[SARFAESI Act] Once Bid Is Confirmed, Borrower Can't Bring In Another Purchaser With Higher Offer: Kerala High Court

The Kerala High Court recently ruled that once a bid is confirmed, the borrower cannot bring in another purchaser with a higher offer under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. 

Justice Bechu Kurian Thomas observed that after the Borrowers lost their right to redeem the property, the Debts Recovery Tribunal could not have permitted the borrowers to bring in some other person to purchase the property by offering to pay an amount which is marginally higher than what was bid at, by the petitioner. 

Reliance was placed on the Apex Court decision of Valji Khimji and Company v. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd and Ors [(2008) 9 SCC 299] where it was held as such: 

"If it is held that every confirmed sale can be set aside the result would be that no auction-sale will ever be complete because always somebody can come after the auction or its confirmation offering a higher amount."

There were three parties to the case; the petitioner being the auction purchaser and the respondents being the borrowers and the asset reconstruction company (ARC) respectively. 

The loan account of the Borrowers was declared as NPA on 31-03-2011 and the decree was obtained for Rs.19 Crores. Possession of the property was taken on 29-01-2019. On two earlier occasions of sale, there were no bidders.

On the third occasion, when the auction notice was published on 03-12-2020 scheduling the sale to 29-12-2020, Petitioner submitted its bid for Rs.7.51 Crores. 16 days after the sale, Borrowers suggested that there is another purchaser for Rs.7.60 Crores, the quantum of which is only a meagre sum of Rs.9 lakhs in excess of what was bid at the auction sale.

If the said bid is accepted behind the back of the Petitioner, certainly prejudice will be caused to the Petitioner and the scheme of the Act will be contravened. 

Therefore, the petitioner was entitled to be a participant in the securitisation proceedings challenging the sale notice of 03-12-2020.

However, the Debts Recovery Tribunal rejected the petitioner's application to implead himself in the proceedings. 

The High Court found this rejection order to be perverse and ruled that the jurisdiction was exercised irregularly warranting interference under Article 227 of the Constitution of India.

Advocates S. Renjith and Aljo K. Joseph for the petitioner and Senior Advocate V.V. Asokan, Advocates Varghese C. Kuriakose and Sunil Shankar represented the respondents. 

Case Title: Sree Gokulam Chit & Finance Co.Pvt. Ltd v. Emil & Eric Hospitality Services & Ors.

Click Here To Read/Download The Order