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M/s Oasis Dealcom Pvt. Ltd. v. Khazana Dealcomm Pvt. Ltd. & Ors.

Civil Appeal · Neutral citation not assigned (Civil Appeal Nos. 10676-10677 of 2016)Decided 8 Nov 2016
Civil Appeal Nos. 10676-10677 of 2016
Justice Anil R. Dave · Justice Uday Umesh Lalit

Background

Respondents 1-3 defaulted on a loan from ING Vysya Bank, which was secured by a mortgaged flat in Kolkata. After issuing the statutory default notice, the bank took symbolic possession of the flat and, amid ongoing litigation over the validity of that notice (where the borrowers had been directed to deposit money or furnish a bank guarantee, which they failed to do), proceeded to auction the flat. The appellant, Oasis Dealcom, was the sole bidder and purchased the flat for about ₹1.48 crore, but the sale was later set aside by the Debt Recovery Tribunal and Appellate Tribunal, and by the High Court, on the ground that the bank had acted with undue haste and committed irregularities in holding the auction while related proceedings were still pending.

Decision Breakdown

The Supreme Court agreed with the concurrent findings of the Tribunal, Appellate Tribunal and High Court that the bank had acted with undue haste in auctioning the flat while proceedings challenging the underlying notice were still pending, and declined to disturb the decision setting aside the sale. It also rejected the appellant's argument that the borrowers' second statutory application challenging the sale was not maintainable, holding that it arose from a different cause of action than the first. However, recognising the hardship faced by the auction purchaser who had paid the full price in good faith, the Court modified the order to direct that the purchase money be refunded to Oasis Dealcom with 10% simple interest, and, exercising its special constitutional powers under Article 142, laid down a fresh timeline requiring the bank to intimate the total amount due from the borrowers and, if unpaid, to re-auction the flat with fresh public notice.

Lesson Learnt

A bank or lender that moves too quickly to auction a mortgaged property while a borrower's challenge to the underlying recovery notice is still pending risks having that sale invalidated for procedural unfairness, and even an auction purchaser who has paid in good faith is not guaranteed to keep the property, though the law will protect them by ensuring their money is returned with interest.

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

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