In a significant ruling of Sanjay Sharma v/s Kotak Mahindra Bank Ltd. & Others, the Supreme Court of India has recently upheld the decision of the Appellate Tribunal, thereby restoring the auction sale of a secured asset conducted by Kotak Mahindra Bank Ltd. The case revolves around a dispute concerning the ownership and title of a piece of property under the SARFAESI Act, leading to a detailed examination of the auction process, rights of the purchaser, and the issue of prior unregistered transactions.
Background:
The dispute in question centers around a secured asset located in Old Rajinder Nagar, New Delhi. The original owner, Champa Bhen Kundia, mortgaged the property to a financial institution. Following the default in repayment, the debt was assigned to Kotak Mahindra Bank, which initiated proceedings under the SARFAESI Act, eventually leading to the auction of the property in 2010. The appellant, a successful bidder, made a payment of Rs. 7.5 lakh and received a sale certificate for the property.
However, the respondent, Raj Kumar Vij (respondent No. 2), who claimed to have prior interest in the property through an unregistered agreement to sell, challenged the auction sale, arguing that he had an equitable right over the asset. His objections were initially raised before the Debt Recovery Tribunal (DRT), the Appellate Tribunal, and eventually the Delhi High Court, which ruled in his favor, setting aside the auction sale and ordering a refund to the appellant.
Key Legal Issues:
Ownership and Title Claims: The core issue was whether respondent No. 2 had any valid claim to the secured asset, given that his alleged transfer documents—an unregistered sale deed and an agreement to sell—failed to meet the requirements for valid property transactions under the Transfer of Property Act.
Legality of the Auction: Another crucial issue was whether the auction conducted by Kotak Mahindra Bank was lawful. The appellant's claim rested on the fact that he was the highest bidder in a public auction held in compliance with the SARFAESI Act.
Right of Redemption: The respondent argued that he had an unfettered right to redeem the mortgaged property. However, the court noted that the right of redemption is not limitless and is governed by specific statutory timelines under the SARFAESI Act, which had expired before the auction.
Court's Findings:
The Supreme Court in its judgment highlighted several critical legal principles:
Unregistered Documents: The court observed that all of respondent No. 2’s documents—such as the sale deeds and agreement to sell—were unregistered, thus failing to transfer any valid title to the property. Under Section 54 of the Transfer of Property Act, only a registered instrument can transfer ownership of immovable property valued over Rs. 100, making all of respondent No. 2's claims legally untenable.
Validity of the Auction: The Court upheld the auction conducted by Kotak Mahindra Bank, emphasizing that the auction was carried out in accordance with the SARFAESI Act. The appellant was the highest bidder, and the sale certificate issued was valid under the law.
Right of Redemption: The Court reaffirmed that the right of redemption, although available to borrowers, is time-bound and cannot be exercised indefinitely. Respondent No. 2 had multiple opportunities to redeem the property, as highlighted by orders from the DRT and the Appellate Tribunal, but failed to take any action in this regard.
Role of Due Diligence: The court emphasized that the Bank and the appellant had exercised due diligence in the auction process. Since the agreement to sell was not a registered document, neither the Bank nor the appellant could have been expected to know about any prior claims over the property.
Final Judgment: Ultimately, the Supreme Court set aside the High Court's order, restoring the Appellate Tribunal's decision that had favored the auction sale. The appellant was entitled to retain the property, while respondent No. 2 was given a chance to reclaim any deposits made, in accordance with the law.
Conclusion:
This ruling underscores the importance of adhering to legal formalities, particularly in property transactions. It highlights the essential requirement of registration for the transfer of immovable property and the limits on redemption rights under the SARFAESI Act. Moreover, the case reaffirms that auction sales conducted in compliance with statutory regulations cannot be easily overturned unless there is clear evidence of fraud, irregularities, or legal violations.
The judgment provides clarity on the rights of both lenders and borrowers in cases involving secured assets, and it ensures that due process is followed in property transactions under the SARFAESI framework.
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
