GOVIND KUMAR SHARMA & ANRversusBANK OF BARODA & ORS

                 [2024] 4 S.C.R. 633 : 2024 INSC 326

                     Govind Kumar Sharma & Anr.
                                  v.
                        Bank of Baroda & Ors.
                        (SLP (C) No. 24155 of 2018)
                                 18 April 2024
           [Vikram Nath* and Satish Chandra Sharma, JJ.]

                           Issue for Consideration
       Whether an auction/ sale under the Securitisation and
       Reconstruction of Financial Assets and Enforcement of Security
       Interest Act, 2002 (SARFESI Act) carried out without issuing
       the mandatory 30-day notice to the borrower under Rules 8(6)
       and 8 (7) of the Security Interest (Enforcement) Rules, 2002 is
       liable to be set aside. If so, can the bona fide purchaser, who
       was originally the tenant, be forced to hand over the physical
       possession of the premises in order get the refund. Whether
       the bona fide purchaser would be entitled to refund of the
       auction money and interest, and compensation for improvement/
       investments made by him.

                                  Headnotes
       Securitisation and Reconstruction of Financial Assets and
       Enforcement of Security Interest Act, 2002 – Security Interest
       (Enforcement) Rules, 2002 – Appellants/ Original tenants in
       physical possession of premises – Appellants were issued
       sale certificate after auction- Bank admitted to procedural
       lapse – DRT set aside sale and directed Bank to refund auction
       money with interest as applicable to fixed deposit only after
       receiving the possession of the premises – DRT found no
       proof of improvements/investments – DRAT and High Court
       confirmed.
       Held: Supreme Court upheld the setting aside of the auction/sale
       in view of concurrent findings and Bank’s admission- Supreme
       Court modified DRT’s directions – Appellants were allowed to
       retain physical possession in the capacity of tenants and borrower/
       landlord could to evict as per law and Bank was directed to return
       the auction money with 12% per annum compound interest.
       [Paras 12-15]

* Author
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                                  List of Acts

       Securitisation and Reconstruction of Financial Assets and
       Enforcement of Security Interest Act, 2002; Security Interest
       (Enforcement) Rules, 2002.

                               List of Keywords

       Rule 8(6), Rule 8 (7) of Security Interest (Enforcement) Rules, 2002;
       Mandatory notice; Default; Non-compliance of statutory provisions;
       Setting aside of auction/ sale; Refund; Physical possession.

                              Case Arising From

       CIVIL APPELLATE JURISDICTION: Civil Appeal No.5028 of 2024
       From the Judgment and Order dated 02.07.2018 of the High Court
       of Judicature at Allahabad in WC No. 20266 of 2018

                           Appearances for Parties

       R. P. Shukla, Dhruv Shukla, Ms. Upasena Shukla, Ms. Aeishwarya
       Sharma, Gaurav Chauhan, Ms. Megha Gaur, Piyush Kumarendra,
       Vibhav Mishra, Vijay K. Jain, Advs. for the Appellants.
       Arun Aggarwal, Ms. Anshika Agarwal, Deepti Jain, Shivam Saini,
       Praful Rawat, Pramod Kumar Singh, Vijay Pal, Shiv Dutt Sharma,
       Ms. Rekha Agarwal, Rajvir Singh, Bikash Chandra, Rameshwar
       Prasad Goyal, Advs. for the Respondents.

                  Judgment / Order of the Supreme Court

                                   Judgment
       Vikram Nath, J.
       Leave granted.
2.     The appellants herein have assailed the correctness of the
       judgment and order dated 02.07.2018 passed by the Allahabad
       High Court dismissing the Writ Petition of the appellants, confirming
       the orders passed by the Debt Recovery Tribunal1 as also the



1    DRT
[2024] 4 S.C.R.                                                         635

            Govind Kumar Sharma & Anr. v. Bank of Baroda & Ors.


      Debt Recovery Appellate Tribunal2, whereby the auction sale held
      in favour of the appellants had been set aside and the appeal
      was dismissed.
      Brief facts in nutshell are as follows:
3.    The firm-respondent no.3, had taken a loan from the respondent no.1-
      Bank. However, as it went into default, the Bank initiated proceedings
      under the Securitisation and Reconstruction of Financial Assets and
      Enforcement of Security Interest Act, 20023. In the said recovery
      proceedings, the Recovery Officer conducted an open auction. The
      appellants were the highest bidder. Their bid was accepted and they
      made good the deposits as per the terms of this auction. Accordingly,
      a sale certificate was issued in their favour on 30.03.2009. It may
      be noted here that the appellants were tenants of the borrower in
      the premises in question which had been put to auction. As such
      the status of the appellants changed from that of tenants to that of
      owners after the sale was confirmed and sale certificate was issued.
4.    The borrower-respondent nos.3 and 4 filed a securitization application
      under Section 17 of the SARFAESI Act for setting aside the sale on
      the ground that the Bank had not followed the statutory procedure
      prescribed under the Security Interest (Enforcement) Rules, 20024,
      in particular, the notice as required under Rules 8(6) and 8(7) which
      required a mandatory notice of 30 days to the borrower, had neither
      been issued nor served upon the borrower.
5.    The DRT, after examining the matter, came to the conclusion that
      the Bank itself had admitted that the statutory compliance under the
      above rules had not been made and as such proceeded to set aside
      the sale vide order dated 21.04.2015. The operative portion of the
      order passed by the DRT is reproduced hereunder:
             “…The sale as pointed out earlier is liable to be quashed
             for the non-compliance of Rule 8(6) and 8(7) of the
             Security Interest (Enforcement) Rules, 2002. The auction
             purchaser set up his case that he has spent huge money
             on improvement of property in question. The auction


2    DRAT
3    SARFAESI Act
4    2002 Rules
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            purchaser has not place on record any material to prove
            the alleged improvements in the property. The auction
            purchaser is enjoying this property since 2009 as such
            auction purchaser is not entitled to any extra compensation.
            However, Bank will be under obligation to refund the auction
            money with interest as applicable to fixed deposit. The sale
            is accordingly set aside and it is made clear that Bank will
            refund the auction money only after receiving possession
            of property from auction purchaser within 15 days from the
            delivery of auction purchaser to the Bank. The applicant
            is directed to pay the dues of the sic within 15 days with
            upto date interest, failing which Bank will be at liberty to
            proceed further under Securitization and Reconstruction
            of Financial Assets and Enforcement of Security Interest
            Act 2002 to recover its dues.
                       xxx			          xxx			          xxx”
6.     In effect the DRT, after setting aside the sale, further proceeded to
       direct the Bank to refund the auction money with interest as applicable
       to fixed deposits only after receiving possession of the property from
       the auction purchaser within 15 days thereof. The borrower was
       directed to pay the dues of the Bank within 15 days with up to date
       interest, failing which the Bank would be at liberty to proceed further
       under the SARFAESI Act for recovery of its dues.
7.     The appellants preferred an appeal before the DRAT registered
       as Appeal No. R-57 of 2015, which came to be dismissed, vide
       order dated 19.04.2018. Thereafter the appellants approached the
       High Court by way of a Writ Petition registered as Writ Petition (C)
       No.20266 of 2018, which has since been dismissed by the impugned
       judgment and order, giving rise to the present appeal.
8.     The submission advanced by learned counsel for the appellants is
       two-fold: firstly, that they were bonafide purchasers for value and,
       therefore, the DRT, the DRAT and the High Court erred in setting
       aside the sale and confirming it. The second submission advanced
       is that after the sale certificate was issued, the appellants have
       developed the suit property and have invested approximately Rs.60
       lacs and in case the sale is to be set aside, the appellants should
       be suitably compensated not only by refund of the auction money
[2024] 4 S.C.R.                                                       637

            Govind Kumar Sharma & Anr. v. Bank of Baroda & Ors.


     along with interest but also for the improvements made by them in
     developing the property and investment made therein.
9.   On the other hand, learned counsel for the respondent-Bank
     submitted that although it had followed the procedure prescribed
     but could not substantiate with any material to rebut the findings
     recorded by the DRT, DRAT and the High Court that the Bank had
     failed to follow the statutory provisions of notice under Rules 8(6)
     and 8(7) of the 2002 Rules. It was further submitted that as the
     appellants have enjoyed the property as it was already in their
     possession, they cannot claim any additional compensation for the
     improvements made by them as they were well aware of the litigation
     initiated by the borrower by filing an application under Section 17 of
     the SARFAESI Act and whatever improvements have been made
     were at their own risk.
10. Further, learned counsel for the borrower (respondent nos.3 and 4)
    submitted that they have already paid the entire outstanding dues
    of the Bank without adjusting the auction money received by the
    Bank which is lying separately in an escrow account because of
    the litigation. It was also submitted that the Bank admits that the
    entire dues have been paid but at the same time it has declined
    to issue the No Dues Certificate because of pendency of the
    litigation. It was also submitted that the Bank, without following
    due procedure, had conducted the auction and, therefore, the DRT
    rightly set aside the sale which has been confirmed by the DRAT
    and the High Court.
11. From the facts, as narrated above and the arguments advanced,
    the following is the admitted position:
     (i).    The appellants were tenants in the premises in question which
             had been put up for auction. Their possession and status as
             tenants were converted into that of owners after the sale was
             confirmed and the sale certificate issued;
     (ii). The borrowers have admitted that they were in default and that
           the Bank had a right to recover its dues in accordance to law;
     (iii). After the auction sale, the borrowers have deposited the entire
            outstanding amount independent of the auction money which
            is additionally lying with the Bank;
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       (iv). The Bank has admitted that there was non-compliance of the
             statutory provisions in conducting the sale and as such had
             conceded before the DRT that the sale in question may be
             set aside and the Bank be granted liberty to proceed afresh;
       (v). The Bank has admitted that the auction money of Rs.12.40
            lacs is lying in a separate fixed deposit and this amount is in
            addition to the outstanding amount deposited by the borrower
            after the auction sale.
12. Considering the above facts and circumstances and the arguments
    advanced, we proceed to deal with the same:
       (i).   In view of the concurrent finding based on the admission by
              the Bank that mandatory notice of 30 days was not given to
              the Borrower before holding the auction/sale, the setting aside
              of the auction/sale cannot be faulted with. The same has to be
              approved.
       (ii). Once the sale is set aside, the status of the appellants as
             owners would automatically revert to that of tenants. The status
             of possession at best could have been altered from that of an
             owner to that of tenants but Bank would not have any right to
             claim actual physical possession from the appellants nor would
             the appellants be under any obligation to handover physical
             possession to the Bank. The DRT fell in error on the said issue.
             Therefore, the direction issued by the DRT that the Bank will first
             take possession and thereafter refund the auction money with
             interest applicable to fixed deposits, is not a correct direction;
       (iii). The entire controversy has arisen because of the Bank not
              following the prescribed mandatory procedure for conducting
              the auction sale and, therefore, the Bank must suffer and
              should be put to terms for unnecessarily creating litigation. As
              of date the dues of the Bank have been fully discharged and an
              additional amount of the auction money is lying with the Bank
              since 2009. This amount is to be returned to the appellants. In
              such facts and circumstances of the case, we are of the view
              that the award of interest on the auction money at the rate
              applicable to fixed deposits is not a correct view. The rate of
              interest deserves to be enhanced.
       (iv). We could have considered awarding 24 per cent per annum
             compound interest on the auction money to be refunded to the
[2024] 4 S.C.R.                                                           639

          Govind Kumar Sharma & Anr. v. Bank of Baroda & Ors.


           appellants in view of serious illegality committed by the Bank
           in conducting the auction and driving the parties to litigation.
           Considering the fact that the money of the Bank is also public
           money, we feel that interest of justice would be best served if the
           auction money with 12 per cent per annum compound interest
           is returned to the appellants. Such interest be calculated from
           the date of deposit till the date it is actually paid.
     (v). There was some dispute between the Bank and the borrower
          that there could be minor adjustments still left. We are of the
          view that if any additional amount is lying with the Bank, the
          same would be returned to the borrower and if any amount is
          still due to be paid, the borrower would pay the said amount
          to the Bank. The Bank and the borrower have both agreed for
          making the said adjustments.
13. In view of the above discussion and analysis, the following directions
    are issued:
     a)    setting aside of the auction sale is affirmed.
     b)    The status of the appellants as tenants shall stand restored
           leaving it open for the borrower as owner of the property to
           evict the appellants in accordance to law.
     c)    The entire auction/sale money lying with the Bank (R-1 & 2)
           shall be returned to the appellants along with compound interest
           @12 per cent per annum to be calculated from the date of
           deposit till the date of payment.
     d)    The Borrower Respondent nos.3 and 4 and the Bank–
           Respondent nos.1 and 2, would streamline their accounts and
           the Bank upon settlement of the same will issue a No Dues
           Certificate to the Borrower.
14. The impugned order shall stand modified as above. The appeal
    stands disposed of accordingly.
15. Pending applications, if any, stand disposed of.


     Headnotes prepared by:                                 Result of the case:
     Aishani Narain, Hony. Associate Editor                Appeal disposed of.
     (Verified by: Abhinav Mukerji, Sr. Adv.)