Bank Of Baroda vs M/S Karwa Trading Company on 10 February, 2022


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Supreme Court of India

Bank Of Baroda vs M/S Karwa Trading Company on 10 February, 2022

Author: M.R. Shah

Bench: M.R. Shah, B.V. Nagarathna

                                                                  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)




                                         JUDGMENT

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

Signature Not Verified
Court has allowed the said intra­court appeal and has
Digitally signed by R
Natarajan
Date: 2022.02.10
16:44:46 IST
Reason:

quashed and set aside the judgment and order dated

12.01.2017 passed by the learned Single Judge and has

1
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

2
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

3
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

4
(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

6
(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

7
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

8
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

9
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 Sub­

section (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

10
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

11
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

12
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

13
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

14
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.

15
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

16
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

17
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

18
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

19
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

20
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.

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