Auction Purchasers Can't Object To Bank Offering One-Time Settlement Facility To Borrower Until Auction Sale Is Confirmed: Kerala High Court

Justice N Nagaresh stated that the auction purchasers do not acquire any right or interest over the mortgaged properties as long as the auction sale was confirmed and sale certificates were issued in their favour.

"It is true that the right of redemption is available to the borrowers will stand extinguished upon publication of notice of auction. However, that will not prevent the parties to a loan agreement from entering into a One Time Settlement. As long as the sale of the mortgaged assets is not confirmed in favour of the auction purchasers and as long as the Sale Certificates are not issued, the auction purchasers cannot be heard to contend that the Bank should not enter into a One Time Settlement with the borrowers"

The petitioners were purchasers who purchased secured assets from auction sale by the Union Bank of India. The petitioners deposited the entire auction amount in the bank. The bank then discontinued the recovery proceedings initiated against the borrowers under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 by giving them a chance for a one-time settlement. Thus, the bank granted the borrowers a one-time settlement facility and cancelled the auction sale and returned the bid amounts to the petitioners.

The Counsel for the Petitioners contended that the cancellation of the auction sale by the bank was unprecedented, illegal and unsustainable. Relying upon Rule 9(1) of the Security Interests (Enforcement) Rules, it was argued that the mortgagor loses the right to redeem properties on the date of the publication of notice for auction sale. It was further argued that the bank was unjustified for entering into a one-time settlement facility with the borrowers by cancelling the auction sale.

On the other hand, the Union Bank contended that the sale was not confirmed in favour of the petitioners and they did not acquire any interest, title or right over the mortgaged properties. It was argued that the Union Bank had to cancel the auction sale in favour of the petitioners since it entered into a one-time settlement with the borrowers.

The Court stated that acceptance of a bid by itself would not confirm the sale unless the Bank confirms the acceptance of the bid and issues Sale Certificates. Further, the Court stated that the petitioners had not acquired any right or interest over the mortgaged properties since the sale in their favor was not confirmed by the bank.

In the facts of the case, the Court stated the sale in favour of the petitioners was not confirmed since the borrowers had approached the Debt Recovery Tribunal against the sale of their mortgaged properties and had obtained an interim order against the auction sale.

It stated that when the borrowers offered a one-time settlement facility, the bank accepted it. It said: “There is nothing which prevents the Bank from entering into a One Time Settlement with the borrowers as long as auction sale of the property is not concluded by issuance of Sale Certificate.”

Additionally, the Court observed that the sale notice contains a clause stating that the sale could be cancelled by the bank at any time and that it was their discretion to proceed or not to proceed with the auction sale. 

Accordingly, the Court disposed of the writ petition and directed the bank to pay reasonable interest to the petitioners and to refund the amounts deposited by the petitioners along with interest.

Counsel for Petitioners: Advocates Adarsh Kumar, K.M.Aneesh, Dileep Chandran, Shashank Devan, Madhu Radhakrishnan, Nelson Joseph, M.D.Joseph,

Deepak Ashok Kumar

Counsel for Respondents: Advocates Muralikrishnan C, Biju Abraham,, P.I.Raheena, Abraham George Jacob, Shahna, B.G.Bhaskar

Citation: 2024 LiveLaw (Ker) 176

Case title: Ajmal K V v Union Bank of India & Connected Case

Case number: WP(C) NO. 24087 OF 2023, WP(C) NO. 27867 OF 2023

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