The Supreme Court has invalidated a property auction conducted by Indian Bank in 2010 due to non-compliance with Security Interest (Enforcement) Rules, 2002. The court granted the legal heir of the deceased guarantor a chance to redeem the property. The appeal was filed by M.R. Vasumathi, daughter of guarantor G. Ramanujam, challenging the auction sale under the SARFAESI Act.
The dispute originated from a loan taken by a sole proprietorship in 1984, with Ramanujam as the guarantor who mortgaged his property. Following a default by the borrower and a decree in favor of Indian Bank in 1997, the bank initiated SARFAESI Act proceedings in 2009, leading to an auction sale in 2010. The successful bidder bought the property for Rs 2.11 crore.
The apex court noted that the auction purchaser failed to pay the balance within the prescribed 15-day period, violating Rule 9(4) of the Security Interest (Enforcement) Rules. The court emphasized the mandatory nature of Rule 9, stating that it is crucial for the validity of the sale. The court found no evidence of a written agreement extending the payment period between the secured creditor and the auction purchaser.
Rejecting the argument that the sale should stand because it was confirmed, the court emphasized that statutory non-compliance cannot be rectified by equitable considerations. The court emphasized the importance of a fair and transparent process in realizing secured assets under the SARFAESI Act. The court set aside the judgments of lower courts and directed Indian Bank to refund the auction amount to the purchaser with interest.
Invoking its powers under Article 142 of the Constitution, the Supreme Court granted the appellant a chance to redeem the property by paying the specified amount within a stipulated time. The court directed the appellant to approach the bank to determine the payable amount and complete the payment within the given period. If the appellant fails to redeem the property, the bank can auction it again after obtaining a fresh valuation report.
