Supreme Court nullified the auction sale, rejected the bank's claim for possession and upheld the tenant's rights.
The Supreme Court Two-judge Bench comprising Justice Vikram Nath and Justice Satish Chandra Sharma was hearing an appeal and held that when an auction sale of a property is invalidated, banks cannot automatically demand physical possession of the property from the tenant who successfully bid in the auction.
In a landmark judgment, the Supreme Court granted leave to appeal, scrutinizing the validity of a ruling by the Allahabad High Court. The High Court's decision, dated 02.07.2018, which dismissed the Writ Petition of the appellants, affirming the rulings of the Debt Recovery Tribunal and the Debt Recovery Appellate Tribunal, came under challenge.
The case revolved around the firm-respondent no.3, which had obtained a loan from respondent no.1-Bank. Upon defaulting, the Bank initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. During the recovery proceedings, an open auction was conducted by the Recovery Officer, wherein the appellants emerged as the highest bidders. They fulfilled the auction's terms and received a sale certificate on 30.03.2009. Notably, the appellants, formerly tenants, transitioned to property owners post-sale.
Challenging the sale's validity, the borrower-respondent nos.3 and 4, filed a securitization application, citing non-compliance with statutory procedures by the Bank. The Debt Recovery Tribunal concurred, setting aside the sale on grounds of procedural lapses. The bank had failed to follow the statutory provisions of notice under Rules 8(6) and 8(7) of the Security Interest (Enforcement) Rules, 2002 as the bank hadn't served the mandatory notice 30 days before the auction sale proceedings. The appellants' subsequent appeal to the Debt Recovery Appellate Tribunal and then to the High Court met with dismissal, prompting the Supreme Court appeal.
During the appeal, the appellants contended that they were bona fide purchasers and sought compensation for property improvements. Conversely, the Bank argued that it adhered to prescribed procedures, albeit failing to furnish evidence to counter the findings of non-compliance.
Upon careful consideration, the Supreme Court bench observed when an auction sale of a property is invalidated, banks cannot automatically demand physical possession of the property from the tenant who successfully bid in the auction. Supreme Court upheld the setting aside of the auction sale due to procedural irregularities. It ruled that the appellants' status reverted to tenants post-sale annulment, rejecting the DRT's directive for possession handover to the Bank.
Additionally, the Court ordered the Bank to refund the auction money with 12% compound interest, addressing the protracted litigation and acknowledging the appellants' investments.
The Apex Court directed the Bank and the borrower to reconcile accounts, with the Bank issuing a No Dues Certificate upon settlement. Consequently, the impugned order was modified, and the appeal was disposed of, bringing closure to the contentious legal battle.
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