Supreme Court Dismisses Application for Sale Certificate in SARFAESI Act Case: Union Bank of India vs. Rajat Infrastructure (2023)

Date of the Judgment: 04 October 2023
Citation: 2023 INSC 869
Judges: Aniruddha Bose, J., Bela M. Trivedi, J. (authored the judgment)
Can a court extend the deadline for payment in a property auction under the SARFAESI Act, even after initially setting a firm deadline? The Supreme Court addressed this question in a case involving a bank seeking to finalize a sale after a long series of extensions. The court ultimately held that statutory rules must be strictly followed, and that it could not grant further extensions, dismissing the auction purchaser’s application for a sale certificate. The judgment was authored by Justice Bela M. Trivedi, with Justice Aniruddha Bose concurring.

Case Background

The case involves a dispute over a property in Indore, mortgaged by Rajat Infrastructure Pvt. Ltd. (Respondent No. 1) to Union Bank of India (Appellant) to secure loans for Zoom Developers Pvt. Ltd. (Respondent No. 4) and Zoom Vallabh Steel Ltd. (Respondent No. 5). When the borrowers defaulted, the bank initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) to recover its dues. The bank then put the property up for e-auction.

M/s. Sunview Assets Pvt. Ltd. (Applicant/Respondent No. 6) emerged as the highest bidder in the auction. However, the sale process became protracted due to multiple legal challenges and requests for extensions of payment deadlines by the auction purchaser.

Timeline:

Course of Proceedings

The Debt Recovery Tribunal (DRT) initially refused to grant an interim stay on the auction. The Bombay High Court directed Rajat Infrastructure to pursue an appeal before the Debt Recovery Appellate Tribunal (DRAT). The Supreme Court, in an earlier round of litigation, set aside the High Court’s observations regarding pre-deposit requirements for appeals before the DRAT and extended the time for the auction purchaser to deposit the balance amount. The auction purchaser then sought multiple extensions for payment citing the COVID-19 pandemic.

Legal Framework

The judgment primarily revolves around the interpretation and application of Rule 9 of the Security Interest (Enforcement) Rules, 2002, which governs the sale of immovable secured assets through e-auction. Specifically, Rule 9(4) states:

“The balance amount of purchase price payable shall be paid by the purchaser to the authorized officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period [as may be agreed upon in writing between the purchaser and the secured creditor, in any case not exceeding three months].”

Rule 9(5) specifies the consequences of non-payment:

“In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited [to the secured creditor] and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold.”

Rule 9(6) outlines the issuance of the sale certificate:

“On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorized officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the Form given in Appendix V to these rules.”

Arguments

Applicant (M/s. Sunview Assets Pvt. Ltd.):

• The Applicant argued that it had made the full and final payment of the auction amount along with interest as per the Supreme Court’s order dated 12.05.2020.
• The Applicant contended that the court should use its inherent powers under Article 142 of the Constitution or Section 148 of the Civil Procedure Code (CPC) to treat the deposits made on 22.07.2022 and 26.08.2022 as compliance with the order dated 12.05.2020.
• The Applicant sought a direction to the bank to issue the sale certificate.

Respondent No. 1 (Rajat Infrastructure Pvt. Ltd.):

• The Respondent argued that the Miscellaneous Application filed in a disposed-of Civil Appeal was not maintainable.
• The Respondent contended that the Applicant failed to comply with the orders passed by the Supreme Court from time to time and with the provisions of Rule 9 of the Security Interest (Enforcement) Rules, 2002.
• The Respondent alleged collusion between the Applicant and the Appellant Bank.

Appellant (Union Bank of India):

• The Appellant contended that even if the lockdown was considered to be in operation till the end of February 2022, the full payment should have been made by 30.04.2022, which was not done.
• The Appellant relied on its earlier affidavit regarding the status report dated 06.08.2022.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issues that the court addressed are:

1. Whether the extension of time sought by the Applicant in successive applications was permissible in law.
2. Whether the Applicant had complied with the orders passed by the Court from time to time, particularly the order dated 12.05.2020.
3. Whether the Miscellaneous Application seeking directions against the bank for issuing the sale certificate was maintainable in a disposed of Civil Appeal.

Treatment of the Issue by the Court

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

Authorities

The Court relied on the following authorities:

Cases:

• Taylor vs. Taylor, [ L.R.] 1 Ch.426 – The court cited this case, which was approved by the Supreme Court in Rao Shiv Bahadur Singh and Another vs. The State of Vindhya Pradesh AIR 1954 SC 322, State of Uttar Pradesh vs. Singhara Singh and Others AIR 1964 SC 358 and in Babu Verghese and Others vs. Bar Council of Kerala and Others (1999) 3 SCC 422, to emphasize that when a statute requires a thing to be done in a particular manner, it must be done in that manner or not at all.
• Rao Shiv Bahadur Singh and Another vs. The State of Vindhya Pradesh AIR 1954 SC 322 – This case was cited to support the principle that a statutory requirement must be strictly followed.
• State of Uttar Pradesh vs. Singhara Singh and Others AIR 1964 SC 358 – This case was cited to support the principle that a statutory requirement must be strictly followed.
• Babu Verghese and Others vs. Bar Council of Kerala and Others (1999) 3 SCC 422 – This case was cited to support the principle that a statutory requirement must be strictly followed.
• Supreme Court Bar Association vs. Union of India and Another (1998) 4 SCC 409 – The court cited this case to clarify that the powers under Article 142 of the Constitution cannot be used to supplant substantive law.
• Supertech Limited vs. Emerald Court Owner Resident Welfare Association and Others 2021 SCC Online SC 3422 – The court cited this case to deprecate the practice of filing repeated Miscellaneous Applications after a final judgment.

Legal Provisions:

• Rule 9 of the Security Interest (Enforcement) Rules, 2002 – The court extensively analyzed this rule, particularly sub-rules (4), (5), and (6), to determine the timelines for payment and the consequences of default.
• Article 142 of the Constitution of India – The court discussed the scope of its powers under this article and clarified that it cannot be used to override statutory provisions.
• Section 148 of the Civil Procedure Code (CPC) – The court clarified that this section does not allow extending the time limit beyond thirty days of the time limit fixed earlier.

Authorities Considered by the Court

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court relied on Taylor vs. Taylor [L.R.] 1 Ch.426 to emphasize that when a statute requires a thing to be done in a particular manner, it must be done in that manner or not at all.
• The Court cited Rao Shiv Bahadur Singh and Another vs. The State of Vindhya Pradesh AIR 1954 SC 322, State of Uttar Pradesh vs. Singhara Singh and Others AIR 1964 SC 358, and Babu Verghese and Others vs. Bar Council of Kerala and Others (1999) 3 SCC 422 to reinforce the principle that a statutory requirement must be strictly followed.
• The Court used Supreme Court Bar Association vs. Union of India and Another (1998) 4 SCC 409 to clarify that the powers under Article 142 of the Constitution cannot be used to supplant substantive law.
• The Court cited Supertech Limited vs. Emerald Court Owner Resident Welfare Association and Others 2021 SCC Online SC 3422 to strongly deprecate the practice of filing repeated Miscellaneous Applications after a final judgment.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the need to adhere strictly to the statutory provisions of the SARFAESI Act and the Security Interest (Enforcement) Rules, 2002. The Court emphasized that when a statute prescribes a particular manner of doing something, it must be done that way and no other. The Court also expressed concern about the practice of filing repeated miscellaneous applications to avoid compliance with judicial decisions.

Logical Reasoning

The court rejected the argument that it could use its inherent powers under Article 142 of the Constitution or Section 148 of the CPC to extend the time, stating that these powers cannot be used to override explicit statutory provisions. The court also emphasized that it cannot achieve indirectly what it cannot do directly, quoting the maxim “Quando aliquid prohibetur ex directo, prohibetur et per obliquum.”

The Court observed that the applicant had not complied with the order dated 12.05.2020, which had extended the time to deposit the remaining amount till two months after lifting of the lockdown. The court noted that even if the period of limitation was extended up to February 2022, the applicant was required to make the deposit by 30.04.2022, which it failed to do. The court also noted that the applicant had not clarified the exact date when the lockdown was lifted, the lending rate of interest, and the amount required to be paid towards the balance sale price and interest.

The court also rejected the argument that it should treat the deposits made by the applicant on 22.07.2022 and 26.08.2022 as due compliance with the order dated 12.05.2020, stating that this would be against the statutory provisions of Rule 9 of the Security Interest (Enforcement) Rules, 2002.

The Court also noted that there was nothing on record to suggest whether the Respondent No.1 had preferred any appeal before the DRAT and the final outcome of the main Security Application preferred by the Respondent No.1 before the DRT.

The court concluded that the Miscellaneous Application was not maintainable and dismissed it. However, the court clarified that the applicant could pursue other remedies, including seeking a refund of the amount deposited.

The court stated:

“It cannot be gainsaid that the court in exercise of powers under Article 142 cannot ignore any substantive statutory provision dealing with the subject.”

“A disturbing trend has emerged in this court of repeated applications, styled as Miscellaneous Applications, being filed after a final judgment has been pronounced. Such a practice has no legal foundation and must be firmly discouraged.”

“Filing of a miscellaneous application seeking modification/clarification of a judgment is not envisaged in law.”

Key Takeaways

• Statutory timelines under the SARFAESI Act and the Security Interest (Enforcement) Rules, 2002 must be strictly followed.
• Courts cannot use their inherent powers to override explicit statutory provisions.
• Miscellaneous Applications seeking substantive relief in disposed of cases are not maintainable.
• Repeated applications to avoid compliance with judicial decisions are discouraged.
• Auction purchasers must adhere to payment deadlines, and failure to do so can result in forfeiture of deposits.

Directions

The Supreme Court did not give any specific directions in this case. However, it clarified that the applicant could pursue other remedies, including seeking a refund of the amount deposited with the bank.

Development of Law

The ratio decidendi of this case is that the statutory timelines under the SARFAESI Act and the Security Interest (Enforcement) Rules, 2002, must be strictly followed, and the courts cannot use their inherent powers to override explicit statutory provisions. This judgment reinforces the importance of adhering to statutory procedures and discourages the practice of filing repeated applications to avoid compliance with judicial decisions. There is no change in the previous positions of law.

Conclusion

The Supreme Court dismissed the Miscellaneous Application filed by the auction purchaser, M/s. Sunview Assets Pvt. Ltd., seeking a direction to the Union Bank of India to issue a sale certificate. The court emphasized the importance of adhering to the statutory timelines outlined in the SARFAESI Act and the Security Interest (Enforcement) Rules, 2002. The court held that it could not extend the time for payment beyond the statutory limit and that the Miscellaneous Application was not maintainable in a disposed-of civil appeal. The judgment underscores the principle that statutory requirements must be strictly followed and that courts cannot use their inherent powers to circumvent these requirements.