Page 1

                 REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  3865  OF 2014 (Arising out of S.L.P.(C) No.24915 of 2011)

J.Rajiv Subramaniyan & Anr.                      … Appellants  

VERSUS

M/s. Pandiyas & Ors.            ...Respondents

   WITH

   CIVIL APPEAL NO.  3866  OF 2014          (Arising out of S.L.P.(C) No.25448 of 2012)

J U D G M E N T

SURINDER SINGH NIJJAR,J.

1.  Leave granted.  

2. These special leave petitions are directed against the  

final judgment and order dated 14th June, 2011 passed  

by  the  Madras  High  Court  (Madurai  Bench)  in  

W.A.No.417  of  2011  dismissing  the  aforesaid  Writ  

1

Page 2

Appeal filed by the appellants.

3. We have heard the learned counsel for the parties at  

length.

4.   Mr. Ashok Desai learned senior counsel appearing  

on behalf of the appellants has submitted that although  

many  issues  have  been  raised  in  the  SLP,  he  is  not  

pressing  the  point  that  the  High  Court  erred  in  

entertaining the writ petition filed by respondent Nos.1  

and 2. The point with regard to the maintainability of  

the writ petition was taken on the basis of a judgment  

of this Court in the case of United Bank of India vs.  

Satyawati Tondon & Ors.  1  . It was urged before the  

High Court that an alternative remedy being  available  

to respondent Nos.1 and 2 under the Securitization and  

Reconstruction of Financial Assets and Enforcement of  

Security Interest Act, 2002 (hereinafter referred to as  

“SARFAESI  Act,  2002),  the writ  petition would not  be  

maintainable.  The  second  issue  with  regard  to  the  

maintainability  was  based  on  the  fact  that  earlier  

1 [2010 (8) SCC 110]

2

Page 3

respondent  Nos.  1  and  2  had  filed  Writ  Petition  

Nos.5027-28  of  2006  challenging  the  auction  sale  

notice  dated  23rd May,  2006.  However,  these  writ  

petitions  were withdrawn on 3rd July,  2006.  The High  

Court did not give any liberty to respondent Nos. 1 and  

2  to  file  fresh  writ  petition.  Mr.  Desai  very  fairly  

submitted that it is not necessary to examine the issues  

on  maintainability  of  the  writ  petition,  as  the  entire  

issue is before this Court on merits.  

5.  Mr. Ashok Desai has pointed out that respondent  

Nos.1 and 2 had taken various loans from respondent  

No.3-Bank. Upon failure of Respondent Nos. 1 and 2 to  

repay the loan, the assets of respondent Nos.1 and 2  

which had been mortgaged with respondent No.3-Bank  

were classified as non-performing assets (NPA). Inspite  

of such action having been taken by respondent No.3-

Bank, respondent Nos.1 and 2 failed to regularize the  

bank account. Therefore, on 8th June, 2005, the bank-

respondent No.3 issued notice under Section 13(2) of  

3

Page 4

the SARFAESI Act, 2002 followed by a possession notice  

on 12th January, 2006 under Section 13(4) of the said  

Act. Respondent Nos.1 and 2 challenged the aforesaid  

two  notices  by  filing  Writ  Petition  Nos.  4174/2006,  

4175/2006,  5027/2006  and  5028/2006.  In  the  

meantime, auction sale was fixed on 7th July, 2006. But  

no  sale  took  place  as  there  were  no  bidders.  On  

28th August,  2006,  respondent  Nos.  1  and  2  sought  

cancellation  of  the  auction  notice  and  sought  

permission of respondent No.3-Bank to sell the secured  

assets by private Treaty. It was stated that as on that  

date the outstanding balance due to the bank was a  

sum of Rs.1.57 crores. A request was made to break up  

the aforesaid amount as follows :

(a) Machineries of M/s. Suruthi Fabrics            -  0.40 lacs

(b) Land and building of M/s. Suruthi Fabrics  -  0.70 lacs

(c) Pandias Garment Factory land and Building -  0.47 lacs

   And Suruthi Fabrics 5.51 acres Land  

6.  Permission was sought to sell the assets as stated  

4

Page 5

above  within  six  months.  On  11th September,  2006,  

respondent Nos.1 and 2 made a payment of Rs.42 lacs  

to respondent No.3-Bank, by selling machinery with the  

permission  of  respondent  No.3-Bank.  A  request  was  

also made for an extension of two moths for paying the  

remaining amount after selling the secured assets. On  

8th December,  2006,  respondent  No.3-Bank  gave  

approval for private sale of the immovable property to  

the appellants and for issue of sale certificate. On the  

very same date, the secured assets were sold in favour  

of the petitioner for a consideration of 123.10 lacs. It is  

not disputed by Mr. Vikas Singh, learned senior counsel  

appearing  for  Respondent  No.3,  that  the  sale  was  

affected  through  Ge-Winn  Management  Company,  

Resolution  Agents.   This  is  also  evident  from  the  

proceedings of the meeting held between respondent  

No.3-Bank and        Ge-Winn on 8th December, 2006.    

7.  We may point out here that the reserve price of  

the secured assets was fixed at 123 lacs. Sale deed was  

5

Page 6

executed  in  favour  of  the  appellants  by  respondent  

No.3  on  20th December,  2006,  as  the  entire  

considerations have been paid on 15th December, 2006.  

On 21st December, 2006, respondent Nos.1 and 2 were  

informed  by  respondent  No.3-Bank  that  the  secured  

assets had been sold for more than the amount offered  

by them in the letter dated 28th August, 2006. At that  

stage,  respondent  Nos.1  and  2  filed  Writ  Petition  

No.325 of 2007 without disclosing that the earlier Writ  

Petition  Nos.5027-28/2006  challenging  the  auction  

notice dated              23rd May,  2006 had been  

withdrawn  without  the  court  giving  liberty  to  

respondent Nos. 1 and 2 to file a fresh writ petition.  

8. Upon completion of the proceedings inspite of the  

preliminary  objections  taken  by  the  appellants,  the  

learned Single Judge allowed the writ petitions. The sale  

in favour of the petitioner was held to be vitiated on the  

ground that respondent No.3-Bank failed to follow the  

mandatory provisions of Rules 8(5), 8(6) and 9(2) of the  

6

Page 7

Security  Interest  (Enforcement)  Rules,  2002  

(hereinafter  referred  to  as  ‘Rules,  2002’).  But  a  

direction was issued to refund the amount paid by the  

petitioner i.e. Rs.1crore 41 lacs with interest at 9% per  

annum from April, 2007.  

9. Aggrieved by the aforesaid order,  the appellants  

filed Writ Appeal No.4127/2011 in the High Court, which  

has also been dismissed.

10. Mr.  Ashok Desai  submits  that  the petitioner  is  a  

bona fide purchaser and has paid the full consideration.  

Sale deed has been duly executed. Possession of the  

property is with the appellants since 2006. Therefore,  

respondent Nos.1 and 2 should not be permitted at this  

stage to claim that the sale is vitiated on the ground  

that  it  has  been  affected  through  an  agent  of  

respondent  No.3-Bank,  namely,  Ge-Winn.  Mr.  Desai  

submitted that the Single Judge as well as the Division  

Bench have wrongly held that there has been violation  

7

Page 8

of Rules 8(5), 8(6), 8(8) and 9(2) of the Rules, 2002. Mr.  

Desai further submitted that it  would be equitable to  

permit the petitioner to keep the plot which is adjacent  

to the property of the petitioner. Respondent Nos.1 and  

2 can be permitted to take the other plots.

11. Mr. Dhruv Mehta, learned senior counsel appearing  

on behalf of the respondent Nos. 1 and 2 relying on the  

judgment  of  this  Court  in  Mathew  Varghese Vs.  

M.Amritha  Kumar  &  Ors. in  C.A.No.1927-1929  of  

2014 decided on 10th February, 2014 submits that the  

Rules,  2002 are mandatory  in  nature.  In  the present  

case,  the  sale  has  been  effected  in  violation  of  the  

aforesaid rules. Both the learned Single Judge as well as  

the Division Bench have come to the conclusion that  

the  provisions  of  the  aforesaid  rules  have  not  been  

followed. It is not disputed by any of the parties that  

there is no agreement between respondent Nos. 1 and  

2 and respondent No.3-Bank,  in writing, to affect the  

sale by Private Treaty.       Mr. Vikas Singh, learned  

8

Page 9

senior  counsel  appearing  for  respondent  No.3-Bank,  

however, pointed out that the respondent Nos.1 and 2  

had filed a review petition in which it was averred that  

they may be permitted to sell  the secured assets by  

Private Treaty. Therefore, according to Mr. Vikas Singh,  

respondent Nos. 1 and 2 cannot now be heard to say  

that they had not given their consent to affect the sale  

by  Private  Treaty.  We  are  unable  to  accept  the  

submission made by Mr. Vikas Singh that there is no  

violation of the Rules, 2002. In our opinion, the findings  

recorded by  the  learned Single  Judge as  well  as  the  

Division Bench of the High Court that there has been a  

violation of Rules, 2002 are perfectly justified.  

12. This Court in the case of  Mathew Varghese Vs.  

M.Amritha Kumar & Ors.2 examined the procedure  

required to be followed by the banks or other financial  

institutions when the secured assets of the borrowers  

are sought to be sold for settlement of the dues of the  

2 2014 (2) Scale 331

9

Page 10

banks/financial  institutions.   The  Court  examined  in  

detail  the provisions  of  the SARFAESI  Act,  2002.  The  

Court  also  examined  the  detailed  procedure  to  be  

followed  by  the  bank/financial  institutions  under  the  

Rules, 2002.  This Court took notice of Rule 8, which  

relates to Sale of immovable secured assets and Rule 9  

which relates to time of sale,  issue of sale certificate  

and delivery of possession etc.  With regard to Section  

13(1),  this  Court  observed  that  Section  13(1)  of  

SARFAESI Act, 2002 gives a free hand to the secured  

creditor,  for  the  purpose  of  enforcing  the  secured  

interest without the intervention of Court or  Tribunal.  

But such enforcement should be strictly in conformity  

with  the  provisions  of  the  SARFAESI  Act,  2002.  

Thereafter, it is observed as follows:-

“A reading of Section13(1), therefore, is clear  to the effect that while on the one hand any  SECURED  CREDITOR  may  be  entitled  to  enforce  the  SECURED  ASSET  created  in  its  favour  on  its  own  without  resorting  to  any  court  proceedings  or  approaching  the  Tribunal,  such  enforcement  should  be  in  conformity  with  the  other  provisions  of  the  SARFAESI Act.”

10

Page 11

13. This  Court  further  observed  that  the  provision  

contained in Section 13(8) of the SARFAESI Act, 2002 is  

specifically  for  the  protection  of  the  borrowers  in  as  

much  as,  ownership  of  the  secured  assets  is  a  

constitutional  right  vested  in  the  borrowers  and  

protected  under  Article  300A  of  the  Constitution  of  

India.  Therefore, the secured creditor as a trustee of  

the secured asset can not deal with the same in any  

manner it likes and such an asset can be disposed of  

only  in  the  manner  prescribed  in  the  SARFAESI  Act,  

2002.  Therefore, the creditor should ensure that the  

borrower was clearly put on notice of the date and time  

by which either the sale or transfer will be effected in  

order  to  provide  the  required  opportunity  to  the  

borrower  to  take  all  possible  steps  for  retrieving  his  

property.   Such a  notice is  also  necessary  to  ensure  

that the process of sale will  ensure that  the secured  

assets will be sold to provide maximum benefit to the  

borrowers.  The notice is also necessary to ensure that  

11

Page 13

nullity.  Rule 8(8) of the aforesaid Rules is as under:-

“Sale  by  any  method  other  than  public  auction  or  public  tender,  shall  be  on  such  terms as may be settled between the parties  in writing.”

16. It  is  not  disputed  before  us  that  there  were  no  

terms settled in writing between the parties that  the  

sale  can  be affected  by  Private  Treaty.   In  fact,  the  

borrowers –  respondent  Nos.  1  and 2 were not  even  

called  to  the  joint  meeting  between  the  Bank  –  

Respondent  No.3  and          Ge-Winn  held  on  8th  

December, 2006.  Therefore, there was a clear violation  

of the aforesaid Rules rendering the sale illegal.

17. It must be emphasized that generally proceedings  

under  the SARFAESI  Act,  2002 against  the borrowers  

are initiated only when the borrower is in  dire-straits.  

The  provisions  of  the  SARFAESI  Act,  2002  and  the  

Rules,  2002  have  been  enacted  to  ensure  that  the  

secured asset is not sold for a song.  It is expected that  

all the banks and financial institutions which resort to  

13

Page 14

the extreme measures under the SARFAESI Act, 2002  

for sale of the secured assets to ensure, that such sale  

of the asset provides maximum benefit to the borrower  

by  the  sale  of  such  asset.  Therefore,  the  secured  

creditors  are expected to  take bonafide measures  to  

ensure that there is maximum yield from such secured  

assets  for  the  borrowers.   In  the  present  case,  Mr.  

Dhruv Mehta has pointed out that sale consideration is  

only  Rs.10,000/-  over  the  reserve  price  whereas  the  

property was worth much more.  It is not necessary for  

us to go into this question as, in our opinion, the sale is  

null  and  void being  in  violation  of  the  provision  of  

Section 13 of the SARFAESI Act, 2002 and Rules 8 and 9  

of the Rules, 2002.   

18. We, therefore, have no hesitation in upholding the  

judgments of the learned Single Judge and the Division  

Bench  of  the  High  Court  to  the  effect  that  the  sale  

effected in favour of the appellants on 18th December,  

2006 is liable to be set aside.   

14

Page 15

19. This  now brings us to  moulding the relief  in  the  

peculiar facts and circumstances of this case.  

20.  As  noticed  earlier,  Mr.  Ashok  Desai  had  

emphasized on behalf of the appellants that no blame  

at all can be attributed to them.  The bank had decided  

to sell the immovable properties to the appellants for  

Rs.1,23,10,000/-  against  the  reserve  price  of  

Rs.1,23,00,000.  This is evident from the joint meeting  

of the bank held with Ge-Winn on 10th December, 2006,  

wherein it is observed as follows:-

“Referring  to  the  above in  the  presence of  the undersigned it has been decided to effect  the sale to M/s. Susee Automobiles Pvt. Ltd.,  Madurai and Smt. Nirmala Jeyablan, W/o Shri  Jayabaaalan,  No.4,  S.V.  Nagar,  S.S.  Colony,  Madurai  for  a  consideration  of  Rs.123.10  lakhs (Rupees one crore twenty three lakhs  and ten thousand only)  against the reserve  price  of  Rs.123.00  lakhs  and  issue  Sale  Certificate  for  registration  under  private  treaty.”  

21. Mr. Desai had also pointed out that the borrowers  

15

Page 16

-Respondent No.1 and 2 had evaluated the property at  

Rs.117  lakhs.   The  evaluation  was  acknowledged  by  

Respondent  Nos.  1  and  2  in  the  letter  dated  

28th August,  2006.   Therefore,  the reserve price  was  

fixed based upon the aforesaid figures.  The appellants  

bought the property for more than the reserve price.  

The  appellants  paid  the  entire  consideration  within  

three days of  the sale,  i.e.,  on 15th December,  2006.  

The  Sale  Deed  was  executed  in  their  favour  on  20th  

December, 2006.  Possession was admittedly delivered  

on             20th December, 2006 also.  The appellants  

have also incurred substantial loss as they have been  

unnecessarily dragged into litigation.  He pointed out  

that  the  appellants  have  in  fact  incurred  losses  of  

Rs.3 crores as they were deprived of using the property  

in view of the interim orders passed by the High Court  

and they were forced to take other property on monthly  

rent  of  Rs.3  lakhs  from January  2007.  He,  therefore,  

submitted that the proposal made by the appellants for  

being  permitted  to  keep  the  plot  adjacent  to  the  

16

Page 17

property already owned by them, be accepted.  In the  

alternative, learned senior counsel submitted that the  

High Court  has  unnecessarily  reduced the amount  of  

interest  on  the  amount  deposited  by  the  appellants  

with  the  bank  would  bear  only  4%  interest.   He  

submitted  that  the  appellants  are  entitled  to  18%  

compound  interest  since  the  date  the  amount  was  

deposited till refund.  

22.  On the other hand, Mr. Dhruv Mehta pointed out  

that property of Respondent No.1 has been sold for a  

ridiculously low price, as the bank is interested only in  

regularizing  the  account  of  the  borrower.  He  has  

submitted that respondent Nos. 1 and 2 are prepared to  

compensate the appellants, to a reasonable extent, but  

not to the extent claimed by Mr. Desai.  

23.     On  the  other  hand,  Mr.  Vikas  Singh  has  

submitted that in case the sale is to be set aside and  

the properties have to be returned to the borrowers,  

17

Page 18

the dues of the bank also have to be secured, which are  

now in the region of Rs.4 crores.

24. We have considered the submissions made by the  

learned counsel for the parties.  

25. Initially on our suggestion, respondent Nos. 1 and 2  

had  quantified  the  amount  in  accordance  with  the  

directions  issued  by  the  learned  Single  Judge.   The  

learned  Single  Judge  had  ordered  refund  of  

Rs.1,41,00,000/-,  (Representing  Rs.1,23,10,000/-  

towards Sale Price and Rs.18,90,000/- towards Stamp  

Duty with interest @9% per annum from April  2007).  

However, since we had accepted the second alternative  

(partially)  of  Mr.  Ashok  Desai,  the  appellants  and  

respondents have jointly submitted the following chart:-

Amount quantified by the  Learned Single Judge

Interest@ 18%  from April 2007  to 15.06.2014  

Total

Rs. 1,41,00,000/- Rs. 1,23,10,000/- Sale Price Rs. 18,90,000/- (Stamp Duty)

Rs. 1,84,00,500/- Rs. 3,25,00,500/-

18

Page 19

26.  Mr. Dhruv Mehta has stated that Respondent Nos.  

1 and 2 are prepared to refund the sale amount paid by  

the appellants as Sale Price together with 18% simple  

interest from 1st July, 2007 till 15th June, 2014. The total  

amount spent on Stamp Duty shall also be refunded to  

the appellants.  The total amount shall  be paid to the  

appellants by 15th June, 2014.  Mr. Desai had pointed  

out that the amount deposited with the bank, which is  

said  to  be lying in  a  FDR Bearing 8.25% per  annum  

ought to  be refunded by the bank to the appellants.  

Upon the entire amount being repaid to the appellants,  

the  possession  of  the  property  purchased  by  the  

appellants  will  be delivered to  the Respondent  Nos.1  

and  2.  

27.    Insofar  as  the  submission  of  Mr.  Vikas  Singh  

learned senior counsel  is concerned we are unable to  

accept the same  in the facts and circumstances of this  

case  It would be relevant to point out that the learned  

Single Judge of  the High Court  after  holding that the  

sale  in  question  was  invalid,  directed  making  of  

19

Page 20

payments by respondent Nos. 1 and 2 to respondent  

No.3 bank with clear direction that on such payment,  

insofar as the bank is  concerned its dues shall  stand  

settled.    Not only respondent Nos. 1 and 2 made the  

payment  as  directed  which  was  accepted  by  

respondent No.3 bank, insofar as respondent No.3 bank  

is concerned it even accepted the said judgment and  

did not file any appeal thereagainst.  Only the appellant  

filed the appeal.  Though the order of the learned Single  

Judge about the validity of the sale had been affirmed,  

the Division Bench interfered with the other direction of  

the learned Single Judge which should not have been  

done  as  bank  had  not  challenged  the  order  of  the  

learned Single Judge.  We are, therefore, of the opinion  

that in the facts of this case, once the payment is made  

to  the  appellant  by  respondent  Nos.1  and  2  in  the  

manner  stated  hereinafter,  the  possession  of  the  

property shall be delivered to the respondent Nos.1 and  

2 with no further liability towards the bank

28.    In view of the aforesaid, we hold that the sale in  

20

Page 21

favour of the appellants dated 18th December, 2006 and  

the subsequent delivery of possession to the appellants  

is null and void.  The sale is accordingly set aside. The  

appellants are directed to deliver the possession of the  

property purchased by them under the Sale Deed dated  

20th December,  2006  to  Respondent  Nos.  1  and  2  

immediately  upon  receiving  the  entire  amount  as  

directed hereunder:-

(i) The  State  Bank  of  India  –  Respondent  No.3  

directed to refund the entire proceeds of the FDR  

in  which  the  sale  consideration  was  deposited  

together with accrued interest forthwith.

(ii) The Respondent Nos. 1 and 2 will ensure that the  

entire amount due to the appellants is paid on or  

before 15th June, 2014.

(iii) Upon receipt of the entire amount, the possession  

shall be delivered to Respondent Nos. 1 and 2.

29. With these observations, the appeals are disposed  

of with no order as to costs.  

21

Page 22

….………………………..J.            [Surinder Singh Nijjar]

…………………………..J. [A.K.Sikri]

New Delhi; March 14, 2014.  

22

Page 23