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Court held that the auction of the property was conducted at the instance of the bank, which had not challenged the orders and had thus accepted the finding that the appellant had to be compensated
The Supreme Court on October 18, 2024 modified the Karnataka High Court's order which set aside the auction sale of a property over default in payment of loan amount and directed a cooperative bank to pay compensation to the auction purchaser.
A bench of Justices Abhay S Oka and Ujjal Bhuyan noted that the High Court set aside the auction sale not based on the provisions of the Rules or on the ground that the auction was illegal. The High Court set aside the auction on equitable considerations, as the entire amount due and payable to the respondent bank, including interest, was deposited by the respondents with the High Court within three months from filing the Writ Petition, the bench pointed out.
"Therefore, there is no doubt that the appellant must be compensated as he was deprived of using the amount of Rs 81,20,000 from July 21, 2019 till the date of actual refund due to no fault on his part," the bench said.
"In our view, the appellant was entitled to receive interest on the said amount of Rs 81,20,000 at the rate of 6 percent per annum from the date of deposit of the said amount till the date of refund," the bench said, on an appeal filed by one Salil R Uchil, the auction purchaser.
The court also noted that it was an admitted position that the auction of the property was conducted at the instance of the bank, which had not challenged the orders and had thus accepted the finding that the appellant must be compensated.
"Therefore, the bank will be liable to pay interest to the appellant. The fact that the amount was lying deposited with the 3rd respondent is irrelevant as the auction was at the instance of the 4th respondent, bank. Though there was nothing illegal about the auction, respondent bank did not challenge the impugned orders. Therefore, the impugned judgments need modification in the peculiar facts and circumstances of the case for adequately compensating the appellant," the bench said.
Vishu Kumar and others, who took a business loan to the sum of Rs 25 lakh from the cooperative bank, committed defaults in payment of installments.
The respondent bank filed a dispute before the Assistant Registrar of Co-operative Societies and Recovery Officer, for recovery of the loan amount with interest.
The dispute was allowed. The bank respondent was held entitled to a sum of Rs 21,92,942 with further interest and costs from the borrowers.
In recovery proceedings, on June 10, 2019, a sale proclamation was issued by the bank for the sale of property held by the borrowers. The value of the property subject matter of auction was fixed at Rs 80,67,500. The sale proclamation of the auction sale was fixed on July 22, 2019.
In the auction sale, the highest bid of Rs 81,20,000 offered by the appellant was accepted. A sale confirmation certificate was issued on September 5, 2019. The amount of Rs 81,20,000 was deposited by the appellant on July 21, 2019. The excess amount of Rs 59,64,600 was sought to be refunded to the borrowers by a cheque along with a letter on September 5, 2019. But the cheque was returned due to inter se dispute amongst the borrowers.
The borrowers invoked the writ jurisdiction of the High Court of Karnataka for setting aside the auction. By judgment of March 17, 2022, the single judge proceeded to set aside the auction sale made in favour of the appellant. The single judge held that the bank was entitled to the awarded amount along with interest, and the borrowers were liable to pay the said amount to the bank.
The single judge noted that the amount of Rs 25,61,400 was deposited by the borrowers within three months of filing the writ petition. The single judge allowed the bank to withdraw the said amount together with interest accrued thereon. The single judge directed the bank to refund the entire auction amount paid by the appellant along with an additional amount of 5 percent of the said amount in the light of sub-rule 4(b) of Rule 38 of the Karnataka Cooperative Societies Rules, 1960.
Being aggrieved by the judgment of the single judge, the appellant preferred Writ Appeal before the division bench, which was dismissed by the judgment of September 5, 2022.
The appellant contended that solatium at 5 percent of the amount deposited by the appellant granted to the appellant was inadequate. He submitted that he was deprived of the use of the sum of Rs 81,20,000 from July 21, 2019. Therefore, the appellant was deprived of interest on the said amount. He, thus, submitted that the appellant was entitled to receive interest on the said amount from the date of its deposit till the date of refund.
The bank's counsel submitted that as per the said Rules, while setting aside the auction, 5 percent of the amount deposited by the appellant had been ordered to be paid to the appellant by way of compensation. In view of the payment of the 5 percent amount, the appellant had been adequately compensated. He submitted that, in any case, the bank received the amount deposited by the appellant on October 13, 2022, and therefore, liability, if any, to pay interest could not be fastened on it for the period to the date.
After hearing the parties, the bench noted that as the borrowers did not apply for setting aside the auction within 30 days, clause (b) of sub-rule 4 of Rule 38 had no application.
"However, the Single Judge, while exercising discretionary jurisdiction under Article 226 of the Constitution, directed the appellant be compensated by paying 5 percent of the amount deposited by him as the auction purchaser. In law, there was no basis for the said direction," the bench said.
The division bench has confirmed the said direction by holding that payment of the additional amount of 5 per cent adequately compensates the appellant. The respondent bank has not challenged the impugned orders and has thus accepted the finding that the appellant must be compensated, the Supreme Court noted.
It thus directed the respondent bank to pay simple interest at the rate of 6 percent per annum on the sum of Rs 81,20,000 to the appellant from July 21, 2019 till the date of the actual refund of the amount of Rs 81,20,000 to the appellant within a period of six weeks.
Case Title: Salil R Uchil Vs Vishu Kumar & Ors
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