Supreme Court deprecates the practice of entertaining writ Petitions by High Courts without exhausting alternative remedy.
Supreme Court Bench comprising Justices Ajay Rastogi and C.T. Ravikumar was recently hearing an Appeal and deprecated the practice of entertaining the writ application by the High Court in exercise of jurisdiction under Article 226 of the Constitution without exhausting the alternative statutory remedy available under the law.
The instant appeal preferred at the instance of the appellant-auction purchaser assailing the impugned order passed by the High Court setting aside the e-auction sale held by the respondent Bank-secured creditor under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
Facts:
The Respondent nos.1-3 have availed three loan facilities vide Mortgage Loan of Rs.10 lakhs, Cash Credit Loan of Rs.8 lakhs and Car Loan of Rs.8 lakhs from the respondent Bank (secured creditor) after executing necessary security documents. Respondent No.4 herein stood as guarantor and created equitable mortgage over her immovable property as security for due repayment of the said loan amount.
After availing the above loan facilities, the respondent borrowers have committed default in repaying the outstanding loan amount and have also failed to pay the interest accrued to the loan accounts from time to time. Finally, the loan accounts have been classified as Non-Performing Assets (NPAs) on 30th September, 2012 and in furtherance, the respondent Bank initiated recovery proceedings under the provisions of the SARFAESI Act, 2002 and issued demand notice dated 15th November, 2012 calling upon the respondent borrowers/guarantor to repay and discharge the outstanding loan amount with interest and costs within 60 days. After following the procedure as contemplated under the provisions of the SARFAESI Act, 2002 and Rules made thereunder, on 14th February, 2013, the respondent Bank published a possession notice in the daily newspapers under Section 13(4) of the SARFAESI Act, 2002 and obtained the order from the District Collector on 23rd June, 2013 to take physical possession of the scheduled property from the respondent borrowers/ guarantor and hand over to the respondent Bank (secured creditor).
These proceedings came to be challenged by the respondent borrowers by filing a Securitization Application (SA) before the Debts Recovery Tribunal which finally came to be dismissed by the Tribunal by order dated 12th December, 2014 and it is on record that no appeal was preferred against the order dated 12th December, 2014 passed by the Debts Recovery Tribunal and that became final. After taking possession of the mortgaged property, on 29th November, 2014, the respondent Bank (secured creditor) issued a notice prior to e-auction to the respondent borrowers after obtaining valuation of the subject property from an approved valuer in terms of Rules 8(5) and 8(6) of the Security Interest (Enforcement) Rules, 2002 calling upon the borrowers/guarantor to repay the outstanding loan amount as demanded. When the respondent borrowers/guarantor failed to respond, the respondent bank proceeded further and issued e-auction sale notice dated 25th February, 2015 fixing the date of auction of the schedule property on 28th March, 2015 and the said notice was widely published in daily newspapers dated 26th February, 2015.
That the aforesaid e-auction sale notice came to be challenged by the respondent borrowers before the Debts Recovery Tribunal and by an interim order dated 26th March, 2015, the Tribunal directed the respondent Bank (secured creditor) to proceed with the auction sale of the secured asset scheduled on 28th March, 2015 with a further direction not to issue the sale certificate provided the respondent borrowers deposits Rs.6 lakhs within 15 days from the date of the said order. It was made clear that in the event of respondent borrowers fail to deposit the said amount, the respondent Bank will be at liberty to issue the sale certificate in favour of the highest bidder. It is not disputed that in terms of the interim order passed by the Tribunal, the respondent borrowers had to deposit Rs.6 lakhs by 9th April, 2015 but failed to deposit the said amount and at this stage, the respondent borrowers filed an application on 9th April, 2015 seeking extension of further 15 days’ time from 10th April, 2015 to deposit the amount of Rs.6 lakhs and the Tribunal by an order dated 17th April, 2015 granted extension of 15 days’ time to deposit the sum of Rs.6 lakhs with direction to the respondent Bank (secured creditor) and the respondent borrowers to maintain status-quo.
The fact to be noticed at this stage was that since the dispute was ongoing before the Tribunal and the respondent borrowers have failed to comply with the interim order of the Tribunal dated 26th March, 2015 to deposit Rs.6 lakhs within 15 days from the date of passing of the order by 10th April, 2015, the respondent Bank (secured creditor) proceeded with the auction sale pursuant to the e-auction sale notice dated 25th February, 2015 in terms of liberty granted by the Tribunal.
The present appellant had initially deposited the earnest money of Rs.5,54,000/on 26th March, 2015 and after being declared the highest bidder with an offer of Rs.64,23,000/, further deposited a sum of Rs.10,51,750/which comes to Rs.16,05,750/ i.e. 25% of the total auction price and the balance 75% of the bid amount i.e. Rs.48,17,250/was deposited by the appellant on 15th April, 2015 and sale certificate was issued in favour of the appellant (auction purchaser). It is to be noticed that the day when the order came to be passed by the Tribunal on 17th April, 2015 granting further extension of 15 days’ time to the respondent borrowers to deposit a sum of Rs.6 lakhs, auction sale was finalised and sale certificate dated 15th April, 2015 was issued in favour of the appellant (auction purchaser).
Respondent borrowers raised two primary objections before the Tribunal that there was an error in the description of mortgaged property indicated in the e-auction sale notice dated 25th February, 2015 and to be more specific, the scheduled property bearing Door No.12339, 3rd Cross, Sai Nagar, Ananthapuramu was mortgaged as a security for the aforesaid loan while in the e-auction sale notice, the property was described as Door No.”123393” instead of “12339” and this, according to the respondent borrowers was the manifest error committed by the respondent Bank and because of the wrong description of the property put to auction, that property could not have fetched the value which it ought to have fetched in the course of business. In addition, further objection raised by the respondent borrowers was that in terms of Rule 9(4) of the Rules, 2002, the auction price was to be deposited by the auction purchaser within 15 days which expired on 10th April, 2015 but it was admittedly deposited by the auction purchaser (appellant) on 15th April, 2015 which is in clear breach of Rule 9(4) of the Rules 2002, in consequence thereof, the e-auction sale notice and all further proceedings initiated pursuant thereto deserve to be declared null and void.
The contentions were repelled by the Tribunal and the Tribunal dismissed the applications filed by the respondent borrowers. Although it was an appealable order before the Debts Recovery Appellate Tribunal, still the respondent borrowers approached the High Court under Article 226 of the Constitution and the Division Bench of the High Court reversed the findings returned by the Tribunal on the premise that there was an error in the description of the scheduled property in e-auction sale notice dated 25th February, 2015 and that was considered to be a serious infirmity in the process and cannot be sanctified and further held that since the appellant (auction purchaser) failed to deposit balance 75% of the bid amount within the stipulated time of 15 days which ought to have been deposited by him on or before 10th April, 2015, that admittedly deposited by him on 15th April, 2015, is in clear breach of Rule 9(4) of the Rules, 2002 and accordingly, set aside all the proceedings initiated from the stage of Section 13(2) of the SARFAESI Act, 2002 till the delivery of physical possession of the scheduled property to the auction purchaser (appellant) by the respondent Bank by an order dated 23rd November, 2018, which is the subject matter of challenge before us.
Supreme Court’s Analysis:
The Supreme Court noted that the order of the Tribunal dated 1st August, 2019 was an appealable order under Section 18 of the SARFAESI Act, 2002 and in the ordinary course of business, the borrowers/person aggrieved as supposed to avail the statutory remedy of appeal which the law provides under Section 18 of the SARFAESI Act, 2002 in the absence of efficacious alternative remedy being availed, there was no reasonable justification tendered by the respondent borrowers in approaching the High Court and filing writ application assailing order of the Tribunal dated 1st August, 2019 under its jurisdiction under Article 226 of the Constitution without exhausting the statutory right of appeal available at its command.
The Supreme Court in the judgment of United Bank of India v. Satyawati Tondon and Others, REED 2010 SC 07202, was concerned with the argument of alternative remedy provided under the SARFAESI Act, 2002 and dealing with the argument of alternative remedy, the Apex Court had observed that where an effective remedy is available to an aggrieved person, the High Court ordinarily must insist that before availing the remedy under Article 226 of the Constitution, the alternative remedy available under the relevant statute must be exhausted.
In the instant case, although the respondent borrowers initially approached the Debts Recovery Tribunal by filing an application under Section 17 of the SARFAESI Act, 2002, but the order of the Tribunal indeed was appealable under Section 18 of the Act subject to the compliance of condition of pre-deposit and without exhausting the statutory remedy of appeal, the respondent borrowers approached the High Court by filing the writ application under Article 226 of the Constitution. The Supreme Court deprecated such practice of entertaining the writ application by the High Court in exercise of jurisdiction under Article 226 of the Constitution without exhausting the alternative statutory remedy available under the law. “This circuitous route appeared to have been adopted to avoid the condition of pre-deposit contemplated under 2nd proviso to Section 18 of the Act 2002”, Apex Court noted.
“The High Court under the impugned judgment has nonsuited the present appellant (auction purchaser) on the premise that there is an error in the description of the door number of the property and instead of “12339”, it was indicated as “123393”, although there was no error in the description of the property rather the dimensions with measurement and boundaries were properly indicated of the mortgaged property and on the premise that Rule 9(4) of the Rules has not been followed by the appellants by depositing 75% of the bid amount which ought to have been deposited by 11th April, 2015, instead it was deposited on 15th April, 2015”, Supreme Court observed.
The Supreme Court bench noted, “We find substance in the submissions made by the learned counsel for the appellant for the reason that so far as the error in the description of door number of the property is concerned, which admittedly indicated throughout as “123393” instead of “12339”, but the fact is that the description of the mortgaged property from the commencement of the proceedings under Section 13(2) of the SARFAESI Act, 2002, due to human error instead of “12339”, door number was indicated as “123393”, but admittedly the fact is that there is no such property available in the locality/vicinity with Door no.”123393” and as full description of the mortgaged property was mentioned/indicated, although there was a typographical error, but the respondent borrowers failed to demonstrate any prejudice being caused on account of the inadvertent error being caused in description of the mortgaged property. At the same time, the borrower failed to demonstrate that because of a typographical inadvertent error in door number, as indicated above, the property could not have fetched the value as it ought to have fetched and that apart, there was no documentary evidence placed on record to substantiate the kind of prejudice, if any, being caused.”
“It is true that the secured creditor is under an obligation to undertake the exercise and crosscheck the description of the mortgaged property at the stage when the initial proceedings under Section 13(2) are initiated or in the later consequential proceedings, but at the same time, mere typographical error due to inadvertence which has not caused any prejudice to the borrowers, that in itself could not be considered to be the ground to annul the process held by the secured creditor which, in our view, is in due compliance with the requirement as contemplated under the provisions of Rules, 2002 and this was extensively considered by the Tribunal and that apart, it is not the case of the respondents that participants in e-auction sale is misguided because of the error in description of the property put to auction and when there is no ambiguity with regard to the detailed description of the mortgaged property put to auction, mere mentioning of the door number “123393” instead of “12339” is inconsequential and does not vitiate the auction proceedings held on 28th March, 2015”, bench observed.
“So far as the second objection raised by the respondent, which prevailed upon before the High Court regarding the breach of Rule 9(4) of Rules, 2002 is concerned, it will be apposite to note Rules 9(4) and 9(5) of the Rules 2002 (pre-amended). It will be relevant to note that amendment was made in Rule 9(4) and Rule 9(5) of the Rules, 2002 of which reference has been made by GSR No.1046(E) dated 3rd November, 2016 effective from 4th November, 2016. It clearly manifests that the pre-amended Rule 9(4) refers to the period of 15 days for confirmation of sale or such extended period, but the outer limit has not been defined and that appears to be not as sacrosanct and the period can be extended, as agreed upon in writing between the parties. In sequel thereto, if the time stands extended, the auction purchaser would not be considered to be a defaulter as referred to under Rule 9(5) of the Rules and if the amended provisions are being taken note of, of which reference has been made, effective from 4th November, 2016, however, may not be relevant as the auction in the instant case was held in March 2015, but the fact remains that by an amendment, the legislature with its consciousness has clarified that the agreement has to be between the purchaser and the secured creditor exceeding 15 days but in any case may not exceed three months although who are the parties to the agreement are not clear in the Pre-amended Rule 9(4) of the Rules”, apex Court noted.
The Supreme Court bench noted, “This Court, while examining the pre-amended Scheme of Rule 9(4) in judgment in General Manager, Sri Siddeshwara Cooperative Bank Limited, REED 2013 SC 08201, was of the view that the period which is referred to in Rule 9(4) is not that sacrosanct and may be extended if there is a written agreement between the parties and since parties to the written agreement is not defined in Rule 9(4), this Court was of the view that it covers into its fold the secured creditor, the auction purchaser and the borrower, but later the legislature taking into consideration the judgment of this Court made its intention clear by making an appropriate amendment in Rule 9(4) of the Rules, 2002 which came into effect by a notification dated 3rd November, 2016 effective from 4th November, 2016.”
In the instant case, although there was no written consent by all the three partners, namely, secured creditors, borrowers and auction purchaser, as being referred to by the Supreme Court in General Manager, Sri Siddeshwara Cooperative Bank Limited, REED 2013 SC 08201, but this fact cannot be ruled out that in the instant case, the peculiar situation has come forward when the respondent borrowers in the first instance approached the Tribunal assailing the e-auction notice issued by the respondent Bank (secured creditor) and were able to secure an interim order from the Tribunal dated 26th March, 2015 permitting the auction proceedings to continue, subject to the condition that the borrower shall deposit Rs.6 lakhs directly with the respondent Bank within 15 days from the date of order, which admittedly expired on 9th April, 2015 and the respondent borrowers failed to deposit the aforesaid amount.
On the last date when the period was to expire on 9th April, 2015, I.A. No.1687 of 2015 was filed seeking extension of time period by 15 days for depositing the sum of Rs.6 lakhs and as there was no stay in withholding the e-auction proceedings, the appellant deposited not only the earnest money but 25% of the bid amount in the first instance on 28th March, 2015, the balance 75% of the bid amount was deposited on 15th April, 2015 and the interregnum period was in incomplete phase of flux as to what will be the fate of the auction purchaser pending proceedings before the Tribunal, more so when the application was filed by the respondent borrowers on 9th April, 2015 seeking extension of time and that being the situation, 75% of the bid amount was deposited on 15th April, 2015 and sale certificate was issued and still thereafter when the Tribunal granted extension of 15 days’ of time to the respondent borrowers by an order dated 17th April, 2015 to deposit the sum of Rs.6 lakhs, the respondent borrowers failed to deposit the aforesaid amount and as it reveals from the record, a further time was granted to the respondent borrowers to deposit a sum of Rs.6 lakhs by an order dated 1st May, 2015 and much before that, the auction proceedings were finalised and even the rectification deed came to be executed on 21st April, 2015.
The Supreme Court bench observed that in the given facts and circumstances, the four days’ delay which was caused in terms of the original auction notice, in no manner, would frustrate or annul the auction proceedings and the Debts Recovery Tribunal has rightly held that because in such state of flux, particularly when the bank/secured creditor requested the auction purchaser to wait for some time because the borrowers are negotiating with the bank in the light of interim order dated 26th March, 2015 of the Tribunal, delay in depositing 75% of the bid amount by four days in no manner would frustrate the rights of the parties inter se, more so, when the conduct of the borrowers in getting extension orders on two different occasions and still not depositing Rs.6 lakhs in terms of the order of the Tribunal would clearly reflect that the intention of the borrowers was only to frustrate the auction sale by one reason or the other, which they could not succeed.
The Supreme Court noted, the finding returned by the Tribunal was well reasoned and duly supported with the material on record and the interference made by the High Court under the impugned judgment while recording a finding that it was in breach of Rule 9(4) of the Rules, 2002 was not legally sustainable in law and deserved to be set aside.
The Appeal was allowed and the judgment impugned of the High Court dated 20th November, 2019 was quashed and set aside.