Bank of Baroda vs M/s Karwa Trading Company case

Bank of Baroda  vs M/s Karwa Trading Company case

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.363 OF 2022
Bank of Baroda             ..Appellant (S)
VERSUS
M/s Karwa Trading Company & Anr.                  ..Respondent (S)
J U D G M E N T 
M. R. Shah, J.
1. Feeling   aggrieved   and   dissatisfied   with   the   impugned
judgment   and   order   dated   20.09.2017   passed   by   the
Division   Bench   of   the   High   Court   of   Judicature   for
Rajasthan Bench at Jaipur in D.B. Special Appeal Writ
No.349 of 2017, by which the Division Bench of the High
Court has allowed the said intra­court appeal and has
quashed   and   set   aside   the   judgment   and   order   dated
12.01.2017 passed by the learned Single Judge and has
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directed   that   if   the   respondent   ­   borrower   deposits   a
further sum of Rs.17 lakhs to the bank, the bank shall
release the property and handover possession along with
the   title   deeds   of   the   residential/housing   property   in
question to the borrower and by which the Division Bench
of   the   High   Court   has   further   directed   that   the   SA
No.9/2014 filed by the borrower before the learned Debt
Recovery Tribunal (DRT) is restored to its original number
to  be heard on  merits,  the appellant  herein  ­ Bank of
Baroda   –   financial   institution   –   secured   creditor   has
preferred the present appeal. 
2. The facts leading to the present appeal in nutshell are as
under: ­
2.1 That the appellant herein – bank granted term loan of
Rs.100 lakhs and cash credit limit of Rs.95 lakhs to the
respondent   –   borrower   (hereinafter   referred   to   as   the
borrower) against the security of two mortgaged properties
namely (i) industrial plot situated at Chittor Road, Bundi
measuring   500   Sq.Mtrs.   and   (ii)   a   residential/housing
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property   situated   at   1­Ja­27,   Vikas   Nagar,   Bundi
measuring 198 Sq.Mtrs. That the borrower failed to repay
the   term   loan   as   per   the   terms   and   conditions   of   the
agreement. The account of the borrower became NPA on
31.10.2012.   A   notice   under   Section   13(2)   of   the
Securitisation and Reconstruction of Financial Assets and
Enforcement   of   Security   Interest   Act,   2002   (hereinafter
referred to as the SARFAESI Act, 2002) dated 07.01.2013
was   served   upon   the   borrower   demanding   a   sum   of
Rs.1,85,37,218.80/­ The bank took symbolic possession of
the immovable property/residential house and also issued
a notice under Section 13(4) of the SARFAESI Act, 2002 on
22.08.2013. An application was moved under Section 14 of
the SARFAESI Act, 2002 which came to be allowed on
08.11.2013 and with the police assistance the bank took
possession of the residential house, which was one of the
mortgaged properties of the borrower, on 25.11.2013.
2.2 That thereafter the bank issued a sale notice by public
auction of the residential property dated 16.12.2013. The
reserve price fixed was Rs.48.65 lakhs for sale of the said
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secured asset in terms of the procedure prescribed under
Rule   8   read   with   Rule   9   of   the   Security   Interest
(Enforcement) Rules, 2002. The date of auction notified
was 20.01.2014. The borrower challenged the auction of
the   bank   by   filing   Securitisation   Application   (SA)
No.09/2014 under Section 17 of the SARFAESI Act, 2002
before the DRT, Jaipur. An interim order was passed by
the   DRT   that   if   the   borrower   deposits   Rs.20   lakhs   on
20.01.2014 by 12.00 noon, the bank shall accept the bids
but not finalize the bids/confirm the sale of the secured
asset and if the borrower commits default in payment of
balance   amount   of   Rs.28.65   lakhs,   the   restraint   order
shall stand vacated automatically. The DRT also observed
that if the borrower deposits Rs.48.65 lakhs with the bank
on   or   before   27.01.2014,   the   bank   shall   deliver   the
possession of the secured asset along with the original title
deeds of the property in question. It is not in dispute that
the borrower deposited Rs.48.65 lakhs with the bank.
2.3 That the aforesaid interim order passed by the DRT came
to be challenged by the bank in appeal before the DRAT
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(Debt   Recovery   Appellate   Tribunal).   It  was  the   case   on
behalf of the appellant ­ bank that in public auction the
bank had received bids up to Rs.71 lakhs and the amount
of debt due against the borrower at that point of time was
above Rs.2 crores and if at all the borrower is interested or
keen to redeem the mortgaged property, he could do so by
discharging the entire liability and not by making payment
of Rs.48.65 lakhs, as ordered by the DRT. It was also the
case on behalf of the appellant – bank that order passed by
the DRT dated 17.01.2014 was in violation of Section 13(8)
of the SARFAESI Act, 2002. However, it was submitted on
behalf   of   the   bank   that   the   bank   may   not   find   any
difficulty in releasing the subject property provided the
borrower is ready to pay a sum of Rs.71 lakhs which is the
highest bid available with the bank. It was submitted that
even this amount would not ultimately go to discharge the
entire liability outstanding against the borrower but still if
the borrower deposits Rs.71 lakhs, the bank may not find
difficulty to release the subject property in question. 
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2.4 The DRAT dismissed the appeal by observing that as the
reserve   price   was   Rs.48.65   lakhs   which   the   borrower
deposited and the bank had received the bids ranging from
Rs. 61.50 lakhs to Rs.71 lakhs and the alleged bidders
failed to deposit the earnest money and when the borrower
is ready to purchase the said property for Rs.71 lakhs no
fault can be found with the order passed by DRT. The
order passed by the DRAT dismissing the appeal preferred
by the bank was the subject matter of challenge before the
learned Single Judge. The learned Single Judge set aside
both the orders of DRT and DRAT vide its judgment and
order dated 12.01.2017 primarily for the reason that the
said orders were in contravention of Section 13(8) of the
SARFAESI Act, 2002. The judgment and order passed by
the   learned   Single   Judge   was   challenged   before   the
Division Bench of the High Court by the borrower by way
of present intra­court appeal. By the impugned judgment
and   order,   the   Division   Bench   of   the   High   Court   has
allowed the said appeal and has quashed and set aside the
judgment and order passed by the learned Single Judge
and has directed the bank to release the secured property
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(residential house) on the borrower depositing a further
sum   of   Rs.17   lakhs   to   the   bank   and   handover   the
possession along with the title deeds to the borrower. 
          
2.5 Feeling   aggrieved   and   dissatisfied   with   the   impugned
judgment and order passed by the Division Bench of the
High   Court,   the   bank   –   financial   institution   –   secured
creditor preferred the present appeal.  
3. Ms. Praveena Gautam learned counsel appearing on behalf
of the appellant – bank has vehemently submitted that in
the facts and circumstances of the case the Division Bench
of the High Court has committed a grave error in directing
the   bank   to   release   the   property   and   handover   the
possession   along   with   the   title   deeds   of   the
residential/housing property in question to the borrower
on making a further payment of Rs.17 lakhs only.
3.1 It is vehemently submitted by learned counsel appearing
on behalf of the appellant – bank that even as observed by
the Division Bench of the High Court the borrower did not
come forward to redeem the property but to release the
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property in favour of the purchaser on payment of the
reserve price of the mortgaged property in terms of the
auction notice. It is submitted that therefore when the
dues were of Rs. 1,85,37,218.80/­ at the time when the
notice   dated   07.01.2013   under   Section   13(2)   of   the
SARFAESI   Act,   2002   was   issued   and   served   upon   the
borrower, on payment of a sum of Rs.71 lakhs only the
borrower cannot be discharged from his liability to pay the
entire dues. 
3.2 It is further submitted by learned counsel appearing on
behalf of the appellant – bank that what was understood
and agreed by the bank was that on payment of Rs.71
lakhs which was the highest bid received, the borrower
may be handed over the possession. It is submitted that
however, it was specifically made clear that on payment of
Rs.71   lakhs   the   said   amount   would   not   ultimately
discharge   the   entire   liability   outstanding   against   the
borrower.   It   is   submitted   that   aforesaid   has   been
misinterpreted and/or misconstrued by the Division Bench
of the High Court and it is understood that on deposit of
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Rs.71   lakhs   the   bank   agreed   that   the   borrower   be
discharged   from   his   entire   liability   outstanding   against
him. 
3.3 It is further submitted that the Division Bench of the High
Court has also not property appreciated that the offer of
Rs.71   lakhs   in   the   auction   was   received   in   the   year
2013/2014 and thereafter the valuation has increased. It
is submitted that even the outstanding dues have also
gone   up   which   was   Rs. 1,85,37,218.80/­   as   on
07.01.2013.   It   is   submitted   that   therefore   the   Division
Bench of the High Court has materially erred in treating
and/or  considering  Rs.71   lakhs  as   sale/purchase  price
and/or   the   value   of   the   residential   property.   It   is
submitted that therefore when the Division Bench of the
High Court passed the judgment and order if the property
could have been auctioned it would have fetched much
more   price   than   Rs.71   lakhs.   It   is   submitted   that   on
deposit   of   Rs.71   lakhs   only   the   borrower   cannot   be
discharged from his entire liability. It is submitted that the
impugned   judgment   and   order   passed   by   the   Division
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Bench of the High Court is just contrary to Sub­section (8)
of Section 13 of the SARFAESI Act, 2002. It is submitted
that as per Sub­section (8) of Section 13 of the SARFAESI
Act, 2002 only on deposit/payment of entire payment of
dues   of   the   secured   creditor   together   with   all   costs,
charges and expenses incurred by secured creditor to the
secured creditor, at any time before the date of publication
of notice for public auction or inviting quotations or tender
from public, the secured asset shall not be sold by the
secured creditor. It is submitted that in the present case
the amount due was much more than Rs.71 lakhs. It is
submitted   that   therefore   the   impugned   judgment   and
order passed  by the  Division  Bench  of  the  High  Court
directing to release the secured property just on payment
of a total sum of Rs.65.65 lakhs is just contrary to Subsection (8) of Section 13 of the SARFAESI Act, 2002. 
3.4 It is further submitted by learned counsel appearing on
behalf   of   the   appellant   –   bank   that   when   the   subject
property was mortgaged to the bank in the housing loan
account borrowed by the borrower and without satisfying
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the entire outstanding dues the mortgaged property cannot
be discharged. 
3.5 It is further submitted by learned counsel appearing on
behalf of the appellant – bank that the Division Bench of
the High Court has failed to appreciate the reserve price of
Rs.48.65 lakhs was based on the valuation carried out by
the valuer of the bank and the process of the auction of
the subject property was through public auction in which
an actual market price could have been fetched. There
could not have been any directions for redemption of the
secured   subject   property   on   making   payment   of   the
reserve price or having paid the average of the two highest
bid to the borrowers unless the entire dues including the
costs and expenses are paid.     
3.6 It is further submitted by learned counsel appearing on
behalf of the appellant – bank that the Division Bench of
the High Court has not properly appreciated the fact that
the initial order passed by the DRT which was the subject
matter before the DRAT challenged by the bank by which
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the DRT directed to release/handover the possession of the
mortgaged property to the borrower on deposit of Rs.48.65
lakhs which was the reserve price, was an interim order.
Therefore, the Division Bench of the High Court ought not
to have passed the final order discharging the borrower
from his entire liability just on payment of Rs.65.65 lakhs.
3.7 Making the above submissions it is prayed to allow the
present appeal.     
4. The present appeal is vehemently opposed by Mrs. Christi
Jain   learned   counsel   appearing   on   behalf   of   the
respondents – borrowers. 
4.1 It is vehemently submitted by learned counsel appearing
on behalf of the borrower that as the highest bid received
by the bank in the public auction was Rs.71  lakhs which
the borrower agreed to deposit/pay and even earlier the
borrower deposited a sum of Rs.48.65 lakhs as per the
order   passed   by   the   DRT   dated   17.01.2014,   thereafter
when the Division Bench of the High Court has directed
the bank to release the residential property on deposit of a
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further sum of Rs.17 lakhs (total making it Rs.65.65 lakhs)
and thereafter has directed to handover the original title
deeds to the borrower, the impugned judgment and order
passed by the High Court is equitable order which does
not warrant any interference by this Court in exercise of
powers conferred under Article 136 of the Constitution of
India. 
4.2 It is submitted that even the learned counsel appearing on
behalf of the appellant – bank agreed that on payment of a
total sum of Rs.65.65 lakhs the property in question may
be  released.  It  is   submitted  that   therefore  the  Division
Bench of the High Court has not committed any error
which warrants interference of this Court in exercise of
powers conferred under Article 136 of the Constitution of
India. 
5. We have heard the learned counsel appearing on behalf of
the respective parties at length. 
6. At   the   outset,   it   is   required   to   be   noted   that   by   the
impugned judgment and order the Division Bench of the
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High Court has directed the bank – secured creditor to
release the secured property and handover the possession
along with original title deeds of the residential/housing
property in question to the borrower on payment of a total
sum of Rs.65.65 lakhs. Thus, by the impugned judgment
and   order   the   Division   Bench   of   the   High   Court   has
released   the   secured   property/mortgaged   property   on
payment of a total sum of Rs.65.65 lakhs against the total
dues   which   as   such   as   on   07.01.2013   was
Rs.1,85,37,218.80/­. 
6.1  From the impugned judgment and order passed by the
High Court it appears that the Division Bench of the High
Court has treated and/or considered the market value of
the mortgaged property at Rs.71 lakhs. The DRT when
initially granted the interim relief in favour of the borrower
which was the subject matter before the DRAT and the
learned Single Judge and thereafter before the Division
Bench   of   the   High   Court,   directed   to   handover   the
possession of the mortgaged property to the borrower on
payment   of   Rs.48.65   lakhs   which   was   the   reserve
price/base price. The possession was taken over by the
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bank under the provisions of the SARFAESI Act and after
following the proceedings as required under Section 13 of
the   SARFAESI  Act,   the  mortgaged   property   was  put   to
auction   and   at   that   stage   the   borrower   preferred   an
appeal/application before the DRT under Section 17 of the
SARFAESI Act and as such the said appeal can be said to
be   technically   pending   as   the   order   dated   17.01.2014
passed   by   the   DRT   was   an   interim   order.   When   the
auction proceedings were initiated under Section 13 of the
SARFAESI Act and after the bank took over the possession
under Section 14 of the SARFAESI Act as per Sub­section
(8) of Section 13 of the SARFAESI Act the secured asset
shall   not   be   sold   and/or   transferred   by   the   secured
creditor, where the amount dues of the secured creditor
together with all costs, charges and expenses incurred by
him is tendered by the borrower or debtor to the secured
creditor at any time before the date of publication of notice
for public auction or inviting quotations or tender from
public   or   private   treaty   for   transfer   by   way   of   lease
assignment or sale of the secured assets. In the present
case   though   as   on   07.01.2013   the   dues   were   Rs.
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Rs.1,85,37,218.80/­ and without the secured property was
sold in a public auction the Division Bench of the High
Court has directed to release the mortgaged property and
handover the possession along with original title deeds to
the borrower on the borrower depositing/paying a total
sum of Rs.65.65 lakhs only. At this stage, it is required to
be noted that Rs.65.65 lakhs was not the amount realized
by selling the mortgaged property in a public auction. It
was only a highest bid received and before any further
auction proceedings were conducted, the DRT passed an
interim order directing to handover the possession and
handover the original title deeds on payment of Rs.48.65
lakhs which was the base price, which was the subject
matter   before   the   DRAT   and   before   the   learned   Single
Judge. Therefore, the borrower did not deposit and was not
ready to deposit the entire amount of dues with secured
creditor with all costs, charges and expenses incurred by
the secured creditor. Therefore, it was open for the secured
creditor to sell the mortgaged property which was put as a
security and realize the amount by selling it in a public
auction. At this stage, it is required to be noted that even
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as per the Division Bench of the High Court the borrower
made an offer to deposit/pay Rs.71 lakhs as a purchaser
and   not   by   way   of   redeeming   the   mortgaged   property.
Therefore, the impugned judgment and order passed by
the Division Bench of the High Court directing to release
the mortgaged property/secured property and to handover
the possession as well as the original title deeds to the
borrower on payment of a total sum of Rs.65.65 lakhs only
is   contrary   to   Sub­section   (8)   of   Section   13   of   the
SARFAESI Act.      
7. Even otherwise on making the payment i.e. Rs.65.65 lakhs
against   the   total   dues   Rs.1,85,37,218.80/­   as   on
07.01.2013   the   entire   liability   outstanding   against   the
borrower cannot be said to have been discharged. Even if
the mortgaged property would have been sold in a public
auction say for an amount of Rs.71 lakhs and the bank
has realized Rs.71 lakhs by selling the mortgaged property,
in that case also the liability of the borrower to pay the
balance   amount   would   still   continue.   By   selling   the
mortgaged   property/secured   property   it   cannot   be   said
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that the borrower is discharged from the entire liability
outstanding against him. The liability of the borrower with
respect  to the balance  outstanding dues would still  be
continued. Therefore, the Division Bench of the High Court
has   erred   in   directing   to   release   the   mortgaged
property/secured property and to handover the possession
along   with   the   original   title   deeds   to   the   borrower   on
payment of a total sum of Rs.65.65 lakhs only. 
7. 1  At the cost of repetition it is observed that as such the
bank had already initiated the proceedings under Section
13 of the SARFAESI Act and even the possession of the
mortgaged property was taken over by the bank under
Section   14   of   the   SARFAESI   Act   and   thereafter   the
mortgaged property was put to sale by a public auction
and at that stage the borrower wanted to stall the auction
proceedings and restrain the secured creditor/bank from
selling the property. In such a situation the bank/secured
creditor   can   be   restrained   from   selling   the   mortgaged
property/secured   property   where   the   borrower   deposits
entire   dues   that   was   Rs.1,85,37,218.80/­   as   on
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07.01.2013 with the secured creditor. Therefore, the DRT
in   its   order   dated   17.01.2014   which   as   such   was   an
interim relief order pending the appeal under Section 17 of
the SARFAESI Act was not justified in directing to release
the mortgaged property and handover the possession along
with the original title deeds to the borrower on payment of
Rs.48.65 lakhs only which was the base price/ reserve
price, which the Division Bench of the High Court has
increased to Rs.65.65 lakhs on the ground that the highest
bid received was Rs.71 lakhs (which was not materialized
as the highest bidder did not come forward). Unless and
until the borrower was ready to deposit/pay the entire
amount payable together with all costs and expenses with
the secured creditor, the borrower cannot be discharged
from the entire liability outstanding. Therefore, as such no
order could have been passed either by the DRT and/or by
the Division Bench of the High Court to discharge the
borrower   from   the   entire   liability   outstanding   and   to
discharge   the   mortgaged   property   and   handover   the
possession along with original title deeds to the borrower.
As such the learned Single Judge rightly set aside the
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orders   passed   by   the   DRT   as   well   as   by   the   DRAT
considering   Section   13(8)   of   the   SARFAESI   Act.   The
learned Single Judge was right in setting aside the order
passed by the DRT confirmed by the DRAT. The Division
Bench of the High Court has erred in interfering with the
order passed by the learned Single Judge and has erred in
directing   to   release   the   mortgaged   property/secured
property   and   handover   the   possession   along   with   the
original title deeds to the borrower on payment of a total
sum of Rs.65.65 lakhs only. 
7.2  However, at the same time the order dated 17.01.2014
passed   by   the   DRT   was   an   interim   relief   order   in   SA
No.9/2014 and therefore even if the interim relief order is
set aside by this Court the appeal/application will have to
be decided and disposed of on merits and on whatever
grounds which may be available to the borrower. However,
at   the   same   time   the   bank   cannot   be   restrained   from
selling   the   mortgaged   property   by   holding   the   public
auction   and   realise   the   amount   and   recover   the
outstanding dues, unless the borrower deposits/pays the
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entire   amount   due   and   payable   along   with   the   costs
incurred by the secured creditor as per Section 13(f) of the
SARFAESI Act.                 
8. In view of the above and for the reasons stated above the
present   appeal   succeeds.   The   impugned   judgment   and
order dated 20.09.2017 passed by the Division Bench of
the High Court in DBSAW No.349/2017 is hereby quashed
and set aside and the order passed by the learned Single
Judge quashing and setting aside the order passed by the
DRT dated 17.01.2014 confirmed by the DRAT is hereby
restored.           
           It will be open for the appellant – bank to proceed
further   with   the   auction   proceedings   of   the   mortgaged
property in auction i.e. residential house by inviting the
bids afresh and whatever the amount is already paid by
the borrower, may be in pursuance to the interim relief
order passed by the DRT and/or the impugned judgment
and order passed by the Division Bench of the High Court,
the same may be adjusted against the dues/total liability
of   the   borrower.   At   the   same   time   DRT   to   decide   and
21
dispose  of  SA  No.09/2014  filed  by the  borrower  under
Section 17 of the SARFAESI Act in accordance with law
and on its own merits and on the whatever grounds which
may be available to the borrower. It is also observed and
directed that in case pursuance to the orders passed by
the DRT and the Division Bench of the High Court if the
borrower is put into possession, considering the fact that
the mortgaged property is a residential property, till the
auction is finalized and the mortgaged property is sold in a
public auction, the possession of the borrower may not be
disturbed. However, it is directed that on public auction
being finalized and the mortgaged property is sold by the
bank   the   borrower   has   to   handover   the   peaceful   and
vacant possession of the property to the bank and/or the
auction purchaser. However, in the meantime the original
title deeds of the mortgaged property be retained by the
bank. In the meantime, and till the borrower remains in
possession of the mortgaged property as per the present
order and till the mortgaged property is sold in a public
auction, the borrower shall not transfer and/or alienate
the   mortgaged   property   in   any   manner   whatsoever
22
including the possession. The present appeal is allowed
with   the   above   further   observations   and   directions
accordingly. In the facts and circumstances of the case
there shall be no order as to costs. 
…………………………………J.
                  (M. R. SHAH)
…………………………………J.
 (SANJIV KHANNA)
New Delhi, 
February, 10th 2022.
23

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

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