Case: Central Bank Of India Vs. C. L. Vimala

3. The facts material to the present case are that Respondent No.1 C.L. Vimla who is a senior citizen aged about 85 years, is the guarantor. The appellant Central Bank of India is the Bank to whom the property involved in the present case, was mortgaged. The property involved in the present case is a residential house which was purchased by the husband of C.L. Vimla, namely, C.L.Narsimhaiah Shetty, under a sale deed dated 10.06.1997. She is in possession of the property along with other family members. Her husband, during his life time, executed a Will dated 31.05.1995 bequeathing his undivided share in favor of his sons equally and while settling the property he granted life interest in favour of the guarantor. However, he has not authorized her to sell or mortgage the property. The property was mortgaged in favour of Central Bank of India (hereinafter referred to as) for raising a loan of Rs.17,50,000/- for family business. The business suffered loss. Consequently, as the respondents were unable to repay the mortgage amount, the Bank filed O.A. No.309/2002 before the Debt Recovery Tribunal, Bangalore. The Debt Recovery Tribunal referred the case for settlement before Lok Adalat. The High Court Legal Services Committee considered the reference and passed an award whereunder the borrower have agreed to pay Rs.33,50,000/- as final settlement of the claim of the Bank. This settlement was not within the knowledge of the guarantor C.L. Vimla as she had not signed the joint memo. One of her sons N. Surya Bhagavan has signed it. Her advocate has also signed the Joint Memo. It was only on 5.4.2006 when she learnt that the property has been ordered to be sold by auction. She also learnt about the signing of Joint Memo by N.Surya Bhagavan and the Bank. So she filed Writ Petition No.6625 of 2006 before the High Court of Karnataka for setting aside the award dated 20.03.2004 of the Lok Adalat, as far as she was concerned. The High Court by an order dated 1.06.2006, dismissed the writ petition on the ground of laches. Thereafter, she filed Writ Appeal No.899 of 2006, which was permitted to be withdrawn with liberty to approach the Lok Adalat for appropriate relief. Thereafter, the guarantor approached the Lok Adalat by filing an application under Order 9 Rule 13 read with Sections 21 and 25 of Legal Services Authority Act, 1987 on 03.10.2006.4. During pendency of the writ petition, the Recovery Officer conducted auction on 5.10.2006. The guarantor filed an interim application being I.A. 1464/2006 on 17.10.2006 before the DRT for setting aside the same. The office of the DRT raised an objection stating that the application amounted to an appeal. The Guarantor requested the DRT on 2.11.2006 not to confirm the sale since her case was pending before the Lok Adalat at High Court. The copy of the bid sheet did not contain the full particulars of the auction purchasers. Thus, she moved an application seeking stay of delivery of property. On 28.11.2006, the DRT directed the Recovery Officer not to deliver the property to the auction purchaser until further orders. In the meanwhile, the auction purchaser filed the applications seeking vacation of the Interim orders. On 22.01.2007, the interim order was vacated by the DRT in the absence of the appellant. Thus, the guarantor continued in possession till 31.1.2007. The auction purchaser moved an application on 01.02.2007 for recalling the order dated 22.01.2007. On 5.02.2007, the High Court Lok Adalat permitted the appellant to request the DRT to defer the proceedings. An application made in this regard was dismissed on 22.2.2007. The High Court Lok Adalat held on 5.2.2007 that the guarantor not being a party to the joint memo to referring the matter to the Lok Adalat, the decree is not binding on her. While the guarantor was agitating her right in the property, the sale conducted is not valid in law, so she sought for setting aside the sale.5. In Writ Petition No.17320 of 2007, the auction purchaser contends that he is the auction purchaser in the auction conducted by the Recovery Officer in pursuance of order passed by DRT in OA No.309 of 2002 and as per Certificate No.3264 issued by DRT on 5.10.2006. The auction purchaser has purchased the property for Rs.3.27 crores. In pursuance of the deposit the sale was confirmed on 15.11.2006.6. The High Court of Karnataka, in the impugned judgment, has dealt with the issues individually. The Court had framed issues on the inherent power of the Lok Adalat, the action of the Debt Recovery Tribunal (DRT) in deciding the interim applications filed by the guarantor and the possession by the auction purchaser and payment of solatium to the Central Bank of India. On the issue of the inherent power of the Lok Adalat, the High Court after relying on a number of decisions held that as the guarantor was not a party to the Joint Memo, the decree would not be binding on her. Regarding the validity of the sale, the High Court held that the sale was not done as per the mandate of the sale proclamation which said that the sale was to be conducted part by part and stopped as soon as the decree amount was realized. Thus, the High Court held that the auction was violative of Order 21 Rule 64. It also rejected the plea for solatium of 20% of the Central Bank of India.

Court's reasoning:
11. We are of the opinion that the questions that need to be decided by us are regarding the liability of the guarantor under Section 128 of the Indian Contract Act, 1872. The legislature has succinctly stated that the liability of the guarantor is co-extensive with that of the principal debtor unless it is otherwise provided by the contract.The mere fact of ignorance cannot be a valid ground. The respondent, C.L. Vimala and her son, N.Surya Bhagavan who signed the joint memo, were residing in the same house. We see no reason why the Respondent would not know of the joint memo, when she could have by reasonable means made herself aware of theis submitted on behalf of the auction purchaser that he has purchased the property by availing private borrowing for the said property and he is paying nearly Rs.5 lakhs per month as interest. Therefore, in our opinion, the equity and good conscience also has to play a role in the matter in question on the given facts and after considering the conduct of the respondents (C.L. Vimla and others) in the matter. In these circumstances, we feel that it would not be proper for us at this stage to set aside the sale, as has been done by the High Court without taking into consideration all these facts. Further, the High Court has failed to appreciate these facts and wrongly held that the auction purchaser is a party to the negligence of the Recovery Officer and, accordingly, the sale was set aside. In our opinion, the auction purchaser had nothing to do in holding the auction. Rather he deposited the money after bonafidely participating in the auction and, in fact, suffered for long time to pay a price by participating in auction proceedings.19. In these circumstances, we further noticed that the principal debtors were not prepared to pay back the amount to the Bank and did not choose to defend themselves properly. The conduct of the principal debtors also cannot be overlooked by us.