2024 INSC 326 SLP (C) No. 24155 of 2018 Page 1 of 12

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. OF 2024

(Arising out of S.L.P.(C) No.24155 of 2018)

GOVIND KUMAR SHARMA

& ANR. …APPELLANT(S)

VERSUS

BANK OF BARODA & ORS. …RESPONDENT(S)

J U D G M E N T

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 Tribunal

1 as also the Debt Recovery

Appellate Tribunal

2, whereby the auction sale

1

DRT

2

DRAT

SLP (C) No. 24155 of 2018 Page 2 of 12

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, 2002

3. 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.

3

SARFAESI Act

SLP (C) No. 24155 of 2018 Page 3 of 12

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, 2002

4, 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

4

2002 Rules

SLP (C) No. 24155 of 2018 Page 4 of 12

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

SLP (C) No. 24155 of 2018 Page 5 of 12

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 appellant s

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

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case the sale is to be set aside, the appellants

should be suitably compensated not only by

refund of the auction money 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.

SLP (C) No. 24155 of 2018 Page 7 of 12

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;

SLP (C) No. 24155 of 2018 Page 8 of 12

(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;

(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.

SLP (C) No. 24155 of 2018 Page 9 of 12

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

SLP (C) No. 24155 of 2018 Page 10 of 12

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

appellants in view of serious illegality

committed by the Bank in conducting the

auction and driving the parties to

SLP (C) No. 24155 of 2018 Page 11 of 12

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

SLP (C) No. 24155 of 2018 Page 12 of 12

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.

……………………………………J.

(VIKRAM NATH)

……………………………………J.

(SATISH CHANDRA SHARMA )

NEW DELHI

APRIL 18, 2024