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M/s. R.S. Infra-Transmission Ltd. vs Saurinindubhai Patel & Ors.

Civil Appeal · 2022 INSC 672Decided 11 Jul 2022
Civil Appeal No. 3469 of 2022
M.R. Shah · B.V. Nagarathna

Background

A bank obtained a debt recovery order against certain borrowers and their mortgaged land in Gujarat was put up for court auction, with the respondents (Saurinindubhai Patel and another) emerging as the highest bidders for Rs.1.35 crore in January 2007. Before the sale could be confirmed, the borrowers invoked Rule 60 of the Income Tax Act's Second Schedule, a provision letting a defaulter set aside an auction as a last resort by depositing the amount specified in the sale proclamation plus penalty and interest, and deposited money accordingly, though a small shortfall (about Rs.3.5 lakh, later fully paid) later emerged due to the Recovery Officer's own imprecise wording in the sale proclamation. The Recovery Officer accepted this and set aside the auction, after which the borrowers sold the land to the appellant company. The auction purchasers challenged this all the way up, and the Gujarat High Court ultimately ruled in their favour, holding Rule 60 had not been properly complied with and confirming the original auction sale.

Decision Breakdown

The Supreme Court held that the shortfall in the borrower's deposit arose because the Recovery Officer himself failed to specify the exact amount due (including interest) in the sale proclamation, and once the bank later supplied the correct calculation, the borrower promptly paid the balance the very next day, amounting to substantial, good-faith compliance with Rule 60. The Court emphasized that Rule 60 confers a valuable, last-resort right on a defaulting borrower to save mortgaged property, which should not be defeated by a technical shortfall caused by the recovery authority's own mistake rather than the borrower's fault. It therefore held the High Court was wrong to revive the auction sale on a hyper-technical reading, restored the order of the Debts Recovery Appellate Tribunal (which had set aside the auction), and additionally directed the appellant to pay the unsuccessful auction purchasers Rs.10 lakh as compensation along with a refund of their deposited money with interest.

Lesson Learnt

A borrower's statutory right to redeem property from a court auction (Rule 60) is meant to be a genuine last chance and should be read generously in the borrower's favour: a shortfall in the deposit caused by the recovery authority's own drafting error in the sale proclamation should not be used to defeat that right, especially where the shortfall is promptly cured once pointed out.

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

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