Article

In the matter of Bank of Baroda v. M/s Karwa Trading Company & Anr. [CIVIL APPEAL NO.363 OF 2022] decided on 10.02.2022, Hon’ble Supreme Court disposed of an appeal filed by the secured creditor and held that the Appellant Bank cannot be restrained from selling the mortgaged property by holding the public auction and realise the amount and then proceeding to recover the balance of outstanding dues, unless the borrower deposits/pays the entire amount due and payable along with the costs incurred by the secured creditor as on the date of Demand Notice as per Section 13(f) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”).

The Appellant Bank in the matter extended a term loan of Rs. 100 Lakhs and cash credit limit of Rs.95 lakhs in favour of the Respondent against the security of two properties, a land and a residential unit. On Respondent having failed to repay the loan, the Appellant Bank issued notice under 13(2) of SARFAESI Act demanding a sum of Rs.1,85,37,218.80/-. The Appellant took the symbolic possession of the residential unit and further issued a notice under Section 13(4) of the SARFAESI Act, 2002. An Application under Section 14 of the SARFAESI Act, 2002 was allowed and the Appellant took the possession of the residential unit.

The Appellant issued an auction notice and fixed Rs.48.65 lakhs as the reserve price of the residential unit. The Respondent however challenged the auction before Debt Recovery Tribunal (“DRT”) under Section 17 of the SARFAESI Act, 2002. Vide an interim order, the DRT inter alia held that the bank shall hand over the possession of the residential unit along with the original title deeds if the borrower deposits Rs.48.65 lakhs with the bank i.e. the reserve price. The Respondent deposited the said amount.

Appellant challenged the interim order on the grounds that total debt due against the Respondent was of Rs. 2 Crore. Also Appellant had received bids up to Rs.71 lakhs and in order to redeem the mortgaged property, the Respondent must discharge the entire liability. The Appellant further contented that a payment of even a sum of Rs.71 lakhs which is the highest bid would not discharge the entire liability outstanding against the borrower. The Appellant however submitted that it would release the security if the borrower deposits Rs.71 lakhs. The Appellant also averred that the interim order was in contravention of Section 13(8) of the SARFAESI Act. On hearing the parties, the Debt Recovery Appellate Tribunal (DRAT) did not find any fault in the order and dismissed the appeal.

On appeal, the learned single Judge of the High Court set aside the order of Hon’ble DRT and DRAT on the ground that it is in contravention of Section 13(8) of the SARFAESI Act. The Division Bench allowed the appeal and directed the Appellant to release the secured property along with the title documents to the Respondent on latter paying Rs. 17 lakhs in addition to money already deposited with the Appellant i.e. a total sum of Rs.65.65 lakhs.

The Appellant challenged the order of the Division Bench primarily on the ground that the Division Bench has erroneously directed the release of the secured property by a total payment of merely Rs.65.65 lakhs when the total payment due from the Respondent was Rs.1,85,37,218.80/-.

The Hon’ble Supreme Court took note of Section 13(8) of the SARFAESI Act. As per the provision, 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. The Court observed that Rs.48.65 lakhs paid by the borrower was merely the base price. Therefore, since the Respondent neither deposited nor was ready to deposit the entire amount of dues along with the cost, it was open to the Appellant to sell the secured property in auction and realise the amount and the order of Division Bench was erroneous on being in contravention with Section 13(8) of the SARFAESI Act.

The Court further clarified that a total payment of Rs.65.65 lakhs or a total realisation of Rs. 71 lakhs by way of auction by the Appellant Bank, when the total outstanding is of Rs. 1,85,37,218.80/-, shall not discharge the Respondent and liability of the Respondent to pay the balance amount would still continue. Had the Respondent deposited a total of Rs.1,85,37,218.80/- on the date of issue of demand notice under Section 13(2) of the SARFAESI Act dated 07.1.2013, the Appellant could have been restrained from selling the secured property.

In the light of the facts and circumstances, the Hon’ble Supreme Court directed that although the interim order is set aside, the main application under section 17 of the SARFAESI Act filed by the Respondent shall be decided on merits by the DRT. Further, the Appellant cannot be retrained from proceeding with the public auction and realising the amount and further recovering the outstanding dues, unless the Respondent deposits/repays the entire amount due and payable along with the costs incurred by the secured creditor as per Section 13(f) of the SARFAESI Act.