# VARIMADUGU OBI REDDY v. B. SREENIVASULU & ORS

- **Citation:** [2022] 16 S.C.R. 1108
- **Court:** Supreme Court of India
- **Decided:** 2022-11-16
- **Case number:** Civil Appeal No. 8470 of 2022
- **Bench:** Ajay Rastogi, C.T. Ravikumar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/varimadugu-obi-reddy-v-b-sreenivasulu-ors-35566
- **Pages:** 22

## Headnote

Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002: ss. 13(2), 13(4),
14, 17(1), 18 - e-auction sale - Respondent availed three loan
facilities after executing necessary security documents - Another
Respondent stood as guarantor and created an equitable mortgage
over her immovable property as security for due repayment of the
said loan amount - Respondent borrowers committed default in
repaying the outstanding loan amount as also the interest - Loan
accounts classified as non-performing assets-NPA - Initiation of
recovery proceedings by the respondent Bank-secured creditor under
the provisions of the SARFAESI Act - Issuance of demand notice
calling upon the respondent borrowers/guarantor to repay and
discharge the outstanding loan amount - Bank then took physical
possession of the property from the borrowers - Possession
challenged by the respondent borrowers by filing a Securitization
Application before the Debts Recovery Tribunal - Same was
dismissed and the order attained finality - Bank issued notice prior
to e-auction to the respondent borrowers calling upon the borrowers/
guarantor to repay the outstanding loan amount as demanded -
Thereafter, issuance of e-notice by the Bank - Challenged by the
respondents - By interim order Tribunal directed the respondent
Bank to proceed with the auction sale of the secured asset scheduled
with a further direction not to issue the sale certificate provided the
respondent deposits certain amount within 15 days, however, the
respondent failed to deposit the same - Bank then proceeded with
the auction sale - Appellant declared the highest bidder, and sale
certificate was issued in his favour - Before tribunal, respondent
borrowers raised two primary objections that there was an error in
the description of mortgaged property indicated in the e-auction
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sale notice resulting in low value in auction; and that the auction
purchaser did not deposit the auction price within the specified
time, as such breach of r. 9(4) of the Rules 2002 - Tribunal dismissed
the applications filed by the respondents - Respondent borrowers
then filed writ petition before the High Court u/Art. 226 - Division
Bench of the High Court set aside the order passed by the tribunal
holding that error in the description of the scheduled property in eauction sale notice was a serious infirmity in the process and cannot
be sanctified; and that the auction purchaser failed to deposit
balance bid amount within the stipulated time - Proceedings initiated
from the stage of s. 13(2) of the SARFAESI Act, 2002 till the delivery
of physical possession of the scheduled property set aside - On
appeal, held: No documentary evidence placed on record to
substantiate the kind of prejudice in value of property - Mere
typographical error due to inadvertence which has not caused any
prejudice to the borrowers, could not be considered to be the ground
to annul the process held by the secured creditor - Four days' delay
which was caused in terms of the original auction notice, in no
manner, would frustrate or annul the auction proceedings - Finding
returned by the tribunal was well reasoned and duly supported with
the material on record - Interference made by the High Court under
the judgment while recording a finding that it was in breach of Rule
9(4) of the Rules, 2002 is not legally sustainable in law and is set
aside - Practice of entertaining the writ application by the High
Court in exercise of jurisdiction u/Art 226 without exhausting the
alternative statutory remedy available under the law is deprecated
- Respondent borrowers initially approached the Debts Recovery
Tribunal by filing an application u/s. 17, but the order of the tribunal
indeed was appealable u/s. 18 subject to the compliance of condition
of pre - deposit and without exhausting the statutory remedy of
appeal, the respondent borrowers approached the High Court by
filing

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SUPREME COURT REPORTS
[2022] 16 S.C.R.
VARIMADUGU OBI REDDY
v.
 B. SREENIVASULU & ORS.
(Civil Appeal No(s). 8470 of 2022)
NOVEMBER 16, 2022
[AJAY RASTOGI AND C.T. RAVIKUMAR, JJ.]
Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002: ss. 13(2), 13(4),
14, 17(1), 18 - e-auction sale - Respondent availed three loan
facilities after executing necessary security documents - Another
Respondent stood as guarantor and created an equitable mortgage
over her immovable property as security for due repayment of the
said loan amount - Respondent borrowers committed default in
repaying the outstanding loan amount as also the interest - Loan
accounts classified as non-performing assets-NPA - Initiation of
recovery proceedings by the respondent Bank-secured creditor under
the provisions of the SARFAESI Act - Issuance of demand notice
calling upon the respondent borrowers/guarantor to repay and
discharge the outstanding loan amount - Bank then took physical
possession of the property from the borrowers - Possession
challenged by the respondent borrowers by filing a Securitization
Application before the Debts Recovery Tribunal - Same was
dismissed and the order attained finality - Bank issued notice prior
to e-auction to the respondent borrowers calling upon the borrowers/
guarantor to repay the outstanding loan amount as demanded -
Thereafter, issuance of e-notice by the Bank - Challenged by the
respondents - By interim order Tribunal directed the respondent
Bank to proceed with the auction sale of the secured asset scheduled
with a further direction not to issue the sale certificate provided the
respondent deposits certain amount within 15 days, however, the
respondent failed to deposit the same - Bank then proceeded with
the auction sale - Appellant declared the highest bidder, and sale
certificate was issued in his favour - Before tribunal, respondent
borrowers raised two primary objections that there was an error in
the description of mortgaged property indicated in the e-auction
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sale notice resulting in low value in auction; and that the auction
purchaser did not deposit the auction price within the specified
time, as such breach of r. 9(4) of the Rules 2002 - Tribunal dismissed
the applications filed by the respondents - Respondent borrowers
then filed writ petition before the High Court u/Art. 226 - Division
Bench of the High Court set aside the order passed by the tribunal
holding that error in the description of the scheduled property in eauction sale notice was a serious infirmity in the process and cannot
be sanctified; and that the auction purchaser failed to deposit
balance bid amount within the stipulated time - Proceedings initiated
from the stage of s. 13(2) of the SARFAESI Act, 2002 till the delivery
of physical possession of the scheduled property set aside - On
appeal, held: No documentary evidence placed on record to
substantiate the kind of prejudice in value of property - Mere
typographical error due to inadvertence which has not caused any
prejudice to the borrowers, could not be considered to be the ground
to annul the process held by the secured creditor - Four days' delay
which was caused in terms of the original auction notice, in no
manner, would frustrate or annul the auction proceedings - Finding
returned by the tribunal was well reasoned and duly supported with
the material on record - Interference made by the High Court under
the judgment while recording a finding that it was in breach of Rule
9(4) of the Rules, 2002 is not legally sustainable in law and is set
aside - Practice of entertaining the writ application by the High
Court in exercise of jurisdiction u/Art 226 without exhausting the
alternative statutory remedy available under the law is deprecated
- Respondent borrowers initially approached the Debts Recovery
Tribunal by filing an application u/s. 17, but the order of the tribunal
indeed was appealable u/s. 18 subject to the compliance of condition
of pre - deposit and without exhausting the statutory remedy of
appeal, the respondent borrowers approached the High Court by
filing the writ application u/Art. 226 of the Constitution - This was
to avoid the condition of pre-deposit - Security Interest
(Enforcement) Rules 2002 - rr. 8(5), 8(6) & 9(4) - Judicial
deprecation.
Allowing the appeal, the Court
HELD :1.1 The practice of entertaining the writ application
by the High Court in exercise of jurisdiction under Article 226
of the Constitution without exhausting the alternative statutory
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remedy available under the law is deprecated. This circuitous
route appears to have been adopted to avoid the condition of
pre-deposit contemplated under 2nd proviso to Section 18 of the
Act 2002. [Para 34][1124-G-H]
1.2 The borrower failed to demonstrate that because of a
typographical inadvertent error in door number, as indicated
above, the property could not have fetched the value as it ought
to have fetched and that apart, there was no documentary
evidence placed on record to substantiate the kind of prejudice,
if any, being caused. [Para 36][1125-E-F]
1.3 Secured creditor is under an obligation to undertake
the exercise and cross-check the description of the mortgaged
property at the stage when the initial proceedings under Section
13(2) are initiated or in the later consequential proceedings, but
at the same time, mere typographical error due to inadvertence
which has not caused any prejudice to the borrowers, that in itself
could not be considered to be the ground to annul the process
held by the secured creditor which, in our view, is in due
compliance with the requirement as contemplated under the
provisions of Rules, 2002. Mere mentioning of the door number
"12-3-393" instead of "12-3-39" is inconsequential and does not
vitiate the auction proceedings. [Para 37][1125-F-H; 1126-B]
1.4 It is relevant to note that amendment was made in Rule
9(4) and Rule 9(5) of the Rules, 2002 of which reference has
been made by GSR No.1046(E) dated 3rd November, 2016
effective from 4th November, 2016. Pre- amended Rule 9(4)
refers to the period of 15 days for confirmation of sale or such
extended period, but the outer limit has not been defined and
that appears to be not as sacrosanct and the period can be
extended, as agreed upon in writing between the parties. If the
time stands extended, the auction purchaser would not be
considered to be a defaulter as referred to under Rule 9(5) of the
Rules. As the auction in the instant case was held in March 2015,
fact remains that by an amendment, the legislature with its
consciousness has clarified that the agreement has to be between
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the purchaser and the secured creditor exceeding 15 days, but
in any case may not exceed three months although who are the
parties to the agreement are not clear in the pre-amended Rule
9(4) of the Rules. [Paras 38, 39 & 40][1126-F; 1127-C-E]
2.1 The four days' delay which was caused in terms of the
original auction notice, in no manner, would frustrate or annul
the auction proceedings. Debts Recovery Tribunal has rightly
held that because in such state of flux, particularly when the bank/
secured creditor requested the auction purchaser to wait for some
time because the borrowers are negotiating with the bank in the
light of interim order dated 26th March, 2015 of the Tribunal,
delay in depositing 75% of the bid amount by four days in no
manner would frustrate the rights of the parties inter se, more
so, when the conduct of the borrowers in getting extension orders
on two different occasions and still not depositing Rs.6 lakhs in
terms of the order of the Tribunal would clearly reflect that the
intention of the borrowers was only to frustrate the auction sale
by one reason or the other ,which they could not succeed. [Para
44][1128-F-H; 1129-A]
2.2 The finding returned by the Tribunal was well reasoned
and duly supported with the material on record and the
interference made by the High Court under the impugned
judgment while recording a finding that it was in breach of Rule
9(4) of the Rules, 2002 is not legally sustainable in law and
deserves to be set aside. The appeal deserves to succeed and is
accordingly allowed. The judgment impugned of the High Court
is hereby quashed and set aside. [Paras 45 & 47][1129-B, E-F]
General Manager, Sri Siddeshwara Cooperative Bank
Limited and Another vs. Ikbal and Others (2013) 10
SCC 83: 2013 (8) SCR , United Bank of India vs.
Satyawati Tondon & Others (2010) 8 SCC 110: 2010
(9) SCR 1 - referred to.
Case Law Reference
[2013] 8 SCR 532
referred to
Para 17
[2010] 9 SCR 1
referred to
Para 32
VARIMADUGU OBI REDDY v. B. SREENIVASULU & ORS.
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[2022] 16 S.C.R.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8470
of 2022.
From the Judgment and Order dated 20.11.2019 of the High Court
of Telangana at Hyderabad in Writ Petition No.17702 of 2019.
Byrapaneni Suyodhan, Kumar Shashank, Ms. Tatini Basu, Advs.
for the Appellant.
Krishna Dev Jagarlamudi, Inderdeep Kaur Raina, N. Sai Kaushal,
Sanjay Kapur, Ms. Megha Karnwal, Arjun Bhatia, Ms. Akshata Joshi,
Ms. Shubhra Kapur, Lalit Rajput, Advs. for the Respondents.
The Judgment of the Court was delivered by
RASTOGI, J.
1. Leave granted.
2. The instant appeal has been preferred at the instance of the
auction purchaser (appellant herein) assailing the impugned judgment
and order dated 20th November, 2019 passed by the High Court for the
State of Telangana at Hyderabad setting aside the e-auction sale held by
the respondent Bank (secured creditor) under the provisions of the
Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (hereinafter being referred to as the
"SARFAESI Act, 2002").
3. The relevant facts in brief to appreciate the controversy are
that respondent nos.1-3 have availed three loan facilities vide Mortgage
Loan of Rs.10 lakhs, Cash Credit Loan of Rs.8 lakhs and Car Loan of
Rs.8 lakhs from the respondent Bank (secured creditor) after executing
necessary security documents. Respondent No.4 herein stood as
guarantor and created equitable mortgage over her immovable property
as security for due repayment of the said loan amount.
4. After availing the above loan facilities, the respondent borrowers
have committed default in repaying the outstanding loan amount and
have also failed to pay the interest accrued to the loan accounts from
time to time. Finally, the loan accounts have been classified as NonPerforming Assets (NPAs) on 30th September, 2012 and in furtherance,
the respondent Bank initiated recovery proceedings under the provisions
of the SARFAESI Act, 2002 and issued demand notice dated 15th
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November, 2012 calling upon the respondent borrowers/guarantor to
repay and discharge the outstanding loan amount with interest and costs
within 60 days. After following the procedure as contemplated under
the provisions of the SARFAESI Act, 2002 and Rules made thereunder,
on 14th February, 2013, the respondent Bank published a possession notice
in the daily newspapers under Section 13(4) of the SARFAESI Act,
2002 and obtained the order from the District Collector on 23rd June,
2013 to take physical possession of the scheduled property from the
respondent borrowers/ guarantor and hand over to the respondent Bank
(secured creditor).
5. These proceedings came to be challenged by the respondent
borrowers by filing a Securitization Application (SA) before the Debts
Recovery Tribunal which finally came to be dismissed by the Tribunal
by order dated 12th December, 2014 and it is on record that no appeal
was preferred against the order dated 12th December, 2014 passed by
the Debts Recovery Tribunal and that became final.
6. After taking possession of the mortgaged property, on 29th
November, 2014, the respondent Bank (secured creditor) issued a notice
prior to e-auction to the respondent borrowers after obtaining valuation
of the subject property from an approved valuer in terms of Rules 8(5)
and 8(6) of the Security Interest (Enforcement) Rules, 2002 (hereinafter
being referred to as the "Rules, 2002") calling upon the borrowers/
guarantor to repay the outstanding loan amount as demanded. When the
respondent borrowers/guarantor failed to respond, the respondent bank
proceeded further and issued e-auction sale notice dated 25th February,
2015 fixing the date of auction of the schedule property on 28th March,
2015 and the said notice was widely published in Indian Express (English)
and Eenadu (Telugu) daily newspapers dated 26th February, 2015.
7. That the aforesaid e-auction sale notice came to be challenged
by the respondent borrowers before the Debts Recovery Tribunal and
by an interim order dated 26th March, 2015, the Tribunal directed the
respondent Bank (secured creditor) to proceed with the auction sale of
the secured asset scheduled on 28th March, 2015 with a further direction
not to issue the sale certificate provided the respondent borrowers
deposits Rs.6 lakhs within 15 days from the date of the said order. It
was made clear that in the event of respondent borrowers fail to deposit
VARIMADUGU OBI REDDY v. B. SREENIVASULU & ORS.
[AJAY RASTOGI, J.]
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[2022] 16 S.C.R.
the said amount, the respondent Bank will be at liberty to issue the sale
certificate in favour of the highest bidder. It is not disputed that in terms
of the interim order passed by the Tribunal, the respondent borrowers
had to deposit Rs.6 lakhs by 9th April, 2015 but failed to deposit the said
amount and at this stage, the respondent borrowers filed an application
on 9th April, 2015 seeking extension of further 15 days' time from 10th
April, 2015 to deposit the amount of Rs.6 lakhs and the Tribunal by an
order dated 17th April, 2015 granted extension of 15 days' time to deposit
the sum of Rs.6 lakhs with direction to the respondent Bank (secured
creditor) and the respondent borrowers to maintain status-quo.
8. The fact to be noticed at this stage is that since the dispute was
on-going before the Tribunal and the respondent borrowers have failed
to comply with the interim order of the Tribunal dated 26th March, 2015
to deposit Rs.6 lakhs within 15 days from the date of passing of the
order by 10th April, 2015, the respondent Bank (secured creditor)
proceeded with the auction sale pursuant to the e-auction sale notice
dated 25th February, 2015 in terms of liberty granted by the Tribunal.
9. The present appellant had initially deposited the earnest money
of Rs.5,54,000/- on 26th March, 2015 and after being declared the highest
bidder with an offer of Rs.64,23,000/, further deposited a sum of
Rs.10,51,750/- which comes to Rs.16,05,750/ i.e. 25% of the total auction
price and the balance 75% of the bid amount i.e. Rs.48,17,250/- was
deposited by the appellant on 15th April, 2015 and sale certificate was
issued in favour of the appellant (auction purchaser). It is to be noticed
that the day when the order came to be passed by the Tribunal on 17th
April, 2015 granting further extension of 15 days' time to the respondent
borrowers to deposit a sum of Rs.6 lakhs, auction sale was finalised and
sale certificate dated 15th April, 2015 was issued in favour of the appellant
(auction purchaser).
10. Respondent borrowers raised two primary objections before
the Tribunal that there was an error in the description of mortgaged
property indicated in the e-auction sale notice dated 25th February, 2015
and to be more specific, the scheduled property bearing Door No.12-339, 3rd Cross, Sai Nagar, Ananthapuramu was mortgaged as a security
for the aforesaid loan while in the e-auction sale notice, the property
was described as Door No."12-3-393" instead of "12-3-39" and this,
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according to the respondent borrowers was the manifest error committed
by the respondent Bank and because of the wrong description of the
property put to auction, that property could not have fetched the value
which it ought to have fetched in the course of business.
11. In addition, further objection raised by the respondent borrowers
was that in terms of Rule 9(4) of the Rules, 2002, the auction price was
to be deposited by the auction purchaser within 15 days which expired
on 10th April, 2015 but it was admittedly deposited by the auction purchaser
(appellant) on 15th April, 2015 which is in clear breach of Rule 9(4) of
the Rules 2002, in consequence thereof, the e-auction sale notice and all
further proceedings initiated pursuant thereto deserve to be declared
null and void.
12. The contentions were repelled by the Tribunal and the Tribunal
dismissed the applications filed by the respondent borrowers. Although
it was an appealable order before the Debts Recovery Appellate Tribunal,
still the respondent borrowers approached the High Court under Article
226 of the Constitution and the Division Bench of the High Court reversed
the findings returned by the Tribunal on the premise that there was an
error in the description of the scheduled property in e-auction sale notice
dated 25th February, 2015 and that was considered to be a serious infirmity
in the process and cannot be sanctified and further held that since the
appellant (auction purchaser) failed to deposit balance 75% of the bid
amount within the stipulated time of 15 days which ought to have been
deposited by him on or before 10th April, 2015, that admittedly deposited
by him on 15th April, 2015, is in clear breach of Rule 9(4) of the Rules,
2002 and accordingly, set aside all the proceedings initiated from the
stage of Section 13(2) of the SARFAESI Act, 2002 till the delivery of
physical possession of the scheduled property to the auction purchaser
(appellant) by the respondent Bank by an order dated 23rd November,
2018, which is the subject matter of challenge before us.
13. Learned counsel for the appellant submits that so far as the
description of the scheduled property put to auction is concerned, from
the stage when the initial notice was issued by the respondent Bank
(secured creditor) under Section 13(2) of the SARFAESI Act, 2002, the
mortgaged property was described as "Door No.12-3-393" instead of
"Door No.12-3-39", but it was never the case of the respondent
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[AJAY RASTOGI, J.]
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borrowers either before the Tribunal or before the High Court that the
description in the e-auction sale notice indicating the boundaries,
measurement, ward number, block number, TS number and extent of
land, etc. left any ambiguity or confusion in the minds of the participants
in the e-auction bid and it was also not the case of the respondent
borrowers that there is some other property in the locality/vicinity with
the number as indicated in the e-auction sale notice i.e. "12-3-393".
Thus, in the given facts and circumstances, merely because there appears
to be a typographical inadvertent human error in reference to door number
of the subject property may not leave ambiguity with regard to mortgaged
property put to auction and this typographical error is inconsequential
and does not vitiate the e-auction sale proceedings held on 28th March,
2015.
14. So far as the non-compliance of Rule 9(4) of the Rules, 2002
is concerned, learned counsel for the appellant submits that during
pendency of e-auction proceedings initiated pursuant to e-auction sale
notice dated 25th February, 2015, the sale of the scheduled property was
to be held on 28th March, 2015 and the said notice was published in
Indian Express (English) and Eenadu (Telugu) daily newspapers dated
26th February, 2015 and this process was initiated after giving full
opportunity and notice to the respondent borrowers in compliance of
Rule 8(6) of Rules, 2002 and the appellant was held to be the highest
bidder and auction bid was much higher than the reserve price indicated
in the e-auction sale notice which was Rs.64,23,000/- and he has complied
with all the conditions of e-auction sale notice.
15. Learned counsel submits that the appellant was ready and
willing to deposit the balance of 75% of auction bid before 11th April,
2015 but because of the intervention made by the Tribunal that created
confusion in the mind of the appellant and for the aforesaid reason, delay
of four days was caused in depositing the balance 75% of the bid amount
which was deposited on 15th April, 2015 and the time under Rule 9(4) of
Rules, 2002 is not that sacrosanct. This fact has not been noticed by the
High Court and in the given circumstances, the finding recorded by the
High Court in the impugned judgment, is not sustainable in law and
deserves to be set aside.
16. Learned counsel further submits that the conduct of the
respondent borrowers is equally to be looked into for the reason that
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when the e-auction sale notice came to be published by the respondent
Bank, simultaneously, application was filed by the respondent borrowers
before the Tribunal on 23rd March, 2015 and interim order was passed
by the Tribunal on 26th March, 2015 to see the bonafides of the respondent
borrowers, they were directed to deposit Rs.6 lakhs within 15 days from
the date of order but admittedly, the respondent borrowers have failed to
deposit with the respondent Bank and sought further time to deposit, on
which order came to be passed on 17th April, 2015 and they are only
interested to nullify the e-auction proceedings initiated by the respondent
Bank either by taking legal recourse or by any other mechanism, which
is possible under the law and after failed to deposit the amount as directed
by the Tribunal at least, they are not entitled to seek any indulgence from
the High Court in the writ jurisdiction filed at their instance under Article
226 of the Constitution.
17. Per contra, learned counsel for the respondents, while
supporting the finding returned by the High Court submits that once the
appellant has failed to deposit the balance 75% of the bid amount by 11th
April, 2015, which was the deadline in terms of e-auction sale notice
published by the respondent Bank and admittedly 75% of the bid amount
was deposited by the appellant on 15th April, 2015 which is in violation of
Rule 9(4) of Rules, 2002 and that itself is sufficient to nullify the eauction sale initiated by the respondent Bank and in support of his
submission, placed reliance on the judgement of this Court in General
Manager, Sri Siddeshwara Cooperative Bank Limited and Another
vs. Ikbal and Others1. Para 14 of the judgment is relevant for the
purpose and is extracted below:-
"14. A reading of sub-rule (1) of Rule 9 makes it manifest that
the provision is mandatory. The plain language of Rule 9(1)
suggests this. Similarly, Rule 9(3) which provides that the
purchaser shall pay a deposit of 25% of the amount of the sale
price on the sale of immovable property also indicates that the
said provision is mandatory in nature. As regards balance amount
of purchase price, sub-rule (4) provides that the said amount
shall be paid by the purchaser on or before the fifteenth day of
confirmation of sale of immovable property or such extended
period as may be agreed upon in writing between the parties.
The period of fifteen days in Rule 9(4) is not that sacrosanct
1 (2013) 10 SCC 83
VARIMADUGU OBI REDDY v. B. SREENIVASULU & ORS.
[AJAY RASTOGI, J.]
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[2022] 16 S.C.R.
and it is extendable if there is a written agreement between the
parties for such extension. What is the meaning of the expression
"written agreement between the parties" in Rule 9(4)? The 2002
Rules do not prescribe any particular form for such agreement
except that it must be in writing. The use of the term "written
agreement" means a mutual understanding or an arrangement
about relative rights and duties by the parties. For the purposes
of Rule 9(4), the expression "written agreement" means nothing
more than a manifestation of mutual assent in writing. The word
"parties" for the purposes of Rule 9(4) we think must mean the
secured creditor, borrower and auction-purchaser."
18. Learned counsel for the respondent borrowers further submits
that description of the scheduled property has also created a confusion
in the minds of the participants in the e-auction sale notice and in support
thereof, submits that when the property was mortgaged and security
interest was created, the value of the property assessed was much higher
in value than what being indicated as the reserve price by the respondent
bank in the e-auction sale notice pursuant to which the auction proceedings
were initiated and because of the wrong description of the property put
to auction, certainly inference can be drawn that property could not
have fetched the value it ought to have fetched and that is the reason the
High Court has interfered with and set aside the notice under Section
13(2) of the SARFAESI Act, 2002 and all other consequential proceedings
initiated by the respondent Bank, and therefore, needs no further
interference of this Court.
19. Learned counsel for the respondent Bank (secured creditor)
has raised an objection that order of the Tribunal was appealable order
before the Debts Recovery Appellate Tribunal under Section 18 of the
SARFAESI Act, 2002 and the petition filed by the respondent borrowers
directly before the High Court against the order of the Tribunal was not
maintainable and for the delay in depositing the balance 75% of the bid
amount, respondent Bank has tendered a reasonable justification and
also filed a counter affidavit before this Court wherein, it has specifically
stated that though the auction purchaser was ready to pay the balance
of 75% of the bid amount on time, it is the respondent Bank who requested
the auction purchaser to wait for some time because the respondent
borrowers were negotiating with the Bank at that point of time in light of
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the interim order dated 26th March, 2015 passed by the Tribunal and that
was the reason for which the delay of four days was caused in depositing
the balance 75% of the bid amount, which ought to have been paid by
11th April, 2015 but actually deposited by 15th April, 2015.
20. Learned counsel for the respondent Bank further submits that
the auction proceedings were initiated under Section 13(2) of the
SARFAESI Act, 2002 in reference to the scheduled property and although
there was a factual inadvertent error indicated in the door number in the
notice issued under Sections 13(2) and 13(4) of the SARFAESI Act,
2002 mentioned as "Plot No.65" with the schedule of property with
boundaries, ward number, block number, T.S. number, etc., there is no
door number existing in the locality/vicinity as "Door No.12-3-393", but
no prejudice has been caused to the respondent borrowers that vitiate
the auction proceedings and further submits that after depositing 75% of
auction bid amount on 15th April, 2015, sale certificate was issued and
possession was later transferred to the auction purchaser (appellant
herein). In the given facts and circumstances, interference made by the
High court was not valid and deserves to be interfered by this Court.
21. To complete the facts, learned counsel for the respondent
Bank further submits that on 15th April, 2015 after receiving the complete
bid amount of Rs.64,23,000/- the value of property under e-auction and
after adjustments of the outstanding loan accounts and other ancillary
charges, the surplus amount remain payable to the borrowers of
Rs.16,30,000/- which was offered to the respondent borrowers and since
they failed to accept the balance amount, it was accordingly kept in
FDR and at present, the aforesaid amount is lying in FDR and with
accumulation of interest, the said amount has come to approximately
Rs.18.80 lakhs, which is due and payable to the respondent borrowers
and it can be transferred to the borrowers/guarantor in compliance of
the order of this Court.
22. We have heard the learned counsel for the parties and with
their assistance perused the material available on record.
23. The indisputed facts which manifest from the record are that
the respondent borrowers availed three loan facilities from the respondent
Bank (secured creditor) to the tune of Rs.26 lakhs after executing
necessary security documents. Respondent no.4 stood as guarantor and
created equitable mortgage over her immovable property as security for
VARIMADUGU OBI REDDY v. B. SREENIVASULU & ORS.
[AJAY RASTOGI, J.]
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due payment of the said loan amounts. The property is a residential
building of 266 sq. yards of land. The description of the property mortgaged
can be identified from the notice issued in the first instance under Section
13(2) of the Act as follows:-
24. On account of default, the loan amounts of the respondent
borrowers were classified as Non-Performing Assets (NPAs) and the
bank issued a demand notice dated 15th November, 2012 under Section
13(2) of the Act which later came to be published in Hindu (English) and
Eenadu (Telugu) daily newspapers on 5th December, 2012 and later
possession notice dated 14th February, 2013 came to be published in
Hindu (English) and Eenadu (Telugu) daily newspapers on 20th February,
2013 and after initiating proceedings under Section 14 of the Act, the
respondent Bank took possession of the scheduled property under the
orders of the District Collector from the respondent borrowers on 23rd
June, 2013.
25. At this stage, the proceedings initiated by the respondent bank
came to be assailed by the respondent borrowers before the Debts
Recovery Tribunal of Andhra Pradesh at Hyderabad under Section 17(1)
of the Act. It may be relevant to note that in the description of the
property under Sections 13(2) and 13(4) of the Act, door number indicated
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was "12-3-393" in place of "12-3-39" and this question about the alleged
error in the door number of the mortgaged property was available to the
borrowers in the first round of litigation before the Tribunal, if at all, it
has any material bearing in reference to the proceedings initiated by the
respondent Bank (secured creditor), but the proceedings initiated at the
instance of the respondent borrowers before the Tribunal came to be
dismissed by a judgment dated 12th December, 2014 and no further appeal
was preferred and accordingly it has attained finality.
26. The e-auction notice came to be published by the respondent
Bank on 25th February, 2015 fixing the date of auction as 28th March,
2015 with a reserve price of Rs.55,33,000/- and e-auction notice was
widely published in Indian Express (English) and Eenadu (Telugu) daily
newspapers dated 26th February, 2015.
27. That e-auction notice came to the challenged by the respondent
borrowers in the fresh proceedings instituted before the Tribunal on 23rd
March, 2015. Pursuant thereto, interim order came to be passed by the
Tribunal on 26th March, 2015 with a direction that the sale certificate
shall not be issued in favour of the highest bidder provided the borrower
deposit a sum of Rs.6 lakhs. Relevant extract of the order of the Tribunal
is quoted below:-
 "The Respondent Bank is hereby permitted to proceed with the
auction sale of the schedule property on 28.03.2015 in pursuance
of the Auction Notice dt. 25.02.2015 and however the Respondent
Bank is hereby directed not to issue the sale certificate in favour
of the highest bidder in the auction subject to the condition that the
Applicant shall deposit a sum of Rs.6.00 lakhs directly with the
Respondent Bank within 15 days from today. It is made clear that
in the event the Applicant fails to deposit the amount, as stated
supra, the Respondent Bank shall be at liberty to issue the sale
certificate in favour of the highest bidder in the auction and such
sale shall be subject to the result of the above SA."
28. In terms of the aforesaid order, respondent borrowers were
to deposit the sum of Rs.6 lakhs on or before 9th April, 2015, but admittedly,
the borrowers failed to deposit the aforesaid amount and on the said
date i.e. 9th April, 2015 I.A. No.1687 of 2015 came to filed before the
Tribunal seeking extension of time period by another 15 days to deposit
the sum of Rs.6 lakhs and extension of 15 days' time was granted by the
VARIMADUGU OBI REDDY v. B. SREENIVASULU & ORS.
[AJAY RASTOGI, J.]
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Tribunal to deposit the sum of Rs.6 lakhs to the borrowers by an order
dated 17th April, 2015. The extract of the order dated 17th April, 2015 is
reproduced hereinbelow:
"The Applicant is hereby directed to deposit the said sum of
Rs.6.00 lakhs into the 'interest bearing no-lien account' with the
Respondent Bank within 15 days from 10.04.2015, as sought by
the Applicant, and accordingly, the Respondent Bank and the
Auction Purchaser are hereby directed to maintain status-quo.
Accordingly, the present IA is disposed of."
29. It may be relevant to note that in the interregnum period, since
the respondent Bank (secured creditor) was permitted to proceed with
the auction proceedings, appellant deposited initially the earnest money
of Rs.5,54,000/- for participating in the proposed e-auction sale on 26th
March, 2015 and after the auction purchaser was declared as the highest
bidder with the offer of Rs.64,23,000/-, further sum of Rs.10,51,750/-
totalling Rs.16,05,750/- was deposited (25% of Rs.64,23,000/-) on 28th
March, 2015.
30. In terms of Rule 9(4) of the Rules, 2002, the balance 75% of
the bid amount being Rs.48,17,250/- was to be deposited by the appellant
auction purchaser on or before 11th April, 2015, but prior thereto, an
application was filed by the respondent borrowers on 9th April, 2015
seeking extension of time and as the matter was sub-judice before the
Tribunal, the balance 75% of the bid amount could not have been deposited
on 11th April, 2015, but it was deposited by the appellant on 15th April,
2015 and the sale certificate was issued in favour of auction purchasers
and as there was factual error in the door number of the subject property,
which was indicated as "12-3-393" instead of "12-3-39", rectification
deed dated 21st April, 2015 was executed with the correct description of
the scheduled property.
31. That since the respondent borrowers failed to deposit a sum
of Rs.6 lakhs in the extended period granted by an order dated 17th
April, 2015, the Tribunal by its order dated 1st May, 2015 granted further
time to the respondent borrowers till 10th May, 2015 to deposit the amount
of Rs.6 lakhs, but by that time the auction proceedings were finalised
and the sale certificate dated 15th April, 2015 was duly registered and
the physical possession of scheduled property was handed over to the
appellant on 23rd November, 2018. The Tribunal, after taking into
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consideration the so-called alleged description of mortgaged property in
reference to which there was great emphasis that Door No."12-3-393"
was mentioned instead of "12-3-39" and so also the breach of Rule 9(4)
of the Rules, 2002, the Debts Recovery Tribunal dismissed the application
by an order dated 1st August, 2019.
32. The order of the Tribunal dated 1st August, 2019 was an
appealable order under Section 18 of the SARFAESI Act, 2002 and in
the ordinary course of business, the borrowers/person aggrieved was
supposed to avail the statutory remedy of appeal which the law provides
under Section 18 of the SARFAESI Act, 2002 in the absence of
efficacious alternative remedy being availed, there was no reasonable
justification tendered by the respondent borrowers in approaching the
High Court and filing writ application assailing order of the Tribunal dated
1st August, 2019 under its jurisdiction under Article 226 of the Constitution
without exhausting the statutory right of appeal available at its command.
33. This Court in the judgment in United Bank of India vs.
Satyawati Tondon & Others2, was concerned with the argument of
alternative remedy provided under the SARFAESI Act, 2002 and dealing
with the argument of alternative remedy, this Court had observed that
where an effective remedy is available to an aggrieved person, the High
Court ordinarily must insist that before availing the remedy under Article
226 of the Constitution, the alternative remedy available under the relevant
statute must be exhausted. Paras 43, 44 and 45 of the said judgment are
relevant for the purpose and are extracted below:
"43. Unfortunately, the High Court overlooked the settled law
that the High Court will ordinarily not entertain a petition under
Article 226 of the Constitution if an effective remedy is available
to the aggrieved person and that this rule applies with greater
rigour in matters involving recovery of taxes, cess, fees, other
types of public money and the dues of banks and other financial
institutions. In our view, while dealing with the petitions involving
challenge to the action taken for recovery of the public dues,
etc. the High Court must keep in mind that the legislations
enacted by Parliament and State Legislatures for recovery of
such dues are a code unto themselves inasmuch as they not
only contain comprehensive procedure for recovery of the dues
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but also envisage constitution of quasi-judicial bodies for redressal
of the grievance of any aggrieved person. Therefore, in all such
cases, the High Court must insist that before availing remedy
under Article 226 of the Constitution, a person must exhaust the
remedies available under the relevant statute.
44. While expressing the aforesaid view, we are conscious that
the powers conferred upon the High Court under Article 226 of
the Constitution to issue to any person or authority, including in
appropriate cases, any Government, directions, orders or writs
including the five prerogative writs for the enforcement of any
of the rights conferred by Part III or for any other purpose are
very wide and there is no express limitation on exercise of that
power but, at the same time, we cannot be oblivious of the rules
of self-imposed restraint evolved by this Court, which every
High Court is bound to keep in view while exercising power
under Article 226 of the Constitution.
45. It is true that the rule of exhaustion of alternative remedy is
a rule of discretion and not one of compulsion, but it is difficult
to fathom any reason why the High Court should entertain a
petition filed under Article 226 of the Constitution and pass interim
order ignoring the fact that the petitioner can avail effective
alternative remedy by filing application, appeal, revision, etc.
and the particular legislation contains a detailed mechanism for
redressal of his grievance."
34. In the instant case, although the respondent borrowers initially
approached the Debts Recovery Tribunal by filing an application under
Section 17 of the SARFAESI Act, 2002, but the order of the Tribunal
indeed was appealable under Section 18 of the Act subject to the
compliance of condition of pre-deposit and without exhausting the statutory
remedy of appeal, the respondent borrowers approached the High Court
by filing the writ application under Article 226 of the Constitution. We
deprecate such practice of entertaining the writ application by the High
Court in exercise of jurisdiction under Article 226 of the Constitution
without exhausting the alternative statutory remedy available under the
law.