Borrower’s offer to pay Rs.71 lakhs as a purchaser of mortgaged property will not discharge him from entire outstanding liability of approx 1.8 crores: SC

Supreme Court: The Division Bench of M. R. Shah* and Sanjiv Khanna, JJ., held that  the entire liability outstanding against the borrower could not be discharged on making the payment i.e. Rs.65.65 lakhs against the total dues Rs.1,85,37,218.80 and that the Division Bench of the High Court had 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.

Factual Matrix

The appellant bank had granted term loan of Rs.100 lakhs and cash credit limit of Rs.95 lakhs to the respondent–borrower against the security of two mortgaged properties namely; an industrial plot measuring 500 Sq.Mtrs. and a residential/housing property measuring 198 Sq.Mtrs. That the borrower failed to repay the term loan and his account became NPA. A notice under Section 13(2) of the SARFAESI Act, 2002 was served upon the borrower demanding a sum of Rs.1,85,37,218.80. Later on, the bank took possession of the residential house and issued a sale notice by public auction for the same for the reserve price was fixed at Rs.48.65 lakhs.

Findings of DRT and DRAT

The borrower challenged the auction by filing Securitization Application under Section 17 of the SARFAESI Act, 2002 before the DRT. The DRT by an interim order held 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. The order of the DRT was challenged by the bank before the DRAT (Debt Recovery Appellate Tribunal). Observing that 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, the DRAT held that when the borrower was ready to purchase the said property for Rs.71 lakhs no fault can be found with the order passed by DRT.

Impugned Order of the High Court

In appeal the Single Judge of the Rajasthan High Court set aside both the orders of DRT and DRAT primarily for the reason that the said orders were in contravention of Section 13(8) of the SARFAESI Act, 2002. However, by the impugned judgment and order the Division Bench of the High Court had reversed the judgment and order of the Single Judge and had 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.

Analysis and Observation

The Court observed that 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 Subsection (8) of Section 13 of the SARFAESI Act the secured asset should 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.

Though as on 07-01-2013 the dues were Rs. 15 Rs.1,85,37,218.80 and without the secured property was sold in a public auction the Division Bench of the High Court had 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.

Noting 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 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, the Bench observed,

“…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.”

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 Bench held that 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 was contrary to Subsection (8) of Section 13 of the SARFAESI Act.

Even otherwise, the Bench opined that on making the payment i.e. Rs.65.65 lakhs against the total dues the entire liability outstanding against the borrower could not be said to have been discharged and the liability of the borrower to pay the balance amount would still continue.

Findings and Conclusion

In the light of above, the Bench reached to following findings:

  1. The DRT in its interim order 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 had increased to Rs.65.65 lakhs on the ground that the highest bid received was Rs.71 lakhs.
  2. 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 could not be discharged from the entire liability outstanding.
  3. The Single Judge had rightly set aside the orders passed by the DRT as well as by the DRAT considering Section 13(8) of the SARFAESI Act. The Division Bench of the High Court had erred in interfering with the order passed by the Single Judge.

Consequently, the Bench concluded, since the DRT’s order was an interim order, even if it is set aside 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 realize 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.

The impugned judgment and order was quashed and set aside and the order passed by the Single Judge quashing and setting aside the order passed by the DRT and confirmed by the DRAT was hereby restored.

[Bank of Baroda v. Karwa Trading Co., 2022 SCC OnLine SC 169, decided on 10-02-2022]


*Judgment by: Justice M. R. Shah

Appearance by:

For the Appellant: Praveena Gautam, Advocate

For the Respondent: Christi Jain, Advocate


Kamini Sharma, Editorial Assistant has put this report together 


 

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