Supreme Court of India
VASU P. SHETTYversusM/S HOTEL VANDANA PALACE & ORS.
- Citation
- 2014 INSC 307
- Decided
- 22 April 2014
- Disposal
- Dismissed
- Bench
- S S NIJJAR
Holding
The mandatory 30‑day notice requirement was not waived; its breach makes the auction sale null and void.
Summary
The borrower defaulted on a loan and the bank, under the SARFAESI Act, took possession of the mortgaged hotel and attempted to sell it by public auction. The auction purchaser, Vasu P. Shetty, obtained the highest bid, but the High Court set aside the sale because the public notice did not give the statutorily required 30‑day period under Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002. The bank and purchaser argued that the borrower had waived the notice requirement by its conduct. The Supreme Court held that no waiver was established; the borrower’s actions, including filing writ petitions, demonstrated opposition rather than consent. Consequently, the breach of the mandatory notice provision rendered the auction sale null and void. The Court ordered the borrower to pay the bank’s dues and reimburse the purchaser’s expenses, failing which the bank may re‑sell the property, and dismissed the appeals.
Issues considered
- Whether the mandatory 30‑day notice requirement under Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002 can be waived by the borrower.
- Whether such a waiver occurred in the present facts.
- Whether a breach of the mandatory notice provision invalidates the auction sale.
- Whether the auction purchaser is entitled to a refund and/or interest.
Legislation cited
Subjects
mandatory noticewaiverauction salesecurity interestRule 8Rule 9SARFAESI Actmortgagebank borrower disputesale void
Judgment
(2014] 9 S.C.R. 38
·•
A VASU P. SHETTY
V.
M/S HOTEL VANDANA PALACE & ORS.
(Civil Appeal No. 4679 of 2014)
'
APRIL 22, 2014
B
[SURINDER SINGH NIJJAR AND A.K. SIKRI, JJ.)
Security Interest (Enforcement) Rules, 2002 - rr.8 & 9 -
Default in rep~yment of loan by borrower - Auction sale of
c mortgaged property set aside by High Court on ground that
public notice issued for the sale was defective as 30 days time
mandatorily required under rr. 8 and 9 was not given - Plea
of auction purchaser as well as the Bank that the borrower by
its conduct had waived said mandatory requirement of ttie
D Rules - Held: Not tenable - No case of waiver made out in
the instant case - Two earlier failed auctions and one failed
One time Settlement (OTS) proposal of the borrower does not
lead to the conclusion that the Bank was relieved from its
obligation not to follow the mandatory procedure contained
E in the Rules, while taking fresh steps for disposal of the
property - Even if delaying tactics were adopted by borrower
in respect of the first two auctions, the conduct of borrower
cannot be taken as waiver of the mandatory condition of 30
days notice for auction as well as other requirements - There
was not even slightest move on the part of borrower
F
amounting to waiver either express or implied - In view of
breach of mandatory requirements, auction sale in question
to be treated as null and void - Two months time granted to
borrower to discharge the entire liability of the Bank - If
borrower pays the amount due, the property shall revert back
G to it - Otherwise, the Bank shall be at liberty to proceed with
the sale of the property - Purchaser refunded entire amount
spent by it - No interest granted to purchaser on the amount
refunded, as he, in the meantime, utilized the property in
H 38
VASU P. SHETTY v. MIS HOTEL VANDANA PALACE 39
question - Securitisation and Reconstruction of Financial A
Assets and Enforcement of Security Interest Act, 2002 - ss.
13 and 18 - Doctrines - Doctrine of waiver.
Respondent no.1 took loan from Bank but defaulted
in making re-payment. Taking action under provisions of
8
the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2000, the Bank
took formal possession of the mortgaged property given
as surety for due discharge of the loan. The property was
put to auction sale. The appellant was highest bidder and C
therefore a sale certificate was issued in his favour.
Respondent chaJlenged the sale by filing application
before Debt Recovery Tribunal which was dismissed.
Respondent then filed petition before the High Court
which was dismissed by a Single Judge. On appeal, the
Division Bench set aside sale of property in favour of the D
appellant on the ground that the public notice issued for
the said sale was defective as 30 days time mandatorily
required under Rules 8 and 9 of the Security Interest
(Enforcement) Rules, 2002 was not given.
E
Notwithstanding the fact that insufficient notice was
given and the mandatory nature of Rules 8 & 9, the
appellants viz auction purchaser as well as the Bank
maintained before this Court that the sale was valid
because respondent-borrower by its conduct had F
waived the said mandatory requirement of the Rules.
In this backdrop, the question that arose for
consideration before this Court was as to whether there
could be a waiver of the aforesaid mandatory condition;
and if so, whether this waiver could be discerned in the G
present case.
Dismissing the appeals, the Court
HELD:1.1. In the instant case, no case of waiver is
.H
40 SUPREME COURT REPORTS [2014] 9 S.C.R.
A made out. From what is argued by the appellants, at best
it can be inferred that the borrower tried to thwart the
earlier attempts of the Bank in selling the property. When
the first notice was issued, the borrower filed the writ
petition. However, in the said Writ Petition no interim
B order was passed staking the auction on the stipulated
date. The only stay granted was against confirmation of
sale. That did not preclude anybody from participating in
the auction. Many times pendency of such a Writ Petition
challenging the auction notice and the kind of stay
c granted, even partial in nature, deter the intending buyers
to come forward and participate in the auction. Be as it
may, even in the second attempt when the reserve price
was reduced to Rs. 2.39 crores, the highest bid received
was in the sum of Rs. 2.25 crores. Further, even the bid
0 of the appellant which was accepted was in the sum of
Rs.2.16 crores. Likewise, after the second auction when
the Bank requested the borrower to accept the bid of /
Rs.2.25 crores giving its reasons and the borrower
instead of doing so took initiative resulting in One~ Time
E Settlement (OTS) but defaulted therein, it would merely
indicate that the borrower was at fault in not adhering to
the OTS. By no logic it can be deduced therefrom that the
Bank was relieved from its obligation not to follow the
mandatory prpcedure contained in the Rules, while
taking fresh steps for the disposal of the property. [Paras
F 22, 24) [58-F; 61-C-G]
1.2. Even if there were delaying tactics adopted by
the borrower in respect of first two auctions, the conduct
of the borrower cannot be taken as waiver to the
G mandatory condition of 30 days notice for auction as well
as other requirements. There was not even the slightest
move on the part of the borrower in this regard which
may amount to waiver either express or implied. On the
contrary, when notice dated 27.4.2006 was published, the
H borrower immediately filed the Writ Petition challenging
VASU P. SHETTY v. M/S HOTEL VANDANA PALACE 41
the auction notice. Thus, its conduct, far from waiving the A
aforesaid requirement, was to confront the bank by
questioning its validity. It is a different matter that it had
to withdraw the said writ petition in view of availability of
alternate remedy. Immediately, it filed application under
Section 18 of the SARFAESI Act. There is, thus, not even B
an iota of material suggesting any waiver on the part of
the borrower. [Para 25] [61-H; 62-A-D]
1.3. The moment it is found that the mandatory
requirement of the Rules had not been waived by the C
borrower, consequences in law have to follow. When
there is a breach of the said mandatory requirement the
sale is to be treated as null and void. Moreover, the
appellant have no answer to many other infirmities
pointed out by the High Court. Two mon~hs time is
grante~ to the borrower to discharge the entire liability D
of the Bank. The borrower shall also reimburse the
amount of registration fee and stamp duty to the
purchaser. The direction to pay this amount is given
having regard to the conduct of the borrower on earlier
occasions. If the borrower pays the amount due to the E
Bank, registration charges, stamp duty as well as amount
of encumbrances paid by the purchaser, which was the
liability of the borrower i.e. a sum of Rs.49,91,000/- +
2,86,078/-, the property shall revert back to the borrower.
If the aforesaid amount_s are not paid within the aforesaid F
two months, the Bank shall be at liberty to proceed with
the sale of the property following due procedure under
the law. In so far as the purchaser is concerned, he shall
be refunded entire amount spent by the purchaser. This
Court has consciously not granted interest to the G
purch'aser on the aforesaid amount, as the purchaser
has, in the meantime, utilized the property in question.
[Paras 26, 27] [62-E-F; 63-B-E]
H
42 SUPREME COURT REPORTS [2014] 9 S.C.R.
A State of Punjab v. Davinder Pal Singh Bhullar & Ors.
2011 (14) sec 770: 2011 (15) SCR 540 - relied on.
Mathew Varghese v. M. Amritha Kumar & Ors. 2014 (2)
SCALE 331; J. Rajiv Subramaniyan & Anr. v. Mis Pandiyas
& Ors. 2014 (3) SCALE 646; General Manager, Sri
B
Siddeshwara Cooperative bank Limited and Anr. v. lkbal &
Ors. (2013) 10 SCC 83 - referred to
Case Law Reference :
c 2014 (2) SCALE 331 referred to Para 13
2014 (3) SCALE 646 referred to Para 13
(2013) 1o sec 83 referred to Para 14
2011 (15) SCR 540 relied on Para 23
D
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
4679 of 2014.
From the Judgment and Order dated 21•1November, 2011
of by the High Court of Karnataka Circuit Bench at Dharwad
F in WA No. 6368/2011 (GM-ORT).
WITH
Civil Appeal No. 4680 of 2014
F Ranjit Kumar, Adarsh B. Dial, Basava Prabhu S. Patil,
Prasanth P., Sumati Anand, Rajiv Nanda, Shailesh Madiyal,
G.S. Gokak for the -appearing parties.
The Judgment of the Court was delivered by
G A.K. SIKRI, J. t. Leave granted.
2. Respondent No. 1 herein had taken loan fro.m Syndicate
Bank (hereinafter to be referred as the 'Bank'). Because of its
default in repaying the said loan, the bank took action. under
~ '
H the provisions of the Securitization and Re-construction ofi
VASU P. SHETTY v. M/S HOTEL VANDANA PALACE 43
[A.K. SIKRI, J.]
Financial Asset and Enforcement of Security Interest Act, 2002 A
(SARFAESI Act). After taking formal possession of the
mortgaged property which was given as a surety for due
discharge of the ioan, the said property was put to sale. The
appellant herein was the highest bidder whose bid was
accepted resulting into issuance of the sale certificate. B
Respondent No. 1 (hereinafter referred to as the 'borrower')
challenged the said sale by filing application before the Debt
Recovery Tribunal (ORT). This application was dismissed. The
borrower filed Writ Petition before the High Court of Karnataka
against the order of ORT. The learned Single Judge dismissed c.
the Writ Petition as well. Undeterred, the borrower appealed
against the order of the learned Single Judge. This time it
triumphed, as the Division Bench has set aside the sale of the
property in favour of the appellant. The reason given is that the
public notice issued for the said sale was stefective as 30 days o
time which is mandatorily required under Rules 8 and 9 of
SARFAESI Act was not given. Concededly the public notice
was published in the newspaper on 28.4.2006, fixing the date
for sale as 8.5.2006, inviting tenders from prospective buyers
at 2.00 p.m. on 6.5.2006. E
3. This fact that insufficient notice was given, is, therefore,
not in dispute. Legal position about the mandatory nature of
Rule 8 & 9 is also not agitated. Notwithstanding this legal
possession, the appellants viz auction purchaser as well as the ·
Bank maintain that the sale was valid because of the reason F
that delay was entirely attributable to the borrower who by its
conduct waived the said mandatory requirement of the Rules.
In this backdrop, the question that arises for consideration is
as to whether there could be a waiver of the aforesaid
mandatory condition? If so, whether this waiver can be G
discerned in the present case? Before we answer these
questions it would be apposite to have a thorough glimpse of
the facts on record.
4. The borrower had availed a loan of Rs. 1,84,70,000/-. H
44 SUPREME COURT REPORTS .[2014] 9 S.C.R.
,
A This loan was obtained from the bank to construct a hotel in a
prominent place in Belgaum. The borrower has constructed the
hotel at the said place for a land measuring 1825.25 sq. mtrs.
with a built up area of 4749.64 sq. mtrs. At the time of sanction
of the loan, the premises were valued at 'Rs. 3.16 crores. As
B mentioned above, the borrower committed default in the
repayment of these financial facilities granted to it. Notice under
Section 13(2) of the SARFAESI Act to take formal possession
of the property was issued. Thereafter, the Authorised Officer
of the Bank (Respondent No. 2)under SARFAESI Act
c pr.oceeded to sell this property. Property could not be sold in
the first attempt and the efforts were fructified only when it was
put to auction third time. Since the earlier endeavour made by
the Authorised Officer are used as shield against the borrower's
attack on sale in question, it becomes necessary to take a note
of these attempts as well.
0
5. First notice for auction was published on 11.9:2004
fixing the auction date as 15.10.2004. Reserve Price was fixed
at Rs. 3.50 crores. This notice, admittedly, was for more than
30 days. At that stage, 'the borrower filed the Writ Petition in
E ·the High Court challenging the said' notice 3 days before the
proposed sale i.e. on 12.10.2004. Though the High Court did
not grant stay against thQ scheduled auction, it granted stay
against confirmation of sale. As per the appellant, in view of
· the said partial stay order, nobody came forward to participate
F in the auction and the exercise went into futility.
6. The Writ Petition filed by the borrower was dismissed
by the High Court on 28.2.2005 upholding notic~ dated
27.7.2004 issued under Section 13{4) of the SARFAESI Act.
G In the meantime, it came to the notice of the Authorised Officer
of the bank that there were encumbrances in the form of
statutory liabilities to the tune of Rs. 43,01, 100/- payable by the
borrower and, therefore, the Reserve Price fixed at Rs. 3.50
crores had tb be reduced. The borrower was informed about
iL The Bank issued fresh notice on 9.3.2005 for auction of the
H
VASU P. SHETTY v. M/S HOTEL VANDANA PALACE 45
[A.K. SIKRI, J.]
property fixing date of auction as 21.3.2005 with reduced A
Reserve Price at Rs. 2.39 crores.
7. In the auction held on 21.3.2005 the highest offer which
was received was in the sum of Rs. 2.25 crores which was less
than even the reduced reserve price. It can well be discussed B
that this sale notice Was for a period of less than 30 days. Be
as it may, the bank wrote letter dated 28.6.2005 to the borrower
asking it to convey its consent for the sale of property for a sum
of Rs. 2.25 crores which was the highest bid. However, the
borrower did not respond to this letter. Thereafter, another letter C
dated 16.8.2005 written by the bank stating the reasons as to
why it was constrained to reduce the Reserve Price.
8. The borrower did not accede to the request of the Bank.
Instead, on 15.11.2005, the borrower expressed its intention
to settle the matter by making the proposal under One Time D
Settlement (OTS) scheme of the RBI. It was followed by letter
dated 8.1.2006 by the borrower to the Bank requesting for OTS
at Rs. 2, 13,93,320/-. This proposal of the borrower was
sanctioned by the Bank on 8.2.2006 with further stipulation that
the amount would be paid on or before 31.3.2006. Cheque of E
Rs. 20 lakhs which was given by the borrower along with its
OTS proposal was encashed by the Bank and was credited to
the 'No Lien Account'. However, on 31.3.2006, instead of
paying the amount as per the agreed OTS, the borrower
requested tor extension of time giving its own reasons. Time ·. F
was extended upto 15.4.2006 for payment as a last chance.
However, on 14.4.2006 another request for extension of time
by two months was made which was followed by letter dated ·
22.4.2006 to the same effect. This time the Bank rejected the
reqpest of the borrower vid~ letter dated 25.4.2006. As a G
consequence, the OTS did not fructify.
9. On failure of OTS due to the fault of the borrower, the
Authorised Officer of the Bank sprung into action and took steps
for the sale of the property, in question. Notice dated 27.4.2006
was published in Indian Express (English) and in Tarun Bharat H
46 SUPREME COURT REPORtS [2014) 9 S.C.R.
A (Marathi) on 7.5.2006 for the acution of the property. The
Auction date was published as 8.5.2006. Auction was held on
8.5.2006 wherein the bid of the appellant in the sum of Rs. 2.16
crores being the highest, was accepted. The appellant paid 25
percent of the bid amount and the balance amount was paid
B on 24.5.2006. The appellant also made payment for the
encumbrances to the concerned statutory authorities which was
in the sum of Rs. 49.91 lakhs. I~ this way the appellant made
total payment of Rs. 283,39,735/-. On receiving the full
consideration as per the auction, sale deed conveying the
c property was executed in favour of the appellant on 26.5.2006
followed by issue of the sale certificate.
10. It would be relevant to mention here that the borrower
had filed the Writ Petition 6471/2006 challenging the auction
notice. However, it withdrew this Writ Petition on 1.6.2006 with
D liberty to avail alternate remedy to challenge the auction that is
provided under SARFAESI Act. Thereafter, it filed the appeal
under Section 18 of the SARFAESI Act before the DRT. This
appeal was dismissed by the DRT on 5.7.2007 with the
observations that the borrower was only adopting dilatory
E tactics. This order was challenged by the borrower in the form
of writ petition filed before the High Court of Karnataka, Circuit
Bench, Dharwad. The learned Single Judge echoed the
reasoning given by the DRT and dismissed the Writ Petition
vide orders dated 19.9.2011. Against this order, the borrower
F approached the Division Bench by filing intra court appeal which
has been allowed by the High Court. The sale in question is
set aside.
11. The High Court took into consideration provisions of
G the sub-Rule (5) and (6) of Rule 8 as well as Rule 9 of these
Rules which are as· under:
"Rule 8 Sale of immovable secured assets:
(5) Before effecting sale of the immovable property
H referred to in sub-rule (1) of rule 9 the Authorised Officer
VASU P. SHETTY v. MIS HorrEL VANDANA PALACE 47
(A.K. SIKRI, J.]
shall obtain valuation of the property from an approved A
valuer and in consultation with the secured creditor, fix the
reserve price of the property and may sell the whole or any
part of such immovable secured asset by any of the
following methods:-
B
(a) By obtaining quotations from the persons dealing
with similar secured assets or otherwise interested
in buying the such assets;
(b) By inviting tenders from the public.
c
(c) By holding public auction; or
(d) By private treaty.
(6)The authorised officer shatl serve to the borrower a
notice of 30 days for sale of the immovable secured D
assets, under sub-~ule (5):
Provide that if the sale of the such secured asset is being
effected either inviting tenders from the public or by holding
public auction, the secured creditor shall cause a public E
notice in two leading newspapers one in vernacular
language having sufficient circulation in the locality by
setting out the terms of sale, which shall include:
(a) The decription of the immovable property to be
sold, including the details of the encumbrances F
known to the secured creditor;
(b) The secured debt for recovery of which the property
is to be sold.
(c) Reserve price, below which the property may not G
be sold.
(d) Time and place of public auction or the time after
which sale by any other mode shall be completed.
H
48 SUPREME COURT REPORTS . [2014] 9 S.C.R.
A (e) Depositing earnest money as may be stipulated by
the secured creditor.
(f) Any other thing which the authorised officer
considers it material for a purchaser to know in
order to judge the nature and value of the property.
B
9.Time of same, issues of sale certificate and delivery of
possession, etc.-
·-
(1) No sale of immovable property under these rules shall
c take place before the expiry of 30 days from the date on
which the public notice of sale is published in newspapers
as referred to in the proviso to sub-rule (6) or notice of sale
has been served to the borrower.
(2) The sale shall be confirmed in favour of the purchaser
D who has offered the highest sale price in his bid or tender
or quotation or offer to the Authorised Officer and shall be
subject to confirmation by the secured creditor.
Provided that no sale under this rule shall be confirmed, if
E the amount offered by sale price is less than the reserve
price, specified under sub-rule (5) of Rule 9.
Provided further that if the authorised officer fails to obtain
a price higher than the reserve price, he may, with the
consent of the borrower and the secured creditor effect the
F
sale at such price.
(3) On every sale of immovable property, the purchaser
shall immediately pay a deposit .of 25 percent of the
amount of the sale price, to the property shall forthwith be
G sold again.
(4) The balance amount of purchase price payable shall
paid by the purchaser to the Authorised Officer on or
before the fifteenth day of confirmation of sale of the
H immovable property or such extended period as may be
VASU P. SHETTY v. M/S HOTEL VANDANA PALACE 49
[A.K. SIKRI, J.]
agree upon in writing between the parties. A
(5) In default of payment within the period mentioned in
sub-rule (4), the deposit shall be forfeited and the property
shall be resold and the defaulting purchaser shall forfeit
all claim to the property or to any part of the sum for which 8
it may be subsequently sold.
(6) On confirmation of sale by the secured creditor and if
the terms of payment have been complied with, the
Authorised Officer exercising the power of sale shall issue
a certificate of sale of the immovable property in favour C
of the purchaser in the form given in Appendix V to these
rules.
(7) Where the immovable property sold is subject to any
encumbrances, the authorised officer may, if the thinks fit, D
allow the purchaser to deposit with him the encumbrances
and any interest due thereon together with such additional
amount that may be sufficient to meet the contingencies
or further cost, expenses and interest as may be
determined by him. [Provided that if after meeting the cost E
of removing encumbrances and contingencies there is any
surplus available out of the money deposited by the
purchaser such surplus shall be paid to the purchase within
fifteen days from the date of finalisation of the sale.
(8) On such deposit of money for discharge of the F
encumbrances the Authorised Officer shall issue or cause
the purchaser to issue notices to the persons interested
in or entitled to the money deposited with him and take
steps to make the payment accordingly.
G
(9) The authorised officer shall deliver the property to the
purchaser free from encumbrances known to the secured
creditor on deposit of money as specified in sub-rule (7)
above.
H
50 SUPREME COURT REPORTS (2014] 9 S.C.R.
A (10) The certificate of sale issued under sub-rule (6) shall
specifically mention that whether the purchaser has
purchased the immovable secured asset free from any
encumbrances known to the secured creditor or not."
B 12. The High Court has found the following informaties in
the conduct of the impugned sale:-
(i) Before bringing the property for sale vide notice dated
28.4.2006 and 5.5.2006 fresh 'valuation of the property from
the accrued valuer was not obtained by the Bank when the
c property worth crores had to be sold. There was infraction
of sub-rule (5) of Rule 8 which is mandatory .
••
(ii) 30 days notice as required under sub-rule 6 of Rule 8
was not given thereby committing breach of this mandatory
provision as well.
D
(iii) According to the High Court publication in Tarun Bharat
Marathi language was effected just one day prior from
receiving from the prospective buyers. However,
publication in Marathi language cannot be considered as
E vernacular language as the Belgaum is in Karnataka
where the vernacular language is Kannada and not
Marathi.
(iv) As per the sale notice, the appellant was required to
F deposit entire sale consideration within 15 days from the
date of confirmation of the sale ...in the counter, the Bank
has stated that the appellant has made the payment within
the time allowed by the Authorised Officer. When the sale
consideration is Rs. 2.16 crores, the bank was required
to give details of the payment made by the appellant in
G
order to hold whether the payment was made within the
time stipulated in the sale and whether the time was
extended by the Officer by accepting the reasonable cause
shown by the purchaser and whether the purchaser is
H
VASU P. SHETTY v. MIS HOTEL VANDANA PALACE 51
[A.K. SIKRI, J.]
bonafide purchaser or not. Unfortunately, the bank has A
failed to produce these documents.
13. We may point out, at the outset, that the opinion of the
High Court on the interpretation of sub-Rules (5)and (6)of Rule
8 of the Rules is flawless. In this behalf it would be pel)inent to
B
mention that there is an imprimatur of this court as identical
meaning is assigned to these provisions. In the case of
Mathew Varghese v. M. Amritha Kumarr & Ors.; 2014 (2)
SCALE 331. The aforesaid judgment has been followed by this
very Bench of the Court in C.A. No. 3865 of 2014 titled as J.
Rajiv Subramaniyan & Anr. v. Mis Pandiyas & Ors. decided C
on March 14, 2014, wherein the earlier referred case has been
discussed in the following manner:-
"12. This Court in the case of Mathew Varghese Vs.
M.Amritha Kumar & Ors. examined the procedure o
required to be followed by the banks or other financial
institutions when the secured assets of the borrowers are
sought to be sold for settlement of the dues of the banks/
financial institutions. The Court examined in detail the
provisions of the SARFAESI Act, 2002. The Court also E
examined the detailed procedure to be followed by the
bank/financial institutions under the Rules, 2002. This
Court took notice of Rule 8, which relates to Sale of
immovable secured assets and Rule 9 which relates to
time of sale, issue of sale certificate and delivery of F
possession etc. With regard to Section 13(1), this Court
observed that Section 13(1) of SARFAESI Act, 2002 gives
a free hand to the secured creditor, for the purpose of
enforcing the secured interest without the intervention of
Court or Tribunal. But such enforcement should be strictly G
in conformity with the provisions of the SARFAESI Act,
2002. Thereafter, it is observed as follows:-
"A reading of Section13(1 ), therefore, is clear to the
effect that while on the one hand any SECURED
CREDITOR may be entitled to enforce the H
52 SUPREME COURT REPORTS [2014] 9 S.C.R.
A SECURED ASSET created in its favour on its own
without resorting to any court proceedings or
approaching the Tribunal, such enforcement should
be in conformity with the other provisions of the
SARFAESI Act."
B
13. This Court further observed that the provision contained
in Section 13(8) of the SARFAESI Act, 2002 is specifically
for the protection of the borrowers in as much as,
ownership of the secured assets is a constitutional right
vested in the borrowers and protected under Article 300A
c of the Constitution of India. Therefore, the secured creditor
as a trustee of the secured asset can not deal with the
same in any manne~ it likes and such an asset can be
disposed of only in the manner prescribed in the
SARFAESI Act, 2002. Therefore, the creditor should
D ensure that the borrower was clearly put on notice of the
date and time by which either the sale or transfer will be
effected in order to provide the required opportunity to the
borrower to take all possible steps for retrieving his
property. Such a notice is also necessary to ensure that
E the process of sale will ensure that the secured assets will
be sold to provide maximum benefit to the borrowers. The
notice is also necessary to ensure that the secured creditor
or any one on its behalf is not allowed to exploit the
situation by virtue of proceedings initiated under the
F SARFAESI Act, 2002. Thereafter, in Paragraph 27, this
Court observed as follows:-
"27. Therefore, by virtue of the stipulations
contained under the provisions of the SARFAESI
Act, in particular, Section 13(8), any sale or transfer
G
of a SECURED ASSET, cannot take place with,out
duly informing the borrower of the time and date of
such sale or transfer in order to enable the borrower
to tender the dues of the SECURED CREDITOR
with all c;osts, charges and expenses and any such
H
VASU P. SHETTY v. M/S HOTEL VANDANA PALACE 53
[A.K. SIKRI, J.]
sale or transfer effected without complying with the A
said statutory requirement would be a constitutional
violation and nullify the ultimate sale."
14.As noticed above, this Court also examined Rules 8
and 9 of the Rules, 2002. On a detailed analysis of Rules 8
8 and 9(1 ), it has been held that any sale effected without
complying with the same would be unconstitutional and,
therefore, null and void.
15.ln the present case, there is an additional reason for
declaring that sale in favour of the appellant was a nullity. C
Rule 8(8) of the aforesaid Rules is as under:-
"Sale by any method other than public auction or
public tender, shall be on such terms as may be
settled between the parties in writing." o
16. It is not disputed before us that there were no terms
settled in writing between the parties that the sale can be
affected by Private Treaty. In fact, the borrowers -
respondent Nos. 1 and 2 were not even called to the joint
meeting between the Bank - Respondent No.3 and Ge- E
Winn held on 8th December, 2006. Therefore, there was
a clear violation of the aforesaid Rules rendering the sale
illegal..
17. It must be emphasized th~t generally proceedings F
under the SARFAESI Act, 2002 against the borrowers are
initiated only when the borrower is in dire-straits. The
provisions of the SARFAESI Act, 2002 and the Rules,
2002 have been enacted to ensure that the secured asset
is not sold for a song. It is expected that all the banks and G
financial institutions which resort to the extreme measures
under the SARFAESI Act, 2002 for sale of the secured
assets to ensure, that such sale of the asset provides
maximum benefit to the borrower by the sale of such asset.
Therefore, the secured creditors are expected to take
H
54 SUPREME COURT REPORTS [2014] 9 S.C.R.
A bonafide measures to ensure that there is maximum yield
from such secured assets for the borrowers. In the present
case, Mr. Dhruv
Mehta has pointed out that sale consideration is only
Rs.10,000/- over the reserve price whereas the property
8
was worth much more. It is not necessary for us to go into
this question as, in our opinion, the sale is null and void
being in violation of the provision of Section 13 of the
SARFAESI Act. 2002 and Rules 8 and 9 of the Rules.
2002."
c
14. Thus, when the matter is to be examined from this angle
it cannot be said that the view of the High Court is perfunctory
or flawed. Procedure contained in the aforesaid Rules was
admittedly not followed. Notwithstanding this position, Mr. Ranjit
D Kumar, learned Senior Counsel appearing for the appellant
submitted that a contrary view is taken by this Court in General
Manager, Sri Siddeshwara Cooperative bank Limited and Anr.
v. lkbal & Ors.; (2013) 10 SCC 83 wherein it is held that the
mandatory provision of 30 days notice can be waived by the
E borrower and in such an eventuality, the sale cannot be voided.
15. After recapitulating the facts which have already been
narrated above, his submission in this behalf was that the
borrower had, in the present case, delayed the sale of the
property and he was not entitled to take advantage of its own
F wrong. He dilated this submission by pointing out that first
notice for auction which was published on 11.9.2004, clear 30
days notice was provided therein as the date of auction was
fixed as 15.10.2004. However, conduct of the borrower in filing
frivolous Writ Petition and obtaining interim order therein,
G desisted any intending purchaser from coming forward and
participating in the auction. Further, even when second notice
for auction sale was published on 28.2.2005 and notice of less
than 30 days was given therein fixing the date of auction as
23.1.2005, the borrower never challenged the validity of this
H notice. Instead, at that stage the borrower expressed its
VASU P. SHETTY v. M/S HOTEL VANDANA PALACE 55
[A.K. SIKRI, J.]
intention to settle the matter by offering OTS proposal. The bank A
succumbed to this request of the borrower treating the same
to be a bonafide offer and even accepted the OTS proposal
of the borrower. Here again the borrower committed default and
never remitted the money as per OTS arrangement agreed to
between the parties. In this way, highlighting the aforesaid B
blameworthy conduct of the borrower, Mr. Ranjit Kumar
submitted that it is estopped from challenging the validity of the
notice for auction. It was also pointed out that not only entire
amount is paid by the appellant towards the sale consideration,
the appellant has discharged statutory liabilities/ encumbrances c
as -.yell; sale deed registered in its favour way back on
26.5.2006; sale certificate issued; and the appellant is in
possession of this property ever since. Therefore, the sale
should not have been invalidated. Mr. A.B. Dial, learned Senior
Counsel for the appellant Bank in other appeal also argued on D
the same lines.
16. Let us examine the aforesaid submission of the
appellant in the light of the judgment in the case of lkbal on
which strong reliance is placed by the learned Senior Counsel.
That was a case where R-1 (the borrower) took a housing loan E
from the appellant Bank by mortgaging certain immovable
property. As R-1 committed default in repayment of the said·
housing loan, the Bank issued a notice to him on 30.6.2005
under Section 13(2) of the Securatisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, F
2002 (the SARFAESI Act) informing him that if he failed to
discharge the outstanding dues within 60 days, the Bank may
take action under Section 13(4) and the mortgaged property
shall be sold. On 18.12.2005 the Bank published the auction
notice in the local newspapers and the public auction was G
conducted on 11.1.2006. The bid of the auction-purchaser for
Rs. 8,50,000 was accepted being the highest bid. The auction-
purchaser paid 25% of the sale consideration immediately but
he did not make the payment of remaining 75% within 15 days
of the confirmation of sale. He made the final payment on H
56 SUPREME COURT REPORTS [2014] 9 S.C.R.
A 13.11.2006 and the Bank issued the- sale certificate in his
favour. As the proceeds from the sale of the mortgaged
property fell short of the total outstanding amount against the
borrower, the Bank moved the Joint Registrar of Cooperative
Societies for recovery of the outstanding amount. In those
B proceedings, an ex parte award for the outstanding amount was
passed against the borrower R-1. It was then that R-1
challenged the sale certificate issued in favour of the auction
purchaser in two writ petitions before the High Court. The Single
Judge of the High .court quashed the sale certificate issued in
C favour of the auction-purchaser on the ground that the mandatory
requirements of Rule 9 of the 2002 Rules were not followed
and, therefore, despite the remedy of appeal to the borrower
provided under Section 17 of the SARFAESI Act, a case was
made out for interference under Article 226 of the Constitution,
which was affirmed by the Division Bench of the High Court.
0
The Bank and the auction-purchaser had filed the appeals
challenging the judgments of the High Court.
17. This Court, after interpretihg the provisions of Rule 9,
returned a categorical opinion that the said provision is
E mandatory in nature. It was further held that even though this
Rule is mandatory, that provision is for the benefit of the
borrower. The Court held that it is a settled position in law that
even if a provision is mandatory, it can always be waived by a
party (or parties) for whose benefit such provision has been'
F made. The provision in Rule 9(1) being for the benefit of the
borrower and the provisions contained in Rule 9(3) and Rule
9(4) being for the benefit of the secured creditor (or for the
benefit of the borrower), the secured creditor and the borrower
can lawfully waive their rights. These provisions neither
G expressly nor contextually indicate other wise. Obviously, the
question whether there is waiver or not depends on the facts
of each case and no hard and fast rule can be laid down in this
regard ..
18. In the facts of that case it was found that the letter dated
H
VASU P. SHETTY v. M/S HOTEL VANDANA PALACE 57
[A.K. SIKRI, J.]
13.11.2006 sent by the borrower to the Bank clearly depicted A
that the borrower had waived his right under Rule 9 (1) and the
provisions contained in Rule 9(3) and Rule 9(4) as well. It was
also found that at. the ti.me of aucti.on sale on 11.1.2006, the
borrower was present but did not object to the auction being
held before expiry of 30 days from the date of which public B
notice of sale was published. Not only this, he agreed that the
bid given by the auction purchaser, which was the highest bid,
be accepted as the auction purchaser happened to be his
known person. Another important feature which was noted was
that· the borrower expressly gave consent in writing that the c
balance sale price may be accepted from the auction
purchaser even when tendered after some delay and the sale
certificate be issued to him. There was a written agreement
between the borrower and the Bank for extension of time upto
15.4 .. 2006 within which the auction purchaser had made the 0
payment. On these facts, the court came to the conclusion that
condition in Rule 9(4) viz. "such extended period as may be
agreed upon in writing between the parties" would be treated
as substantially satisfied. Again, pertinently, the Writ Petition
was filed by the borrower more than 4 years after the issuance
of the sale certificate. On these facts the court concluded that E
there was a waiver of the aforesaid mandatory provisions by
the borrower.
19. It can, thus, be seen that there is no conflict between
the two sets of judgments namely Mathew Varghese case F
followed in J. Rajiv Subramaniyan case on the one hand and
lkbal's case on the other hand. In the first set of cases the
interpretation given to Rule 8 and 9 of the Rules hold that these
Rules are mandatory. It is so held even in lkbal's case.
However, lkbal's case proceeds further to lay down the principle G
that since these provisions are for the benefit of the borrower,
borrower can always waive those procedural requirements.
This latter aspect never fell for consideration in the earlier two
judgments. Therefore, we see no force in the contention of the
learned Senior Counsel of the appellant that judgment in H
58 SUPREME COURT REPORTS [2014) 9 S.C.R.
A Mathew Varghese (supra) goes contrary to the law laid down
in lkbal's case.
20. The only question, therefore, is as to whether it can be
held that the borrower in the present case had also waived the
mandatory provisions of Rules 8 and 9 of the Rules. We may
8
remark that it is expressly clarified in lkbal's case itself that the
question whether there is a waiver or not depends on the facts
of the each case and no hard and fast rule can be laid down in
this regard.
C 21. We would like to point out at the outset that the
argument of waiver was not raised by the appellant in the High
Court. In fact, this ground is not even raised in the Special
Leave Petition. The appellant's case rested with hammering the
blameworthy conduct of the borrower by relying upon the
D observations of the ORT to the effect that the borrower had
been adopting dilatory tactics and delaying the recovery of
amounts due to the bank somehow or the other. It was also
argued that the appellant is a bonafide purchaser and equities
are in favour of the appellants which should be balanced and
E the borrower is not entitled to any relief because of his
intemperate conduct.
22. Be as it may. Since the arguments is predicated on
the admitted facts appearing on record, we proceed to examine
the same on merits. Our examination reveals that no case of
F waiver is made out.
23. In State of Punjab v. Davinder Pal Singh Bhullar &
Ors.; 2011 (14) SCC 770; the Court explained the doctrine of
waiver on the basis of earlier pronouncements which are taken
G note of discussed in the following manner:
"37. In Manak La/this Court held that alleged bias of a
Judge/official/Tribunal does not render the proceedings
invalid if it is shown that the objection in that regard and
particularly against the presence of the said official in
H
VASU P. SHETTY v. M/S HOTEL VANDANA PALACE 59
[AK. SIKRI, J.]
question, had not been taken by the party even though the A
party knew about the circumstances giving rise to the
allegations about the alleged bias and was aware of its
right to challenge the presence of such official. The Court
further observed that: (SCC p. 431, para 8)
B
"8: ... waiver cannot always and in every case be
inferred merely from the failure of the party to take
the objection. Waiver can be inferred only if and
after it is shown that the party knew about the
relevant facts and was aware of his right to take the C
objection in question."
38. Thus, in a given case if a party kno~s the material facts
and is conscious of his legal rights in that matter, but fails
to take the plea of bias ·at the earlier stage of the
proceedings, it creates an effective bar of waiver against D
him. In such facts and circumstances, it would be clear that
the party wanted to take a chance to secure a favourable
order from the officiai/court and when he found that he was
confronted with an unfavourable order, he adopted the
device of raising the issue of bias. The issue of bias must E
be raised by the party at the earliest. (See Pannalal
Binjraj v. Union of India-and P.O. Dinakaran (1) v. Judges
Enquiry Committee.)
39. In Power Control Appliances v. Sumeet Machines (P) F
Ltd. this Court held as under: (SCC p. 457, para 26)
"26. Acquiescence is sitting by, when another is
invading the rights .... It is a course of conduct
inconsistent with the claim .... It implies positive
acts; not merely silence or inaction· such as involved G
in laches .... The acquiescence must be such as
to lead to the inference of a licence sufficient to
create a new right in the defendant. ... "
40. Inaction in every case does not lead to an inference H
60 SUPREME COURT REPORTS [2014] 9 S.C.R.
A of implied consent or acquiescence as has been held by
this Court in P. John Chandy & Co. (P) Ltd. v. John P.
Thomas. Thus, the Court has to examine tlie facts and
circumstances in an individual case.
41. Waiver is an intentional relinquishment of .a right. It
B
involves conscious abandonment of an existing legal right,
advantage, benefit, claim or privilege, which except for
such a waiver, a party could have enjoyed. In fact, it is an
·agreement not to assert a right. There can be no waiver
unless the person who is said to have waived, is fully
c jnformed as to his rights and with full knowledge about the
same, he intentionally abandons them. (Vide Dawsons
Bank· Ltd. v. Nippon Menkwa Kabushiki Kaisha,
Basheshar Nath v. CIT, Mademsetty Satyanarayana v.
G. Yelloji Rao, Associated Hotels of India Ltd. v. S.B.
D · Sardar Ranjit Singh, Jaswantsingh Mathurasingh v.
Ahmedabad Municipal Corpn., Sikkim Subba
Associates v. State of Sikkim-and Krishna Bahadur v.
Puma Theatre.)
E 42. This Court in Municipal Corpn. of Greater Bombay v.
Dr ffakimwadi Tenants' Assn. considered the issue of
waiver/acquiescence by the non-parties to the
proceedings and held: (SCC p. 65, paras 14-15)
"14. In order to constitute waiver, there must be
F voluntary and intentional relinquishment of a right.
The essence of a waiver is an estoppel and where
there is no estoppel, there is no waiver. Estoppel
and waiver are questions of conduct and must
necessarily be determined on the facts of each
G case ....
15. There is no question of estoppel, waiver or
abandonment. There is no specific plea of waiver,
acquiescence or estoppel, much less a plea of
H abandonment of right. That apart, the question of
VASU P. SHETTY v. MIS HOTEL VANDANA PALACE 61
[A.K. SIKRI, J.]
waiver really does not arise in the. case. Admittedly, A
the tenants were not parties to the earlier
proceedings. There is, therefore, no question of·
waiver of rights by Respondents 4-7 nor would this
disentitle the tenants from maintaining the writ
petition." B
24. From what is argued by the appellants, at best it can
be inferred thaqhe borrower tried to thwart the earlier attempts
of the Bank in selling the property. When the first notice was
issued, the borrower filed the writ petition. However, it is to be
borne in mind that in the said Writ Petition no. interim order was C
passed staking the auction.pn the stipulated date. The only stay
granted was against confirmation of sale. That did not preclude
anybody from participating in the au~tion. We are mindful of the
ground realities that many times pendency of such a Writ
Petition challenging the.auction notice and the kind of stay D
granted, even partial in nature, deter the intending buyers to
come forward and participate in the auction. Be as it may, we
find out that even in the second attempt when the reserve price
was reduced to Rs. 2.39 crores, the highest bid received was
in the sum of Rs. 2.25 crores. Further, even the bid of the E
appellant which was accepted was in the sum of Rs.2.16 crores.
Likewise, after the second auction when the Bank requested
the borrower to.accept the~bid of Rs.2.25 crores giving its
reasons and the borrower instead of doing so took initiative
resulting in OTS but defaulted therein, it would merely indicate F
that the borrower was at fault in not adhering to the OTS. By no
logic it can be deduced therefrom that the Bank was relieved
from its obligation not to follow the mandatory procedure
contained in the Rules, while taking fresh steps for the disposal
of the property. G
25. The moot question is, even if there were delaying
tactics adopted b¥ the borrower iJ1 respect of first two auctions,
whether that conduct of the borrower would amount to waiving
the mandatory requirement of publishing subsequent notice H
62 SUPREME COURT REPORTS (2014] 9 S.C.R.
A dated 27.4.2006 fixing the date of auction as 8.5.2006? Our
answer has to be in the negative. The aforesaid conduct cannot
be taken as waiver to the mandatory condition of 30 days notice
for auction as well as other requirements. For examining the
plea of waiver, we will have to see as to whether by implied or
B express actions, the borrower has waived the aforesaid
mandatory requirement when the property was put to sale. We
do not find, nor it is suggested, even the slightest move on the
part of the borrower in this regard which may amount to waiver
either express or implied. On the contrary, when notice dated
c 27.4.2006 was published, the borrower immediately filed the
Writ Petition 6471 of 2006 challenging the auction notice. Thus,
its conduct, far from waiving the aforesaid requirement, was to
confront the bank by questioning its validity. It is a different
matter that it had to withdraw the said writ petition in view of
availability of alternate remedy. Immediately, it filed application
0
under Section 18 of the SARFAESI Act. There is, thus, not even
an iota of material suggesting any waiver on the part of the
borrower:
26. The moment we find that the mandatory requirement
E of the Rules had not been waived by the borrower,
consequences in law have to follow. As held in Mathew
Varghese's case, when there is a breach of the said mandatory
requirement the sale is to be treated as null and void. Moreover,
t.he appellant have no answer to many other infirmities pointed
F out by the High Court. We, ther~fore, are of the opinion that
present appeals lack merit.
27. Before we part with, it is imperative to mention that the
purchaser has paid a sum of Rs.1.86 crores towards purchase
G of property and Rs.30 lakh towards moveable items to the
Bank. He has also spent Rs.1,86,335/- towards registration fee
and Rs.15,62,400/- towards stamp duty. In addition, dues
towards municipal tax, Sales Tax liability, dues of Employees
State Insurance Corporation, Employees Provident Fund and
Belgaum Industrial Cooperative Bank have also been paid. A
H
VASU P. SHETTY v. MIS HOTEL VANDANA PALACE 63
[A.K. SIKRI, J.]
total whereof comes to Rs. 49,91,000/-. These were the A
liabilities of the borrower. In this way, total amount of Rs.
2,83,39,735/- is paid by the purchaser. He has also discharged
municipal tax liability in the sum of Rs.2,86,078/- for the period
1.4.2007 to 31.3.2009. As we have affirmed the order of the
High Court setting aside the sale, we grant two months time to B
the borrower to discharge the entire liability of the Bank. The
borrower shall also reimburse the amount of registration fee and
stamp duty to the purchaser. The direction to pay this amount
is given having regard to the conduct of the borrower on earlier
occasions: If the borrower pays the amount due to the Bank, c
registration charges, stamp duty as well as amount of
encumbrances paid by the purchaser, which was the liability of
the borrower i.e. a sum of Rs.49,91,000/- + 2,86,078/-, the
property shall revert back to the borrower. If the aforesaid
amounts are not paid within the aforesaid two months, the Bank D
shall be at liberty to proceed with the sale of the property
following due procedure under the law. In so far as the purchaser
is concerned, he shall be refunded entire amount spent by the
purchaser, as mentioned above. We have consciously not
granted interest to the purchaser on the aforesaid amount, as E
the purchaser has, in the meantime, utilized the property in
·question.
28. Subject to the above, the appeals are dismissed.
Bibhuti Bhushab Bose Appeal dismissed. F
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