# S. KARTHIK & ORS v. N. SUBHASH CHAND JAIN & ORS

- **Citation:** [2021] 13 S.C.R. 1096
- **Court:** Supreme Court of India
- **Decided:** 2021-09-23
- **Case number:** Civil Appeal Nos. 59205923 of 2021
- **Bench:** L. Nageswara Rao, B. R. Gavai, B. V. Nagarathna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/s-karthik-ors-v-n-subhash-chand-jain-ors-35233
- **Pages:** 50

## Headnote

Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 - Section 13 -
Enforcement of Security Interest - Notice to Sale - Rule 9 of the
SARFAESI Rules - 30 days' notice - The present appeal challenges
the common judgment of the High Court disposing of four writ
petitions - Loan transaction of Rs. 21,14,00,000/- between AC Pvt.
Ltd. (borrower) and Bank (Respondent No. 5) - 4 properties were
mortgaged as security - Borrower was categorised as NonPerforming Asset - First Sale Notice was issued on 21.01.2012 in
respect of all the 4 properties scheduling the date for sale on
27.02.2012 - On application of Appellants and Respondent No. 2
to 4, DRT vide order dated 27.02. 2012 granted interim stay for 30
days on the sale subject to the deposit of the 50% of outstanding
amount - On 28.03.2012 one of the mortgaged properties was sold
by the Bank through a private treaty for Rs. 12.25 Crores - Second
sale notice was issued in regards to the outstanding amount of Rs.
11,99,53,926/- on 9.07.2012 scheduling the sale on date
20.07.2012 on which the two of the mortgage properties were sold
to auction purchaser (Respondent No.1) for consideration of
Rs. 4,86,21,000/- - Sale certificate in favour of auction purchaser
issued on 13.09.2012 - Third sale notice dated 27.09.2012 was
issued for the sum of Rs. 6,76,07,054/- and the date of sale was
scheduled on 30.10.2012, however, the High Court in vide an interim
order restrained the respondent-bank and the auction purchaser
from taking physical possession of the properties - A sum of Rs. 12
crore was paid to the respondent bank against the sale of the
remaining of the mortgage property which owned by the Respondent
No. 3, after the sale, the respondent bank had excess amount of
4.48 Crores for which Respondent No. 3 was entitled - DRT set
aside the Second Sale Notice and the consequent sale of mortgaged
[2021] 13 S.C.R.1096
1096
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properties - Directed Respondent-Bank to refund the amount paid
by auction purchaser along with 10% Interest and refund of surplus
sum of Rs. 4.48 Crores to the Respondent No. 3 along with 10%
Interest - On appeal, DRAT, set aside the order of DRT, except in
respect of payment of excess amount to third respondent - High
Court upheld the order of the DRAT - Held: Sale scheduled on
27.02.2012 in pursuance of First Sale Notice could not take place
on account of the interim orders Passed by the DRT on the
representation of the guarantors - One of the properties was sold
for Rs. 12.25 Crores through a private treaty, but this could not
fulfil the entire claim - Hence, Second Sale Notice was issued which
was in the continuation of the proceedings of the First Sale Notice,
therefore providing of 30 days' clear notice is not necessary - Order
of the DRT was not sustainable insofar as setting aside the sale -
DRAT has rightly reversed the same which was upheld by the High
Court - Auction purchaser was the successful bidder and the sale
was register in his favour - But for the 9 years, he could not enjoy
the fruit of the said sale, therefore, the appellants are directed to
handover the vacant and peaceful possession of the properties to
the Auction purchaser along with the rent received by the appellants.
Litigation - Series of - Recourse to series of proceedings to
block the enforcement of a security interest - Dilatory tactics -
Held: Every attempt has been made to frustrate the purpose of the
SARFAESI Act - Three rounds of litigation - It appears that the
appellants were only interested in protracting the litigation as, they
had more than one opportunity for redemption of mortgage however,
they did not avail the opportunity - Sale in pursuance of First Sale
Notice could not take place on their incorrect misrepresentation.
Dimissing the appeals, the Court
HELD:
1. It will be relevant to note that this Court in the case of
Mathew Varghese itself has held that in the event of any such sale
properly notified after gi

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1096
SUPREME COURT REPORTS
[2021] 13 S.C.R.
S. KARTHIK & ORS.
v.
N. SUBHASH CHAND JAIN & ORS.
(Civil Appeal Nos. 5920-5923/2021)
SEPTEMBER 23, 2021
[L. NAGESWARA RAO, B. R. GAVAI AND
B. V. NAGARATHNA, JJ.]
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 - Section 13 -
Enforcement of Security Interest - Notice to Sale - Rule 9 of the
SARFAESI Rules - 30 days' notice - The present appeal challenges
the common judgment of the High Court disposing of four writ
petitions - Loan transaction of Rs. 21,14,00,000/- between AC Pvt.
Ltd. (borrower) and Bank (Respondent No. 5) - 4 properties were
mortgaged as security - Borrower was categorised as NonPerforming Asset - First Sale Notice was issued on 21.01.2012 in
respect of all the 4 properties scheduling the date for sale on
27.02.2012 - On application of Appellants and Respondent No. 2
to 4, DRT vide order dated 27.02. 2012 granted interim stay for 30
days on the sale subject to the deposit of the 50% of outstanding
amount - On 28.03.2012 one of the mortgaged properties was sold
by the Bank through a private treaty for Rs. 12.25 Crores - Second
sale notice was issued in regards to the outstanding amount of Rs.
11,99,53,926/- on 9.07.2012 scheduling the sale on date
20.07.2012 on which the two of the mortgage properties were sold
to auction purchaser (Respondent No.1) for consideration of
Rs. 4,86,21,000/- - Sale certificate in favour of auction purchaser
issued on 13.09.2012 - Third sale notice dated 27.09.2012 was
issued for the sum of Rs. 6,76,07,054/- and the date of sale was
scheduled on 30.10.2012, however, the High Court in vide an interim
order restrained the respondent-bank and the auction purchaser
from taking physical possession of the properties - A sum of Rs. 12
crore was paid to the respondent bank against the sale of the
remaining of the mortgage property which owned by the Respondent
No. 3, after the sale, the respondent bank had excess amount of
4.48 Crores for which Respondent No. 3 was entitled - DRT set
aside the Second Sale Notice and the consequent sale of mortgaged
[2021] 13 S.C.R.1096
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properties - Directed Respondent-Bank to refund the amount paid
by auction purchaser along with 10% Interest and refund of surplus
sum of Rs. 4.48 Crores to the Respondent No. 3 along with 10%
Interest - On appeal, DRAT, set aside the order of DRT, except in
respect of payment of excess amount to third respondent - High
Court upheld the order of the DRAT - Held: Sale scheduled on
27.02.2012 in pursuance of First Sale Notice could not take place
on account of the interim orders Passed by the DRT on the
representation of the guarantors - One of the properties was sold
for Rs. 12.25 Crores through a private treaty, but this could not
fulfil the entire claim - Hence, Second Sale Notice was issued which
was in the continuation of the proceedings of the First Sale Notice,
therefore providing of 30 days' clear notice is not necessary - Order
of the DRT was not sustainable insofar as setting aside the sale -
DRAT has rightly reversed the same which was upheld by the High
Court - Auction purchaser was the successful bidder and the sale
was register in his favour - But for the 9 years, he could not enjoy
the fruit of the said sale, therefore, the appellants are directed to
handover the vacant and peaceful possession of the properties to
the Auction purchaser along with the rent received by the appellants.
Litigation - Series of - Recourse to series of proceedings to
block the enforcement of a security interest - Dilatory tactics -
Held: Every attempt has been made to frustrate the purpose of the
SARFAESI Act - Three rounds of litigation - It appears that the
appellants were only interested in protracting the litigation as, they
had more than one opportunity for redemption of mortgage however,
they did not avail the opportunity - Sale in pursuance of First Sale
Notice could not take place on their incorrect misrepresentation.
Dimissing the appeals, the Court
HELD:
1. It will be relevant to note that this Court in the case of
Mathew Varghese itself has held that in the event of any such sale
properly notified after giving a 30 days' clear notice to the
borrower does not take place as scheduled for the reasons, which
are not solely attributable to the borrower, then the secured
creditor cannot effect the sale and he will have to initiate the
procedure de novo. [Para 56][1136-F-H]
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2. It could be seen that immediately after the notice was
issued on 21.1.2012, the guarantors approached the DRT,
Chennai, by way of S.A. No. 69 of 2012. The guarantors gave an
impression to the DRT, Chennai, that they can sell the property
within 15 days and make the payment of the entire consideration
within 15 days, and that the balance amount could be settled within
one month. Acting on the representation of the guarantors, the
DRT, Chennai, vide order dated 27.2.2012 granted interim stay
for a period of 30 days, restraining the respondent-Bank from
proceeding further, pursuant to the sale notice dated 21.1.2012.
However, this was subject to deposit of 50% of the outstanding
amount within the said period. It could thus be seen that the sale
as per the notice dated 21.1.2012, which was scheduled to take
place on 27.2.2012, could not take place on the scheduled date
on account of interim orders passed by the DRT, Chennai, which
were passed on the representation of the guarantors. [Para
57][1137-A-C]
3. It could thus be seen that the Second Sale Notice dated
9.7.2012 was in continuation of the proceedings of the First Sale
Notice dated 21.1.2012, which sale could not be effected only on
account of the interim orders passed by the DRT, Chennai, on
the representation made by the appellants and respondent Nos.
2 to 4. It could further be seen that even in view of the law laid
down by this Court in the case of Mathew Varghese, since the
sale scheduled on 27.2.2012, as per the First Sale Notice dated
21.1.2012, could not be held due to the reasons attributable solely
to the guarantors, there was no necessity of again following the
same procedure of providing a 30 days' clear notice. In any case,
the respondent-Bank issued a fresh Second Sale Notice on
9.7.2012 to the appellants, scheduling the sale on 20.7.2012.
There is a substantial distinction of facts in the present case as
compared to those in the case of Mathew Varghese. In the case
of Mathew Varghese after the dismissal of S.A., the respondentBank had surreptitiously accepted the tender of the auction
purchaser on the very next day of dismissal of S.A. without issuing
a notice to the guarantors/borrowers and also confirmed the sale,
and only after the confirmation of sale and receipt of the entire
amount, informed the borrowers/guarantors about the sale being
confirmed. It is not the case here. In the present case, after the
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S.A. was dismissed on 2.7.2012, the respondent-Bank again
issued a fresh Notice on 9.7.2012 scheduling the sale on 20.7.2012.
[Para 60][1138-A-E]
4. The facts in the case of Mathew Varghese are also
distinguishable inasmuch as though between the date of
publication of notice in the newspapers and the date scheduled
for sale, a clear 30 days' period was provided, but insofar as the
individual notice to the borrowers/guarantors and the date
scheduled for sale, a 30 days' clear period was not provided. And
this was with regard to the very first notice. On the aforesaid
premise, this Court in the case of Mathew Varghese held that
the word 'or' used in Rule 9 of the said Rules will have to be read
as 'and', and that there should be a clear 30 days' period between
the date of publication of notice in the newspapers as well as
individual notice to the borrower/guarantor and the date
scheduled for sale. Clearly, in the present case, there has been
compliance with the same, insofar as the first notice is concerned,
whereas in the case of Mathew Varghese, there was no 30 days'
period between individual notice and the date of sale. [Para
61][1138-E-H]
5. The appellants had an opportunity for redemption of the
mortgage and clearing their properties from encumbrances.
However, the appellants, even during this period, did not avail of
the said opportunity. [Para 64][1139-E-F]
6. It is to be noted that in the meanwhile, the auction
purchaser had bid for the properties at Items 'A' and 'C' in the
Schedule of Properties in the Second Sale Notice dated 9.7.2012
(i.e. the properties at Items 'A' and 'D' in the Schedule of
Properties in the First Sale Notice dated 21.1.2012). In the said
sale, which was held on 20.7.2012, the auction purchaser was the
successful bidder having bid for Rs.1,45,66,000/- and
Rs.3,40,55,000/- respectively, in all totaling to Rs.4,86,21,000/-.
Upon payment of the entire amount, the sale was confirmed on
21.7.2012. Not only that, the sale was duly registered on 14.9.2012
after the auction purchaser had spent a sum of Rs.38,89,880/-
towards the registration charges. It is to be noted that the
appellants instead of complying with the directions, had filed I.A.
No.437 of 2012 in S.A. No. 227 of 2012 seeking certain directions
S. KARTHIK & ORS. v. N. SUBHASH CHAND JAIN & ORS.
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with regard to deposit of the amount in some other account. The
DRT, Chennai, vide order dated 12.9.2012, dismissed the said
I.A. No.437 of 2012, and thereby, granted liberty to the
respondent- Bank to proceed with the sale. It is only thereafter,
that the sale came to be registered in favour of the auction
purchaser on 14.9.2012. It is, thus, clear that the sale came to be
registered in favour of the auction purchaser in view of the liberty
granted by the DRT, Chennai, in its order dated 12.9.2012. [Para
65][1139-F-H; 1140-A-B]
7. Even thereafter, the guarantors continued with their
effort to prolong the proceedings. Various orders came to be
passed in the Civil Revision Petitions, which we have already
referred to hereinabove. In one of the orders passed by the High
Court, i.e., the order dated 30.4.2013, the appellants were also
directed to deposit the amount collected by way of rent before
the DRT, Chennai. Finally, finding that after the confirmation of
sale and after the issuance of the sale certificate, the Court could
not interfere, the said Civil Revision Petitions came to be
dismissed on 29.7.2013. [Para 66][1140-C-D]
8. It could thus be seen that the appellants had more than
one opportunity for redemption of the mortgage. However, from
their conduct, it appears that they were only interested in
protracting the litigation. It is the appellants at whose intervention
and on whose incorrect representation, the sale, which was
scheduled to be held on 27.2.2012 in pursuance of the notice
dated 21.1.2012, could not be held. Even after the dismissal of
S.A. No. 69 of 2012 on 2.7.2012, the respondent -Bank again
issued a Second Sale Notice on 9.7.2012 scheduling the sale on
20.7.2012 in which the auction purchaser emerged as a successful
bidder. It is thus clear that the appellants had enough time from
21.1.2012 till 2.7.2012 for redemption of their mortgaged
properties. However, they did not avail of that opportunity. Even
after the auction purchaser emerged successful in the bid and
had paid the bid money, an opportunity was given by the DRT,
Chennai, vide order dated 7.8.2012, to the appellants to deposit
the amount of Rs.4.80 crore within one month. However, without
complying with the same, the appellants continued with their
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dilatory tactics by filing an application being I.A. No. 437 of 2012
in S.A. No. 227 of 2012. Even thereafter, they continued with the
proceedings before the High Court, wherein certain interim
orders were passed, and finally, the High Court, finding that in
view of the sale being confirmed and the sale being registered
no interference could be warranted, dismissed the Civil Revision
Petitions. Thereafter again, they approached this Court by way
of Special Leave Petitions, which were subsequently withdrawn.
Ideally, the litigation ought to have stopped at least at that stage.
[Para 68][1140-G-H; 1141-A-D]
9. The facts in the case of Mathew Varghese and the facts
in the present case are totally different. In any case, in view of
the observations made in paragraph 53 of the judgment of this
Court in the case of Mathew Varghese, this Court is of the view
that since the sale scheduled on 27.2.2012 in pursuance to the
notice dated 21.1.2012 could not be held on account of the reasons
solely attributable to the appellants/guarantors, there was no
necessity to provide 30 days' period in the Second Sale Notice
dated 9.7.2012, which was in continuation of the First Sale Notice
dated 21.1.2012. [Para 70][1141-F-G]
10. The appellants had ample opportunities for redemption
of mortgage, they failed to avail of the said opportunities. [Para
73][1142-E]
11. Even if viewed from another angle, the claim of the
appellants is not sustainable. The two judges Bench of This Court
in the case of Mathew Varghese, has heavily relied on the
judgment of the three judges Bench of this Court in the case of
Narandas Karsondas. It has been held by this Court in the case
of Narandas Karsondas, that the right of redemption, which is
embodied in Section 60 of the Transfer of Property Act, is available
to the mortgagor unless it has been extinguished by the act of
parties. It has been held, that only on execution of the conveyance
and registration of transfer of the mortgagor's interest by
registered instrument, that the mortgagor's right of redemption
will be extinguished. In the present case, the DRT, Chennai, vide
order dated 12.9.2012, had granted liberty to the respondentBank to proceed with the sale. The sale came to be registered in
favour of the auction purchaser on 14.9.2012. As such, in any
S. KARTHIK & ORS. v. N. SUBHASH CHAND JAIN & ORS.
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case, the mortgagor's right of redemption stood extinguished on
14.9.2012. The Division Bench of the Madras High Court had,
therefore, rightly dismissed the Civil Revision Petitions, vide
order dated 29.7.2013. The said order of the Madras High Court
dated 29.7.2013 came to be challenged before this Court by way
of Special Leave Petitions. This Court, vide order dated 7.7.2014,
had issued limited notice in the said Special Leave Petitions.
However, vide order dated 17.4.2015, the said Special Leave
Petitions came to be dismissed as withdrawn. It is in the third
round of litigation, that the DRT, Chennai, allowed the S.A. No.
227 of 2012, vide order dated 25.6.2018. Applying the law, as laid
in the case of Narandas Karsondas and in the case of Mathew
Varghese, the order passed by the DRT, Chennai, dated 25.6.2018,
was not sustainable insofar as setting aside the sale notice dated
9.7.2012 and the consequent sale. The DRAT, Chennai, has
rightly reversed the same, which has been upheld by the High
Court vide the impugned judgment. [Para 74][1142-E-H; 1143A-C]
12. This Court will have to take into consideration the
purpose with which the SARFAESI Act came to be enacted.
Unlike international banks, the banks and financial institutions
in India did not have power to take possession of securities and
sell them. It was, therefore, noticed, that it had resulted in slow
pace of recovery of defaulting loans and mounting levels of nonperforming assets of banks and financial institutions. It was also
noticed that there were certain areas in which the banking and
financial sector did not have a level playing field as compared to
other participants in the financial markets in the world. It was
further noticed that the existing legal framework relating to
commercial transactions had not kept pace with the changing
commercial practices and financial sector reforms. As such, the
SARFAESI Act was enacted with the purpose for securitization
and empowering banks and financial institutions to take
possession of the securities and to sell them without the
intervention of the Court. [Para 76][1143-D-G]
13. In the present case, it would show that, every attempt
has been made to frustrate the purpose of the SARFAESI Act.
The respondent-Bank was required to indulge in three rounds of
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litigations, out of which, the two have reached upto this Court.
[Para 77][1143-G-H]
14. Though the auction purchaser emerged as the successful
bidder, in the bids held on 20.7.2012, and though the sale was
confirmed on 21.7.2012, and though the sale has been registered
in his favour on 14.9.2012, for a period of last 9 years, he could
not enjoy the fruits of the said sale. Not only that, but the
appellants continued to enjoy the rent of the properties, the
ownership of which vests in the auction purchaser. [Para 78][1143H; 1144-A]
15. The excess amount, which remained with the
respondent-Bank, has rightly been directed to be paid to
respondent No. 3 by the DRT, Chennai, which has been
concurrently upheld by the DRAT, Chennai, as well as the High
Court. [Para 81][1144-E-F]
16. The appeals are therefore found to be without merit,
and as such, are dismissed with costs. The appellants shall pay
the costs quantified at Rs.1,00,000/- (Rupees One lakh only)
payable each to the Respondent Bank and the auction purchaser.
Pending applications, if any, shall also stand disposed of. [Para
83][1144-H]
17. While dismissing the appeals, taking into consideration
the fact that, though the auction purchaser has be- come the owner
of the properties at Items 'A' and 'D' of the Schedule of Properties
in the First Sale Notice dated 21.1.2012, he could not enjoy the
fruits of the same, and that the appellants have continued to enjoy
the rent of the properties, we find that this is a fit case wherein
the powers under Article 142 of the Constitution of India need to
be invoked. [Para 84][1145-A-B]
18. This Court, therefore, direct the appellants to handover
the vacant and peaceful possession of the properties at Items 'A'
and 'D' of the Schedule of Properties in the First Sale Notice
dated 21.1.2012, within a period of 8 weeks from the date of this
judgment to the auction purchaser. We further direct the
appellants to pay the rent, received by them, from the said
properties, since 15.9.2012 till date, within a period of three
months from the date of this judgment. However, in the facts of
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this case, this Court do not intend to pass any orders with regard
to interest on the said amount. [Para 85][1145-C]
Mathew Varghese v. M. Amritha Kumar and Others
(2014) 5 SCC 610 : [2014] 2 SCR 736; Vasu P. Shetty
v. Hotel Vandana Palace and Others (2014) 5 SCC 660
: [2014] 9 SCR 38; J. Rajiv Subramaniyan and Another
v. Pandiyas and Others (2014) 5 SCC 651 : [2014] 3
SCR 1140; Kalpesh P.C. Surana v. Indian Bank (2010)
3 CTC 287; Dwarika Prasad v. State of Uttar Pradesh
and Others (2018) 5 SCC 491 : [2018] 3 SCR 29;
Shakeena and Anr. v. Bank of India & Ors. (2019) SCC
Online SC 1059; Narandas Karsondas v. S.A. Kamtam
and Another (1977) 3 SCC 247 : [1977] 2 SCR 341 -
referred to.
Case Law Reference
[2014] 2 SCR 736
referred to
Para 6
[2014] 9 SCR 38
referred to
Para 6
[2014] 3 SCR 1140
referred to
Para 6
[2018] 3 SCR 29
referred to
Para 8
[1977] 2 SCR 341
referred to
Para 17
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 59205923 of 2021.
From the Judgment and Order dated 18.11.2019 of the High Court
of Judicature at Madras in W.P. Nos.28034, 28036, 30710 and 30712 of
2019.
K. V. Viswanathan, Sr. Adv., Vinodh Kanna B., Ravi Raghunath,
Advs. for the Appellants.
Mrs. Anitha Shenoy, Sr. Adv., K. K. Mani, Ms. T. Archana, Saju
Jakob, Ms. Rupali Sharma, Ms. Mili, Sadaf Wali, Devansh Gupta,
Ms. Mayuri Raghuvanshi, Vyom Raghuvanshi, Ms. Purvat Wali, Ms.
Aarti Kumar, Advs. for the Respondents.
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The Judgment of the Court was delivered by
B. R. GAVAI, J.
1. Leave granted.
2. This case is a classic example as to how an ingenious litigant,
by taking recourse to a series of proceedings one after the other, has
been successful in blocking the enforcement of a security interest, created
in favour of a secured creditor, thereby defeating the very purpose for
which the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (hereinafter referred to as
'the SARFAESI Act') was enacted.
3. The present appeals challenge the common judgment and order
dated 18.11.2019 passed by the High Court of Judicature at Madras in
Writ Petition Nos. 30710 and 30712 of 2019 filed by respondent No.
1-N. Subhash Chand Jain herein (hereinafter referred to as 'the auction
purchaser') and in Writ Petition Nos. 28034 and 28036 of 2019 filed by
the appellants herein, thereby disposing of all the four writ petitions.
4. The facts, in brief, giving rise to the present appeals are as
under:
Ace Concrete Private Limited (hereinafter referred to as 'the
borrower') was a company engaged in the manufacture and sale of
ready mixed concrete and related business activities.
The borrower had availed loans from respondent No.5 -Indian
Overseas Bank (hereinafter referred to as 'the respondent-Bank'). The
appellants and respondent Nos. 2 to 4 herein had mortgaged their four
properties as collateral security and executed guarantee for the credit
facility granted to the borrower. As per the sanction of the respondentBank dated 30.3.2010, the respondent-Bank extended financial assistance
to the tune of Rs.21,14,00,000/- to the borrower. The guarantees, which
were signed and executed by the appellants and respondent Nos. 2 to 4,
were for an amount of Rs.22,74,74,000/-.
It appears that thereafter there was a transaction/Memorandum
of Understanding between the borrower and one M/s. AKR Holdings
Private Limited (hereinafter referred to as 'AKR Holdings'), as per
which the entire share-capital of the borrower was to be transferred to
AKR Holdings and the Management was also to be transferred in favour
of AKR Holdings. As per the agreement, AKR Holdings was to take
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over the entire liability of the borrower and also to get the four mortgaged
properties released to the appellants and respondent Nos. 2 to 4. It is,
however, the contention of the appellants that the said AKR Holdings in
collusion with the respondent-Bank sold all the assets of the borrower
hypothecated to the respondent-Bank and also did not get the mortgaged
properties released, as agreed. The borrower was, therefore, categorised
as 'Non-Performing Asset (NPA)' on 1.4.2011.
The respondent-Bank on 23.5.2011 issued notice under Section
13(2) of the SARFAESI Act for a liability of Rs.20,24,05,000/-. It is the
contention of the appellants that the respondent-Bank instead of
proceeding against the actual borrowers, i.e., the new Management,
who had taken over the control/management of the borrower, invoked
its power mala fidely against the subsisting guarantors. As such, vide
reply dated 11.7.2011, the appellant Nos. 1 and 6, and respondent Nos. 3
and 4 denied the claim of the respondent-Bank. According to the
appellants, ignoring the same, on 25.8.2011, the respondent-Bank took
symbolic possession of all the four properties. The respondent-Bank
issued a sale notice dated 21.1.2012 (First Sale Notice) in respect of all
the four mortgaged properties claiming a sum of Rs.23,39,54,702/- as
outstanding. The date of sale was scheduled to be 27.2.2012.
On 20.2.2012, the appellants and respondent Nos. 2 to 4 filed a
Securitisation Application being S.A. No.69 of 2012 before the Debts
Recovery Tribunal-III, Chennai (hereinafter referred to as 'the DRT,
Chennai'), thereby praying to quash the First Sale Notice dated 21.1.2012.
The DRT, Chennai, vide order dated 27.2.2012 granted an interim stay
restraining the respondent-Bank from proceeding further with the First
Sale Notice dated 21.1.2012 for a period of 30 days. However, this was
subject to deposit of 50% of the outstanding amount within the said
period.
On 28.3.2012, a sum of Rs.12.25 crores was remitted to the
respondent-Bank after sale of the mortgaged property at Item 'B' in the
Schedule of Properties. The said sale was through a private treaty.
According to the appellants, they had already deposited an amount of
Rs.50 lakh on 17.8.2011 and 23.8.2011, i.e., prior to the issuance of the
First Sale Notice dated 21.1.2012.
Vide order dated 2.7.2012, the DRT, Chennai, dismissed S.A. No.
69 of 2012 filed by the appellants and respondent Nos. 2 to 4.
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After the dismissal of S.A. No.69 of 2012, the respondent-Bank
issued a fresh sale notice dated 9.7.2012 (Second Sale Notice) calling
upon the appellants and respondent Nos. 2 to 4 to pay the revised
outstanding amount of Rs.11,99,53,926/- within 10 days. The date of
sale for the remaining three mortgaged properties was scheduled to be
20.7.2012.
Being aggrieved by the said Second Sale Notice dated 9.7.2012,
the appellants and respondent Nos. 2 to 4 filed S.A. No.227 of 2012
before the DRT, Chennai, thereby praying to quash the Second Sale
Notice dated 9.7.2012, inter alia, on the ground that the auction/sale has
been fixed before the expiry of 30 days from the date of service of
Second Sale Notice. There is some dispute with regard to the actual
date of filing of the said S.A.No.227 of 2012. However, for adjudication
of the present appeals, it is not necessary to go into the said aspect.
On 20.7.2012, the mortgaged properties at Item 'A' and Item 'D'
of the Schedule of Properties mentioned in the First Sale Notice dated
21.1.2012 were sold for a sale consideration of Rs.4,86,21,000/- to the
auction purchaser.
Vide interim order dated 24.7.2012, the DRT, Chennai, directed
the appellants and respondent Nos. 2 to 4 to deposit Rs. 1 crore to show
their bona fides and granted a month's time to procure prospective
purchasers to clear the entire dues by selling the mortgaged properties.
Accordingly, an amount of Rs.1 crore came to be deposited on 31.7.2012.
The claim of the appellants and respondent Nos. 2 to 4 before the
DRT, Chennai, in S.A. No. 227 of 2012 came to be resisted by the
respondent-Bank by filing a reply statement dated 2.8.2012.
The DRT, Chennai, passed an interim order dated 7.8.2012,
thereby restraining the respondent-Bank from bringing the mortgaged
properties for sale pursuant to the Second Sale Notice dated 9.7.2012
for a period of 30 days subject to deposit of Rs.4,80,00,000/- by the
appellants and respondent Nos. 2 to 4 within the said period, failing which
the said interim order dated 7.8.2012 was to stand vacated.
However, instead of complying with the said order, the guarantors
filed an application being I.A. No.437 of 2012 in S.A. No.227 of 2012.
By the said application, they sought a direction that the amount so directed
to be deposited (i.e. Rs.4,80,00,000/-) by the DRT, Chennai, vide order
dated 7.8.2012, should be permitted to be deposited either in the
S. KARTHIK & ORS. v. N. SUBHASH CHAND JAIN & ORS.
[B. R. GAVAI, J. ]
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purchasers account or in separate suspense account in the Indian
Overseas Bank, Kilpauk Branch. This was on the pretext of an ongoing
investigation by the CBI with regard to some fraudulent activities of the
Officers of the respondent-Bank. The said I.A. No.437 of 2012 came to
be dismissed by the DRT, Chennai, on 12.9.2012. Vide the said order
dated 12.9.2012, the respondent-Bank was granted liberty to proceed
with the sale and the main S.A. No.227 of 2012 was directed to be
posted for final hearing on 20.9.2012
After the deposit of the balance sale consideration by the auction
purchaser on 12.9.2012, a sale certificate came to be issued on 13.9.2012.
Being aggrieved by the order passed by the DRT, Chennai, dated
12.9.2012, Civil Revision Petition No.3487 of 2012 came to be filed before
the High Court of Judicature at Madras. Another Civil Revision Petition
No.3597 of 2012 came to be filed against the interim order passed by
the DRT, Chennai, dated 7.8.2012 in S.A. No. 227 of 2012 before the
Madras High Court.
During the pendency of the said Civil Revision Petitions before
the Madras High Court, a Third Sale Notice dated 27.9.2012 was issued
by the respondent-Bank for recovery of a sum of Rs.6,76,07,054/-. The
date of sale was scheduled to be 30.10.2012.
Vide various interim orders passed in the said Civil Revision
Petitions, the Madras High Court restrained the respondent-Bank and
the auction purchaser from taking physical possession of the mortgaged
properties. During the pendency of the said Civil Revision Petitions, a
sum of Rs.12 crore was paid to the respondent-Bank against the sale of
mortgaged property at Item 'C' of the Schedule of Properties in First
Sale Notice dated 21.1.2012, owned by respondent No.3-Shanthi
Sivasamy.
Vide common order dated 29.7.2013, the High Court dismissed
the said Civil Revision Petitions. The appellants and respondent Nos. 2
to 4 challenged the said order dated 29.7.2013 before this Court by filing
Special Leave Petition (Civil) Nos. 28402 and 28403 of 2013. This Court
vide order dated 7.7.2014 issued notice in the said Special Leave Petitions
confined to the question as to whether any excess payment made by the
appellants and respondent Nos. 2 to 4 was to be refunded by the
respondent-Bank. This Court also directed the Debts Recovery Appellate
Tribunal, Chennai (hereinafter referred to as 'the DRAT, Chennai'), to
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dispose of M.A.(S.A.) No.70 of 2014 expeditiously and preferably within
a month's time.
The said Special Leave Petition (Civil) Nos. 28402 and 28403 of
2013 filed by the appellants and respondent Nos. 2 to 4 were permitted
to be withdrawn by this Court vide order dated 17.4.2015. While granting
leave to withdraw, this Court observed that since the special leave petitions
are withdrawn, there will be no impediment for the Tribunal to pass final
orders.
It appears that in the meantime on 21.6.2013 since the appellants
and respondent Nos. 2 to 4 were unrepresented, the S.A. No.227 of
2012 came to be dismissed in default by the DRT, Chennai. An application
being M.A. No.112 of 2013 was preferred by the appellants and
respondent Nos. 2 to 4 to recall the said dismissal order dated 21.6.2013.
The said application was rejected on 20.9.2013. The said order came to
be challenged by the appellants and respondent Nos. 2 to 4 before the
High Court by filing C.R.P. PD. No.4410 of 2013. However, the said
C.R.P. PD. No.4410 of 2013 came to be dismissed by the High Court
vide order dated 3.12.2013 with liberty to the appellants and respondent
Nos. 2 to 4 to approach the DRAT, Chennai. It appears that the appellants
and respondent Nos. 2 to 4 approached the DRAT, Chennai, by filing
M.A. (S.A.) No.70 of 2014. The DRAT, Chennai, vide order dated
10.7.2014 allowed the said M.A. (S.A.) No.70 of 2014 and directed the
DRT, Chennai, to restore S.A. No.227 of 2012 and dispose of the same
in accordance with law as expeditiously as possible.
It also appears from the record that there were certain
proceedings initiated at the instance of the auction purchaser praying for
transfer of the proceedings from the DRT-III, Chennai, which was seized
of S.A. No.227 of 2012, wherein the auction purchaser reached upto
the High Court, but could not succeed.
It appears from the record that in the meantime the third
respondent-Shanthi Sivasamy filed I.A. No.903 of 2016 in S.A. No.227
of 2012 seeking refund of the excess amount of Rs.4.48 crore lying with
the respondent-Bank claiming that she was the owner of the mortgaged
property situated at Chrompet, Chennai, that was sold and that the excess
money lying with the respondent-Bank belonged to her.
The DRT, Chennai, vide order dated 25.6.2018, allowed S.A.
No.227 of 2012 and set aside the Second Sale Notice dated 9.7.2012
S. KARTHIK & ORS. v. N. SUBHASH CHAND JAIN & ORS.
[B. R. GAVAI, J. ]
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and consequent sale of the mortgaged properties and imposed cost of
Rs.50,000/- on the respondent-Bank for wilfully violating the provisions
of law. Vide the said order dated 25.6.2018, the DRT, Chennai, directed
the respondent-Bank to refund the amounts paid by the auction purchaser
along with 10% interest per annum. It further directed the respondentBank to refund the surplus sum of Rs.4.48 crore to the third respondentShanthi Sivasamy with 10% interest per annum.
The aforesaid order dated 25.6.2018 passed by the DRT, Chennai,
came to be challenged before the DRAT, Chennai, by the respondentBank as well as by the auction purchaser by filing appeals being R.A.
(S.A.) No.143 of 2018 and R.A. (S.A.) No. 141 of 2018 respectively.
Vide common order dated 6.9.2019, the DRAT, Chennai, allowed
both the appeals and set aside the order dated 25.6.2018 passed by the
DRT, Chennai. It, however, maintained the direction of the DRT, Chennai,
insofar as the payment of excess amount to the third respondent is
concerned.
The said order dated 6.9.2019 passed by the DRAT, Chennai,
came to be challenged by the appellants before the High Court by filing
Writ Petition Nos. 28034 and 28036 of 2019. The auction purchaser also
challenged the said order dated 6.9.2019 passed by the the DRAT,
Chennai, before the High Court by filing Writ Petition Nos. 30710 and
30712 of 2019.
Vide the impugned common order dated 18.11.2019, all the four
writ petitions were disposed of. Hence, the present appeals by way of
special leave.
5. We have heard Shri K.V. Viswanathan, learned Senior Counsel
appearing on behalf of the appellants, Ms. Anitha Shenoy, learned Senior
Counsel appearing on behalf of the respondent-Bank, Mr. K.K. Mani,
learned counsel appearing on behalf of the auction purchaser and
Mr. Saju Jakob, learned counsel appearing on behalf of respondent No.3.
6. Shri K.V. Viswanathan, learned Senior Counsel appearing on
behalf of the appellants, submitted that in the Second Sale Notice dated
9.7.2012, the period given for paying revised outstanding dues was only
10 days. Learned Senior Counsel submitted that the date fixed for auction
was immediately on the next day, i.e., the 11th day. Learned Senior Counsel
therefore submits that the said notice was in blatant breach of Rule 8(6)
and Rule 9(1) of the Security Interest (Enforcement) Rules, 2002
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(hereinafter referred to as 'the said Rules'). It is submitted that the said
Rules statutorily mandate that there must be 30 days' time gap between
the date of notice and the date of sale of the immovable assets.
Relying on the judgment of this Court in the case of Mathew
Varghese v. M. Amritha Kumar and others1, the learned Senior Counsel
submits that if the sale does not take place pursuant to a notice issued
under Rules 8 and 9 of the said Rules, then the procedure prescribed by
the said Rules will have to be followed afresh, and a fresh notice of 30
days' period will have to be given.
Relying on the judgment of this Court in the case of Vasu P. Shetty
v. Hotel Vandana Palace and others2, Shri K.V. Viswanathan, learned
Senior Counsel, would submit that the sale, which is in breach of the
mandatory requirements imposed by the Rules, would be null and void.
He submits that it has been held by this Court in the case of Vasu P.
Shetty (supra) that the earlier attempts of the borrower to thwart the
sale would not constitute a waiver, and the Bank could not be relieved
from its obligation to follow the mandatory procedure contained in the
Rules. He further submits that this Court, in the case of J. Rajiv
Subramaniyan and another v. Pandiyas and others3, has reiterated
the same legal position.
Learned Senior Counsel further submits that the respondent-Bank
also understood that even for a subsequent notice, a 30 days' mandatory
period has to be provided inasmuch as in the First Sale Notice dated
21.1.2012, and in the Third Sale Notice dated 27.9.2012, a period of
more than one month has been provided. It is only with regard to the
Second Sale Notice dated 9.7.2012, a period of only 10 days has been
provided. It is submitted that this has been done in haste and with a mala
fide intention.
Learned Senior Counsel would further submit that the contention
of the respondent-Bank that the Second Sale Notice dated 9.7.2012 is a
continuation of the First Sale Notice dated 21.1.2012 is totally erroneous.
He submitted that the schedule of the properties in the First Sale Notice
dated 21.1.2012 and in the Second Sale Notice dated 9.7.2012 is totally
different. Not only that, but the amount called upon to be paid is also
totally different.
1 (2014) 5 SCC 610
2 (2014) 5 SCC 660
3 (2014) 5 SCC 651
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Shri Viswanathan further submits that the finding of all the
Authorities, i.e., the DRT, Chennai, the DRAT, Chennai, as well as the
High Court, that the third respondent-Shanthi Sivasamy was entitled to
the excess amount is contrary to the record and the pleadings. He
submitted that the amount that was received, was received from the
sale of all the four mortgaged properties of which two were sold through
a private treaty and the remaining two were sold through an auction
sale. As such, the excess amount, which was generated, was on account
of the sale of all the four mortgaged properties and not only on account
of the sale of the mortgaged property of the respondent No.3. He further
submits that it was a consistent stand of the appellants as well as the
respondent Nos. 2 to 4 that the said amount was required to be kept by
the respondent-Bank in an Escrow account so that in the event the auction
sale in respect of properties at Item 'A' and Item 'D' of the Schedule of
Properties in First Sale Notice dated 21.1.2012 is set aside, the amount
can be refunded to the auction purchaser with interest. It is, however,
submitted that the said amount has, in an illegal manner, been permitted
to be withdrawn by the respondent No.3, along with interest accrued
thereon.
Shri Viswanathan, learned Senior Counsel, further submits that
the present appeals need to be allowed by quashing and setting aside the
sale in respect of properties at Items 'A' and 'D' of the Schedule of
Properties in the First Sale Notice dated 21.1.2012. He further submits
that a direction needs to be issued to respondent No.3 to pay back the
amount to the respondent-Bank, which should be directed to utilise the
said amount to compensate the auction purchaser.
7. Ms. Anitha Shenoy, learned Senior Counsel appearing on behalf
of the respondent-Bank, submits that the Second Sale Notice dated
9.7.2012 cannot be construed to be a fresh notice, but a continuation of
the First Sale Notice dated 21.1.2012. Learned Senior Counsel submits
that the Second Sale Notice dated 9.7.2012 was issued in line with the
law laid down by the Division Bench of the Madras High Court in the
case of Kalpesh P.C. Surana v. Indian Bank4. It is submitted that it
has been held in the case of Kalpesh P.C. Surana (supra) that though a
30 days' period is to be provided for auction sale in the First Notice,
there is no requirement under the law to provide a 30 day's clear period
in the subsequent notice. She further submits that though the DRT,
4 (2010) 3 CTC 287
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Chennai, the DRAT, Chennai, and the High Court had granted several
opportunities to the appellants to make the payments, they have defaulted
to do so.