SARFAESI Auction Can't Be Stayed Just Because Sale Agreement Holder Offered To Pay Dues, When Borrower Hasn't Invoked S.13(8) : Supreme Court

The Supreme Court has held that a writ petition under Article 226 of the Constitution of India is not maintainable against action taken by Bank under Section 13(4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”), since an alternative statutory remedy exists under Section 17 of SARFAESI Act.

The Bench comprising of Justice M.R. Shah and Justice C.T. Ravikumar while adjudicating an appeal filed in G. Vikram Kumar v State Bank of Hyderabad & Ors., has further observed that it is debatable whether Section 13(8) of SARFAESI Act would apply to an Agreement to Sale holder who desired to purchase the asset of the Borrower. Since the Borrower in the present case failed to invoke Section 13(8) of SARFAESI Act and deposit the entire dues to the Bank, the High Court erred in allowing the writ petition, just because the agreement to sale holder was willing to pay the dues.

BACKGROUND FACTS

A real estate Builder (“Borrower/Respondent No. 3”) had availed loan facility from Bank (Respondent No. 2) for development of a multi-storey housing project. When the Borrower failed to repay the loan, the Bank initiated recovery proceedings under Section 13 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”). Under Section 13(4) of the SARFAESI Act, the properties (which included flats) of the Borrower were attached by the Bank. The Borrower challenged such action before the Debt Recovery Tribunal (“DRT”). The DRT granted liberty to the Borrower to file a list of intending buyers for some of the flats so that the dues can be repaid.

The Bank and the Borrower entered into a Memorandum of Understanding (“MoU”) for sale of Flat No. 6401 and it was agreed that an Agreement to Sell would be executed by the Borrower after seeking clearance. However, the Borrower executed an Agreement to Sell with Respondent No. 1 (third party) without seeking consent of the Bank or DRT. Later the Bank issued auction notice on 28.07.2016 and included the Flat No. 6401 in the same. The Borrower filed an application seeking stay of auction by DRT and the same was rejected. The DRT declared the transaction as void.

When Flat No. 6401 was put to auction, Mr. G. Vikram Kumar (“Appellant”) emerged as the successful bidder and deposited 25% of the bid amount. Following which, the Respondent No. 1 filed a writ petition before the High Court seeking quashing of the auction notice in respect of Flat No. 6401. The writ petition did not disclose that auction had already taken place.

Hence, the High Court conditionally stayed the auction qua Flat No. 6401, while directing the Respondent No. 1 to deposit the amount and the same was complied with. The Bank and the Appellant submitted before the High Court that an equally efficacious remedy existed under Section 17 of SARFAESI Act and the Agreement to Sell has been declared void by the DRT.

The High Court allowed the writ petition while relying on Section 13(8) of the SARFAESI Act, which provides that the secured creditor would not proceed with the sale of secured asset if the borrower tenders the dues of the secured creditor any time before the date fixed for sale of assets. Reliance was placed on Section 13(8) on the premise that the Respondent No. 1 being the Agreement to Sale holder of the Flat No. 6401 and ready to pay the entire sale consideration, the auction of the said Flat could not have been proceeded with.

The Appellant filed an appeal before the Supreme Court against the High Court’s order.

SUPREME COURT VERDICT

The Bench observed that the e-auction notice dated 28.07.2016 was issued by the Bank in view of Section 13(4) of the SARFAESI Act. The Respondent No. 1 filed the writ petition after the e-auction stood concluded on 31.08.2016 and Appellant being the successful bidder had deposited 25% of the bid amount on the same day.

Writ petition under Article 226 not maintainable against action taken by Bank under Section 13(4) of the SARFAESI Act, since alternative statutory remedy exists under Section 17 of SARFAESI Act

On the issue of whether writ petition under Article 226 of the Constitution of India was maintainable despite there being an alternate remedy under Section 17 of SARFAESI Act, the Bench ruled as under:

“It is required to be noted that against any steps taken by the Bank under Section 13(4) of the SARFAESI Act the aggrieved party has a remedy under the SARFAESI Act by way of appeal under Section 17 of the SARFAESI Act to approach the DRT……………Therefore, in view of the availability of the alternative statutory remedy available by way of proceedings/appeal under Section 17 of the SARFAESI Act, the High Court ought not to have entertained the writ petition under Article 226 of the Constitution of India in which the e-auction notice was under challenge. Therefore, the High Court has committed a very serious error in entertaining the writ petition under Article 226 of the Constitution of India challenging the e­auction notice issued by the Bank in exercise of power under Section 13(4) of the SARFAESI Act.”

Debatable whether Section 13(8) of SARFAESI Act would apply to Agreement to Sale holder or to the Borrower alone

Further, the Bench opined that it is debatable whether Section 13(8) of the SARFAESI Act would apply to an Agreement to Sale holder or only to a borrower who is willing to pay the entire debt. Since the Borrower did not invoke Section 13(8) to clear the entire dues, the High Court erred in allowing the petition. It was observed as under:

“Even otherwise it is very debatable whether Section 13(8) of the SARFAESI Act shall be applicable in favour of a person who is only an agreement to sale holder or Section 13(8) of the SARFAESI Act shall be applicable only in case of the borrower who is ready and willing to pay the entire debt. In the present case the borrower failed to get any relief from the DRT. The borrower did not apply and/or invoke Section 13(8) and did not agree to clear the entire dues. Therefore, also the High Court has materially erred in allowing the writ petition.”

The Bench has set aside the order passed by the High Court and has directed that sale certificate be issued to the Appellant with respect to Flat No. 6401, after the remaining bid amount is deposited.

Case Title: G. Vikram Kumar v State Bank of Hyderabad & Ors.

Citation: 2023 LiveLaw (SC) 394

Counsel for Appellant: Shri A. Sirajudeen (Sr. Adv.)

Counsel for Respondents: Shri Buddy A. Ranganadhan and Shri Ananga Bhattacharyya.

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