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G. Vikram Kumar vs. State Bank of Hyderabad & Ors.

Civil Appeal · 2023 INSC 475Decided 2 May 2023
Civil Appeal Nos. 3152-3153 of 2023
M.R. Shah · C.T. Ravikumar · Manoj Misra · C.T. Ravikumar was the judge who actually co-signed the final judgment

Background

A builder who had taken a loan from a bank for a housing project defaulted, and the bank initiated SARFAESI recovery proceedings, eventually being permitted by the Debt Recovery Tribunal (DRT) to sell certain flats to recover its dues. Without permission from the bank or the DRT, the borrower separately entered into a private sale agreement for one flat (No. 6401) with another buyer (respondent no. 1); the DRT later declared this private transaction void. The bank then auctioned the flat and the appellant was declared the successful bidder, but after the auction was already complete, respondent no. 1 filed a writ petition (without disclosing the auction had happened) and got the Andhra Pradesh/Telangana High Court to stay and ultimately set aside the auction in his favour.

Decision Breakdown

The Supreme Court held that the private sale agreement in favour of respondent no. 1 had already been declared void by the DRT since it was made without the bank's or Tribunal's consent while recovery proceedings were pending, so respondent no. 1 could not claim any right over the flat. It also held that respondent no. 1 acted in bad faith by suppressing from the High Court the fact that the e-auction had already concluded, and that he should have pursued his remedy (if any) under Section 17 of the SARFAESI Act rather than a writ petition. The Court set aside the High Court's judgment, confirmed the sale in favour of the auction-purchaser appellant on payment of the balance consideration with 9% interest, directed refund of respondent no. 1's deposited amount with interest, and gave his heirs three months to vacate the flat.

Lesson Learnt

A private sale of mortgaged property made behind the back of the bank and recovery tribunal during pending SARFAESI proceedings is void and confers no rights on the buyer: a genuine, transparent bank auction purchaser's title will prevail, and courts look unfavourably on litigants who conceal material facts (like a completed auction) to obtain interim relief.

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

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