Respondent No.1 has been sold for a
ridiculously low price, as the bank is interested only in
regularizing the account of the borrower. He has
submitted that respondent Nos. 1 and 2 are prepared to
compensate the appellants, to a reasonable extent, but
not to the extent claimed by Mr. Desai.
23. On the other hand, Mr. Vikas Singh has
submitted that in case the sale is to be set aside and
the properties have to be returned to the borrowers,
the dues of the bank also have to be secured, which are
now in the region of Rs.4 crores.
24. We have considered the submissions made by the
learned counsel for the parties.
25. Initially on our suggestion, respondent Nos. 1 and 2
had quantified the amount in accordance with the
directions issued by the learned Single Judge. The
learned Single Judge had ordered refund of
Rs.1,41,00,000/-, (Representing Rs.1,23,10,000/-
towards Sale Price and Rs.18,90,000/- towards Stamp
Duty with interest @9% per annum from April 2007).
However, since we had accepted the second alternative
(partially) of Mr. Ashok Desai, the appellants and
respondents have jointly submitted the following chart:-
Amount quantified by the
Learned Single Judge
Interest@ 18%
from April 2007
to 15.06.2014
Total
Rs. 1,41,00,000/-
Rs. 1,23,10,000/- Sale Price
Rs. 18,90,000/- (Stamp Duty)
Rs. 1,84,00,500/- Rs. 3,25,00,500/-
26. Mr. Dhruv Mehta has stated that Respondent Nos.
1 and 2 are prepared to refund the sale amount paid by
the appellants as Sale Price together with 18% simple
interest from 1st July, 2007 till 15th June, 2014. The total
amount spent on Stamp Duty shall also be refunded to
the appellants. The total amount shall be paid to the
appellants by 15th June, 2014. Mr. Desai had pointed
out that the amount deposited with the bank, which is
said to be lying in a FDR Bearing 8.25% per annum
ought to be refunded by the bank to the appellants.
Upon the entire amount being repaid to the appellants,
the possession of the property purchased by the
appellants will be delivered to the Respondent Nos.1
and 2.
27. Insofar as the submission of Mr. Vikas Singh
learned senior counsel is concerned we are unable to
accept the same in the facts and circumstances of this
case It would be relevant to point out that the learned
Single Judge of the High Court after holding that the
sale in question was invalid, directed making of
payments by respondent Nos. 1 and 2 to respondent
No.3 bank with clear direction that on such payment,
insofar as the bank is concerned its dues shall stand
settled. Not only respondent Nos. 1 and 2 made the
payment as directed which was accepted by
respondent No.3 bank, insofar as respondent No.3 bank
is concerned it even accepted the said judgment and
did not file any appeal thereagainst. Only the appellant
filed the appeal. Though the order of the learned Single
Judge about the validity of the sale had been affirmed,
the Division Bench interfered with the other direction of
the learned Single Judge which should not have been
done as bank had not challenged the order of the
learned Single Judge. We are, therefore, of the opinion
that in the facts of this case, once the payment is made
to the appellant by respondent Nos.1 and 2 in the
manner stated hereinafter, the possession of the
property shall be delivered to the respondent Nos.1 and
2 with no further liability towards the bank
28. In view of the aforesaid, we hold that the sale in
favour of the appellants dated 18th December, 2006 and
the subsequent delivery of possession to the appellants
is null and void. The sale is accordingly set aside. The
appellants are directed to deliver the possession of the
property purchased by them under the Sale Deed dated
20th December, 2006 to Respondent Nos. 1 and 2
immediately upon receiving the entire amount as
directed hereunder:-
(i) The State Bank of India – Respondent No.3
directed to refund the entire proceeds of the FDR
in which the sale consideration was deposited
together with accrued interest forthwith.
(ii) The Respondent Nos. 1 and 2 will ensure that the
entire amount due to the appellants is paid on or
before 15th June, 2014.
(iii) Upon receipt of the entire amount, the possession
shall be delivered to Respondent Nos. 1 and 2.
29. With these observations, the appeals are disposed
of with no order as to costs.
….………………………..J.
[Surinder Singh Nijjar]
…………………………..J.
[A.K.Sikri]
New Delhi;
March 14, 2014.
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