DEBT RECOVERY TRIBUNAL

While the auction petition is pending before DRT, Borrower entered into a sale agreement without prior approval from DRT is void - Supreme Court of India


Timeline of Date and Events in this case law

Date Not Available

Borrower has availed loan from the Respondent No.2/Bank for the development of the Multi-Storey housing Project/Secured Creditor and not able to repay the loan security interest to the bank.

Date -

Secured Creditor initiated proceeding against the borrower under section 13(4) of SARFAESI Act Before Debt Recovery Tribunal (DRT) of Hyderabad

Date -

Borrower filed S.A. No. 253 of 2012 against the actions taken by the Secured Creditor

Date - 19.02.2016

The DRT has given liberty to the borrower to file a list of intending buyers of the property and bring forth with the buyers so as to enable the Tribunal to consider the same for the repayment of the dues of the Secured Creditor/Bank.

Date - 25.02.2016

The DRT has passed an order to go ahead with the sale excluding flats identified and communicated by the Borrower to the Secured Creditor/Bank

Date - 29.02.2016

The Borrower filed affidavit that he had sold seven flats out of 37 flats. The DRT order the secured creditor to exclude those flats. Further, tribunal has granted secured creditor to proceed with sale but shall not confirm sale till next date of hearing.

Flat No.6401 was not amongst the said seven excluded flats on 25.02.2016

Date - 10.04.2016

The borrower entered in to Memorandum of Understanding (MoU) with respondent No.1 for the flat No.6401 for a lumpsum of Forty Five lakhs. Here it is pertinent to mention that there was a note referring to the proceedings pending before the DRT and the borrower will get clearance for sale.

Date - 16.06.2016

The borrower executed an agreement to sale for flat no. 6401 without obtaining any consent from the DRT as well as the secured creditor

Date - 28.07.2016

1) The Bank issued a public notice on 28.07.2016 for auctioning the properties of the borrower.

2) Borrower filed an application before the DRT praying for stay on all proceedings of the Secured Creditor relating to the auction notice dated 28.07.2016

Date - 29.07.2016

The secured creditor have published auction in the newspaper

Date - 24.08.2016

DRT rejected the stay application filed by the borrower and states

"...As stated hereinabove, it is also question of great concern that the Applicant has entered into an agreement with third party in respect of few other flats i.e. Flat No.3202, 6401, 7101, 7202 and 3201 without the permission of the Respondent Bank or this Tribunal. Hence, any such transaction is declared as void.."

Date - 30.08.2016

The Flat No.6401 was placed in Lot No.1 for which e-auction was proposed

Date - 31.08.2016

The appellant herein participated in the e-auction conducted by the secured creditor and declared a successful bidder with respect to Flat No.6401 in Lot No.1. Subsequently, the appellant herein made a payment of 25% of the bid amount. The secured creditor issued a confirmation receipt to the appellant.

14.09.2016

The respondent No.1 filed a write petition No. 31098 of 2016 before the High Court of Judicature at Hyderabad for the State of Telangana and Andra Pradesh, challenging the e-auction dated 28.07.2016 to the extent it concerns Flat No.6401.Subsequently, the appellant herein made a payment of 25% of the bid amount. This writ petition was filed after the completion of the auction. In the writ petition, the respondent No.1 hiden the fact that the auction has already taken place.

Date - 15.09.2016

High Court stayed the auction for Flat No.6401 as notified under the e-auction sale notice subject to respondent No.1 (Original Writ Petitioner) paying to the bank not less than 25.81 lakhs before the scheduled date and time of the auction, failing which, the Secured Creditor shall be free to proceed with the auction.

Date - 20.09.2016

The Bank issued a letter to the appellant stating that the High Court has stayed the auction proceedings with respect to Flat No.6401 and that the respondent no.1 herein has paid the amount to the Bank as directed by the High Court.

Date - NA

On knowing all these, the appellant get impleaded in the writ petition and filed the counter affidavit stating that the DRT has declared the agreement of sale is void and appellant was a successful auction purchaser. Further it is stated that the right, if any, available to the respondent no.1 (original writ petitioner) would have been under Section 17 of the SARFAESI Act and not the writ petition. Here, the respondent No.1 has hiden all true facts of the case.


High Court passed Judgment and order in Writ Petition No.31098 of 2016 against the appellant herein


Subsequently on 08.12.2017

High Court of Judicature at Hyderabad for the State of Telangana and Andra Pradesh dismissed the Review petition No. 45031 of 2017 in Writ Petition No. 31098 of 2016 against the appellant herein.


Hence, the appellant preferred the present appeals before the Supreme Court of India.

CIVIL APPEAL NOS.3152­3153 of 2023

(@ SLP (Civil) Nos.5973­5974 of 2018)

G. VIKRAM KUMAR ...Appellant(s)

Versus

STATE BANK OF HYDERABAD & ORS. ...Respondent(s).

  1. Borrower is Respondent No.3,
  2. Bank for development of the Multi-Storey Housing Project is Respondent No.2/Secured Creditor
  3. State Bank of Hyderabad is Respondent No.1

Shri A. Sirajudeen, learned Senior counsel appearing on behalf of the appellant has made the following submissions:

  1. The High Court has materially erred in entertaining the writ petition filed by respondent no.1 which was against the steps taken by the Bank under Section 13(4) of the SARFAESI Act
  2. The agreement to sale holder had no right title in the flat in question and therefore could not have filed the writ petition challenging e-auction notice on the basis of the agreement to sale
  3. The respondent no.1 had any right, if any, in that case also he had alternative efficacious statutory remedy available under Section 17 of the SARFAESI Act challenging the e-auction notice.
  4. The Respondent No.1 had suppressed the material facts.
  5. On 24.08.2016 the DRT has declared that sale agreement executed in favour of the respondent no.1 by the borrower as void and as the same was entered into without prior permission of the DRT.
  6. The High Court has materially erred in relying upon Section 13(8) of the SARFAESI Act.

A sale agreement holder cannot seek redemption of a property under Section 91 of the Transfer of Property Act, 1882 and cannot be treated at par with an auction, sale purchaser under Section 54 of the Transfer of Property Act makes it clear that no interest/charge is created upon a property only by way of sale-agreement. It is stated that in fact the impugned judgment passed by the High Court that the respondent no.1 be able to seek redemption of the subject property which was attached by the Bank.

The bank attached the property as against the borrower and the respondent No.1 was only the sale-agreement holder. High Court has granted the decree for specific performance of the agreement to sale which is not permissible while exercising the powers under Article 226 of the Constitution of India.

learned counsel appearing on behalf of the respondent no.1

  1. The respondent no.1 being the agreement to sale holder of the flat in question agreed to pay/deposit the entire sale consideration, here the High Court has not committed any error
  2. In entertaining the writ petition on under Article 226 of the Constitution of India challenging the e-auction notice put to auction, immediately the writ petition was filed to show his inclination to deposit the entire amount of sale consideration which is permissible under Section 13(8) of the SARFAESI Act. The object and purpose of Section 13(8) of the SARFAESI Act is to save the property from auction in case the borrower and/or the person interested in the property agrees to clear the dues.

  3. The sale deed is executed and/or the sale certificate is issued in favour of the auction purchaser there is no concluded sale. If the sale is not concluded, Section 13(8) of the SARFAESI Act shall be applicable and/or can be invoked.

Learned counsel appearing on behalf of the Bank/Secured Creditor

Although the secured creditor has opposed the writ petition before the High Court, has stated that whatever the decision the Supreme Court of India takes the Bank shall abide by the same.

Judgment pronounced by the Supreme Court of India

The Supreme Court of India quashed and set aside the impugned judgment and order passed by the High Court. Further directed the appellant to pay the auction sale consideration after deducting the 25% of the amount already deposited earlier within a period of four weeks from today along with 9% interest from the date of auction till the actual amount is paid. The sale certificate be issued in favour of the appellant with respect to Flat No.6401.

The amount deposited by the respondent no.1/his heirs shall be returned to the respondent no.1 (now his heirs) with the interest at 9% from the date of such deposit till the actual date of return which shall be returned within a period of four weeks from today. The heirs of original respondent no.1 are granted three months time to vacate the flat in question and are directed to hand over the peaceful and vacant possession of the Flat No.6401 to the appellant within a period of three months from today.

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