Case: Mathew Varghese Vs. M. Amritha Kumar &amp; Others

4. The 1st and 2nd Respondents herein stood as guarantors in respect of a credit facility to the tune of Rs. 30,00,000/granted by the 4th Respondent—Bank in favour of a company called ‘Jerry Merry Exports PrivateAs guarantors, the 1st and 2nd Respondents created an EQUITABLE MORTGAGE in favour of 4th Respondent—Bank by depositing the title deeds of their property bearing Survey No. 150/12A (40.20 cents), Survey No. 150/12C (11 cents) and Survey No. 150/13 (26 cents) totaling 77.20 cents situated in Padivattom Kana, Edappally South Village, Kanayanoor Taluk, Ernakulam District Kochi, Kerala (hereinafter referred to as). When the transaction became aASSET, the 4th Respondent—Bank filed O.A. No. 31 of 2002 for recovery of Rs. 33,77,053/along with interest @ 18% per annum. The 4th Respondent—Bank also issued a notice under Section 13(2) of the SARFAESI Act onfor a sum of Rs.7, the 4th Respondent—Bank is stated to have taken possession of the mortgaged property by invoking Section 13(4) of SARFAESI Act, read along with Rules 8 and 9 of the Rules, 2002.5. The 1st and 2nd Respondents filed a Securitisation Application i.e. S.A. No. 20 of 2007, before the Debt Recovery Tribunal (hereinafter referred to asm, challenging the possession notice datedand additionally also for an Order to restrain the 4th Respondent—Bank from evicting Respondents 1 and 2. Between07 the attempts made for One Time Settlement (hereinafter referred to as7, the 4th Respondent—Bank issued a notice to Respondents 1 and 2, as well as others of its intention to sell the property under Rule 8(6) of the Rules, 2002 by fixing a reserve price of Rs.7, the 4th Respondent—Bank published its notice of sale of property in Indian Express and Mathrubhoomi, invitingfrom the public. The 1st and 2nd Respondents were informed by the 4th Respondent—Bank by its notice datedabout the publication made onand also enclosed a tender form along with the terms and conditions for participation in the tender. The Appellant and one M/s Kent Construction stated to have submitted their tenders on7. Onthe 1st and 2nd Respondents filed W.P. No. 27182 of 2007 challenging the proceedings initiated under the SARFAESI Act. The said writ petition was disposed of by a learned Single Judge of the Kerala High Court by Order datedBy the said order, the High Court after taking note of the O.A. filed by the 4th Respondent—Bank, as well as S.A. filed by the 1st and 2nd Respondents, directed the DRT to hear the parties and dispose of both the cases or at least the Securitisation Application filed by the 1st and 2nd Respondents without any delay. The High Court also noted that at that point of time, the DRT had fixedas the date for disposal of both the applications. While issuing the said directions, the learned Judge gave liberty to the parties to settle the liability and also directed the 4th Respondent—Bank to defer the sale posted onby six weeks, by imposing a condition on Respondents 1 and 2 to deposit a sum of Rs. 10,00,000/before the date of sale, i.e.It was also observed therein that since the 4th Respondent—Bank had agreed for OTS in a sum of Rs.the bank should waive interest if the 1st and 2nd Respondents offer a settlement within a reasonable time and by making payment of the said amount.8. It is common ground that pursuant to the said Order datedthe sale which was scheduled to be held onwas postponed. In fact, though the six weeks period prescribed in the Order dated07, it is stated that even thereafter the sale was not effected. Pursuant to the said order, the 1st and 2nd Respondents stated to have deposited the sum of Rs. 10,00,000/with the 4th Respondent—Bank. Onthe DRT passed Orders in S.A. No. 20 of 2007 dismissing the said application with costs. On the next day i.e. onthe 4th Respondent—Bank accepted the tender of the Appellant who offered a sum of Rs. 1,27,00,101/and asked the Appellant to deposit 25% of the amount i.e. Rs. 31,75,025/on that day itself and pay the balance amount within 15 days. The Appellant is stated to have deposited the 25% of the total bid amount offered by it with the 4th Respondent—Bank. The Appellant is also stated to have deposited the balance amount onAfter deposit of 25% of the bid amount onthe 4th Respondent—Bank confirmed the sale in favour of the Appellant and gave further time of 15 days for depositing the balance amount.9. After depositing the balance amount by the Appellant onand the confirmation of the sale in favour of the Appellant, the 4th Respondent—Bank informed the Respondents 1 and 2 onabout the confirmation of sale in favour of the Appellant and also the receipt of the entire consideration. The Respondents 1 and 2 were directed to collect the balance amount availablewith the 4th Respondent—Bank. Onthe Respondents 1 and 2 filed a Review Petition No. 157 of 2008 in W.P. No. 27182 of 2007. The said Review Petition was dismissed giving liberty to Respondents 1 and 2 to challenge the sale. The Respondents 1 and 2 filed a Writ Petition No. 5876 of 2008 onchallenging the vires of the Rules, 2002 on the ground that it violated their right of redemption by denying them adequate opportunity and time to repay the borrowed sum and the action of the Bank in having acted surreptitiously in selling the property without informing them. The said writ petition was dismissed by the learned Single Judge by Order datedon the ground that the Respondents 1 and 2 got an alternative efficacious remedy available under the SARFAESI Act. As against the said Order, Respondents 1 and 2 filed Writ Appeal No. 1555 of 2009, onIn the meantime, onthe 4th Respondent—Bank transferred the property in favour of the Appellant under a duly registered certificate of sale.10. By the order impugned, the Division Bench took the view that the sale was not conducted in a fair and proper manner, that when the sale was initially postponed by six weeks fromthe Bank ought to havethe sale or at least extended the time for receiving further tenders, particularly when only one valid tender was received on the last date notified for sale. The Division Bench further held that the sale was not even informed to Respondents 1 and 2 and they were informed only after the confirmation of the sale and after receipt of their full consideration. The Division Bench, therefore, set aside the sale which was already executed in favour of the Appellant by imposing a condition that Respondents 1 and 2 furnish a Demand Draft of Rs. 2,00,00,000/from a local branch of a Nationalised Bank in favour of the Appellant and hand over the same to him, within a period of two months from the date of the Order. It further held that if payment was not made, as directed, the sale in favour of the Appellant would stand confirmed and the Writ Appeal would automatically stand dismissed. In the event of the payment of Rs. 2,00,00,000/being made in the form of a Demand Draft, the Appellant was directed to hand over the original sale deed obtained by him from the Bank to enable Respondents 1 and 2 to approach theand Revenue Authorities for cancellation of registration, consequent mutation, etc.11. There was also a direction to theto restore the property in the name of the 1st and 2nd Respondents. On payment of the sum of Rs.the Bank was directed to remit the excess amount available with them to the Tax Recovery Officer in pursuance of the demand already made by it and to credit the said amount in the account of Respondents 1 and 2. Liberty was also given to Respondents 1 and 2 to claim for refund, if they were eligible for any. Additionally, liberty was also given to Respondents 1 and 2 to refund the stamp duty, if they were eligible for such refund. The period of two months granted by the Division Bench for Respondents 1 and 2 to deposit a sum of Rs. 2,00,00,000/2. Respondents 1 and 2 did not make the payment within the said date, as directed by the Division Bench. Instead an application was filed by the Respondents 1 and 2 in I.A. No. 437 of 2010 in Writ Appeal No. 1555 of 2009 seeking for further six weeks time to effect the payment of Rs. 2,00,00,000/to the Appellant. In the said I.A. No. 437 of 2010, the Division Bench passed its order onextending the time tillThe said extension was granted by holding that on such deposit, sale made by the 4th Respondent—Bank in favour of the Appellant would stand cancelled and the Bank should effect the sale in favour of the 8th Respondent in Special Leave Petition No. 21434 of 2010, namely, Mr. Koshi Phillip s/o Mathai Koshi, who shall hereinafter be referred to as the 8th Respondent. The 8th Respondent herein was directed to deposit Rs. 2,03,00,000/before the 4th Respondent—Bank onand the time granted for payment in terms of the judgment was extended tillSubsequently, in I.A. No. 507 of 2010, the Division Bench after noting that the Appellant had not withdrawn the amounts deposited with the 4th Respondent—Bank by stating that he has approached this Court by way of a Special Leave Petition and after finding that mere steps taken by the Appellant for filing the Special Leave Petition need not stand in the way of executing the sale deed in favour of the 8th Respondent who had deposited the entire amount. In effect, the said I.A. No. 507 of 2010 in Writ Appeal No. 1555 of 2009 was allowed and the Bank was directed to execute the sale deed in favour of the 8th Respondent for the sale consideration of Rs.

Reasoning:
30. Such a detailed procedure while resorting to a sale of an immovable SECURED ASSET is prescribed under Rules 8 and 9(1). In our considered opinion, it has got a twin objective to be achieved.In the first place, as already stated by us, by virtue of the stipulation contained in Section 13(8) read along with Rules 8(6) and 9(1), the owner/ borrower should have clear notice of 30 days before the date and time when the sale or transfer of the SECURED ASSET would be made, as that alone would enable the owner/borrower to take all efforts to retain his or her ownership by tendering the dues of the SECURED CREDITOR before that date and time.Secondly, when such a SECURED ASSET of an immovable property is brought for sale, the intending purchasers should know the nature of the property, the extent of liability pertaining to the said property, any other encumbrances pertaining to the said property, the minimum price below which one cannot make a bid and the total liability of the borrower to the SECURED CREDITOR. Since, the proviso to(6) also mentions that any other material aspect should also be made known when effecting the publication, it would only mean that the intending purchaser should have entire details about the property brought for sale in order to rule out any possibility of the bidders later on to express ignorance about the factors connected with the asset in question.Be that as it may, the paramount objective is to provide sufficient time and opportunity to the borrower to take all efforts to safeguard his right of ownership either by tendering the dues to the creditor before the date and time of the sale or transfer, or ensure that the SECURED ASSET derives the maximum price and no one is allowed to exploit the vulnerable situation in which the borrower iswith the said provision, this Court held as under in paragraphs 34 and 35.Paragraphs 34 and 35 are asThe right of redemption which is embodied in Section 60 of the Transfer of Property Act is available to the mortgagor unless it has been extinguished by the act of parties. The combined effect of Section 54 of the Transfer of Property Act and Section 17 of the Indian Registration Act is that a contract for sale in respect of immovable property of the value of more than one hundred rupees without registration cannot extinguish the equity of redemption. In India it is only on execution of the conveyance and registration of transfer of theinterest by registered instrument that theright of redemption will be extinguished. The conferment of power to sell without intervention of the Court in a mortgage deed by itself will not deprive the mortgagor of his right to redemption. The extinction of the right of redemption has to be subsequent to the deed conferring such power. The right of redemption is not extinguished at the expiry of the period. The equity of redemption is not extinguished by mere contract for sale.35. Theright to redeem will survive until there has been completion of sale by the mortgagee by a registered deed. In England a sale of property takes place by agreement but it is not so in our country. The power to sell shall not be exercised unless and until notice in writing requiring payment of the principal money has been served on the mortgagor. Further Section 69(3) of the Transfer of Property Act shows that when a sale has been made in professed exercise of such a power, the title of the purchaser shall not be impeachable on the ground that no case had arisen to authorize the sale. Therefore, until the sale is complete by registration the mortgagor does not lose right ofadded)35. On a reading of the above paragraphs, we are able to discern the Ratio to the effect that a mere conferment of power to sell without intervention of the Court in the mortgage deed by itself will not deprive the mortgagor of his right to redemption, that the extinction of the right of redemption has to be subsequent to the deed conferring such power, that the right of redemption is not extinguished at the expiry of the period, that the equity of redemption is not extinguished by mere contract for sale and that theright to redeem will survive until there has been completion of sale by the mortgagee by a registered deed. The ratio is also to the effect that the power to sell should not be exercised unless and until notice in writing requiring payment of the principal money has been served on the mortgagor. The above proposition of law of course was laid down by this Court while construing Section 60 of the T.P. Act. But as rightly contended by Mr. Shyam Divan, we fail to note any distinction to be drawn while applying the abovesaid principles, even in respect of the sale of SECURED ASSETS created by way of a secured interest in favour of the SECURED CREDITOR under the provisions of the SARFAESI Act, read along with the relevant Rules. We say so, inasmuch as, we find that even while setting out the principles in respect of the redemption of a mortgage by applying Section 60 of the T.P. Act, this Court has envisaged the situation where such mortgage deed providing for resorting to the sale of the mortgage property without the intervention of the Court. Keeping the said situation in mind, it was held that the right of redemption will not get extinguished merely at the expiry of the period mentioned in the mortgage deed. It was also stated that the equity of redemption is not extinguished by mere contract for sale and the most important and vital principle stated was that theright to redeem will survive until there has been completion of sale by the mortgagee by a registered deed. The completion of sale, it is stated, can be held to be so unless and until notice in writing requiring payment of the principal money has been served on the mortgagor. Therefore, it was held that until the sale is complete by registration of sale, the mortgagor does not lose the right of redemption. It was also made clear that it was erroneous to suggest that the mortgagee would be acting as the agent of the mortgagor in selling the property.38. Here again we find that even if there were some difference in the amount tendered by the borrower while exercising his right of redemption under Section 13(8), the question of difference in the amount should be kept open and can be decided subsequently, but on that score the right of redemption of the mortgagor cannot be frustrated. Elaborating the statement of law made therein, we wish to state that the endeavour or the role of a SECURED CREDITOR in such a situation while resorting to any sale for the realization of dues of a mortgaged asset, should be that the mortgagor is entitled for some lenience, if not more to be shown, to enable the borrower to tender the amounts due in order to ensure that the Constitutional Right to property is preserved, rather than it being deprived of.39. In Ramcase (supra), paragraphs 13, 14 and 28 are relevant for our purpose, which are asUndoubtedly, public money should be recovered and recovery should be made expeditiously. But it does not mean that the financial institutions which are concerned only with the recovery of their loans, may be permitted to behave like property dealers and be permitted further to dispose of the secured assets in any unreasonable or arbitrary manner in flagrant violation of the statutory provisions.14. A right to hold property is a constitutional right as well as a human right. A person cannot be deprived of his property except in accordance with the provisions of a statute. (Vide LachhmanDass v. Jagat Ram and State of M.P. v. Narmada Bachao Andolan). Thus, the condition precedent for taking awayproperty or disposing of the secured assets, is that the authority must ensure compliance with the statutory provisions.28. In view of the above, the law can be summarized to the effect that the recovery of the public dues must be made strictly in accordance with the procedure prescribed by law. The liability of a surety is coextensive with that of the principal debtor. In case there are more than one surety the liability is to be divided equally among the sureties for unpaid amount of loan. Once the sale has been confirmed it cannot be set aside unless a fundamental procedural error has occurred or sale certificate had been obtained by misrepresentation or fraud.The above principles laid down by this Court also makes it clear that though the recovery of public dues should be made expeditiously, it should be in accordance with the procedure prescribed by law and that it should not frustrate a Constitutional Right, as well as the Human Right of a person to hold a property and that in the event of a fundamental procedural error occurred in a sale, the same can be set aside.e we have held that by applying Section 37 of SARFAESI Act, read along with Section 29 of the RDDB Act, the requirement of the statutory prescription under Section 13(8) read along with Rule 8 and 9(1) of the Security Interest Rule would be sufficiently supported, we do not find any necessity to delve into the submission made by referring to Rules 64 to 69 of Order XXIWe, therefore, hold that unless and until a clear 30 days notice is given to the borrower, no sale or transfer can be resorted to by a SECURED CREDITOR. In the event of any such sale properly notified after giving 30 days clear notice to the borrower did not take place as scheduled for reasons which cannot be solely attributable to the borrower, the SECURED CREDITOR cannot effect the sale or transfer of the SECURED ASSET on any subsequent date by relying upon the notification issued earlier. In other words, once the sale does not take place pursuant to a notice issued under Rules 8 and 9, read along with Section 13(8) for which the entire blame cannot be thrown on the borrower, it is imperative that for effecting the sale, the procedure prescribed above will have to be followed afresh, as the notice issued earlier would lapse. In that respect, the only other provision to be noted is(8) of Rule 8 as per which sale by any method other than public auction or public tender can be on such terms as may be settled between the parties in writing. As far as(8) is concerned, the parties referred to can only relate to the SECURED CREDITOR and the borrower. It is therefore, imperative that for the sale to be effected under Section 13(8), the procedure prescribed under Rule 8 read along with 9(1) has to be necessarily followed, inasmuch as that is the prescription of the law for effecting the sale as has been explained in detail by us in the earlier paragraphs by referring to Sections 13(1), 13(8) and 37, read along with Section 29 and Rule 15. In our considered view any other construction will be doing violence to the provisions of the SARFAESI Act, in particular Section 13(1) and (8) of the said Act.56. When we refer to the said order datedto examine the reasons which weighed with the Division Bench, we find that the sum and substance of the grievance expressed on behalf of Respondents 1 and 2 herein was that they had to raise funds by arranging for the sale of the very same SECURED ASSET, which took time as many buyers were reluctant to come forward because of the chance of continued litigation. By making reference to the stand of Respondents 1 and 2, the Division Bench without anything more, accepted the said reason and by allowing the I.A. permitted the 8th Respondent herein to deposit Rs. 2,03,00,000/1 and on such deposit it held that the time granted for payment in terms of the Judgment datedstood extended tillIt further held that on such deposit being made, the sale made by the 4th Respondent—Bank in favour of the Appellant would be cancelled and the 4th Respondent should effect a sale in favour of the 8th Respondent herein. The other directions contained in(iv) of para 5 was maintained. In the subsequent I.A. 507 of 2010 the Division Bench directed the 4th Respondent—Bank to execute the sale in favour of the 8th Respondent herein, taking note of the fact of deposit of Rs. 2,03,00,000/by the 8th Respondent with the 4th Respondent—Bank.Respondent—Bank.58. In the light of our conclusion that the Judgment passed in Writ Appeal No. 1555 of 2009 datedwas a self contained one and due to the failure of the 1st and 2nd Respondents in not handing over the Demand Draft for Rs. 2,00,00,000/to the Appellant within the stipulated time limit, namely, on or beforethe sale effected in favour of the Appellant stood confirmed. Inasmuch as we have found there was absolutely no justifiable grounds for the Division Bench to grant further time in its Order datedwe are of the view that it will be travesty of justice if the earlier Judgment datedwhich worked itself out onis to be reversed for the flimsy grounds raised by the 1st and 2nd Respondents that they could not raise funds in spite of two months time granted to them for paying a sum of Rs. 2,00,00,000/in favour of the Appellant. We have also found that while the time granted by the Division Bench expired bythe application for extension was filed 40 days later, i.e. onTherefore, for such a recalcitrant attitude displayed by Respondents 1 and 2 in respect of a litigation which involved very high stakes, the Division Bench should not have come for their rescue in the absence of any weighty reasons. The reason adduced on behalf of Respondents 1 and 2 is the standard reason which any party used to plead while seeking for extension of time. Since very valuable rights of the Appellant were at stakes and the Order of the Division Bench also remained in force, in so far as it related to the cancellation of the sale deed, which existed in favour of the Appellant tilland by virtue of theof the conditions imposed in the said Judgment datedby the 1st and 2nd Respondents the ownership rights of the Appellant got crystallized on and afterwe fail to find any justification at all for the Division Bench to interfere with the said right in such a casual manner by accepting the flimsy reasons of the 1st and 2nd Respondents. At the risk of repetition it will have to be stated that the ownership right which got crystallized in favour of the Appellant as oncould not have been snatched away by the Division Bench by passing the present impugned order dated0. Whatever stated by us with reference to the right of ownership of 1st and 2nd respondents with reliance upon Article 300A of the Constitution would equally apply to the Appellant as well in such a situation. Therefore, such a right which accrued in favour of the Appellant ought not to have been interfered with by the Division Bench and the Orders passed in the interim application filed at the instance of the 1st and 2nd Respondents, along with the 8th Respondent herein are not justified. Therefore, while upholding the Judgment of the Division Bench datedpassed in Writ Appeal 1555 of 2009, for the reasons stated herein, the Orders dated10 passed in I.A. Nos. 437 and 507 of 2010 are set aside.59. Though we have found good grounds in favour of the Appellant to set at naught the above Orders passed in I.A. Nos. 437 and 507 of 2010, we cannot also ignore one other very relevant factor, namely, that the value of the property which was knocked out in favour of the Appellant in a sum of Rs. 1,27,00,101/by confirming the sale by the 4th Respondent—Bank on8, the same was found to be note in accordance with the provisions of the SARFAESI Act. Since the proper procedure for effecting the sale was not followed, it will have to be held that the price fetched through the Appellant cannot be held to be the correct price for the mortgaged property involved in these proceedings. Further, the very fact that in the year 2010 the property could fetch Rs.we are of the view that in all fairness even while confirming the Order of the Division Bench, by which the sale in favour of the Appellant came to be confirmed, the difference in the sale price should be directed to be paid by the Appellant. While the price paid by the Appellant was Rs.the price ultimately fetched at the instance of the 1st and 2nd Respondents was Rs.Therefore, after giving credit to Rs.the Appellant would still be liable to pay a further sum of Rs. 76,00,000/to the 1st and 2nd Respondents.