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Bank of Baroda vs. M/s Karwa Trading Company & Anr.

Civil Appeal · 2022 INSC 169Decided 10 Feb 2022
Civil Appeal No. 363 of 2022
M.R. Shah · Sanjiv Khanna

Background

Bank of Baroda had granted loans to the borrower against mortgage of an industrial plot and a residential house; when the loan account turned into an NPA with dues of about Rs. 1.85 crore, the bank took possession of the residential property under the SARFAESI Act and put it up for public auction. The borrower challenged the auction before the DRT, which passed an interim order letting the borrower keep the property by depositing the reserve price of Rs. 48.65 lakhs; the DRAT upheld this, but a Single Judge of the Rajasthan High Court set it aside as contrary to Section 13(8) of the SARFAESI Act. On intra-court appeal, the Division Bench reinstated relief for the borrower, directing the bank to release the property and title deeds on payment of a further Rs. 17 lakhs (making a total of Rs. 65.65 lakhs, roughly matching the highest auction bid received). The bank appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that Section 13(8) of the SARFAESI Act permits a mortgaged property to be withheld from sale only if the borrower pays the entire outstanding dues, costs and charges, not merely the reserve price or the highest bid received in an auction that never actually concluded. Since the highest bidder had not come forward and no sale had actually been realised, treating Rs. 65.65 lakhs (based on the unmaterialised bid) as sufficient to discharge the borrower's liability of about Rs. 1.85 crore was contrary to the statute; even a completed sale at that price would not have extinguished the borrower's liability for the shortfall. The Court restored the Single Judge's order, allowed the bank to proceed with a fresh public auction (adjusting amounts already paid by the borrower against the outstanding dues), directed the DRT to decide the borrower's pending SARFAESI application on its own merits, and, recognising the property was residential, protected the borrower's possession until the auction is actually finalised, while barring any transfer of the property in the meantime.

Lesson Learnt

Under the SARFAESI Act, a borrower can stop a bank from selling mortgaged property only by paying the full outstanding debt with costs and charges: a partial payment matching a reserve price or an unconfirmed auction bid is not enough to force the secured asset's release, since a sale (even if completed) does not by itself wipe out the borrower's residual liability.

Official source (sci.gov.in)View Judgment (PDF)

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