“Supreme Court Invalidates Auction Sale Due to Absence of Mandatory 30-Days Notice to Borrower”
Case title: Govind Kumar Sharma & Anr. v. Bank of Baroda & Ors.
Case no.: Civil Appeal No. of 2024 (Arising out of S.L.P.(C) No.24155 of 2018)
Dated on: 18th April 2024
Quorum: Justice Vikram Nath and Justice Satish Chandra Sharma
FACTS OF THE CASE
The case revolves around an auction sale conducted by Bank of Baroda (Respondent no. 1) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The appellants, Govind Kumar Sharma & Anr., were the highest bidders in the auction and obtained a sale certificate for the property in question. They were initially tenants but became owners after the auction sale was confirmed.
However, the borrowers (Respondent nos. 3 and 4) filed an application under Section 17 of the SARFAESI Act, seeking to set aside the sale due to non-compliance with statutory procedures, particularly regarding notice requirements. The Debt Recovery Tribunal (DRT) set aside the sale, directing the bank to refund the auction money with interest, and the same decision was upheld by the Debt Recovery Appellate Tribunal (DRAT) and the Allahabad High Court.
CONTENTIONS OF THE APPELLANT
The Appellants contented that sale 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.
They sought compensation not only for the auction money but also for the investments made.
CONTENTIONS OF THE RESPONDENTS
The Bank admitted non-compliance with statutory procedures but argued that appellants shouldn’t be compensated for improvements made. Borrowers claimed to have paid outstanding dues and sought a No Dues Certificate.
LEGAL PROVISIONS
Section 17 of the SARFAESI Act, Application against measures to recover secured debts.
Rule 8(6) and 8(7) of Security Interest (Enforcement) Rules, 2002, which required a mandatory notice of 30 days to the borrower, had neither been issued nor served upon the borrower.
ISSUE –
- Whether the auction sale should be set aside due to non-compliance with statutory procedures.
- The status of the appellants as tenants or owners after setting aside the sale.
- Compensation for the appellants for property improvements.
COURT’S ANALYSIS AND JUDGEMENT
- The Court affirmed the setting aside of the auction sale due to the Bank’s admission of non-compliance with statutory notice requirements.
- The appellants’ status reverted to tenants after the sale was set aside, with no obligation to hand over physical possession to the Bank.
- The Court directed the Bank to refund the auction money with compound interest of 12% per annum to the appellants.
- Borrowers were to receive a No Dues Certificate upon settlement of accounts with the Bank.
The Supreme Court’s judgment in Govind Kumar Sharma & Anr. v. Bank of Baroda & Ors. provides clarity on the consequences of non-compliance with statutory procedures in auction sales under the SARFAESI Act. It underscores the importance of adhering to legal requirements and ensures fair treatment of parties involved in such transactions.
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Judgement Reviewed by – Chiraag K A