Rajasthan Financial Corporation Jaipur vs M/s Jain Bandhu Sneh Resorts Private Limited
Background
A borrower took two term loans from Rajasthan Financial Corporation and defaulted on repayment. After years of litigation over waiver of penal interest and extended deadlines, the Corporation took possession of the borrower's resort and auctioned it; an auction purchaser emerged as the sole bidder and later increased its bid during negotiations. The sale was held up by a High Court stay for nearly five years before the property was finally handed over to the auction purchaser in 2018. The Rajasthan High Court set aside the confirmed sale, holding the Corporation had mechanically confirmed it without accounting for price escalation over those five years, and ordered a fresh auction, prompting cross-appeals by the Corporation, the auction purchaser, and the borrower.
Decision Breakdown
The Supreme Court held the borrower was a rank defaulter who had already been given ample opportunities to clear the loan and was not entitled to any further relief or to have the sale reopened for a new buyer. It rejected the High Court's approach of scrapping the entire sale merely because prices had risen during the years the sale was delayed by litigation, since that delay was not the auction purchaser's fault. Instead, the Court struck a middle path: it restored and upheld the sale in favour of the auction purchaser, but required the purchaser to pay 12% annual interest on its bid amount (Rs. 11.11 crores) for the roughly five-year period the finalisation was held up, compensating the Corporation for the delay without unwinding the sale altogether.
Lesson Learnt
A defaulting borrower who repeatedly fails to use genuine opportunities to repay a loan cannot expect a court to cancel a completed public auction just to give them another chance; and where litigation delays a sale's completion, courts may address the resulting value gap through an interest payment rather than by nullifying the transaction entirely.