Supreme Court Upholds Auction Sale: Clarifies Rule 9 of SARFAESI Act

The case of Rakesh Birani (D) Through LRs vs. Prem Narain Sehgal & Anr. is a significant ruling in property law, where the Supreme Court of India examined the interpretation of Rule 9 of the Security Interest (Enforcement) Rules, 2002, under the SARFAESI Act. The case revolved around the validity of an auction sale, the timeline for payment of the purchase price, and the rights of the auction purchaser.

The Supreme Court upheld the auction sale in favor of the appellant and set aside the decisions of the lower courts that had invalidated the sale, providing clarity on the procedure for confirmation and deposit of the purchase price.

Background of the Case

The dispute arose over the auction sale of a property conducted on February 14, 2013. The appellant, Rakesh Birani, was the highest bidder, offering Rs. 38.30 lakh. The sequence of payments was as follows:

Earnest money of Rs. 3,80,500 deposited on February 1, 2013.
25% of the auction amount (Rs. 5.80 lakh) deposited on February 15, 2013.
Remaining 75% (Rs. 28,69,500) deposited on March 13, 2013, following the confirmation of sale.

However, the owner and principal borrower of the property, whose property was auctioned due to loan default, challenged the sale before the Debt Recovery Tribunal (DRT), Allahabad. The DRT set aside the sale, a decision later upheld by the Debt Recovery Appellate Tribunal (DRAT), the Single Judge, and the Division Bench of the High Court. Consequently, the auction purchaser, Rakesh Birani, approached the Supreme Court.

Petitioner’s Claims (Auction Purchaser)

The appellant, Rakesh Birani, contended:

He had complied with all the requirements under Rule 9 of the 2002 Rules.
The balance 75% payment was made within 15 days from the date of communication of the confirmation of sale, as required.
The High Court erred in interpreting Rule 9 to mean that the 15-day period for depositing the balance amount starts from the date of auction rather than the date of confirmation.
A sale certificate was duly issued in his favor, proving that all conditions were met.

Respondent’s Claims (Property Owner)

The property owner, Prem Narain Sehgal, argued:

Rule 9 mandates that the balance 75% payment must be made within 15 days from the auction date, failing which the sale should be canceled.
The auction purchaser failed to comply with the timeline, making the sale invalid.
The High Court correctly interpreted the rules and upheld the orders of the DRT and DRAT.

Supreme Court’s Observations

The Supreme Court carefully analyzed Rule 9 of the Security Interest (Enforcement) Rules, 2002, and provided clarity on the matter:

“Rule 9(4) states that the balance amount shall be paid by the purchaser on or before the fifteenth day of confirmation of the sale. The High Court’s interpretation that the payment period starts from the date of auction is erroneous.”

The Court further stated:

“Rule 9(6) makes it clear that on confirmation of sale by the secured creditor, and if the terms of payment have been complied with, the authorized officer shall issue a certificate of sale in favor of the purchaser. In the present case, the appellant fulfilled all conditions, and the sale certificate was rightfully issued.”

Key Findings of the Supreme Court

The period for depositing the balance amount starts from the date of confirmation of sale, not from the auction date.
The auction purchaser complied with Rule 9(4) by making the 75% payment within 15 days of confirmation.
The sale certificate was issued after full compliance with the rules, making the sale valid.
The High Court misinterpreted Rule 9 by incorrectly linking the deposit deadline to the auction date.

Final Judgment

The Supreme Court ruled:

The appeal by the auction purchaser was allowed.
The orders of the DRT, DRAT, Single Judge, and Division Bench of the High Court were set aside.
The sale certificate was upheld as valid.
The auction purchaser was entitled to possession of the property.

Key Takeaways from the Judgment

Clarification on Rule 9: The Supreme Court provided a clear interpretation of Rule 9, stating that the 15-day deadline starts from the date of confirmation of sale.
Protection of Auction Purchasers: The ruling prevents arbitrary cancellations of auctions due to misinterpretations of statutory provisions.
Significance of Sale Certificates: Once a sale certificate is issued, the transaction gains legitimacy and should not be interfered with unless proven fraudulent.
Upholding Legal Certainty: The Court ensured that auction processes are transparent and predictable, preventing unnecessary litigation.

Conclusion

This judgment reinforces the legal certainty of auction sales conducted under the SARFAESI Act and protects bona fide auction purchasers from unfair cancellations. By clarifying Rule 9 of the 2002 Rules, the Supreme Court has ensured that future disputes related to auction timelines are resolved with clarity and adherence to statutory provisions.

Petitioner Name: Rakesh Birani (D) Through LRs
Respondent Name: Prem Narain Sehgal & Anr.
Judgment By: Justice Arun Mishra, Justice Uday Umesh Lalit
Place Of Incident: Allahabad, Uttar Pradesh
Judgment Date: 21-03-2018

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