10 April 2024 Property/Real Estate Law >> Property & Real Estate  

In a recent judgment, the Supreme Court has settled a dispute arising from a property auction due to loan default. The case involved Dr. M.V. Ramana Rao (borrower), UCO Bank (respondent bank), and PHR Invent Educational Society (auction purchaser).

Loan Default and Auction Notice:

Dr. Rao had availed a loan from UCO Bank but defaulted on repayments. The bank, under the provisions of the SARFAESI Act, initiated proceedings to recover the outstanding dues. This included issuing a public auction notice for the properties mortgaged by Dr. Rao.

Legal Challenge and High Court Intervention:

Dr. Rao challenged the auction notice through an application (S.A. No. 1476 of 2017) filed under the SARFAESI Act. However, he later withdrew his application. Despite the withdrawal, the bank proceeded with the auction, and PHR Invent Educational Society emerged as the successful bidder.

Dr. Rao then filed a writ petition in the High Court, contesting the sale of his property. The High Court, in a surprising move, allowed the writ petition and directed the Debt Recovery Tribunal (DRT) to revisit Dr. Rao's initial application (S.A. No. 1476 of 2017).

Supreme Court's Reversal:

The auction purchaser, PHR Invent Educational Society, appealed the High Court's order in the Supreme Court. The Supreme Court, in its judgment, held that the High Court had overstepped its jurisdiction.

The Court emphasized that Dr. Rao had an alternative remedy available under the SARFAESI Act itself - the option to appeal the DRT's decision. The Court highlighted the importance of exhausting established legal channels before approaching the High Court under Article 226.

Impact and Takeaway:

The Supreme Court's judgment clarifies the legal route for borrowers facing property auction due to loan defaults under the SARFAESI Act. Borrowers must utilize the remedies provided within the Act before seeking intervention from the High Court. This decision also underscores the principle of judicial restraint, where High Courts are expected to be cautious while entertaining writ petitions when effective statutory remedies exist.