Case Note & Summary
The case involves an appeal against the judgment of the High Court of Judicature at Hyderabad for the State of Telangana and Andhra Pradesh, which set aside an auction sale conducted by the State Bank of Hyderabad under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The appellant, G. Vikram Kumar, was the auction purchaser of a flat in a multi-storey housing project developed by the borrower (respondent no.3). The borrower had taken a loan from the bank for the project but defaulted, leading the bank to initiate proceedings under Section 13 of the SARFAESI Act. The bank attached the borrower's properties under Section 13(4). The borrower filed a securitisation application (S.A. No.253 of 2012) before the Debt Recovery Tribunal (DRT), Hyderabad. On 25.02.2016, the DRT permitted the bank to proceed with the sale, subject to certain conditions. The bank conducted an auction, and the appellant was declared the highest bidder. He deposited the full sale consideration, and a sale certificate was issued in his favour. However, the borrower filed a writ petition before the High Court challenging the auction sale. The High Court, by its judgment dated 08.09.2017, set aside the auction sale and directed the bank to refund the sale consideration to the auction purchaser with interest. The High Court also dismissed the review petition filed by the auction purchaser on 08.12.2017. Aggrieved, the appellant and the auction purchaser appealed to the Supreme Court. The Supreme Court allowed the appeals, holding that the High Court erred in setting aside the auction sale without impleading the auction purchaser and without finding any material irregularity or fraud. The Court emphasized that once a sale is confirmed and a sale certificate is issued, the sale cannot be set aside lightly, and the auction purchaser's rights crystallize upon confirmation. The Court also noted that the borrower had an alternative efficacious remedy under Section 17 of the SARFAESI Act before the DRT, and the High Court should not have interfered under Article 226. The Supreme Court set aside the High Court's orders and restored the auction sale, protecting the auction purchaser's rights.
Headnote
A) SARFAESI Act - Auction Sale - Setting Aside Sale - Section 13(4) and Rule 9 of Security Interest (Enforcement) Rules, 2002 - The High Court set aside an auction sale after the sale certificate was issued and full consideration paid, without impleading the auction purchaser and without finding any material irregularity or fraud - Held that once a sale is confirmed and sale certificate issued, the sale cannot be set aside lightly; the auction purchaser's rights crystallize upon confirmation of sale (Paras 10-15). B) Constitutional Law - Writ Jurisdiction - Interference with Auction Sale - Article 226 - The High Court ought not to have entertained the writ petition when the borrower had an alternative efficacious remedy under Section 17 of the SARFAESI Act before the DRT - Held that the High Court should not have interfered with the auction sale in exercise of its writ jurisdiction, especially when the auction purchaser was not a party (Paras 16-20). C) SARFAESI Act - Auction Sale - Rights of Auction Purchaser - The auction purchaser, who is a bona fide purchaser for value without notice of any defect, cannot be made to suffer for the borrower's default - Held that the auction purchaser's interest must be protected as the sale was conducted in accordance with law and the sale consideration was deposited (Paras 21-25).
Issue of Consideration
Whether the High Court was justified in setting aside the auction sale conducted by the Bank under the SARFAESI Act, 2002, after the sale certificate was issued and the auction purchaser had deposited the full sale consideration.
Final Decision
The Supreme Court allowed the appeals, set aside the impugned judgment and order of the High Court dated 08.09.2017 and the review order dated 08.12.2017, and restored the auction sale in favour of the appellant. The Court directed that the sale certificate issued in favour of the auction purchaser shall remain valid and the bank shall hand over possession of the flat to the auction purchaser, if not already done.
Law Points
- Auction sale under SARFAESI Act cannot be set aside after sale certificate is issued unless material irregularity or fraud is proved
- Rights of auction purchaser who is not a party to the original proceedings must be protected
- High Court's interference under Article 226 is limited when statutory remedies are available
