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S. Karthik & Ors. v. N. Subhash Chand Jain & Ors.

Special Leave Petition (Civil) · 2021 INSC 534Decided 23 Sept 2021
Special Leave Petition (Civil) Nos. 8614-8617 of 2020
Justice L. Nageswara Rao · Justice B.R. Gavai · Justice B.V. Nagarathna

Background

A company had defaulted on bank loans, with the appellants (promoters/family members) standing as guarantors who had mortgaged four properties as collateral. After the loan turned into a non-performing asset, the bank invoked the SARFAESI Act to sell the mortgaged properties. What followed was nearly a decade of litigation across the Debt Recovery Tribunal (DRT), the Debt Recovery Appellate Tribunal (DRAT), and the Madras High Court, with the guarantors repeatedly challenging successive sale notices while the auction purchaser (who had bought two of the properties) was unable to take possession or enjoy the properties he had legally bought.

Decision Breakdown

The Supreme Court found that the guarantors had used a "series of proceedings one after the other" to block enforcement of a validly created security interest, defeating the purpose of the SARFAESI Act, which exists precisely to let banks recover dues and sell mortgaged security without court intervention. On the substantive sale-notice challenge, the Court found no infirmity and upheld the auction sale and the DRAT/High Court's view on that point. On a separate claim about surplus sale proceeds, the Court agreed that the excess amount from the sale of one property was correctly directed to be paid to the guarantor who actually owned that specific property. Having dismissed the appeals with costs, the Court invoked its special constitutional power under Article 142 to do complete justice: it directed the guarantors to hand over vacant and peaceful possession of the auctioned properties to the purchaser within 8 weeks (who had been kept out of his legally purchased property for 9 years), and to pay him the rental income they had wrongfully continued to collect on those properties since September 2012, within three months.

Lesson Learnt

Courts will look past a long chain of successive legal challenges when they are used merely to delay an auction purchaser or secured creditor from ever realising a validly completed sale, and the Supreme Court can use its special Article 142 powers to directly order possession and repayment of wrongfully retained rent to achieve real justice, not just a paper victory.

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

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