Supreme Court: In contempt petitions under Section of the (‘Act, 1971’) read with Articles and of the for wilful disobedience of the final judgment of the Supreme Court, wherein it was held that the confirmation of the sale by Bank under Rule 9(2) of the SARFAESI Rules had vested the petitioner herein with a right to obtain the certificate of sale of the secured asset, the Division Bench of JB Pardiwala* and Manoj Misra, JJ. held that both the borrower and the subsequent transferee committed contempt of this Court’s judgment and order dated 21-09-2023.
The Bench explained that the Court in its decision rendered in the main appeals had not issued any specific direction either to the borrower or the subsequent transferee as regards the handing over of physical possession and the original title deed to the secured asset, or the proceedings pending before the DRT in S.A. No. 46 of 2022. However, the same would not mean that the decision of this Court was bereft of any direction as to the outcome of its findings.
“Where a decision is rendered and the impugned order is set-aside, it behoves any logic that an express direction to act must be given in respect of every aspect of the decision. The parties are duty bound to act in accordance with common sense. It is axiomatic that a party should obey both the letter and the spirit of a court order, and it is neither open for the parties to adopt a myopic and blinkered view of such decision nor any such interpretation or view that sub-serves their own interests.”
Background
The original borrower/ respondent 1 availed credit facility from the Union Bank of India. Accordingly, the Bank sanctioned Lease Rental Discounting (‘LRD’) credit facility to the tune of Rs. 100 crores in favour of the Borrowers. Against the aforesaid term loan, a simple mortgage was created of a property (‘Secured Asset’). The borrower defaulted in repayment of the said loan amount and accordingly the LRD Term Loan Account was declared as a Non-Performing Asset (NPA). The Bank issued a demand notice under Section of the (‘SARFAESI Act’) for repayment of the principal amount along with interest, cost, charges, etc. The Bank proceeded to take measures for possession of the Secured Asset under the SARAFESI Act. The borrower preferred a Securitization Application under Section of the before the Debt Recovery Tribunal (‘DRT’), assailing the demand and possession notices.
Meanwhile, the Bank issued a notice of sale of the Secured Asset by way of a public auction. The Bank published the notice of sale in terms of Rule 8(6) of the SARFAESI Rules, the terms of the aforesaid notice of sale, inter-alia stipulated that the Secured Asset would be sold on ‘as is what is and whatever there is basis’ at a reserve price of Rs. 105 crore and that the said auction would be subject to the outcome of the matter pending before the DRT. The petitioner herein participated in the same and submitted its bid of Rs. 105.05 crore, along with a deposit of Rs. 10.5 crore as earnest money. The petitioner herein was the successful auction purchaser.
The borrower preferred a redemption application before the DRT. However, considering that the judgment was reserved, the borrowers approached the High Court on the premise that the DRT may reject their redemption application and the entire matter would become infructuous. Before the High Court, the Borrowers expressed their willingness to pay a total sum of Rs. 129 crore for redeeming the mortgage. The Bank which had earlier opposed the plea for redemption of mortgage before the DRT expressed its willingness before the High Court to accept the offer of the borrowers. The High Court allowed the writ petition and permitted the borrowers to redeem the mortgage of the secured asset subject to payment of Rs. 25 crores on the same day and the balance amount of Rs. 104 crores on or before 31-08-2023, failing which the sale of the secured asset in favour of the petitioner herein would be confirmed.
The borrower transferred a sum of Rs. 104 crores to the Bank for redeeming its mortgage. Subsequently, the Bank issued a ‘No Dues Certificate’ to the borrower, and a Release Deed was executed between the parties for the discharge of the mortgage over the secured asset, upon which the original title deeds and related documents were returned to the borrower.
Aggrieved by the High Court’s decision and discharge of the secured asset in favour of the borrower, the petitioners herein challenged the final judgment passed by the High Court. This Court vide its final judgment held that the High Court erred in permitting the borrower to redeem the mortgage after publication of the notice of sale / auction under Rule 9(1) of the SARFAESI Rules. The Bank was further directed to refund the entire amount paid by the borrower towards redemption of the mortgage of the Secured Asset upon receipt of the balance amount from the petitioner herein.
Contemptuous Act
After several failed attempts by the Bank to execute a cancellation deed of the release deed of the secured asset to the borrower and to handover the original title documents, the petitioner issued a legal notice to all the respondents herein, calling upon them to (a) handover the physical possession of the secured asset along with its original title deeds and (b) to take steps towards cancelling the release deed.
The Court on perusal of the facts and circumstances and lengthy litigations, noted the different stands taken by the borrower. The Court said that the borrower’s initial stance before the High Court was that its right of redemption was wholly dependent upon the adjudication of S.A No. 46 of 2022 before DRT which was Securitization Application under Section 17 of the SARFAESI Act. In such circumstances, it had prayed before the High Court to either decide the said securitization application itself and permit the redemption of the mortgage or otherwise to stay the auction proceedings till the DRT decided the same. Thus, the Court pointed out that the Borrower’s case at that time was clearly that its right of redemption is not independent on the challenge to the validity of the measures taken by the Bank under the SARFAESI Act and rather was consequential to it, which is why both its primary prayer and its alternative prayer sought for the adjudication of the S.A No. 46 of 2022 on the basis of which its right may then be adjudicated. However, in the petition before the High Court, contrarily the borrower in the abandoned its right to challenge the validity of all measures taken by the Bank under the SARFAESI Act.
Moreover, the Court noted that the proceedings under S.A. No. 46 of 2022 did not merely come to an end as a consequence of the impugned order of the High Court but rather due to the unconditional undertaking of the Borrower to withdraw the same within a period of 1-week, independent of the exercise of its right of redemption. Additionally, the Court added that during the hearing of main appeals, although the borrower during the course of hearing urged that no indulgence of this Court was warranted as it had already complied with the terms of the High Court’s impugned order and that the entire matter had been rendered infructuous, yet at the same time, not once did the borrower even remotely indicate that it was in the process of withdrawing the S.A. No. 46 of 2023 and never did pray that in the event a sale certificate is issued, its right to pursue S.A. No. 46 of 2022 be preserved, or that the sale certificate be made subject to the outcome of the said application.
Nature and Scope of Challenge in Celir LLP v. Bafna Motors (Mumbai) (P) Ltd.,
“Section 17 of the SARFAESI Act, is a complete code that confers upon the DRT the jurisdiction to examine all the steps or measures taken by the secured creditor under the Act and provide remedies to any person aggrieved by any of those measures. By virtue of the said provision the DRT is clothed with a wide range of powers, to determine any issue or aspect pertaining to the SARFAESI proceedings initiated by the secured creditor and further a power to interfere with the same where necessary.”
The Court relied on Phoenix ARC (P) Ltd. v. Vishwa Bharati Vidya Mandir , wherein it has been laid down that-
“If proceedings are initiated under the SARFAESI Act and/or any proposed action is to be taken and the borrower is aggrieved by any of the actions of the private bank/bank/ARC, borrower has to avail the remedy under the Sarfaesi Act and no writ petition would lie and/or is maintainable and/or entertainable.”
In different litigations initiated by the borrower, the Court noted that there was no difference between either the scope of proceedings or the prayer sought before the DRT and before the High Court, and said that once the borrower had chosen to espouse the same matter already sub-judice in one forum before another, it was the duty of the Borrower to bring within the fold of its case all issues and grounds in respect of the 9th auction proceedings in the proceedings arising from the writ petition, by virtue of the Doctrine of Election.
Thus, when the impugned order of the High Court was challenged before this Court in the main appeals, the scope of proceedings also entailed the issue of validity of the Bank’s actions under the SARFAESI Act. The Court said that considering the said circumstances, the decision in Bafna Motors (supra) was rendered by this Court. The Court clarified that this Court only went on to determine the borrower’s right to redeem the mortgage and having done so, this Court inter-alia set-aside the impugned order of the High Court and since the Bank had already confirmed the sale in favour of the petitioner, and in the absence of any challenge to the auction process, further directed that the sale certificate of the secured asset be issued to the petitioner.
Whether it is permissible for the Borrower to raise it and again litigate the same subsequently either in the present contempt petition or in the S.A. No. 46 of 2022 which is still pending before the DRT.
‘Henderson’ Principle as a corollary of Constructive Res-Judicata
In Henderson v. Henderson , it was held that once the litigation has been adjudicated by a court of competent jurisdiction, the same parties will not be permitted to reopen the lis in respect of issues which might have been brought forward as part of the subject in contest but were not, irrespective of whether the same was due to any form of negligence, inadvertence, accident or omission. The extended form of res-judicata more popularly known as ‘Constructive Res Judicata’ contained in Section 11, Explanation VII of the CPC originates from the Henderson Principle. The Court said that the ‘Henderson Principle’ is a core component of the broader doctrine of abuse of process, aimed at enthusing in the parties a sense of sanctity towards judicial adjudications and determinations.
In the matter at hand, the borrower raised the issue of the validity of the measures taken by the Bank under the SARFAESI Act and the legality of the 9th auction conducted in the earlier stages albeit in a different proceeding, yet its conduct of having conveniently abandoned the same in a different proceeding elected by it for the same cause of action and then later reagitating it in the pretence that the two proceedings were distinct, is nothing but case of abuse of process of law.
“Piecemeal litigation where issues are deliberately fragmented across separate proceedings to gain an unfair advantage is in itself a facet of abuse of process of law and would also fall foul of this principle.”
Applicability of Lis Pendens in the absence of any registration as required under the State Amendment to Section 52 of the TPA
The Court indicated that per the Doctrine of lis pendens, nothing new can be introduced during the pendency of a petition and if at all anything new is introduced, the same would also be subject to the final outcome of the petition. The Court noted that when the mortgage was redeemed and the secured asset was transferred to the subsequent transferee by way of the assignment agreement, the petitions challenging the exercise of such right of redemption was already filed and pending before this Court. The Court held that in the present case the petitions were already instituted and pending before this Court on the date of execution of the assignment agreement for the transfer of the secured asset in favour of the subsequent transferee, the said assignment agreement and the transfer thereto was beyond a shadow of doubt hit by lis pendens.
On perusal of Section 52(1) of TPA which casts upon a party who is claiming any right to a property which is a subject-matter of any pending suit or proceeding an additional duty to register a notice of pendency in respect of such property so as to caution and put to notice any third-party who might otherwise be unaware of such proceeding or litigation despite the best of due diligence either due to inadvertence or deliberate misleading by one of the parties to the lis and as result might be genuinely considering to purchase or acquire any right in the subject-matter proceeding, the Court said that the said provision is for the benefit of the third-party, yet such subsequent purchasers cannot as a matter of absolute right claim any title to such property solely on the ground of want of any notice of pendency being registered.
Further, the Court added that-
“Any sale by auction or other public procurement methods once already confirmed or concluded ought not to be set-aside or interfered with lightly except on grounds that go to the core of such sale process, such as either being collusive, fraudulent or vitiated by inadequate pricing or underbidding. Mere irregularity or deviation from a rule which does not have any fundamental procedural error does not take away the foundation of authority for such proceeding.”
Conclusion
1. The legality and validity of the 9th auction proceedings conducted pursuant to the notice of sale dated 12-06-2022 was upheld. The sale of the secured asset to the petitioner was confirmed and the title conferred through the sale certificate dated 27-09-2023 was declared to be absolute.
2. The Borrower and the Bank shall immediately take steps for the cancellation of the Release Deed dated 28-08-2023 within a period of one week from the date of pronouncement.
3. The Borrower shall also unconditionally withdraw the S.A. No. 46 of 2022 pending before the DRT within a period of one week from the date of pronouncement.
4. The Assignment Agreement dated 28-08-2023 was hit by lis pendens and hence void. The subsequent transferee shall hand over the peaceful physical possession of the secured asset along with its original title deeds to the Bank within a period of one week from the date of pronouncement of this judgment.
5. The subsequent transferee is not entitled to recover the amount paid by it towards redeeming the second charge over the secured asset or any other dues or amount paid in respect of the same from the petitioner herein.
6. The Bank shall refund the amount of Rs. 129 crore paid by the borrower towards the redemption of mortgage without any interest only after the aforesaid directions have been complied to the letter and spirit.
7. The subsequent transferee is at liberty to recover the amount paid by it towards the assignment agreement dated 28-08-2023 and any other amount from the borrower by availing appropriate legal remedy as may be available under the law.
CASE DETAILS
| Citation: Appellants : Celir LLP Respondents : Sumati Prasad Bafna | Advocates who appeared in this case For Petitioner(s): Mr. O. P. Gaggar, AOR; Mr. Sachindra Karn, Adv.; Mr. Mukul Rohatgi, Sr. Adv.; Mr. Neeraj Kishan Kaul, Sr. Adv.; Ms. Shyel Trehan, Sr. Adv.; Ms. Krushi Barfiwala, Adv.; Mr. Pranav Sarthi, AOR; Mr. Gaurav Vutts, Adv.; Ms. Gayatri Mohite, Adv.; Ms. Divyanshu Gupta, Adv.; Ms. Apoorva Singh, Adv.; Ms. Prachi Dhingra, Adv. For Respondent(s): Dr. A M Singhvi, Sr. Adv.; Mr. Parag Tripathi, Sr. Adv.; Mr. Nikhil Nayyar, Sr. Adv.; Mr. Devdutt Kamat, Sr. Adv.; Mr. Avishkar Singhvi, Adv.; Mr. Shreeyash Uday Lalit, Adv.; Mr. Sanam Tripathi, Adv.; Ms. Sugandha Batra, Adv.; Ms. Priyansha Sharma, Adv.; Ms. Arushi Mishra, Adv.; Mr. Shreyash Choudhary, Adv.; Ms. Runjhun Garg, Adv.; Mr. Himanshu Vats, Adv.; Mr. Angad Pahal, Adv.; Mr. Lavam Tyagi, Adv.; Mr. Ishaan George, AOR; Mr. Kapil Sibal, Sr. Adv.; Mr. Chander Uday Singh, Sr. Adv.; Mr. Sumeet Lal, Adv.; Mr. Sidhant Kapoor, Adv.; Mr. Masoom Shah, Adv.; Mr. D. Girish Kumar, Adv.; Mr. Jay Nirupam, Adv.; Mr. Pranav Giri, Adv.; Mr. Ekansh Sisodia, Adv.; Ms. A.m. Harsavardhini, Adv.; Ms. Sumedha Ray Sark |
CORAM :
[1843] 3 Hare 999.
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