Published On: 16th January, 2025
Authored by: Deepak Sriramadasu
PMR LAW COLLEGE
Case citation:
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal. No.011115-011116 of 2024
(Arising out of S.L.P. (C) Nos. 8159-8160 OF 2023)
IDBI BANK LTD. …APPELLANT(S)
VERSUS
RAMSWAROOP DALIYA AND ORS. …RESPONDENT(S)
Presiding Judges:
- Pankaj Mithal, J.
- Mahadevan, J.
Introduction :
This case centers around a dispute between IDBI Bank Ltd. (appellant) and Ramswaroop Daliya and others (respondents) regarding the cancellation of an auction sale of a property located in Bogaram village, Telangana. The issues at hand involve the principles of natural justice, the interpretation of statutory auction rules, and the obligations of financial institutions in executing sale transactions.
Facts of the Case :
The appellant, IDBI Bank, initiated the e-auction Notice on 17.03.2018 after it had already made the complaint to the CBI but this aspect of the matter was not disclosed in the advertisement. Thus, a conscious decision was taken by the appellant bank to go ahead with the e-auction despite there being a complaint to the CBI. It is subsequent to the complaint to the CBI that the e-auction notice was issued and the e-auction was conducted on 10.04.2018. The respondents participated and emerged as the highest bidders, offering ₹1,42,50,000. They deposited 25% of the bid amount (₹36,00,000) on the day of the auction.
Despite the confirmation of the auction, the issuance of the sale certificate and execution of the sale deed were delayed. The respondents did not deposit the remaining balance of ₹1,06,50,000 within the stipulated 15 days, purportedly because the bank refused to accept the payment, citing various legal concerns including the CBI complaint and an advisory from the Enforcement Directorate (ED).
Ultimately, on December 24, 2019, the bank canceled the auction and refunded the amounts deposited by the respondents through demand drafts, which the respondents did not encash. This led the respondents to file a writ petition challenging the bank’s decision.
Writ Petition and High Court Judgment
The respondents invoked the writ jurisdiction of the High Court, seeking a direction to the bank to issue the sale certificate and allow them to complete the purchase by paying the remaining amount. In its judgment dated September 19, 2022, the High Court ruled in favor of the respondents, stating that the bank’s refusal to issue the sale certificate was unjustified. The court emphasized that the respondents had been willing to pay the sale consideration and that the bank could not unilaterally deny the issuance of the sale certificate based on the non-deposit of the balance amount within 90 days, as argued by the bank.
Appellant’s Argument
In the subsequent appeals, the appellant contended that the High Court erred in its judgment. The bank maintained that the respondents’ failure to deposit the balance sale consideration within the mandatory 90-day period as stipulated under Rule 9(4) of the Security Interest (Enforcement) Rules, 2002, justified the cancellation of the auction.
The appellant further claimed that the correspondence from the respondents indicated a pattern of seeking extensions without making the necessary payments. Citing the CBI complaint and the advisory from the ED, the bank argued that it was legally bound to refrain from issuing the sale certificate and executing the sale deed.
Respondent’s Position
The respondents argued that their inability to deposit the remaining amount was due to the bank’s refusal to accept the payment, influenced by external legal complications. They asserted that they were always ready and willing to pay the balance and had even submitted a bank draft of ₹1,06,50,000 on October 15, 2022, along with a request for the issuance of the sale certificate.
The respondents also pointed out that at no point did the bank formally revoke the sale confirmation or refuse to extend the time limit in writing. The bank’s silence in this regard implied consent to an extension of time for the deposit, which further bolstered their position.
Rule :
Rule 9 of the Security Interest (Enforcement) Rules, 2002
The pivotal legal issue revolved around Rule 9 of the Security Interest (Enforcement) Rules. Specifically, sub-rules (4) and (5) outline the obligations of the auction purchaser regarding the deposit of the balance sale amount. Sub-rule (4) mandates that the balance must be paid within 15 days or within an extended period agreed upon in writing. Sub-rule (5) provides that failure to make this payment results in forfeiture of the deposit and allows for the resale of the property.
The court, while analyzing these provisions, noted that the timeline for depositing the balance amount is not absolute and can be extended by mutual consent. Judicial precedents, such as Varimadugu Obi Reddy v. Sreenivasulu and General Manager, Sri Siddeshwara Cooperative Bank Ltd. v. Ikbal supported the position that written agreements can modify the stipulated time frames.
Court Findings :
Violation of Natural Justice
A critical aspect of the case was the bank’s unilateral cancellation of the auction without providing the respondents with notice or an opportunity to be heard. This action was deemed a violation of the principles of natural justice, rendering the cancellation proceedings illegal. The requirement for a fair process is a fundamental principle in legal transactions, and the bank’s failure to comply undermined the legitimacy of its actions.
High Court’s Affirmation
The High Court’s ruling emphasized that the bank had manifestly erred in canceling the auction sale. The court directed the appellant bank to issue the sale certificate and register the sale deed in favor of the respondents after the deposit of the balance auction amount within four weeks.
In its judgment, the High Court clarified that the appellant bank could not invoke the provisions of Rule 9(4) to justify its actions when the default, if any, lay with the bank itself. The court reiterated the necessity for banks to adhere to both statutory regulations and principles of natural justice in their operations.
Implications of the Judgment
The judgment has significant implications for the banking and financial sectors, particularly regarding auction sales and the enforcement of security interests. It reinforces the importance of transparency, fairness, and adherence to established legal principles in financial transactions. Financial institutions must ensure they provide adequate notice and a fair opportunity for parties involved in auction transactions, particularly when legal complexities arise.
Conclusion:
In conclusion, the case of IDBI Bank Ltd. vs. Ramswaroop Daliya & Ors. Highlights critical aspects of auction law, including the interpretation of regulatory provisions and the necessity for procedural fairness. The court’s ruling affirms that statutory timelines for deposit can be extended by mutual agreement and that financial institutions must act in good faith, ensuring that their actions are justifiable and compliant with both legal and ethical standards.
The dismissal of the civil appeals by the Supreme Court reflects a commitment to uphold justice and the rights of parties engaged in contractual agreements. It serves as a reminder that adherence to principles of natural justice is essential in maintaining the integrity of financial transactions, ensuring that all parties are treated fairly and equitably.
The judgment not only reinforces the obligations of banks in the auction process but also emphasizes the need for clear communication and procedural adherence to safeguard the interests of all stakeholders involved. As such, this case will likely serve as a significant reference point for future disputes concerning auction sales and the enforcement of security interests.
Reference:
(Supreme Court of India | India) <https://www.sci.gov.in/> accessed 25 October 2024.