Case: Bank of Baroda Vs. M/s Karwa Trading Company &amp; Anr

2. The facts leading to the present appeal in nutshell are as under: -2.1 That the appellant herein – bank granted term loan of Rs.100 lakhs and cash credit limit of Rs.95 lakhs to the respondent – borrower (hereinafter referred to as the borrower) against the security of two mortgaged properties namely (i) industrial plot situated at Chittor Road, Bundi measuring 500 Sq.Mtrs. and (ii) a residential/housing property situated at 1-Ja-27, Vikas Nagar, Bundi measuring 198 Sq.Mtrs. That the borrower failed to repay the term loan as per the terms and conditions of the agreement. The account of the borrower became NPA on 31.10.2012. A notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the SARFAESI Act, 2002) dated 07.01.2013 was served upon the borrower demanding a sum of Rs.1,85,37,218.80/- The bank took symbolic possession of the immovable property/residential house and also issued a notice under Section 13(4) of the SARFAESI Act, 2002 on 22.08.2013. An application was moved under Section 14 of the SARFAESI Act, 2002 which came to be allowed on 08.11.2013 and with the police assistance the bank took possession of the residential house, which was one of the mortgaged properties of the borrower, on 25.11.2013.2.2 That thereafter the bank issued a sale notice by public auction of the residential property dated 16.12.2013. The reserve price fixed was Rs.48.65 lakhs for sale of the said secured asset in terms of the procedure prescribed under Rule 8 read with Rule 9 of the Security Interest (Enforcement) Rules, 2002. The date of auction notified was 20.01.2014. The borrower challenged the auction of the bank by filing Securitisation Application (SA) No.09/2014 under Section 17 of the SARFAESI Act, 2002 before the DRT, Jaipur. An interim order was passed by the DRT that if the borrower deposits Rs.20 lakhs on 20.01.2014 by 12.00 noon, the bank shall accept the bids but not finalize the bids/confirm the sale of the secured asset and if the borrower commits default in payment of balance amount of Rs.28.65 lakhs, the restraint order shall stand vacated automatically. The DRT also observed that if the borrower deposits Rs.48.65 lakhs with the bank on or before 27.01.2014, the bank shall deliver the possession of the secured asset along with the original title deeds of the property in question. It is not in dispute that the borrower deposited Rs.48.65 lakhs with the bank.2.3 That the aforesaid interim order passed by the DRT came to be challenged by the bank in appeal before the DRAT (Debt Recovery Appellate Tribunal). It was the case on behalf of the appellant - bank that in public auction the bank had received bids up to Rs.71 lakhs and the amount of debt due against the borrower at that point of time was above Rs.2 crores and if at all the borrower is interested or keen to redeem the mortgaged property, he could do so by discharging the entire liability and not by making payment of Rs.48.65 lakhs, as ordered by the DRT. It was also the case on behalf of the appellant – bank that order passed by the DRT dated 17.01.2014 was in violation of Section 13(8) of the SARFAESI Act, 2002. However, it was submitted on behalf of the bank that the bank may not find any difficulty in releasing the subject property provided the borrower is ready to pay a sum of Rs.71 lakhs which is the highest bid available with the bank. It was submitted that even this amount would not ultimately go to discharge the entire liability outstanding against the borrower but still if the borrower deposits Rs.71 lakhs, the bank may not find difficulty to release the subject property in question.2.4 The DRAT dismissed the appeal by observing that as the reserve price was Rs.48.65 lakhs which the borrower deposited and the bank had received the bids ranging from Rs. 61.50 lakhs to Rs.71 lakhs and the alleged bidders failed to deposit the earnest money and when the borrower is ready to purchase the said property for Rs.71 lakhs no fault can be found with the order passed by DRT. The order passed by the DRAT dismissing the appeal preferred by the bank was the subject matter of challenge before the learned Single Judge. The learned Single Judge set aside both the orders of DRT and DRAT vide its judgment and order dated 12.01.2017 primarily for the reason that the said orders were in contravention of Section 13(8) of the SARFAESI Act, 2002. The judgment and order passed by the learned Single Judge was challenged before the Division Bench of the High Court by the borrower by way of present intra-court appeal. By the impugned judgment and order, the Division Bench of the High Court has allowed the said appeal and has quashed and set aside the judgment and order passed by the learned Single Judge and has directed the bank to release the secured property (residential house) on the borrower depositing a further sum of Rs.17 lakhs to the bank and handover the possession along with the title deeds to the borrower.2.5 Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the Division Bench of the High Court, the bank – financial institution – secured creditor preferred the present appeal.

Court's reasoning:
6.1 From the impugned judgment and order passed by the High Court it appears that the Division Bench of the High Court has treated and/or considered the market value of the mortgaged property at Rs.71 lakhs. The DRT when initially granted the interim relief in favour of the borrower which was the subject matter before the DRAT and the learned Single Judge and thereafter before the Division Bench of the High Court, directed to handover the possession of the mortgaged property to the borrower on payment of Rs.48.65 lakhs which was the reserve price/base price. The possession was taken over by the bank under the provisions of the SARFAESI Act and after following the proceedings as required under Section 13 of the SARFAESI Act, the mortgaged property was put to auction and at that stage the borrower preferred an appeal/application before the DRT under Section 17 of the SARFAESI Act and as such the said appeal can be said to be technically pending as the order dated 17.01.2014 passed by the DRT was an interim order. When the auction proceedings were initiated under Section 13 of the SARFAESI Act and after the bank took over the possession under Section 14 of the SARFAESI Act as per Sub-section (8) of Section 13 of the SARFAESI Act the secured asset shall not be sold and/or transferred by the secured creditor, where the amount dues of the secured creditor together with all costs, charges and expenses incurred by him is tendered by the borrower or debtor to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease assignment or sale of the secured assets. In the present case though as on 07.01.2013 the dues were Rs. Rs.1,85,37,218.80/- and without the secured property was sold in a public auction the Division Bench of the High Court has directed to release the mortgaged property and handover the possession along with original title deeds to the borrower on the borrower depositing/paying a total sum of Rs.65.65 lakhs only. At this stage, it is required to be noted that Rs.65.65 lakhs was not the amount realized by selling the mortgaged property in a public auction. It was only a highest bid received and before any further auction proceedings were conducted, the DRT passed an interim order directing to handover the possession and handover the original title deeds on payment of Rs.48.65 lakhs which was the base price, which was the subject matter before the DRAT and before the learned Single Judge. Therefore, the borrower did not deposit and was not ready to deposit the entire amount of dues with secured creditor with all costs, charges and expenses incurred by the secured creditor. Therefore, it was open for the secured creditor to sell the mortgaged property which was put as a security and realize the amount by selling it in a public auction. At this stage, it is required to be noted that even as per the Division Bench of the High Court the borrower made an offer to deposit/pay Rs.71 lakhs as a purchaser and not by way of redeeming the mortgaged property. Therefore, the impugned judgment and order passed by the Division Bench of the High Court directing to release the mortgaged property/secured property and to handover the possession as well as the original title deeds to the borrower on payment of a total sum of Rs.65.65 lakhs only is contrary to Sub-section (8) of Section 13 of the SARFAESI Act.7. Even otherwise on making the payment i.e. Rs.65.65 lakhs against the total dues Rs.1,85,37,218.80/- as on 07.01.2013 the entire liability outstanding against the borrower cannot be said to have been discharged. Even if the mortgaged property would have been sold in a public auction say for an amount of Rs.71 lakhs and the bank has realized Rs.71 lakhs by selling the mortgaged property, in that case also the liability of the borrower to pay the balance amount would still continue. By selling the mortgaged property/secured property it cannot be said that the borrower is discharged from the entire liability outstanding against him. The liability of the borrower with respect to the balance outstanding dues would still be continued. Therefore, the Division Bench of the High Court has erred in directing to release the mortgaged property/secured property and to handover the possession along with the original title deeds to the borrower on payment of a total sum of Rs.65.65 lakhs only.7.1 At the cost of repetition it is observed that as such the bank had already initiated the proceedings under Section 13 of the SARFAESI Act and even the possession of the mortgaged property was taken over by the bank under Section 14 of the SARFAESI Act and thereafter the mortgaged property was put to sale by a public auction and at that stage the borrower wanted to stall the auction proceedings and restrain the secured creditor/bank from selling the property. In such a situation the bank/secured creditor can be restrained from selling the mortgaged property/secured property where the borrower deposits entire dues that was Rs.1,85,37,218.80/- as on 07.01.2013 with the secured creditor. Therefore, the DRT in its order dated 17.01.2014 which as such was an interim relief order pending the appeal under Section 17 of the SARFAESI Act was not justified in directing to release the mortgaged property and handover the possession along with the original title deeds to the borrower on payment of Rs.48.65 lakhs only which was the base price/ reserve price, which the Division Bench of the High Court has increased to Rs.65.65 lakhs on the ground that the highest bid received was Rs.71 lakhs (which was not materialized as the highest bidder did not come forward). Unless and until the borrower was ready to deposit/pay the entire amount payable together with all costs and expenses with the secured creditor, the borrower cannot be discharged from the entire liability outstanding. Therefore, as such no order could have been passed either by the DRT and/or by the Division Bench of the High Court to discharge the borrower from the entire liability outstanding and to discharge the mortgaged property and handover the possession along with original title deeds to the borrower. As such the learned Single Judge rightly set aside the orders passed by the DRT as well as by the DRAT considering Section 13(8) of the SARFAESI Act. The learned Single Judge was right in setting aside the order passed by the DRT confirmed by the DRAT. The Division Bench of the High Court has erred in interfering with the order passed by the learned Single Judge and has erred in directing to release the mortgaged property/secured property and handover the possession along with the original title deeds to the borrower on payment of a total sum of Rs.65.65 lakhs only.7.2 However, at the same time the order dated 17.01.2014 passed by the DRT was an interim relief order in SA No.9/2014 and therefore even if the interim relief order is set aside by this Court the appeal/application will have to be decided and disposed of on merits and on whatever grounds which may be available to the borrower. However, at the same time the bank cannot be restrained from selling the mortgaged property by holding the public auction and realise the amount and recover the outstanding dues, unless the borrower deposits/pays the entire amount due and payable along with the costs incurred by the secured creditor as per Section 13(f) of the SARFAESI Act.