Filing The Appeal After Protracted Delays Divests The Appellant Of The Right To Claim Any Interst

Case title:

Mohd. Shariq Vs. Punjab National Bank and Ors.

Date of Order:

11th April 2023

Bench:

Justice Ajay Rastogi and Bela M Trivedi

Parties:

Petitioner: Mohd. Shariq

Defendant: Punjab National Bank and Ors.

Facts:

• The current appeal is made in response to the judgement and order dated March 10, 2016, issued by the Division Bench of the High Court of Uttarakhand, Nainital, which upheld the reauction proceedings started by the first respondent (Punjab National Bank, a secured creditor), held on May 1, 2014, while overturning the finding made by the learned Single Judge under its order dated July 21, 2015.
• The third respondent borrowed money from the first respondent, according to the key details gleaned from the record that are important for the situation. A notice was eventually issued under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the "Act 2002"), and then assets of the borrower were taken into possession under Section 13(4) of the Act, 2002. However, the third respondent later became defaulter, and its bank accounts became NPA. To that end, on June 18, 2013, the Bank released an auction notice with a reserve price of Rs. 1.19 crores requesting offers in relation to the borrower's mortgage property.
• The appellant, who was the winning bidder, submitted his bid of Rs. 2,01,00,000/on July 22, 2013, and he accumulated earnest money of Rs. 11,19,000/on July 27, 2013, in accordance with the terms of the bid/auction, which require the winning bidder to deposit 25% of the bid amount upon acceptance of the bid.
• The borrower, who is the third respondent, filed an appeal against the auction notice dated June 18, 2013, with the Lucknow-based Debt Recovery Tribunal on July 25, 2013. Following a meeting with the borrower's attorney, DRT issued an interim order on July 26th, 2013 directing that the Bank is free to proceed with the auction as planned on that day (i.e., July 26th), but that confirmation of the sale be postponed while DRT issues further instructions.
• The auction took place on July 26, 2013. It is acknowledged that the appellant had no knowledge of the temporary order issued by DRT on July 26, 2013. The appellant had to deposit 25% of the bid amount as the highest bidder, which he did on July 27, 2013, totaling Rs. 38,35,000 (the remaining 25% of the price), which the first respondent accepted.
• The appellant made a total deposit of Rs. 50,25,000, which was made up of earnest money and 25% of the winning bid.
• The appellant was first made aware of this information by a correspondence dated October 18, 2013, in which he was ordered to pay the remaining sum since DRT had denied his request for temporary relief. In response to the communication, the appellant offered his willingness to pay the remaining debt as long as the DRT case is resolved. The appellant and the first respondent had a few conversations. However, the first respondent subsequently warned the appellant in a message dated October 28, 2013, that the first respondent might lose the earnest money if the appellant failed to deposit the remaining auction bid amount.

Issue Raised:

The question was raised whether the appellant has the right to start independent proceedings before the appropriate venue in order to recover the money that the first respondent had forfeited?

Arguments:

• The first respondent began the reauction proceedings immediately in response to the notice of March 5, 2014. When the appellant learned of this fact, he immediately filed a writ petition under Article 226 of the Constitution asking the court for a mandate to stop the reauction proceedings that had been started by the first respondent in response to a notice dated 5th March 2014 and asking the court to order the first respondent to execute the sale deed in the appellant's favour upon deposit of the remaining funds from the auction bid or, in the alternative, to issue a refund.
• In response to the appellant's request, the High Court issued an interim order allowing the reauction proceedings to continue, but subjecting the auction to the outcome of the writ proceedings. According to the record, the High Court ordered the appellant to deposit Rs. 1.77 crores on March 10, 2015, after adjusting the amount already paid with 10% interest. This was done to verify the appellant's good faith in the ongoing proceedings before the High Court.
• The first respondent was ordered to execute the sale deed in favour of the appellant, and the learned Single Judge set aside the reauction proceedings after noting the appellant's good faith and the fact that a final bid amount had been deposited in accordance with the High Court's order, keeping in mind the fundamental principle that the mortgaged property must realise the maximum realisable value on which the security interest was created.
• The Bank is given a mandate to execute a sale deed in the petitioner's favour as soon as possible and, in any case, within two weeks of the date of the mandate. Bank is free to withdraw the Rs. 1,77,00,000 that the petitioner has placed with the Registrar General of this Court. Furthermore, the bank has two weeks from today to return the money it took from replies no. 7 and 8, together with 10% interest. Nonetheless, it is made clear that the sale in the petitioner's favour will depend on the D.R.T.'s final ruling in the matter at hand. 
• Learned counsel for the appellant has made a brief argument that, insofar as the money forfeited by the first respondent is concerned, no contrary finding has been recorded by the Division Bench of the High Court under the impugned judgement, leaving the appellant free to use the legal remedy even though they are not qualified to claim the money forfeited by the first respondent.
• The appellant has no issue with the subsequent auction proceedings that were held in accordance with notice dated March 5, 2014, even though the Division Bench of the High Court reversed the finding in that regard. There appears, in our opinion, no justification in the facts and circumstances, especially since the factual matrix is uncontested and the money deposited by the applicant towards earnest money and the first instalment of 25% in accordance with the auction notice dated 18th June, 2013 is the accepted fact by either party. The only complaint of the appellant is relegating him to avail of remedy which the law permits for recovery of the amount forfeited.
• The Division Bench committed a manifest error in the facts and circumstances by failing to exercise its power under Article 226 of the Constitution and by refusing to resolve the dispute under the impugned judgement. We are of the considered opinion that once there is no dispute regarding the facts that were brought to light, there appears no reason for the appellant to be restricted to using other corrective mechanisms for recovering the indisputed amount.
• Regarding the first respondent's argument regarding Rule 9(5) of the Rules, 2002, that may not be helpful because, typically, if the highest bidder defaults by failing to deposit the remaining portion of the purchase price as required by Rule 9(4) within the allotted time and commits default, its consequences are outlined in Rule 9(5) of the Rules, 2002. But the current instance was not a straightforward default scenario.
• As a result, the appeal is successful and is granted. The first respondent has two months to refund the Rs. 50.25 lakhs that the appellant put in response to the auction notice dated June 18, 2013, or else it will accrue interest at a rate of 12% per year until the money is turned over to the appellant.

Analysis:

• An appeal was filed as the third respondent borrowed money from the first respondent. The notice was issued to the third respondent later became defaulter, and its bank accounts became NPA. To that end, on June 18, 2013, the Bank released an auction notice with a reserve price of Rs. 1.19 crores requesting offers in relation to the borrower's mortgage property.
• The appellant had to deposit 25% of the bid amount as the highest bidder.
• The appellant was first made aware of this information by a correspondence dated October 18, 2013, in which he was ordered to pay the remaining sum since DRT had denied his request for temporary relief.
• Request for reauction was filled in the court.
• The court passed order in Favour of appellant and the judgement was passed on the amount in dispute of mortgaged property.

Conclusion:

In the present case the appellant is not entitled to any interest on the amount forfeited by the first respondent because he filed the current appeal after a protracted delay, which we have excused as such. The Judgment was passed in favor of the appellant. The amount in dispute was settled.

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