Introduction:
In a significant legal development in the matter of Salil R. Uchil vs Vishu Kumar & Others, the Supreme Court has modified the Karnataka High Court's judgment regarding the compensation awarded to a purchaser in an auction sale initiated by a co-operative bank for recovery of a business loan. The case involved a dispute between the appellant and the 4th respondent (a co-operative bank) concerning the sale of property following defaults in loan repayments by the 1st and 2nd respondents.
Factual Background:
The 1st, 2nd, 5th, and 6th respondents had availed of a business loan of Rs. 25,00,000 from the 4th respondent bank. When the borrowers defaulted on the repayment of the loan, the 4th respondent filed a recovery suit before the Assistant Registrar of Co-operative Societies (3rd respondent). The dispute was resolved in favor of the bank, and the 1st and 2nd respondents were held liable to pay Rs. 21,92,942, along with further interest and costs.
As part of the recovery process, a sale proclamation for the property owned by the 1st and 2nd respondents was issued in June 2019. The auction took place on 22nd July 2019, where the appellant placed the highest bid of Rs. 81,20,000. The sale was confirmed on 5th September 2019, and the appellant deposited the entire auction amount on 21st July 2019. However, due to a dispute among the borrowers, the refund of the excess amount of Rs. 59,64,600 was delayed, and it was only on 5th September 2019 that the 3rd respondent issued a cheque for the refund.
Legal Proceedings and Initial Judgments:
The 1st and 2nd respondents challenged the auction sale in the Karnataka High Court, seeking its annulment. The Single Judge, in a judgment delivered on 17th March 2022, set aside the auction sale in favor of the appellant, ruling that the 1st and 2nd respondents were not wilful defaulters, as they had deposited the due amount of Rs. 25,61,400 within three months of filing the writ petition. Consequently, the court directed the 4th respondent bank to refund the entire auction amount paid by the appellant along with 5% compensation as per Rule 38 of the Karnataka Cooperative Societies Rules, 1960.
The appellant appealed against this decision, arguing that the compensation amount was inadequate, and sought additional compensation in the form of interest. The Division Bench dismissed the appeal on 5th September 2022, which led the appellant to approach the Supreme Court.
Supreme Court's Consideration:
The Supreme Court took into account the appellant’s argument that he had been deprived of the use of his Rs. 81,20,000 from 21st July 2019, thereby missing out on the interest he could have earned on the amount. The appellant contended that the compensation of 5% granted by the High Court was insufficient, and he should be entitled to interest on the amount from the date of deposit until the date of refund.
The 4th respondent, on the other hand, maintained that the 5% compensation was adequate, as stipulated under Rule 38(b) of the Karnataka Cooperative Societies Rules. It also pointed out that the amount was lying with the 3rd respondent until 13th October 2022 and, therefore, it should not be liable for any interest payments for the period before that.
Supreme Court's Ruling:
After reviewing the submissions and the facts of the case, the Supreme Court found that the appellant had indeed been deprived of the use of his money due to no fault of his own, and that the 5% compensation was insufficient. The Court noted that the 4th respondent had not challenged the previous orders and accepted the conclusion that the appellant was entitled to compensation.
The Court concluded that the appellant should be compensated by paying simple interest at the rate of 6% per annum on the sum of Rs. 81,20,000 from the date of deposit (21st July 2019) until the actual refund was made. The Court directed the 4th respondent to pay this interest within six weeks from the date of the judgment.
Conclusion:
This decision highlights the importance of ensuring that individuals who are deprived of the use of their funds due to legal or administrative delays are adequately compensated. By awarding the appellant interest on the auction amount, the Supreme Court has set a precedent for ensuring fairness in such cases, particularly when no fault lies with the auction purchaser. The judgment also underscores the need for transparency and efficiency in the handling of funds by authorities involved in recovery processes.
