Supreme Court Directs Expedited Resolution on Interest and Mesne Profits in Auction Sale Dispute: Rockline Construction Company vs. Doha Bank QSC (24 April 2023)

Introduction

Date of the Judgment: 24th April, 2023. Citation: Not Available. Judges: Hon’ble Justices Krishna Murari and Sanjay Karol. Can a court clarify its previous order to specify the exact interest rate and mesne profits in a case where an auction sale was set aside? The Supreme Court of India recently addressed this question in a miscellaneous application, seeking clarification of its earlier order regarding a property auction. The core issue revolves around the appropriate interest rate to be applied to the refund of the auction amount and the determination of mesne profits (profits from the property during the period of possession). The bench comprised Justices Krishna Murari and Sanjay Karol.

Case Background

The case involves a dispute arising from an auction sale of a property. M/s. Rockline Construction Company (the applicant) had purchased the property in an auction on 16th May 2007. However, this sale was later set aside. Consequently, the applicant was entitled to a refund of the sale amount, along with accrued interest, after deducting any mesne profits or losses. The matter has a long history of litigation between the parties. The applicant had deposited a significant amount in 2007 as part of the auction bid. The Debt Recovery Appellate Tribunal (DRAT), Mumbai, had previously ordered a refund of the amount with interest. However, the rate of interest and the determination of mesne profits were not clearly specified, leading to further litigation.

Timeline

Course of Proceedings

The Debt Recovery Appellate Tribunal (DRAT), Mumbai, in its order dated 07.07.2014, had directed the refund of the sale amount with accrued interest, after deducting mesne profits. Subsequently, the Recovery Officer-I, Mumbai Debt Recovery Tribunal No.1, vide order dated 13.07.2021, determined that the applicant was entitled to simple interest at 9% per annum on the refund amount. This was against the applicant’s claim for interest at commercial rates. An appeal was preferred against this order, which was pending before the Debt Recovery Appellate Tribunal, Mumbai, as Appeal No. 8 of 2022. The Supreme Court, in its order dated 12.05.2022, did not interfere with the High Court’s decision to set aside the sale, thus affirming the applicant’s entitlement to a refund. The current miscellaneous application was filed seeking clarification on the interest rate and mesne profits.

Legal Framework

The judgment primarily deals with the implementation of orders passed by the Debt Recovery Appellate Tribunal (DRAT) and the Recovery Officer under the Recovery of Debts and Bankruptcy Act, 1993. The core issue revolves around the interpretation of the term “accrued interest” and the determination of “mesne profits” in the context of a set-aside auction sale. The judgment also touches upon the principles of equity and justice in determining the appropriate rate of interest on a refund amount.

Arguments

Applicant’s Arguments:

• The applicant contended that they were entitled to interest at commercial rates, which were around 14.5% with monthly rests, as opposed to the 9% simple interest awarded by the Recovery Officer.
• The applicant submitted that the bank had used the deposited amount for further lending and would have earned interest at rates ranging between 9% to 15% or above.
• The applicant argued that the interest should reflect the market practice for commercial transactions.

Respondent’s Arguments:

• The respondent argued that the 9% simple interest awarded by the Recovery Officer was appropriate.
• The respondent also raised a plea of limitation against the applicant’s appeal before the Debt Recovery Appellate Tribunal.

Innovativeness of the argument: The applicant’s argument that the interest rate should reflect the market practice for commercial transactions and that the bank had earned interest on the deposited amount was a novel approach to claim a higher interest rate.

Issues Framed by the Supreme Court

The Supreme Court identified the following issues for adjudication:

1. What is the appropriate rate and terms of interest to which the applicant would be entitled?
2. How should mesne profits be determined?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court did not cite any specific cases or books in this judgment. The judgment primarily relies on the orders passed by the Debt Recovery Appellate Tribunal, Mumbai, and the Recovery Officer-I, Mumbai Debt Recovery Tribunal No.1, in the same case.

Judgment

How each authority was viewed by the Court?

• The order of the Debt Recovery Appellate Tribunal, Mumbai, dated 07.07.2014 was the basis for the applicant’s claim to a refund with interest.
• The order of the Recovery Officer-I, Mumbai Debt Recovery Tribunal No.1, dated 13.07.2021, was the basis for the dispute regarding the rate of interest.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to ensure a fair and expeditious resolution of the dispute. The Court recognized that the applicant was entitled to a refund with interest and that the issue of the interest rate and mesne profits needed to be determined on merits. The Court also considered the fact that the matter had been pending for a long time. The Court was also influenced by the fact that the appeal was already pending before the Debt Recovery Appellate Tribunal, Mumbai, and that it would be appropriate for the appellate authority to decide the issue on merits.

Logical Reasoning:

The Court considered the pending appeal before the Debt Recovery Appellate Tribunal and decided that it would be more appropriate for the appellate authority to decide the issue on merits. The Court also noted that any delay would only increase the amount payable as interest. The Court rejected the plea of limitation raised by the respondent, stating that it could not stand in the way of determining the applicant’s monetary claims on merits. The Court did not provide any alternative interpretations. The final decision was to direct the appellate authority to decide the issue on merits within a period of two months.

The Supreme Court’s decision was based on the following reasons:

• The applicant was entitled to a refund with interest.
• The issue of the interest rate and mesne profits needed to be determined on merits.
• The appeal was already pending before the Debt Recovery Appellate Tribunal.
• Any delay would only increase the amount payable as interest.
• The plea of limitation could not stand in the way of determining the applicant’s monetary claims on merits.

The Court stated, “In normal course, we would have ourselves decided the same; however, considering the fact that the appeal in relation to it is pending before the adjudicatory authority, being Appeal No.8 of 2022, Debt Recovery Appellate Tribunal, Mumbai, we refrain from doing so, enabling the said fact­finding authority to do so, expeditiously and in accordance with the law.” The Court also noted, “Before us, it is argued that the appeal is perhaps barred with the efflux of time. We find this objection, in the attending facts and circumstances, to be untenable given the long­standing pending litigation inter se the parties to the lis.” And, “The issue of limitation shall be deemed to have been closed.”

There were no majority or minority opinions in this case.

Key Takeaways

• The Supreme Court has directed the Debt Recovery Appellate Tribunal, Mumbai, to decide on the appropriate rate of interest and mesne profits in a case where an auction sale was set aside.
• The Court has emphasized the need for an expeditious resolution of the dispute.
• The Court has dismissed the plea of limitation, ensuring that the applicant’s monetary claims are decided on merits.
• This judgment highlights the importance of clear and specific orders from adjudicatory authorities to avoid further litigation.

Directions

The Supreme Court gave the following directions:

1. The parties shall appear before the appellate authority on 1st May 2023 and place on record a copy of the order.
2. The appellate authority shall decide the appeal preferred by the applicant strictly on merits, in accordance with the law, expeditiously, and within a period of two months.
3. The issue of limitation shall be deemed to have been closed.
4. Liberty is reserved to the applicant to approach the Supreme Court should the need so arise specifically.

Specific Amendments Analysis

There is no discussion on any specific amendment in this judgment.

Development of Law

The ratio decidendi of this case is that when an auction sale is set aside, the determination of the interest rate on the refund amount and the mesne profits should be decided on merits by the appropriate appellate authority, and that the plea of limitation should not stand in the way of determining the monetary claims on merits. There is no change in the previous position of law.

Conclusion

The Supreme Court disposed of the miscellaneous application by directing the Debt Recovery Appellate Tribunal, Mumbai, to decide the pending appeal on merits. The Court emphasized the need for an expeditious resolution of the dispute regarding the interest rate and mesne profits. The Court also closed the issue of limitation, ensuring that the applicant’s monetary claims are decided on merits.