SUPREME COURT REFUSES TO EXERCISE INHERENT POWERS TO GRANT RELIEF TO AUCTION PURCHASER WHO HAS VIOLATED THE SUBSTANTIVE LAW
In a recent case of Union Bank of India vs Rajat Infrastructure Pvt. Ltd. and Others and M/s Sunview Assets Pvt. Ltd. Miscellaneous Application No. 1735 of 2022 in Civil Appeal No. 1902 of 2020, a two Judge Bench of the Supreme Court comprising of Justice Aniruddha Bose and Justice Bela M. Trivedi passed a Judgment dated 04-10-2023 and refused to exercise its inherent powers under Article 142 of the Constitution 1949 (Enforcement of decrees and orders of Supreme Court and unless as to discovery, etc), as the applicant-auction purchaser had violated the provisions of the substantive law i.e. of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Rules thereunder.
(i) In the present case, the Respondent No. 4- Zoom Developers Pvt. Ltd. and the Respondent No. 5- Zoom Vallabh Steel Ltd. (Borrowers) borrowed certain loan amount from the Appellant- Union Bank of India (Appellant-Bank) against which the Borrowers had mortgaged a property bearing House No.7, Sy. No. Old 168 and 169 (New Sy. No. 306 and 307) of Village Palasiayana, Manormagank, Tehsil and District Indore admeasuring 109754 Sq. Ft. (2.18 Acres) (Property). The said Property was owned by the Respondent No.1- Rajat Infrastructure Pvt. Ltd. and it mortgaged its interest in the said Property to the Appellant-Bank on 15-04-2005.
(ii) However, as the Respondents No. 4-5 failed to repay the loan, the Appellant-Bank initiated proceedings under Section 13 of SARFAESI Act (Enforcement of security interest) in respect of the mortgaged Property before the Ld. Debt Recovery Tribunal, Mumbai (DRT).
(iii) Thereafter, the Appellant-Bank issued a Notice dated 13-06-2019 for e-Auction sale of the said Property under SARFAESI Act, thereby scheduling the sale on 04-07-2019.
(iv) Meanwhile, the Respondent No. 1-Property Owner filed a Securitisation Application No. 115 of 2019 and Interlocutory Application No. 822 of 2019 therein on 30-06-2019 before the Ld. DRT to restrain the Appellant-Bank from proceeding with e-Auction sale of the Property, on the ground that the Bank had failed to get a proper valuation of the Property done, in a manner stipulated under Rule 8 (5) of the Security Interest (Enforcement) Rules, 2002 (2002 Rules) (Sale of immovable secured assets).
(v) But the Ld. DRT refused to grant the interim relief as prayed by the Respondent No. 1 in the said Interlocutory Application, vide Order dated 11-11-2019.
(vi) Aggrieved by the DRT Order dated 11-11-2019, the Respondent No. 1 filed a Writ Petition bearing WPST No. 29319 of 2019 before the Hon’ble Bombay High Court. The High Court, vide Order dated 25-11-2019, directed the Respondent No. 1 to approach the Debt Recovery Appellate Tribunal (DRAT), as it had an effective alternate remedy of appeal before DRAT without the need for any pre-deposit. However, eventually, the said High Court Order dated 25-11-2019 was set aside by the Hon’ble Supreme Court, vide Order dated 02-03-2020 passed in Civil Appeal No.1903 of 2020, to the extent that it stated that no pre-deposit was required before filing an appeal in DRAT.
(vii) During the pendency of the Writ Petition, the e-Auction sale took place on 11-11-2019 and the Respondent No. 6- M/s. Sunview Assets Pvt. Ltd. (Auction Purchaser) emerged as the highest bidder for a sum of Rs. 65.62 Crores, out of which, the Auction Purchaser deposited Rs.31,20,50,000/- with the Appellant-Bank and the balance was payable on or before the 15th day of confirmation of sale i.e. by 26-11-2019, as per Rule 9 (4) of the 2002 Rules.
(viii) Thereafter, a series of litigations took place between the Parties before the Apex Court as follows:
a) M.A. No.894 of 2020 in the disposed off Civil Appeal No.1903 of 2020: The Auction Purchaser sought for extension of time to pay sale price, owing to COVID-19 Pandemic. The same was allowed by the Supreme Court, vide Order dated 20-03-2020 and extension was granted till 30-04-2020 and that no further extension would be granted.
b) M.A. No.922 of 2020 in the disposed off Civil Appeal No.1903 of 2020: The Auction Purchaser sought for further extension of time to pay sale price, owing to COVID-19 Pandemic. The same was allowed by the Supreme Court, vide Order dated 12-05-2020, considering the Lockdown situation and thereby, extension was granted till 2 months after lifting of Lockdown in the State of Maharashtra. However, the Auction Purchaser was directed to pay interest for a period starting from 20-03-2020 till the date of deposit.
c) The Auction Purchaser partly paid the amount on 15-03-2022.
d) M.A. No.1126 of 2022 in the disposed off Civil Appeal No.1903 of 2020: The Auction Purchaser sought for further extension of time to pay balance sale price. However, later, the said Application was not pressed by the Auction Purchaser.
e) M.A. No.1164 of 2022 in the disposed off Civil Appeal No. 1903 of 2020- Thereafter, the Respondent No. 1- Property Owner filed the said Miscellaneous Application and sought for (1) recalling of the Order dated 12-05-2020 in which the Supreme Court had granted a 2nd extension of time to the Auction Purchaser and (2) directions to the Appellant-Bank to initiate the proceedings under Section 14 of the SARFAESI Act (Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset) and (3) action against the officials of the Appellant-Bank and the Auction Purchaser, thereby alleging fraud, collusion and conspiracy. However, later, the said Application was not pressed by the Respondent No. 1.
f) The Apex Court, vide Interim Order dated 11-07-2022, left it open for the Auction Purchaser to make the requisite payment before the next date, without deciding on merits as to whether the Auction Purchaser is entitled to further extension. Accordingly, the Auction Purchaser deposited a further amount with the Bank on 22-07-2022.
g) M.A. No.107669 of 2022 in the disposed off Civil Appeal No. 1903 of 2020- Thereafter, the Auction Purchaser filed the Interlocutory Application and sought waiver or reduction of interest amount as earlier directed by the Supreme Court in Order dated 12-05-2020. However, later, the said Application was not pressed by the Auction Purchaser. Accordingly, the Auction Purchaser deposited the interest amount and the same was acknowledged by the Bank on 26-08-2022.
Supreme Court Observations
Thereafter, the Auction Purchaser filed Miscellaneous Application No. 1735 of 2022 in Civil Appeal No. 1902 of 2020 before the Apex Court seeking directions to be issued to the Appellant-Bank to issue a sale letter in favor of the Auction Purchaser in respect of the Property.
The Respondent No. 1- Property Owner had contested the said Application stating that as the Auction Purchaser had failed to comply with the Supreme Court Orders on earlier occasions and as there is alleged collusion between the Auction Purchaser and the Appellant-Bank, hence, the Application seeking directions to the Appellant-Bank to issue sale certificate is not maintainable.
The Apex Court, vide Order dated 04-10-2023, made the following observations:
1) That, as per 2002 Rules, the process to be followed after confirmation of sale by a secured creditor is as follows:
1.1) As per Rule 9 (4) (Time of sale, issues of sale certificate and delivery of possession, etc), the purchaser ought to pay the balance amount by the 15th day of confirmation of sale of property or within a mutually extended period not being more than three months from the date of confirmation of sale.
1.2) Failing which, as per Rule 9 (5), the initial deposit made by the purchaser will be forfeited to the secured creditor and the property shall be resold and further, the defaulting purchaser would forfeit all claims to the property.
1.3) However, upon confirmation of sale by the secured creditor, if the terms of payment are complied with by the purchaser, then as per Rule 9 (6), the authorised officer exercising the power of sale under the SARFAESI Act, will issue a certificate of sale of property in favor of the purchaser.
2) That in the present case, the sale was confirmed in favor of the Auction Purchaser on 11-11-2019 for a sum of Rs. 65.62 Crores, out of which, the Auction Purchaser deposited Rs.31,20,50,000/- with the Appellant-Bank and the balance was payable on or before the 15th day of confirmation of sale i.e. by 26-11-2019. However, the said deadline was extended from time-to-time, on account of COVID-19 Pandemic and Lockdown, till 2 months from the date of lifting of Lockdown in Maharashtra, provided the Auction Purchaser deposits interest from 20-03-2020 till date of deposit.
3) However, the Auction Purchaser instead of making deposit of the entire amount with the interest, deposited part amounts on 30-03-2021, 15-03-2022, 22-07-2022 and finally, on 26-08-2022.
4) That the Supreme Court had earlier in Suo Motu Writ Petition (C) No.03 of 2020 extended the limitation period in all court proceedings on account of outbreak of COVID-19 Pandemic up to 28-02-2022. Thus, accordingly, keeping in view the Order dated 12-05-2020, the Auction Purchaser had to deposit the amount within 2 months of 28-02-2022, i.e. on or before 30-04-2022.
5) Hence, the deposits made beyond 30-04-2022 i.e. on 22-07-2022 and 26-08-2022 were not in compliance with the Order dated 12-05-2020 and were in fact, in violation of the procedure stipulated in the statutory provision of Rule 9 of the 2002 Rules. But the Auction Purchaser submitted that the Bench ought to consider the said deposits to be in compliance of the Court Order by exercising inherent powers under Article 142 of the Constitution.
6) However, the Bench observed as follows:
i) “The court in exercise of powers under Article 142 cannot ignore any substantive statutory provision dealing with the subject”
ii) “The plenary powers of the Supreme Court under Article 142 are inherent in nature and are complementary to those powers which are specifically conferred on the court by various statutes.”
iii) “These powers though are of a very wide amplitude to do complete justice between the parties, cannot be used to supplant the substantive law applicable to the case or to the cause under consideration of the court.”
iv) Hence, “the trend emerging in this Court of filing repeated applications, styled as Miscellaneous Applications, without any legal foundation has been strongly deprecated by this Court.”
Thus, based on the aforesaid observations, the Apex Court held that the Auction Purchaser had violated the provisions of the 2002 Rules read with the directions of the Supreme Court Order dated 12-05-2020, hence, the Miscellaneous Application filed by the Auction Purchaser seeking directions to the Appellant-Bank for issue of sale certificate in its favor, on account of deposit of full amount with interest, was dismissed.
Indian Courts have time and again deprecated a litigant’s attempt to get favourable orders when the litigant has approached the Court with unclean hands. The law of equity demands that anyone who approached the Court for relief must do so with clean hands. This Doctrine necessitates the Court to deny equitable relief to a party who has violated good faith by approaching the Court with unclean hands. In a significant landmark judgment passed by the Hon’ble Supreme Court of India in Ramjas Foundation and another vs. Union of India and others, (2010) 14 SCC 38, it was held as follows:-
“The principle that a person who does not come to the Court with clean hands is not entitled to be heard on the merits of his grievance and, in any case, such person is not entitled to any relief is applicable not only to the petitions filed under Articles 32, 226 and 136 of the Constitution but also to the cases instituted in others courts and judicial forums.”
“The object underlying the principle is that every Court is not only entitled but is duty bound to protect itself from unscrupulous litigants who do not have any respect for truth and who try to pollute the stream of justice by resorting to falsehood or by making misstatement or by suppressing facts which have bearing on adjudication of the issue(s) arising in the case.”
The Indian Lawyer
Sushila Ram Varma
The Indian Lawyer