ITC Limited vs. Blue Coast Hotels Ltd.: Supreme Court Upholds Auction Sale of Goa Hotel
The legal dispute between ITC Limited and Blue Coast Hotels Ltd. revolved around the enforcement of a corporate loan agreement and the auction sale of a luxury hotel property in Goa. The case arose after Blue Coast Hotels defaulted on a Rs. 150 crore loan from Industrial Financial Corporation of India (IFCI). This default led IFCI to invoke the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) to recover its dues.
Background of the Case
Blue Coast Hotels had mortgaged a luxury hotel property, along with agricultural land, as collateral for the loan. After the account became a Non-Performing Asset (NPA) in September 2012, IFCI issued several notices demanding repayment. Despite multiple warnings, Blue Coast Hotels failed to clear its dues, leading to a public auction of the property.
Key Arguments
Petitioner’s Argument
ITC Limited, the successful auction purchaser, argued that:
- The auction was conducted as per legal procedures under SARFAESI.
- IFCI had rightfully taken symbolic possession of the property before the sale.
- The sale to ITC for Rs. 515.44 crores was legitimate and binding.
- The High Court erred in setting aside the auction sale.
Respondent’s Argument
Blue Coast Hotels Ltd. contended that:
- IFCI violated Section 13(3A) of SARFAESI by failing to respond to their representation for loan restructuring.
- Agricultural land was improperly included in the mortgaged assets, violating Section 31(i) of SARFAESI.
- The sale process was fraudulent and collusive.
- Physical possession of the hotel property was not taken before the sale, making the auction invalid.
Supreme Court’s Judgment
A bench comprising Justices S.A. Bobde and L. Nageswara Rao ruled in favor of ITC Limited and upheld the auction sale. The court made the following key observations:
1. SARFAESI Act Was Duly Followed
The Supreme Court held that non-reply to the borrower’s representation under Section 13(3A) does not render the auction sale illegal, particularly when the borrower had repeatedly defaulted on repayments.
2. Agricultural Land Not a Valid Ground for Challenge
The court found that the land in question, though classified as agricultural in revenue records, was part of the hotel property and was mortgaged accordingly. The borrower had itself sought conversion of the land for commercial use.
3. Symbolic Possession Is Legally Sufficient
The court ruled that physical possession of the property before the auction was not mandatory. Symbolic possession, as taken by IFCI, was valid under the SARFAESI Act.
4. No Fraud or Collusion
The court rejected allegations of fraud or collusion, noting that multiple public auction notices were issued and that ITC had paid the full sale amount.
5. Auction Purchaser’s Rights Must Be Protected
The court directed Blue Coast Hotels to hand over possession of the property to ITC within six months, emphasizing that the rights of bona fide auction purchasers must be upheld.
Conclusion
This judgment reinforces the sanctity of public auctions conducted under SARFAESI and clarifies the rights of secured creditors and auction purchasers. It sets a precedent for future disputes involving loan defaults, secured asset recoveries, and auction sales.
Petitioner Name: ITC LimitedRespondent Name: Blue Coast Hotels Ltd. & Ors.Judgment By: Justice S.A. Bobde, Justice L. Nageswara RaoPlace Of Incident: GoaJudgment Date: 19-03-2018
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