DWARIKA PRASAD versus STATE OF UTTAR PRADESH AND ORS. on 6 March 2018

[2018] 3 S.C.R. 29

DWARIKA PRASAD

v.

STATE OF UTTAR PRADESH AND ORS.

(Civil Appeal No. 000148 of 2018)

MARCH 06, 2018

[DIPAK MISRA, CJI, A. M. KHANWILKAR AND

DR. D. Y. CHANDRACHUD, JJ.]

Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 – s. 13 (8) – Right toredemption – Extinguishment of – Held: s. 13(8) mandates that it isonly where the dues of the secured creditor are tendered togetherwith costs, charges and expenses before the date fixed for sale ortransfer that the secured asset is not to be sold or transferred – Onfacts, appellant guarantor to sanctioned loan, created an equitablemortgage in respect of immovable property and the said propertywas auctioned by the bank – Appellant was aware of the proceedingsinitiated by the bank for asserting its right to recover its dues byselling the property – While appellant deposited an amount ofRs 7,00,000/- with the bank, but failure to deposit the balance inaccordance with the provisions of s.13(8) – Even after the writproceedings before the High Court was withdrawn, appellant didnot deposit the balance due together with the costs, charges andexpenses – Sale was confirmed and registered sale deed was executed– Thus, the right to redemption stood extinguished on the executionof the registered sale deed – However, appellant to be refunded thedeposit of Rs 7,00,000/- with interest at 9% p.a.

The issue arose for consideration whether the right of theappellant-mortgagor to redeem the property survives on theexecution of the registered sale deed.

Disposing of the appeal, the Court

HELD : The appellant failed to comply with the provisionsof Section 13(8) of the Securitisation and Reconstruction ofFinancial Assets and Enforcement of Security Interest Act, 2002.The statute mandates that it is only where the dues of the securedcreditor are tendered together with costs, charges and expenses

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[2018] 3 S.C.R.

Abefore the date fixed for sale or transfer that the secured asset isnot to be sold or transferred. The appellant was aware of theproceedings initiated by the bank for asserting its right to recoverits dues by selling the property. The appellant moved the DRT inSecuritization Application. During the pendency of thoseproceedings, orders were passed by the Tribunal on 1 FebruaryB2016 and 3 February 2016. The appellant moved the High Courtwhich restrained the bank and the auction purchaser fromexecuting the sale deed until 15 March 2016. The stay wasextended till 28 March 2016 by which date the appellant was todeposit an amount of Rs 7,00,000/-. The balance was required toCbe deposited by 30 April 2016. While appellant deposited anamount of Rs 7,00,000/- with the bank, he failed to deposit thebalance in accordance with the provisions of Section 13(8). Evenafter the writ proceedings before the High Court was withdrawn,the appellant did not deposit the balance due together with the costs, charges and expenses. The sale was confirmed, a saleDcertificate was issued and a registered sale deed was executedon 12 April 2016. The right to redemption stands extinguishedon the execution of the registered sale deed. The appellant, ishowever, entitled to a refund of his deposit of Rs 7,00,000/- withinterest at 9% per annum from the date of deposit till payment.E[Para 6, 7] [35-B-G]

Mathew Varghese v M. Amritha Kumar [2014] 2 SCR736 : (2014) 5 SCC 610 – relied on.

Case Law Reference

F[2014] 2 SCR 736 relied onPara 6CIVIL APPELLATE JURISDICTION : Civil Appeal No.000148of 2018.

From the Judgment and Order dated 24.05.2016 of the High Courtof Judicature at Allahabad in Civil Misc. Writ Petition No.24089 of 2016.G

Nalin Tripathi, R.K. Maheshwari, Ms. Sampa Sengupta Ray,Rameshwar Prasad Goyal, Advs for the Appellant.

Sanjay Kumar Tyagi, Aviral Saxena, Amit Sharma, Ms. EktaChoudhary, T. Mahipal, Sri Ram Krishna, Abhas Kumar, Deepak Sharma,Advs for the Respondents.H

The Judgment of the Court was delivered by DR. D.Y. CHANDRACHUD, J. 1 The appellant was aguarantor to a loan sanctioned for educational purposes to one JitendraKumar. Under the letter of sanction dated 20 June 2009, there was a‘repayment holiday’ of 24 months (comprised of a grace period of 12months and an additional 12 months) or six months after the borrowerobtained a job, whichever was earlier. Repayment was to commencefrom 20 June 2011. In order to secure the liability, the appellant createdan equitable mortgage in respect of an immovable property bearingKhasra Nos.185, 186 and 188, Central Doon, Dehradun. At the requestof the appellant, the period prescribed for repayment was extended bytwo periods each of six months (29 June 2011 to 20 December 2011 andagain upto 30 June 2012). The loan was not repaid.The account wasclassified as a non-performing asset on 3 September 2013. Corporationbank (the second respondent) which had disbursed the loan initiatedproceedings by issuing a recall notice under Section 13(2) of theSecuritisation and Reconstruction of Financial Assets and Enforcementof Security Interest Act, 2002(‘SARFAESI Act’) on 12 September 2013.Neither was a representation made nor was any money deposited. Thebank took symbolic possession on 14 February 2015. The property wasput to e-auction on 30 March 2015. No bid was received. A second e-auction was scheduled on 30 January 2016. After the bank received onebid in response to the auction, the appellant initially proposed to depositthe amount of Rs 2,00,000 as against the dues of Rs.36 lakhs. This wasnot acceptable. The proceedings before the DRT were listed on 1February 2016 during the course of which the appellant stated that hewould move a redemption application within three days. The proceedingswere adjourned to 4 February 2016. No stay was granted on theconfirmation of the sale. The sale was confirmed on 2 February 2016.The appellant moved a redemption proposal on 3 February 2016. Duringthe pendency of the proceedings before the DRT, the appellant filed awrit petition before the Allahabad High Court (Writ (C ) 10877 of 2016).The following order was passed on 15 March 2016 by a Division Benchof the Allahabad High Court:

“Learned counsel for the petitioner upon instructions states thatthe petitioner is ready and wiling to deposit the entire loan amountwithin a month. He further submits that on or before 28.3.2016the petitioner will deposit Rs. 7,00,000/- and the remaining amount A

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[2018] 3 S.C.R.

Aas may be intimated by the Bank would be deposited on or before30.4.2016

Put up this case as a fresh case on 28.3.2016. By the said datethe petitioner will fill a supplementary affidavit annexing proof ofreceipt of deposit of Rs. 7,00,000/- with the respondent Bank.

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The execution of the sale deed will remain stayed till 28.3.2016"

From the record it is not in dispute that the appellant paid theamount of Rs 7,00,000 by demand drafts of the State Bank of India.However, on 28 March 2016 the attention of the court was drawn to thefact that the appellant had already initiated proceedings before the DRT.CThe objection raised by the bank to the maintainability of the writ petitionbeing noted, the appellant sought leave to withdraw the writ petition andto pursue the proceedings initiated by him before the DRT. Hence, on 28March 2016, the following order was passed:

“Sri Shashi Dhar Sahai, learned counsel for the respondent-BankDon the basis of instructions has brought to our notice that petitionerwho is a guarantor to the loan has already initiated proceedingsbefore the Debt Recovery Tribunal, Lucknow for the same reliefwhich is being claimed in the writ petition and same cause ofaction. An application for temporary relief has also been movedEbefore the Debt Recovery Tribunal, Lucknow, which is pending.

Learned counsel for the petitioner when confronted with theaforesaid facts sought leave of the Court to permit withdrawal ofthe writ petition with the liberty to pursue before the DebtsRecovery Tribunal.

FPrayer made is allowed.

Writ petition stands dismissed as withdrawn.”

After the dismissal of the writ petition, the sale certificate wasissued on 5 April, 2016 in favour of the auction purchaser. After theconfirmation of the sale the bank executed a registered sale deed againstGthe receipt of a total consideration of Rs 54,41,500. The auctionpurchasers (respondent nos 3 and 4) took possession of the property.

2. The appellant filed a writ petition before the Allahabad HighCourt contending that since he was ready and willing to clear the H

outstanding dues of the bank, he has a right of redemption to the mortgagedproperty and that the auction sale without consideringhis offer forredemption was illegal and void. The Division Bench of the High Courtrejected the writ petition, placing reliance on the provisions of Section13(8) of the SARFAESI Act. The High Court held that the exercise ofthe right of redemption is permissible before the execution of the sale infavour of the auction purchaser. In this view, once the sale was completeand was registered, it was not open to the appellant to exercise theequity of redemption. The High Court has relied on the judgment of thisCourt in Mathew Varghese v M. Amritha Kumar[1].

3. The learned counsel appearing on behalf of the appellantsubmits that prior to the confirmation of the sale, the appellant voluntarilyoffered to defray an amount of Rs 36,00,000 towards claim of the bankand indicated his willingness to make an initial deposit of Rs 6,00,000.Though before the DRT the bank had on 1 February 2016 stated that theappellant should apply for redemption, when the application was movedon 3 February 2016 it was arbitrarily rejected. Thereafter in pursuanceof the order of the High Court dated 15 March 2016, the appellantdeposited a sum of Rs 7,00,000 and was ready to deposit the balancewithin 30 days, the time stipulated in the order dated 15 March 2016.Hence it was urged that there was no reason or justification for the bankto issue a certificate of sale on 12 April 2016. The fact that the appellantdid not obtain an interim order before the DRT was not a circumstancewithin his control and the appellant demonstrated his willingness by makinga part payment of Rs 7,00,000.

4. On the other hand, the learned counsel appearing on behalf ofthe bank and for the auction purchasers supported the order of the HighCourt. It was urged that despite moving the DRT, the appellant soughtrelief before the Allahabad High Court in proceeding under Article 226of the Constitution. After the High Court passed an order on 15 March2016 recording the statement that the appellant would deposit an amountof Rs 7,00,000 by 28 March 2016 and the balance by 30 April 2016 thewrit petition was withdrawn on 28 March 2016 with liberty to pursue theproceedings before the Tribunal. At no stage did the Tribunal interdictthe issuance of a certificate of sale. The sale certificate was issued andwas followed by the registration of the sale deed in April 2016. Thebank had advertised the proposed sale by auction and followed all requisite AB

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Aprocedure under law.The appellant failed to comply with the provisionsof Section 13(8). Having failed to do so, the appellant cannot assert anequity of redemption upon the completion of the sale and the registrationof the sale deed.

5. Section 13(8) of the SARFAESI Act provides as follows:

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“(8)If the duesof the secured creditor together with all costs,charges and expenses incurred by him are tendered to the securedcreditor at any time before the date fixed for sale or transfer, thesecured asset shall not be sold or transferred by the securedcreditor, and no further step shall be taken by him for transfer orCsale of that secured asset.”

These provisions have fallen for interpretation before this Courtin Mathew Varghese (supra). Dwelling on Section 60 of the Transferof the Property Act, this Court held that the right of redemption is availableto a mortgagor unless it stands extinguished by an act of parties. TheDright of the mortgagor to redeem the property survives until there hasbeen a transfer of the mortgagor’s interest by a registered instrument ofsale. Applying these principles in the context of the SARFAESI Act thisCourt held as follows:

“39.When we apply the above principles stated with reference toESection 60 of the T.P. Act in respect of a secured interest in asecured asset in favour of the secured creditor under the provisionsof the SARFAESI Act and the relevant Rules applicable, underSection 13(1), a free hand is given to a secured creditor to resortto a sale without the intervention of the Court or Tribunal.However, under Section 13(8), it is clearly stipulated that theFmortgagor, i.e. the borrower, who is otherwise called as a debtor,retains his full right to redeem the property by tendering all thedues to the secured creditor at any time before the date fixed forsale or transfer. Under Sub-section (8) of Section 13, as notedearlier, the secured asset should not be sold or transferred by theGsecured creditor when such tender is made by the borrower atthe last moment before the sale or transfer. The said Sub-sectionalso states that no further step should be taken by the securedcreditor for transfer or sale of that secured asset. We find noreason to state that the principles laid down with reference toSection 60 of the T.P. Act, which is general in nature in respect ofHall mortgages, can have no application in respect of a secured interest in a secured asset created in favour of a secured creditor,as all the above-stated principles apply in all fours in respect of atransaction as between the debtor and secured creditor under theprovisions of the SARFAESI Act”.

6. In the present case, the appellant failed to comply with theprovisions of Section 13(8). The statute mandates that it is only wherethe dues of the secured creditor are tendered together with costs, chargesand expenses before the date fixed for sale or transfer that the securedasset is not to be sold or transferred. The appellant was aware of theproceedings initiated by the bank for asserting its right to recover itsdues by selling the property. The appellant moved the DRT inSecuritization Application 176 of 2015. During the pendency of thoseproceedings, orders were passed by the Tribunal on 1 February 2016and 3 February 2016. The appellant moved the Allahabad High Courtwhich by its order dated 9 March 2016 restrained the bank and theauction purchaser from executing the sale deed until 15 March 2016.The stay was extended till 28 March 2016 by which date the appellantwas to deposit an amount of Rs 7,00,000. The balance was required tobe deposited by 30 April 2016. While appellant deposited an amount ofRs 7,00,000 with the bank, he failed to deposit the balance in accordancewith the provisions of Section 13(8). Even after the writ proceedingsbefore the High Court was withdrawn, the appellant did not deposit thebalance due together with the costs, charges and expenses.The salewas confirmed,a sale certificate was issued and a registered sale deedwas executed on 12 April 2016. The appellant failed to ensure compliancewith Section 13(8). The right to redemption stands extinguished on theexecution of the registered sale deed. This is also the view which hasbeen expressed in the judgment in Mathew Varghese (supra).

7. The appellant, is however, entitled to a refund of his deposit ofRs 7,00,000 with interest at 9% per annum from the date of deposit tillpayment. The bank has in its counter affidavit stated that it was at alltimes ready and willing to do so. The bank shall refund this amount of Rs7,00,000 with interest at 9% per annum within 8 weeks. For the abovereasons, save and except for the above direction to refund Rs 7,00,000with interest, we find no merit in the appeal. The appeal shall accordinglystand disposed of. There shall be no order as to costs.

Appeal disposed of.

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