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The Supreme Court on Wednesday held that setting aside the confirmation of sale in favour of an Auction Purchaser only on the ground that the escalation in the prices of property has not been taken into account was not sustainable. 

With this view, a bench of Justices L Nageshwar Rao and BR Gavai reversed the judgement of the Rajasthan High Court insofar as it set aside the confirmation of the sale and the auction proceedings in favour of the Auction Purchaser.

M/s. Jain Bandhu Sneh Resort Pvt. Ltd., the Borrower, availed a term loan of Rs. 2.14 Crores from M/s. Rajasthan Financial Corporation, the Corporation in 1999. Another term loan of Rs. 41.24 Lakhs was taken in 2001.

After the Borrower defaulted in repayment of loan after various rebates were given by the Corporation till 2009, the Corporation took possession of the resort of the Borrower in 2012.

The Corporation then invited bids for the sale of the resort by a notice in 2013 which was also published in two daily newspapers having circulation in Rajasthan and Delhi.

Said notice was challenged in a Writ Petition praying for its quashing and waiver of penal interest and reduction in the rate of interest.

During the pendency of the Writ Petition, the Corporation carried out the auction proceedings in which M/s. Sun On Mount Hotels Pvt. Ltd., the Auction Purchaser emerged as the sole bidder. An interim order was passed by the High Court staying finalization of the auction proceedings, however, liberty was granted to the Corporation to negotiate the bid offered by the Auction Purchaser.

The Auction Purchaser was also directed to be impleaded as Respondent in the Writ Petition. The interim order of the High Court was extended from time to time, and on the basis of the statement made by the Borrower that serious attempts were being made to clear outstanding loan.

As the Borrower could not clear the loan, the interim order was vacated with the observation that the Borrower is only buying time and is not serious in settlement of the dispute.

A writ appeal challenging said judgment also came to be dismissed. The Division Bench of the High Court did not find any irregularity in the judgement, however, while taking note of the fact that five years had elapsed after the bid of Auction Purchaser was accepted, it concluded that the Corporation had mechanically confirmed the sale without factoring in the escalation during the period of 5 years. 

At the outset, the top court rejected the submission of the Auction Purchaser that it is not liable to pay anything more than the amount that was offered for the property in 2013.

"We are in agreement with the High Court that the Corporation failed in its duty in not taking into account the lapse of five years from the date of auction while handing over the possession of the property to the Auction Purchaser. The value of the property has undoubtedly increased during the said period...", said the Court.

However, it was noted that the Division Bench set aside the confirmation of sale only on the ground that the Corporation has not taken into account the escalation of the prices in property between 2013 to 2018 and except this ground, no fault was found with the auction proceedings and finalization of the sale in favour of the Auction Purchaser.

" .... we are in agreement with the observation that the Corporation ought to have considered imposing interest on the bid amount from 2013 to 2018", remarked the bench.

Accordingly, the top court ordered ".... the Auction Purchaser to pay interest at the rate of 12% per annum on Rs. 11.11 crores for the period from 14.06.2013 to 15.01.2018."

Case Title: RAJASTHAN FINANCIAL CORPORATION JAIPUR AND OTHERS vs. M/S JAIN BANDHU SNEH RESORTS PRIVATE LIMITED AND ANOTHER.