SARFAESI | Auction Sale Can Be Cancelled Only If Purchaser Defaults In Payment Of Balance Amount : Supreme Court

In a matter arising out of IDBI Bank's cancellation of an auction purchase, the Supreme Court recently held that an auctioneer cannot refuse to issue sale certificate if the auction purchaser has not defaulted in offering to deposit the balance auction amount.

“reason for the non-issuance of the sale certificate is solely attributable to the appellant-Bank and that there were no latches, negligence or default on part of the respondents in offering to deposit the balance auction amount. Since there is no default on their part, non-deposit of the said amount within the stipulated period would not be fatal within the meaning of sub-Rules (4) and (5) of Rule 9 of the Rules”, said a bench of Justices Pankaj Mithal and R Mahadevan.

Deciding in favor of the respondent-auction purchasers, the Court interpreted Rules 9(4) and 9(5) of the Security Interest (Enforcement) Rules, 2002, to hold that there must be a default on the part of the purchaser in payment of balance auction amount to invite cancellation, and that the period of deposit (15 days) is not absolute. Rather, it is extendable with agreement of the parties.

For context, Rules 9(4) and 9(5) read thus:

“(4) The balance amount of purchase price payable shall be paid by the purchaser to the authorized officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period [as may be agreed upon in writing between the purchaser and the secured creditor, in any case not exceeding three months].

(5) In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited [to the secured creditor] and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold.”

Briefly stated, the respondents were the highest bidder in an auction advertised by appellant-IDBI Bank. They deposited 25% of auction money on the auction day itself and a sale confirmation was issued. The balance amount was to be paid within 15 days so that sale certificate could be issued.

However, the balance payment was not made to the Bank in 15 days. Later, it unilaterally cancelled the auction and refunded the amount deposited by the respondents.

The respondents challenged the Bank's action before the High Court, which held in their favor and directed the Bank to issue sale certificate/register sale deed in the respondents' favor, after getting the balance auction amount deposited.

Aggrieved by the High Court order, the Bank approached the Supreme Court. Confirming the impugned order, the Supreme Court noted that the respondents were always ready and willing to deposit the balance auction amount and had submitted a bank draft, requesting issuance of the sale certificate. However, the Bank avoided the same.

Going through the material, the Court also concluded that all pleas taken by the Bank to avoid acceptance of the balance amount were subsequent and not very material. There were no latches, negligence, or default on the part of the respondents in offering to deposit the balance amount, and as such, non-issuance of sale certificate was solely attributable to the Bank.

“the respondents only sought extension of time for the reason that the appellant-Bank itself was not in a position to accept the amount as there was a complaint to the CBI, an advisory of the ED and a stay from the High Court. The silence on part of the appellant-Bank in either immediately revoking the sale confirmation or refusing to extend the time, impliedly amounted to extension of time in writing with consent.”

Insofar as the Bank's decision of cancellation was unilateral, the Court further observed that there was violation of the principles of natural justice, as neither any notice nor opportunity of hearing was granted to the respondents.

So far as the Bank's contention that the Court cannot extend the time period stipulated under Rule 9(4) even in exercise of its powers under Article 142 of the Constitution, it was stated,

“We are simply holding that the period to deposit the balance sale consideration, as provided under the Rules, is not sacrosanct and is extendable with the consent in writing of the parties and that Rule 9(4) will only come into play when there is default on part of the party i.e. the auction purchaser to deposit the amount and will not apply where there is no default or that the default, if any, lies upon the auctioneer i.e. appellant-Bank in the case at hand.”

In view of the above, the Bank's appeals were dismissed.

Mr. Krishna Kumar, Advocate represented the Bank and R.Anand Padmanabhan, Sr Adv assisted By Ms. Ruchi, Advocate represented the Auction Purchaser.

Case Title: IDBI Bank Ltd. v. Ramswaroop Daliya and Ors., SLP (C) Nos. 8159-8160/2023

Citation : 2024 LiveLaw (SC) 807
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