Maharashtra Co-Operative Societies Rules | Failure To Pay Balance Amount In 15 Days Renders Auction A Nullity: Supreme Court

The Supreme Court has held that an auction sale conducted under the Maharashtra Co-operative Societies framework becomes void ab initio if the full purchase price is not deposited within the statutorily prescribed time.

A bench of Justices PS Narasimha and Manoj Misra partly allowed the Bombay High Court's ruling, while allowing that part of the ruling which had set aside the auction sale due to non-deposit of the purchase price on time, but directed refund of the entire bid amount with interest to the auction purchaser, holding that the purchaser should not suffer for lapses attributable to the Recovery Officer.

“…the view taken by the High Court that confirmation of the auction sale was void as the remainder payment was not made within the period prescribed (15 days) by the 1961 Rules cannot be faulted… The Bank shall refund the amount deposited by M/s Adishakti Developers (Appellant) along with interest at the rate of 6% per annum from the date of deposit till the date of repayment.”, the court held.

The case arose from recovery proceedings initiated by the Mahanagar Co-operative Bank Ltd. against the partnership firm M/s. Borse Brothers, which had defaulted on a cash credit facility secured by an equitable mortgage over land in Chembur, Mumbai. An ex parte award passed in 1994 attained finality and was sought to be executed through auction under Rule 107 of the Maharashtra Co-operative Societies Rules, 1961 (“Rules”).

In the auction conducted on January 29, 2005, M/s. Adishakti Developers emerged as the highest bidder at ₹1.51 crore. While an initial deposit was made on the date of auction, the balance consideration was paid in multiple instalments well beyond the mandatory 15-day period stipulated under Rule 107(11) (h). Despite this, the Recovery Officer confirmed the sale and issued a sale certificate.

Years later, the legal heirs of one of the partners challenged the auction by filing a revision under Section 154 of the Maharashtra Co-operative Societies Act, 1960. The revision was allowed, and the auction sale was set aside. This decision was upheld by the Bombay High Court in a common judgment dated March 26, 2018, prompting the present appeals before the Supreme Court.

Upholding the High Court's conclusion on the invalidity of the sale, the judgment authored by Justice Misra reiterated that strict compliance with auction timelines is not a mere procedural formality but a substantive statutory requirement.

Relying on its earlier decision in Shilpa Shares & Securities v. National Co-operative Bank Ltd. (2007) 12 SCC 165, the Court held that failure to deposit the balance purchase money within the prescribed period renders the auction a nullity, not a curable irregularity.

Accordingly, the appeal was partly allowed, with a direction that the property be subjected to a fresh auction in accordance with Rule 107(11)(j).

Cause Title: M/S. ADISHAKTI DEVELOPERS VERSUS THE STATE OF MAHARASTRA & ORS.

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Appearance:

For Petitioner(s) Mr. Vijay Hansaria, Sr. Adv. Mr. M. Y. Deshmukh, AOR Ms. Manjeet Kirpal, Adv. Mr. Shiv Kumar, Adv. Mr. Ashvathaman Dinesh, Adv. Mrs. V.Mohana, Sr. Adv. Mr. Dinesh Chandra, Adv. Mr. Ravindra Keshavrao Adsure, AOR Mr. Sagar N.pahune-patil, Adv. Mr. Yash Prashant Sonavane, Adv.

For Respondent(s) Mr. Vinay Navare, Sr. Adv. Mr. Yashodhan Chandurkar, Adv. Ms. Mansni Jain, Adv. Ms. Abha R. Sharma, AOR Mr. Samrat Krishnarao Shinde, Adv. Mr. Siddharth Dharmadhikari, Adv. Mr. Aaditya Aniruddha Pande, AOR