Supreme Court – Daily Orders
Sanjay Sharma vs Kotak Mahindra Bank Ltd on 10 December, 2024
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. /2024
(@SLP (C) No. 330/2017)
SANJAY SHARMA APPELLANT(S)
VERSUS
KOTAK MAHINDRA BANK LTD. & ORS. RESPONDENT(S)
O R D E R
Leave granted.
2. Being aggrieved by the order dated 30.05.2016 passed by the
Division Bench of the Delhi High Court in W.P.(C) No.6881/2014, the
appellant is before this Court.
3. For the sake of convenience, the parties herein may be
referred to in terms of their status in the entire gamut of
proceedings: the appellant herein is the auction-purchaser who was
successful in the auction conducted by respondent No.1-Kotak
Mahindra Bank Ltd. (“respondent No.1”) on 21.12.2010 inasmuch as
the sale certificate has also been issued in favour of the
appellant on 27.12.2010. Respondent No.1 is the Bank to whom Champa
Bhen Kundia is indebted as a borrower; respondent No.2 is said to
be the person who is in possession of the scheduled premises
pursuant to an Agreement to sell and a General Power of Attorney;
respondent Nos.3 to 8 have really no connection with the present
dispute in question.
Signature Not Verified
Digitally signed by
RADHA SHARMA
Date: 2025.01.04
12:55:15 IST
Reason:
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4. Briefly stated, the facts of this case are that the
secured asset, in this case, is the piece and parcel of land
(measuring 55.7 Sq. yards) and the building and the Basement of
House property bearing no. 2/22, Old Rajinder Nagar, New Delhi-
110018 (hereinafter referred to as “secured asset”). One Champa
Bhen Kundia was the owner of the said secured asset. The basement
of the secured asset was sold in favour of her son Chandu Bhai vide
an unregistered sale deed dated 28.04.2000 allegedly for a
consideration of Rs.4,00,000/-. Chandu Bhai again created an
unregistered document to show the sale of the basement of the
secured assets in favour of Satnam Singh and Surinder Wadhwa vide
an unregistered sale deed dated 30.03.2001 for an alleged
consideration of Rs.90,000/-. Further, once again, Satnam Singh and
Surinder Wadhwa created unregistered document, i.e., Agreement to
Sell dated 23.04.2001 for the sale of the basement of the secured
assets in favour of Raj Kumar Vij, i.e., respondent No. 2.
5. Be that as it may, Champa Bhen Kundia, the original owner of
the secured asset took a loan from M/s Associated India Financial
Service Pvt Ltd and mortgaged the secured asset on 16.06.2001. Said
financing Company M/s Associated India Financial Service P Ltd, was
taken over by M/s Citi Financial Consumer India Ltd which
ultimately assigned its debts to M/s Kotak Mahindra Bank, i.e.,
respondent No. 1.
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6. Respondent No.1 served notice dated 28.10.2006 under Section
13 of the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (for short “SARFAESI
Act”) to Champa Bhen Kundia as the loan was not repaid. The notice
remained non-complied, therefore, respondent No. 1 got the secured
asset attached and took the physical possession of the secured
asset by appointment of a Court Receiver under Section 14 of the
SARFAESI Act under the orders of Chief Metropolitan Magistrate,
Delhi vide order dated 06.09.2007.
7. After the physical possession of the secured asset was taken
over by the Court Receiver, respondent Nos. 2 to 6 herein filed an
application under Section 17 of the SARFAESI Act being S.A. No.
118/2007 before the Debt Recovery Tribunal–III (“DRT”) claiming
themselves to be the successor-in-interest of the principal
borrowers and purchasers of the property.
8. By its order dated 23.11.2007, the DRT directed respondent
Nos.2 to 6 to deposit Rs.2,00,000/- by 26.11.2007 and further
directed respondent No.1 to restore their possession on payment of
the said amount. Respondent Nos. 3 to 6 availed the benefit of the
order dated 23.11.2007 and deposited the amount. However,
respondent No.2 herein did not make the said payment. Subsequently,
by order dated 08.09.2009, the DRT disposed of the S.A. No.
118/2007, inter alia, directing respondent No.2 to pay respondent
No.1 a sum of Rs.2,50,000/- approximately within a period of sixty
days from the date of receipt of the order. The DRT further went on
to hold that if respondent Nos.3 to 6 deposit the remaining amount
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with the Bank, the authorised officer of the bank shall immediately
issue a “No Dues Certificate” and return the Original Title Deed to
the five appellants before the DRT after obtaining five
Certificates of Acknowledgment from them. The said order of DRT
dated 08.09.2009 was challenged by respondent Nos.3 to 6 before the
Debt Recovery Appellate Tribunal, New Delhi (“Appellate Tribunal”)
by filing Appeal No.3 of 2010. However, this came to be disposed of
by an order dated 02.06.2010 without interfering with the order
passed by the DRT dated 08.09.2009.
9. Thereafter, respondent No.1 gave a notice in the Newspaper
“Business Standard” on 20.11.2010 regarding a public auction to be
conducted on 21.12.2010 with respect to the basement of the secured
asset. The appellant being the successful bidder made the payment
of the bid amount of Rs. 7,50,000/- to respondent No. 1 and the
latter issued a confirmation certificate dated 22.12.2010.
Thereafter, respondent No. 1 issued a sale certificate in favour of
the appellant on 27.12.2010.
10. Being aggrieved, respondent No.2 approached the Appellate
Tribunal in MA Nos.22 and 23 of 2011 in Appeal No. 3 of 2010
contending that respondent No.2 was not summoned at all in the
proceedings before the Appellate Tribunal while passing the order
dated 02.06.2010 while there is a dispute concerning the ownership
of the basement of the secured asset. By order dated 21.02.2011,
the Appellate Tribunal directed the DRT to examine the case of
respondent No.2. Pursuant to the remand, the DRT by its order dated
30.08.2012, allowed the case of respondent No.2 and set aside the
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auction holding that respondent No.2 has the right of redemption
under Section 13(8) of the SARFESI Act subject to deposit of amount
due to respondent No.1 with 9% simple interest.
11. Being aggrieved by the above order dated 30.08.2012, the
appellant approached the Appellate Tribunal and filed Appeal No.
368 of 2012. By order dated 03.09.2014, the Appellate Tribunal
allowed the appeal preferred by the appellant and set aside the
order dated 30.08.2012. Thereby, the auction sale was restored. The
Appellate Tribunal observed that respondent No.2 cannot be given an
unfettered right to deposit the amount at any time according to his
convenience. The Appellate Tribunal further observed that there are
serious disputes regarding the title of respondent No.2 to be a
subsequent purchaser of the secured asset.
12. Being aggrieved, respondent No.2 approached the High Court by
filing Writ Petition (Civil) No.6881 of 2014. By the impugned
order, the High Court has set aside the order dated 03.09.2014
passed by the Appellate Tribunal and has restored the order dated
30.08.2012 passed by the DRT in setting aside the auction sale and
has directed respondent No.2 herein to comply with the order of the
High Court within a period of thirty days. Consequently, the
appellant herein was entitled to a refund of the amount
Rs.7,50,000/-(Rupees Seven Lakhs and Fifty Thousand Only) deposited
by him with such interest as he would be entitled to as per the
order passed by the DRT. The High Court has also permitted
respondent No.2 to redeem the mortgage by paying proportionately
and to recompense the appellant to pay interest at 9% of the sum
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deposited by the appellant and consequently, has disposed of the
Writ Petition. Hence this instant appeal.
13. We have heard learned counsel for the appellant, learned
counsel for respondent No.1 and learned counsel for respondent No.2
and we have perused the material on record.
14. Learned counsel for the appellant submitted that the appellant
is the successful auction-purchaser of the scheduled property which
was conducted by respondent No.1 on 21.12.2010; that he had
purchased the said property for a total valuable consideration of
Rs.7,50,000/- being the highest bidder and this bid being accepted,
sale certificate dated 27.12.2010 was also issued to the appellant
herein. However, respondent No.2 has sought to get the sale
certificate cancelled and consequently, the High Court has held in
favour of respondent No.2.
15. Learned counsel for the appellant submitted that respondent
No.2 has no right, title and interest in the scheduled property and
despite the same is seeking to set aside the auction which was
conducted by respondent No.1 and is trying to get the sale
certificate dated 27.12.2010 set aside. He submitted that
respondent No.2 has no locus standi to interfere in the matter and
therefore, the appeal may be allowed by restoring the order dated
03.09.2014 and setting aside the order passed by the Appellate
Tribunal and setting aside the order dated 30.08.2012 passed by the
DRT.
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16. On the other hand, learned counsel for respondent No.1
submitted that the Bank has acted in accordance with Section 13 of
the SARFAESI Act and when the original borrower Champa Bhen Kundia
did not respond to the notices issued under the said provisions,
the Bank was constrained to put up the secured asset for auction
and consequently, seek to recover the unpaid debt by the original
borrower Champa Bhen Kundia. He submitted that the auction was
conducted by respondent No.1 subsequent to the proceeding under
Section 14 of the SARFAESI Act and on taking possession of the
secured asset. That respondent No.1 has not been in a position to
comply with handing over of possession to the appellant herein
owing to the litigation that was commenced by respondent No.2
herein.
17. In the circumstances, this Court may protect the action taken
by respondent No.1 and, accordingly, pass appropriate orders in
this appeal.
18. Learned counsel for respondent No.2 submitted that Champa Bhen
Kundia, the original owner of the scheduled property and also the
borrower, on 28.04.2000 had executed a registered Power of Attorney
in favour of her son Chandu Bhai. Thereafter Chandu Bhai had
entered into a registered General Power of Attorney in favour of
Satnam Singh and Surinder Wadhwa on 30.03.2001. Satnam Singh and
Surinder Wadhwa had executed a registered will, a General Power of
Attorney and an agreement to sell on 16.04.2001. The will dated
16.04.2001 was registered, the general power of attorney in favour
of respondent No.2 was also a registered one. Thereafter, Champa
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Bhen Kundia mortgaged the Scheduled Property in favour Associate
Finance Limited on 16.06.2001 and respondent No.1 is an assignee of
the said mortgage.
19. Learned counsel for respondent No.2 therefore submitted that
the transactions entered into with respondent No.2 being prior to
the actual mortgage and the debt which came into existence
subsequently on 16.06.2001, respondent No.2 had an equitable right
to get the title to the scheduled property; therefore respondent
No.2 raised objections even prior to auctioning of the said
property. However, the respondent No.1 did not take into
consideration, his objections and instead proceeded to auction the
property on 21.12.2010.
20. In the circumstances, respondent No.2 was constrained to file
S.A. No.118/2007 before the DRT and after two rounds of litigation
ultimately passed an order in favour of respondent No.2 on
30.08.2012 which order was set aside by the Appellate Tribunal on
03.09.2014. Therefore, respondent No.2 was constrained to file W.P.
(C) No.6881/2014 before the Delhi High Court which has disposed of
the said writ petition in favour of respondent No.2 herein. Learned
counsel, therefore submitted that there is no merit in this appeal
and hence, the same may be dismissed.
21. The detailed narration of facts and contentions would not call
for a reiteration. Although learned counsel for respondent No.2
emphasized the fact that respondent No.2 is presently in possession
of the scheduled premises on the strength of the registered General
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Power of Attorney dated 16.04.2001 as well as the agreement to sell
of the same date, the fact remains that the agreement to sell
executed by Smt. Champa Bhen Kundia is not by a registered
document. In the circumstances, respondent No.1 could not have known
that even prior to her seeking a loan and mortgaging the very same
property to the Bank on 16.06.2001, there was already an
encumbrance as such created in favour of respondent No.2.
Therefore, the Bank although had done its due diligence would not
have known the fact that there was a prior transaction in respect
of the very same secured asset.
22. Learned counsel for respondent No.2 submitted that the fact
that there was a registration of the General Power of Attorney in
favour of respondent No.2 and thereafter there was an agreement to
sell also executed in his favour which created an interest in the
secured asset and therefore, the said fact having been brought to
the notice of respondent No.1, the objection raised by respondent
No.2 ought to have been taken note of by the Bank. Respondent No.1
having ignored the objection raised by respondent No.2 vis-a-vis
the proposed auction of the secured asset has in fact let down not
only the potential auction-purchaser but also has adversely
affected the right, title and interest of respondent No.2 vis-a-vis
the secured asset.
23. We do not think that the aforesaid submission could have any
bearing insofar as the rights of the appellant is concerned for the
reason that the said appellant would have been under an obligation
to conduct a due diligence exercise in respect of the secured asset
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and ascertain the encumbrance accrued therein, had the agreement to
sell been a registered agreement to sell. But in the absence of
there being any registration of the said agreement dated
23.04.2001, the appellant could not have detected, whether there
was any kind of prior interest created in favour of respondent
No.2. In fact, for the very same reason, respondent No.1 also would
not have been in the knowledge of the said fact even if due
diligence exercise had been carried out by the Bank as stated above
as the agreement to sell was not a registered instrument.
24. In the circumstances, respondent No.1 sought to recover the
outstanding debt on the basis of the fact that there was a mortgage
dated 16.06.2001 which was made in favour of Associated Finances
Limited from whom Champa Bhen Kundia had borrowed certain amounts
and which date was assigned to respondent No.1. The respondent No.1
consequently, as a financial institution took steps against the
borrower under Sections 13 and 14 and other relevant provisions of
the SARFAESI Act and conducted the auction of the property on
21.12.2010 so as to recover the outstanding debt. The appellant
herein being the highest bidder promising to pay Rs.7,50,000/- was
permitted by respondent No.1 and the sale certificate was issued in
his favour on 27.12.2010 after accepting his bid. It is thereafter
that during the pedency of its appeal before the DRT that the
auction proceedings were challenged by respondent No.2.
25. Learned counsel for respondent No.1 drew our attention to the
fact that on three occasions that is by orders dated 23.11.2007,
08.09.2009 and 30.08.2012 opportunities were given to respondent
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No.2 to pay the outstanding dues so as to ensure that secured asset
could be saved from the auction proceedings conducted and possibly
the appellant could be paid the amount that he had deposited with
the Bank with suitable rate of interest. But respondent No.2 did
not make use of the said opportunities to repay the outstanding
dues.
26. In the circumstances, we find that the Appellate Tribunal was
justified in holding in favour of the appellant herein by order
dated 03.09.2024 by setting aside the order dated 30.08.2012 passed
by the DRT. The High Court has reversed the said orders and
consequently, the appellant has been directed to receive the
amounts deposited by him as the sale certificate dated 27.12.2010
has been set aside on the basis that the auction conducted itself
was not in accordance with law. The High Court, in our view, was
not justified in holding so.
27. Section 54 of the Transfer of Property Act, 1882, defines a
“sale” as the transfer of ownership in exchange for a price that is
either paid, promised, or part-paid and part-promised. This
provision further describes the manner in which a sale is effected.
It stipulates that, in the case of tangible immovable property
valued at one hundred rupees or more, the transfer can be made only
through a registered instrument. The use of the term “only”
signifies that, for tangible immovable property valued at one
hundred rupees or more, a sale becomes lawful only when it is
executed through a registered instrument. Where the sale deed
requires registration, ownership does not pass until the deed is
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registered, even if possession is transferred, and consideration is
paid without such registration. The registration of the sale deed
for an immovable property is essential to complete and validate the
transfer. Until registration is effected, ownership is not
transferred.
28. In the present case, the original owner/borrower, Champa Ben
Kundia, ‘sold’ the secured asset to her son, Chandu Bhai by an
unregistered sale deed dated 28.04.2000. Subsequently, the basement
of the secured asset was “transferred” to Satnam Singh and Surinder
Wadhwa through another unregistered sale deed dated 30.03.2001.
Further, an unregistered agreement to sell, dated 23.04.2001,
allegedly transferred the basement of the secured asset to
respondent No.2. Therefore, all the documents relied upon by
respondent No.2 to claim ownership of the basement of the secured
asset are unregistered documents and fail to meet the requirements
of a valid sale under Section 54 of the Transfer of Property Act.
Respondent No.2 thus did not have any title to claim the ownership
of the basement of the secured asset. All the transactions made in
respect of the secured asset from Champa Bhen Kundia to the
subsequent vendors were through an unregistered deed including the
agreement to sell dated 23.04.2001 through which respondent No.2
was claiming ownership of the basement of the secured asset.
29. This Court in Babasheb Dhondiba Kute vs. Radhu Vithoba Barde
in SLP(C) No.29462 OF 2019 held that the conveyance by way of sale
would take place only at the time of registration of a sale deed in
accordance with Section 17 of the Registration Act, 2008. Till
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then, there is no conveyance in the eyes of law.
30. The High Court went on to observe that respondent No.1 which
advanced the loan would be deemed to have notice of the possessory
rights in favour of Satnam Singh and later in favour of respondent
No.2 relying on Explanation II to Section 3 of the Transfer of
Property Act. However, we do not find merit in the said finding of
the High Court. We say so, because, unless the deeds of conveyance
through which the alleged transfer took place were registered in
accordance with the provision of the Registration Act, respondent
No.1 did not have access to the said information since there would
be no entry of the said transfer of an immovable property in the
encumbrance records.
31. We also take note of the fact that respondent No.1 has
conducted the auction in terms of the provisions of the SARFESI
Act. When the original owner/borrower Champa Bhen Kundia failed to
repay the loan, respondent No.1 issued a notice under Section 13 of
the SARFESI Act on 28.10.2006. Thereafter, physical possession of
the secured asset was taken over and a Receiver was appointed in
terms of Section 14 of the SARFESI Act on 06.07.2007. Thereafter, a
notice was issued regarding the public auction of the basement
being the secured asset as per Section 13 of the Act on 20.11.2010.
The appellant herein participated in the said auction and was
declared the highest bidder. Ultimately, respondent No.1 also
issued a sale certificate in favour of the appellant on 27.12.2010.
Thus, the auction was in due compliance with the statutory
requirements and constituted a valid sale.
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32. No doubt, objections were raised by respondent No.2 in respect
of the said public auction as well as in the issuance of a sale
certificate to the appellant. The counsel for respondent No.2
vehemently argued that respondent No.2 has to have the right of
redemption of the property on payment of the dues. However, this
right is not unfettered and there is a statutory limitation
prescribed to it. As per the unamended Section 13(8) of the
SARFAESI Act, the right of the borrower to redeem the secured asset
was available till the sale or transfer of such secured asset.
Subsequent to the amendment in 2016, the right of redemption
available to the borrower would be available only till the date of
publication of the notice under Rule 9(1) of the Security Interest
(Enforcement) Rules, 2002. The material on record shows that ample
opportunities were given to respondent No.2 to avail the said right
on redemption vide orders dated 23.11.2007, 08.09.2009 and
30.08.2012 passed by the DRT. However, respondent No.2 failed to
make use of the said opportunities provided to him.
33. It is now a well-settled principle that a sale by way of
public auction cannot be set aside until there is any material
irregularity and/or illegality committed in holding the auction or
if such auction was vitiated by any fraud or collusion. This Court
in V.S. Palanivel vs. P. Sriram reported in 2024 INSC 659 held that
unless there are some serious flaws in the conduct of the auction
as for example perpetration of a fraud/collusion, grave
irregularities that go to the root of such an auction, courts must
ordinarily refrain from setting them aside keeping in mind the
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domino effect such an order would have. Recently, this Court in
Celir LLP vs. Ms Sumati Prasad Bafna and others Contempt Petition
(C) Nos.158-159 of 2024 in Civil Appeal Nos. 5542-5543 of 2023 held
as follows:
“218.Any sale by auction or other public procurement
methods once already confirmed or concluded ought not to
be set-aside or interfered with lightly except on grounds
that go to the core of such sale process, such as either
being collusive, fraudulent or vitiated by inadequate
pricing or underbidding. Mere irregularity or deviation
from a rule that does not have any fundamental procedural
error does not take away the foundation of authority for
such a proceeding. In such cases, courts, in particular,
should be mindful to refrain entertaining any ground for
challenging an auction which either could have been taken
earlier before the sale was conducted and confirmed or
where no substantial injury has been caused on account of
such irregularity.”
34. Consequently, the impugned order of the High Court is set
aside. The order of the Appellate Tribunal dated 03.09.2014 is
restored and consequently, the order dated 30.08.2012 passed by the
DRT is set aside. Respondent No.1 shall take steps to hand over
possession of the scheduled premises to the appellant herein. We
also reserve liberty to the appellant herein to take possession in
accordance with law by making a suitable application before the DRT
or the High Court, as the case may be, for the purpose of
collecting the keys of the scheduled premises that have been
deposited by respondent No.2.
35. The amounts with accrued interest, if any, deposited by
respondent No.2 before the DRT, the Appellate Tribunal, the High
Court or with the Bank would be withdrawn by respondent No.2 by
making suitable applications. If such applications are made, the
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same shall be considered expeditiously and disposed of.
36. The appeal is allowed and disposed of in the aforesaid terms.
No costs.
…………………………………………………………………………,J.
(B.V. NAGARATHNA)
…………………………………………………………………………,J.
(NONGMEIKAPAM KOTISWAR SINGH)
NEW DELHI;
DECEMBER 10, 2024.
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ITEM NO.23 COURT NO.8 SECTION XIV
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
Petition(s) for Special Leave to Appeal (C) No(s). 330/2017
[Arising out of impugned final judgment and order dated 30-05-2016
in WPC No. 6881/2014 passed by the High Court of Delhi at New
Delhi]
SANJAY SHARMA Petitioner(s)
VERSUS
KOTAK MAHINDRA BANK LTD. & ORS. Respondent(s)
Date : 10-12-2024 This petition was called on for hearing today.
CORAM :
HON’BLE MRS. JUSTICE B.V. NAGARATHNA
HON’BLE MR. JUSTICE NONGMEIKAPAM KOTISWAR SINGHFor Petitioner(s) Mr. R. C. Kaushik, AOR
Mr. M.K.Goel, Adv.
For Respondent(s) Mr. Arun Aggarwal, AOR
Ms. Anshika Agarwal, Adv.
Mr. Shivam Saini, Adv.
Mr. Praful Rawat, Adv.
Ms. Kanika Agnihotri, Adv.
Ms. Supriya Juneja, AOR
Mr. Rajeev Singh, AOR
UPON hearing the counsel the Court made the following
O R D E RLeave granted.
The appeal is allowed and disposed of in terms of the
signed order.
Pending application(s), if any, shall stand disposed
of.
(RADHA SHARMA) (DIVYA BABBAR)
ASTT. REGISTRAR-cum-PS COURT MASTER (NSH)
(Signed order is placed on the file)
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