[Maharashtra Co-operative Societies Act] Borrower Cannot Challenge Material Irregularity In Auction Sale Of Immovable Property Before Recovery Officer After 30 Days : Supreme Court

" Therefore, once the borrower failed to apply to the Recovery Officer to set aside the sale on the ground of material irregularity within a period of thirty days from the date of sale of the immovable property and thereafter the Sale Certificate has been issued, normally the borrower cannot be permitted to challenge the same subsequently, having not raised any objection at the appropriate time and stage as per the statute, otherwise the statutory provisions would become nugatory and unworkable."

A Bench comprising Justices M.R Shah and B.V. Nagarathna allowed an appeal assailing the order of the Bombay High Court, Aurangabad, which had set aside the auction sale in respect of the property mortgaged with the appellant-bank on the ground that there was non- compliance of mandatory provisions of Rule 107(11) (e) (f) and Rule 107(11)(h) of the Maharashtra Co-operative Societies Rules, 1961.

Factual Background

Vaishnavi Hatcheries Company Limited ("borrower") borrowed loan from Deenadayal Nagari Sahakari Bank Ltd. ("appellant-bank") and another bank against which it mortgaged properties. In 2010, the borrower defaulted and the banks initiated recovery proceedings. On 06.02.2010, a Recovery Certificate was issued in favour of the appellant-bank under Section 101 of the Maharashtra Co-operative Societies Act, 1960 ("MSC Act"). Accordingly, proclamation was published in daily newspaper on three occasions. A proclamation under Rule 107 (11) of the Maharashtra Co-operative Societies Rules, 1961 ("1961 Rules") was issued on 26.05.2019 giving 30 days' time to the borrower to payback. On 09.09.2010, a tender notice was floated by the appellant-bank to sell the mortgaged property. In the meanwhile, the Deputy Joint Registrar, Co-operative Societies fixed the upset price. It was challenged by the borrower before the Divisional Joint Registrar, but was eventually dismissed. The bidding commenced and other appellant, Ratnakar Gutte ("auction purchaser") was declared the auction purchaser. Within 15 days of approval of the District Deputy Registrar, the entire amount was deposited by the auction purchaser. On 17.01.2011, the Sale Certificate was issued and on 19.01.2011 the sale deed was executed in his favour. Neither did the borrower object as required under Rule 107 (14) of the 1961 Rules, nor did it deposit 5% of the amount equal to the purchase amount within 30 days from the date of sale to set aside the sale in terms of Rules 107(13). Subsequently, the borrower assailed the auction proceedings before the Divisional Joint Registrar under Section 154 of the MCS Act, which was dismissed. Writ Petition was filed challenging the order of the Divisional Joint Registrar and the recovery certification. The High Court set aside the auction sale and cancelled the sale certificate. It directed the appellant-bank to refund the sale price to the auction purchaser along with interest @ 10% per annum from date of deposit till payment.

Contentions raised by the appellants

Advocate, Mr. Sudhanshu S. Choudhari appearing on behalf of appellants argued that the borrower had not deposited any money since 2010, not even the 5% amount in terms of Rule 107(13) to set aside the sale. It was pointed out that though in the writ petition the auction sale of the properties jointly mortgaged with the appellant bank and the other bank was not challenged, relief was granted with respect to auction sale of those properties as well. He asserted that neither the procedure under Rule 107(13) to set aside auction sale was followed nor that under Rule 107(14) to raise objection was adopted by the borrower. Mr. Choudhari submitted that the High Court had erred in holding there was a breach of Rules 107(11)(e), (f) and (h), even when there was a clear gap of thirty days between the date of proclamation and date of sale. It was asserted that the breach of Rule 107(11)(f) as held by the High Court was not proper in view of the fact that only when the Recovery Officer or the Sale Officer adjouns the sale for more than seven days fresh proclamation is required. In the present case the adjournment was due to the stay granted by the Divisional Joint Registrar. Advocate, Nishant Katneshwarkar appearing on behalf of the auction purchaser adopted the submission made by Mr. Choudhari, but added that the finding of the High Court that the balance deposit of 85% was not paid within the stipulated time is factually incorrect.

Contentions raised by the respondent

Senior Advocate, Mr. Santosh Paul appearing for the Director of the borrower submitted that no proclamation was made for auction sale in terms of Rule 107(11)(e). He contended that fresh proclamation under Rule 107(11)(f) was also not obtained and therefore the auction was a nullity. It was asserted that due too non-compliance with stipulated procedure the property was sold off at a very low price. He apprised the Court that the law laid down by it requires the bank to act fairly and make all efforts to get the best price for mortgaged property, which the appellant-bank had failed to meet. It was submitted that the auction purchaser paid the 85% of the deposit within 15 days of sale is was prescribed under Rules 107(11)(g) and (h).

Analysis by the Supreme Court

The Apex Court noted that the High Court had not taken in account certain factors while entertaining the petition filed by the borrower -

1. The borrow never applied to the Recovery Officer to set aside the sale on grounds of material irregularity, mistake, fraud etc.
2. As per proviso to Rule 107(14)(i) of the MCS Rules, no sale is to be set aside on the ground of irregularity or fraud unless Recovery Officer is satisfied that there was substantial injury.
3. No application was filed to set aside the sale within thirty days from the sale as per Rule 107(14)(iii).

It was the opinion of the Court that when the Divisional Joint Registrar had held the revision application to be not maintainable at the instance of the borrower, the High Court ought not to have considered the petition on merits. The Court held that as the borrower did not challenge the material irregularity, like the valuation of the property, within 30 days from date of sale, it could not have done so later, moreso, when there was no substantial injury by reason of such material irregularity. The Apex Court noted that when the auction is stayed by higher authorities or Courts, no fresh proclamation would be required even if it is adjourned beyond the stipulated period of seven days. It was critical of the conduct of the borrower, who had tried to stall the auction/sale proceedings at every stage without itself repaying the money to the appellant-bank.

Case Name: Deenadayal Nagari Sahakari Bank Ltd. And Anr. v. Munjaji And Ors.

Citation: 2022 LiveLaw (SC)183

Case No. and Date: Civil Appeal No. 818 of 2022 | 16 Feb 2022

Corum: Justices M.R. Shah and B.V. Nagarathna

Authored By: Justice M.R. Shah

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