Legal Decisions Affecting Bankers

 Prakhar Galaw*

Appellants : Bank of Baroda agreement, thereby the account of the borrower was
Vs. classified as Non-Performing Asset on 31.10.2012.
The appellant bank then initiated recovery
Respondents : M/s. Karwar Trading
proceedings against respondent borrower, and
Company and Anr.
served the borrower a demand notice under section
Supreme Court
13(2) of Rs.1,85,37,218.80/- after which the appellant
Bench Strength : 2
bank took symbolic possession of the mortgaged
Bench : Justice M. R. Shah &
properties on 22.08.2013 under section 13(4) of the
Justice Sanjiv Khanna
Securitization and Reconstruction of Financial Assets
Citation : CA No. 363 of 2022
and Enforcement of Security Interest Act, 2002
Relevant Provision of Law hereinafter referred to as “the Act”, notice of which
Section 13(2), 13(4), 13(8) and 14 of the Securitization was also served to the borrower. The appellant bank
and Reconstruction of Financial Assets and then filed an application for recovery under section 14
Enforcement of Security Interest Act, 2002. of the Act, in the debt recovery tribunal the matter was
heard by the tribunal and the recovery application of
Issue
bank was allowed and their prayer to take possession
Whether the borrower can be discharged of his of the mortgaged properties was allowed with the
liability to pay the entire amount as demanded by help of police force. The appellant bank with the aid
the bank under section 13 (2) of SARFAESI Act, if the of police took possession of the housing property on
borrower is willing and ready to pay the highest bid 25.11.2013. The appellant bank then put the property
price or reserve price in the public auction. for public auction sale on 16.12.2013 the reserve price
Brief Facts of the Case of which was Rs. 48.65 lakh. The respondent borrower
challenged the said auction by filing a Securitisation
The appellant bank granted a term loan of Rs. 100 Application under section 17 of the Act, before the
lakh and a cash credit limit of Rs. 95 lakh to the DRT, Jaipur. The matter was heard by the tribunal at
respondent company against mortgage of two length and certain interim orders were passed by the
properties one of which was an industrial plot and the tribunal that if the borrower deposits Rs. 20 lakhs on
other being a residential property. The respondent 20.01.2014 by 12.00 noon, the bank shall accept the
borrower failed to pay equated monthly instalment bids but not finalize the bids/confirm the sale of the
on time as per the terms and conditions of the loan
*Advocate, High Court of M.P, Principal Seat, Jabalpur.

48 January - March, 2022 The Journal of Indian Institute of Banking & Finance
secured asset and if the borrower commits default and observations the DRAT dismissed the appeal of
in payment of balance amount of Rs.28.65 lakhs, the bank. Aggrieved by the orders of the DRAT, the
the restraint order shall stand vacated automatically. bank preferred an appeal before the High Court. The
The DRT also observed that if the borrower deposits learned single judge of the High Court allowed the
Rs.48.65 lakhs with the bank on or before 27.01.2014, appeal of the bank and dismissed the orders of both
the bank shall deliver the possession of the secured DRAT and DRT, as the same were in contravention of
asset along with the original title deeds of the property Section 13(8) of the Act. The orders of the single judge
in question. were then challenged by the borrower in intra-court
appeal before the division bench of the high court.
The borrower deposited the said amount of
The bench allowed the said appeal and directed
Rs. 48.65 Lakh. The afore- stated interim orders were
the bank to release the mortgaged property that is
challenged by the bank in DRAT on the following
the residential house with its title deeds in favour of
facts and grounds:
the borrower, after the borrower further deposits an
a. That, the bank had received bids upto Rs. 71 amount of Rs. 17 lakh with the bank. Aggrieved by
Lakh in public auction, and the default amount the orders of the Division bench, the bank preferred
was Rs. 1,85,37,218.80/- as per the demand an appeal before the Supreme Court on the following
notice issued by the bank to the borrower. So, if facts and grounds.
the borrower wanted to redeem his mortgaged
a. That, the intention of the borrower was malafide
property, he could only do so by paying the entire
from the very beginning as he wanted to
amount as mentioned in the demand notice not
purchase the property in the public auction at
by merely paying the reserve price of Rs. 48.65
the reserve price. The borrower never wanted
Lakh as per the directions of the DRT and the
to repay the amount of Rs. 1,85,37,218.80/- as
said directions were against the provisions of
per the demand notice. Also, just by paying an
section 13 (8) of the Act.
amount of Rs. 71 lakh would not absolve the
b. The bank also contended that, if the borrower borrower of his liability as stated in the demand
was ready and willing to pay the highest bid notice.
amount of Rs. 71 Lakh, the bank may release the
b. That, it was misinterpreted/misconceived by the
mortgaged property of the borrower, but it would
division bench of the High Court that on payment
also not absolve the borrower of his liability
of Rs. 71 Lakh by the borrower, the entire liability
towards the bank as per the demand notice
of the borrower would be waived off.
issued by the bank.
c. That, it was contented by the bank that the
The appeal of the bank got rejected by the DRAT.
amount of Rs. 71 Lakh which was the highest
The DRAT held that the borrower had already paid
bid amount was based on the valuation done
the reserve price of Rs. 48 Lakh. The DRAT also
in the year 2013-14. The division bench failed
observed that the bidders who had made bids in
to appreciate such important fact. The division
the range of 61 - 71 Lakh have not deposited the
bench failed to understand the intent behind
earnest money. Borrower on the contrary was ready
the provision mentioned under section 13(8)
to pay Rs. 71 Lakh to the bank. On following facts

The Journal of Indian Institute of Banking & Finance January - March, 2022 49
 of the Act and had passed an order contrary and discharge him of his liability as per the
to the said provision. The borrower could not demand notice under section 13 (2) of the Act.
have been discharged by merely paying Rs.
b. That, the borrower was not willing and ready to
65.65 Lakh as opposed to the demand notice of
pay the entire amount of Rs. 1,85,37,218.80/- as
Rs. 1,85,37,218.80/-
mandated under section 13 (8) of the Act. Thus,
Observations and Decision it was open for the appellant bank to put the
mortgaged property in public auction and realise
The Supreme Court heard the matter at length and
the maximum outstanding amount through the
weighed the contentions and grounds of both the
sale of the said property. Thus, the directions
parties. The impugned order passed by the division
passed by the division bench were contrary to
bench of the High Court was a direction to the bank
the provisions of section 13(8) of the Act.
to release the mortgaged residential property with
its title deeds and discharge the borrower/defaulter c. That, even after the payment of Rs. 65.65 Lakh
of his entire liability of Rs. 1,85,37,218.80/- as per the liability of the borrower would have continued,
the demand notice under section 13(2) of the Act on and borrower could not have been discharged.
payment of Rs. 65.65 lakh, which was the reserve Thus, the directions passed by the division
price of the public auction and an additional amount bench directing the bank to accept the amount
of 65.65 lakh only, restoring the possession to
of Rs. 17 Lakh.
the borrower and returning the title deeds of the
That, the Supreme Court made following observations mortgaged property was bad in law.
based on the records and the grounds raised by the
The Supreme Court allowed the appeal of the bank
counsels of both the parties:
and restored the interim orders passed by the DRT
a. That, the action taken by the bank under section and allowed the bank to go forward with public
13 and 14 of the Act against the borrower was auction of the mortgaged residential property. And,
just, fair and reasonable. The orders passed by also directed the bank to allow the borrower to live
the DRT in the appeal filed by the borrower under in the residential property till the finalization of the
section 17 of the Act were interim in nature, by auction sale, subject to the undertaking to be given
taking a lenient view towards the borrower. The by the borrower that he would not transfer, sell or
division bench of the High Court could not have alienate the said mortgaged property in the course
gone beyond the law as stated under section 13 of the auction and would give a peaceful possession
(8) of the Act to dilute the liability of the borrower after the finalization of auction sale.


50 January - March, 2022 The Journal of Indian Institute of Banking & Finance