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Subhransu Sekhar Padhi v. Gunamani Swain

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 7936 of 2014)Decided 21 Aug 2014
Civil Appeal No. 7936 of 2014
Justice J. Chelameswar · Justice A.K. Sikri

Background

The Odisha State Financial Corporation auctioned land mortgaged by a truck borrower's father-in-law after loan default. Padhi paid Rs. 10,09,000 and took possession. The mortgagor's family successfully challenged the auction, arguing that the Corporation could not use Section 29 of the State Financial Corporations Act to sell a third-party guarantor's land.

Decision Breakdown

The Court dismissed the purchaser's appeal and upheld cancellation of the sale. Section 29 permits action against the defaulting industrial concern's property, not a third party's property merely because it is mortgaged as security. The Corporation had acted contrary to an already settled legal position. Recognising the innocent purchaser's loss, the Court ordered the Corporation to refund Rs. 10,09,000 with twelve-percent annual interest and bear Rs. 1,00,000 in costs, with payment within thirty days. The Corporation could pursue lawful recovery routes against the borrower or others and recover the costs from responsible officers.

Lesson Learnt

A recovery auction is valid only if the lender uses powers that cover the property concerned. Here the auction buyer received a refund and interest because the Corporation used an unlawful procedure.

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

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