SARFAESI - Borrower Can't Seek Discharge By Only Paying Highest Bid Amount Or Reserve Price If Bank Dues Are More : Supreme Court

The Supreme Court has held that a borrower cannot redeem the mortgaged property put for public auction by the bank by only paying the reserve price for the auction or even the highest bid amount.Under Section 13(8) of the the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act"), the transfer of the mortgaged property in public auction can be stalled only when the entire dues along with all cost, charges and expenses are paid to the Bank before the date fixed for such transfer, the Court held."Even by paying the highest bid amount the borrower cannot be discharged of its liability of the outstanding due to be paid to the bank...Even if the mortgaged property was sold off to a third party at a price lower than the outstanding dues, the remaining amount had to be paid by the borrower", the Court observed."Unless the borrower was ready to deposit the entire outstanding amount along with costs and expenses, the DRT could not have stalled the auction by directing it to pay only the reserve price", the Court observed.The Apex Court noted that the handover of possession and original title deed of the mortgaged property cannot be obtained by the borrower from the bank, until and unless the entire liability outstanding against them is discharged by the borrower. A Bench comprising Justices M.R. Shah and Sanjiv Khanna allowed an appeal filed by the Bank of Baroda assailing the order of the Division Bench of the Rajasthan High Court, which had directed the bank to release the mortgaged property and to hand over possession and original title deeds to a borrower on payment of partial dues. Factual Background Bank of Baroda granted a term loan of Rs 100 lakhs and cash credit limit of Rs. 95 lakhs to M/s. Karwa Trading Company ("borrower") against two properties - an industrial plot and a residential property. The borrower failed to repay and on 31.10.2012, its account became NPA. Thereafter, the borrower was served with a notice under Section 13(2) of the SARFAESI Act for a sum of Rs. 1,85,37,218.80. Constructive possession of the immovable property was taken and the bank issued a notice under Section 13(4) of the SARFAESI Act. Eventually, on 25.11.2013, the bank took possession of the residential property mortgaged with it. A sale notice was issued on 16.12.2013 for public auction of the property and the reserve price was fixed at Rs. 48.65 lakhs. The auction was challenged by the borrower under Section 17 of the SARFAESI Act before DRT, Jaipur, which passed an interim order directing the borrower to deposit Rs. 20 lakhs by the day of auction and balance payment of Rs. 28.65 lakhs by 27.01.2014. If such a deposit is made, the bank was directed to deliver possession to the borrower. The borrower made the payment as directed. The interim order was challenged by the bank before the DRAT. It argued that if the borrower was interested he could redeem the property by paying the due of Rs. 2 crores or atleast pay Rs 71 lakhs, which is the highest bid in the public auction. The DRAT dismissed the appeal, which was challenged before the Single Judge of Rajasthan High Court. It set aside the orders of DRT as well as DRAT holding them to be be contrary to Section 13(8) of the SARFAESI Act. The borrower was successful in the appeal before the Division Bench and the bank was directed to release the residential property and handover title deeds upon the borrower depositing Rs. 17 lakhs. Contentions raised by the appellant Advocate, Ms. Praveena Gautam appearing on behalf of Bank of Baroda submitted that the borrower did not come forward to redeem the property but to make an offer for the property as a purchaser on payment of the reserved price. She highlighted that the same was also noted by the Division Bench. It was asserted that when the notice under Section 13(2) was issued the dues amounted to Rs. 1,85,37,218.80. Therefore, the borrower cannot be discharged from his liability upon paying Rs. 71 lakhs for the mortgaged residential property. It was clarified that the bank had agreed to handover the possession for Rs. 71 lakhs, but not forgo the liability of the outstanding dues. She assailed the order of the Division Bench for being contrary to Section 13(8) of the SARFAESI Act, which reads as under - "13. Enforcement of security interest.- [...] 8. If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secure asset." It was pointed out that when the interim order passed by DRT was limited to handing over possession on payment of reserve price i.e. Rs. 48.65 lakh, it was not proper for the Division Bench...

SARFAESI - Borrower Can't Seek Discharge By Only Paying Highest Bid Amount Or Reserve Price If Bank Dues Are More : Supreme Court

Sohini Chowdhury

"Even by paying the highest bid amount the borrower cannot be discharged of its liability of the outstanding due to be paid to the bank"

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