The Importance of Registration and Auction Sanctity in Indian Property Law

The case of Sanjay Sharma vs. Kotak Mahindra Bank Ltd. & Ors. SLP (C) No. 330/2017 dated 10-12-2024, (https://indiankanoon.org/doc/114702458/)  is a case that delves into the issues of property ownership, the legality of unregistered transactions, and the sanctity of public auctions conducted under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). This case also sheds light on the balance of rights between financial institutions, borrowers, third-party claimants, and bona fide auction purchasers.

The dispute arose from the auction of a secured asset located in Old Rajinder Nagar, New Delhi. The original owner, Champa Bhen Kundia, had mortgaged the property to Associated India Financial Services Pvt. Ltd. in 2001 to secure a loan. This debt was eventually assigned to Kotak Mahindra Bank. However, before the mortgage, Champa Bhen Kundia allegedly sold the basement of the property to her son through an unregistered sale deed in 2000. Subsequent unregistered transactions followed, transferring the basement to Satnam Singh and Surinder Wadhwa in 2001, and finally to Raj Kumar Vij (Respondent No. 2). These transactions became the crux of the dispute as Respondent No. 2 later claimed ownership over the property based on these unregistered agreements.

Legal Proceedings

Debt Recovery Tribunal (DRT)

The legal battle began with Respondent Nos. 2–6 filing a case before the Debt Recovery Tribunal (DRT) under Section 17 of the SARFAESI Act, claiming rights as successors-in-interest^[1]. In 2007, the DRT directed them to deposit ₹2,00,000 to retain possession, but only Respondent Nos. 3–6 complied. Respondent No. 2 failed to pay the amount. In its 2009 order, the DRT allowed Respondent No. 2 to redeem the property by depositing ₹2,50,000 within 60 days. Subsequently, the Debt Recovery Appellate Tribunal (DRAT) upheld this order in 2010, affirming that Respondent No. 2 could redeem the property within the stipulated time frame.

Debt Recovery Appellate Tribunal (DRAT)

• After the auction in 2010, Respondent No. 2 challenged the sale before the DRT, which, in 2012, set aside the auction and allowed Respondent No. 2 to redeem the property upon payment of dues with 9% simple interest. Sanjay Sharma appealed this decision before the DRAT. In 2014, the DRAT ruled in favor of Sanjay Sharma, restoring the auction sale. The DRAT held that Respondent No. 2’s right of redemption was not absolute and could not be exercised arbitrarily or beyond the statutory limitations provided under the SARFAESI Act.
• Unhappy with the DRAT’s decision, Respondent No. 2 filed a writ petition before the Delhi High Court. In its 2016 judgment, the High Court overturned the DRAT’s ruling and reinstated the DRT’s order. The High Court allowed Respondent No. 2 to redeem the property by paying the dues and directed Kotak Mahindra Bank to refund the auction amount with interest to Sanjay Sharma. This judgment prompted the appellant, Sanjay Sharma, to approach the Supreme Court.

Supreme Court of India

Appeal by Sanjay Sharma (2024): Sanjay Sharma approached the Supreme Court, challenging the High Court’s order.

The Supreme Court delivered its final judgment on December 10, 2024, ruling in favor of Sanjay Sharma and restoring the DRAT’s decision. The Court examined the unregistered transactions cited by Respondent No. 2 and held that these agreements did not confer ownership rights under Section 54 of the Transfer of Property Act, 1882. The Court emphasized that for the sale of immovable property worth ₹100 or more, a registered deed is mandatory. Since Respondent No. 2’s claims relied on unregistered documents, his ownership rights were legally invalid.

The Supreme Court also addressed the issue of redemption rights under Section 13(8) of the SARFAESI Act. It clarified that the borrower’s right to redeem the property ceases once the auction is conducted. Despite multiple opportunities to redeem the property, Respondent No. 2 failed to exercise this right within the prescribed time frame. The Court further emphasized the sanctity of public auctions conducted under statutory frameworks, stating that such auctions should not be set aside unless there is evidence of fraud, collusion, or material irregularities. It upheld the rights of Sanjay Sharma as a bona fide purchaser, noting that he had participated in a lawful auction and fulfilled all procedural requirements.

In its judgment, the Supreme Court underlines the principles of property law, statutory compliance, and the protection of bona fide purchasers. It noted that public auctions play a vital role in maintaining the trust and efficiency of financial systems. By protecting the rights of the appellant, the Court ensured that lawful transactions under the SARFAESI Act would not be undermined by unfounded claims or procedural delays.

This case serves as a landmark ruling, reaffirming the necessity of registered documents for property transactions, the limited scope of redemption rights under the SARFAESI Act, and the sanctity of public auctions. It also highlights the importance of balancing the interests of financial institutions, borrowers, and third-party purchasers to uphold justice and maintain the integrity of property laws in India.

Conclusion

The Supreme Court’s ruling in this case reinforces the legal necessity of registered property transactions and upholds the sanctity of public auctions under the SARFAESI Act. By protecting the rights of a bona fide purchaser and ensuring adherence to statutory processes, the judgment balances the interests of creditors, borrowers, and third parties, safeguarding the integrity of financial and property laws in India.

 

Shikha Pandey

Associate

The Indian Lawyer & Allied Services

 

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^[1] A “successor in interest” simply refers someone with an ownership interest in the property, even. though they may not be obliged to repay the loan.