Date of judgement:
24 April 2020
Bench:
Justice A.M. Khanwilkar
Justice Dinesh Maheshwari
Parties:
Appellant – Tripower Enterprises (Pvt) Limited.
Respondent – The State Bank of India & Ors.
Subject
In the following case, the appellant, being the highest bidder of a public auction, was not provided with the original documents of the property. The question was can such title deed be withheld from him if it is subject to dispute in the Debt Recovery Tribunal.
Overview
- The State Bank of India had provided financial credit to Rukmini Mills Ltd. (borrower). In this transaction, Associated Trading Corporation Pvt. Ltd. (as a guarantor) offered its immovable property as a Secured Asset to the Bank, by the way of mortgage. The borrower defaulted in repayment of the loan as a result of which, the Bank took symbolic possession of the guarantor's Secured Asset under Section 13(4) of the SARFAESI Act, 2002.
- The notice of this possession was challenged by the guarantor in the Debt Recovery Tribunal (DRT) and later in the Debt Recovery Appellate Tribunal (DRAT), but it was rejected both times on the ground of failure to pay the pre-deposit amount. The guarantor decided not to take this matter any further.
- At the same time, the Bank had put the Secured Asset up for public auction to recover its outstanding dues. Tripower Enterprises Pvt. Ltd. (appellant) turned out to be the highest bidder and was furnished with the Sale Certificate. However, when the Bank asked the DRT to return the original documents in order to hand them over to the appellant, the DRT refused this request.
- It was refused on the ground that the issue raised by the guarantor, that equitable mortgage was created by incompetent persons which makes the mortgage invalid, was yet to be examined by the Tribunal. When an appeal was made against this to the DRAT, it reversed the decision of DRT and directed the documents to be handed over to the Bank.
- Aggrieved by this, the guarantor filed a writ petition in the High Court of Madras. This Court restored the order passed by the DRT and ordered the documents to be retained till the disposal of the original application, in the interest of justice. It also directed the DRT to dispose of the matter within 4 months. Not satisfied with this decision, the appellant (auction purchaser) appealed to the Supreme Court.
Legal Provisions
- Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) – A secured creditor may require the borrower to discharge his liabilities in full within 60 days from the date of the notice.
Issues
- Is the auction purchaser entitled to receive the original deed of the property if it is subject to a dispute in the Debt Recovery Tribunal (DRT)?
- Whether the mortgage deed was valid?
Judgement
- The appellant contended that he had purchased the property in a public auction and had also complied with all essential formalities and hence was entitled to receive the original document of the said property. He also said that the writ petition filed by the guarantor should have been rejected by the High Court.
- On the other hand, the guarantor argued that he was not a party to any further loans granted by the banks to the borrowers. In addition, the equitable mortgage was not created by the authorized person of the guarantor, nor was it a party to the extensions of the mortgage.
- The Supreme Court observed that they cannot ignore the direct interest of the appellant to get relief, which was earlier claimed by the bank to fulfil its obligation of handing over the original documents of the property to the appellant, just because the Bank did not challenge the decision of the High Court.
- The Court pointed out that the guarantor cannot be allowed to raise the same plea repeatedly in every proceeding. It held that since the sale certificate has been issued to the appellant, the Bank now is under obligation to hand over the title deed to the appellant, for absolute completion of the sale.
- In light of the aforementioned reasons, the Court reversed and partly modified the order passed by the High Court and remarked that it should not have entertained the writ petition filed by the guarantor. Thereby, it upheld the decision of the DRAT to return the original documents to the bank. The appeal was allowed and the judgement of the High Court was set aside.
Conclusion
This case turned out to be a landmark judgement because it established that a title deed submitted before the DRT ought to be released when the auction sale certificate is issued and the mortgage is held to be valid.
As far as the question of competency of the DRT is concerned, to determine the validity of the mortgage, the Court refused to interfere and held that both the parties are free to raise all contentions as per the law.
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