Rajasthan Financial Corporation vs. Jain Bandhu Sneh Resorts: Legal Battle Over Loan Repayment and Property Auction

The case of Rajasthan Financial Corporation Jaipur & Others vs. M/S Jain Bandhu Sneh Resorts Private Limited & Another presents an intricate legal battle surrounding loan repayment defaults, financial institution policies, and property auction disputes. The Rajasthan Financial Corporation (RFC) had provided substantial loans to the borrower, Jain Bandhu Sneh Resorts, which failed to meet its repayment obligations, leading to legal confrontations and auction proceedings that lasted for years.

Background of the Case

The borrower obtained loans of Rs. 2.14 crores in 1999 and Rs. 41.24 lakhs in 2001 from the RFC to develop a resort. Despite multiple reminders, the borrower failed to adhere to the repayment schedule, prompting RFC to issue notices demanding immediate settlement of dues. In response, the borrower approached the High Court, challenging RFC’s actions and requesting intervention.

The High Court initially dismissed the petition but directed RFC to consider settlement requests from the borrower. As a result, an extended deadline for repayment was granted until March 31, 2009. However, the borrower did not fulfill the required obligations, resulting in further legal proceedings.

RFC’s Actions Against the Borrower

RFC attempted to accommodate the borrower’s financial struggles by offering a waiver of 50% of the penal interest and a structured repayment plan. Despite these concessions, the borrower sought a complete waiver and failed to settle the outstanding amount. As a result, RFC took possession of the resort property in October 2012 to recover its dues.

In 2013, under political influence and instructions from the Industries Minister of Rajasthan, RFC provided another opportunity for repayment. It stipulated that the borrower must make an initial deposit to demonstrate intent to clear dues. However, the borrower remained unresponsive, prompting RFC to proceed with the auction process.

Legal Disputes and Auction Proceedings

In March 2013, RFC issued an auction notice to recover the outstanding loan amount by selling the borrower’s resort property. The borrower swiftly challenged this notice in the High Court, seeking to quash the auction and demanding a waiver of accumulated interest. Despite the pending legal battle, the auction was conducted in May 2013, with Sun On Mount Hotels Pvt. Ltd. emerging as the highest bidder, initially offering Rs. 8.21 crores. Following negotiations, the final bid amount was raised to Rs. 11.11 crores.

During the auction proceedings, the High Court intervened and granted an interim stay, preventing RFC from finalizing the sale. This stay remained in effect for years, allowing space for negotiations and further legal scrutiny of RFC’s actions.

High Court Judgment

The Single Judge Bench of the High Court dismissed the borrower’s petition in March 2018, ruling that RFC had acted within its legal rights and that judicial interference in contractual financial matters was limited. The Bench further emphasized that the borrower had repeatedly failed to seize settlement opportunities.

Following this ruling, the borrower filed an appeal before the Division Bench of the High Court, arguing that the auction process was flawed and that RFC had failed to consider the significant price escalation of the property over the years. The Division Bench acknowledged the borrower’s argument and, in August 2019, ruled that the auction must be set aside. It directed RFC to conduct a fresh auction while ensuring fair market valuation.

Appeals Before the Supreme Court

RFC, the auction purchaser, and the borrower all filed appeals against the High Court’s ruling. RFC contended that the auction process had been fair and transparent and that setting it aside would undermine its ability to recover loans efficiently. The auction purchaser, Sun On Mount Hotels Pvt. Ltd., argued that it had lawfully acquired the property and had already made significant payments and improvements. It opposed any retrospective interest liability for delays caused by legal proceedings.

The borrower maintained that the resort had been sold at an artificially low price due to collusion between RFC and the auction purchaser. It further contended that the High Court’s decision to order a fresh auction was justified, as it aimed to ensure fair market pricing.

Supreme Court Verdict

After extensive hearings, the Supreme Court delivered its judgment, stating:

The borrower had been granted ample opportunities to clear its dues but consistently failed to comply.
RFC had followed due process in the auction and was within its legal rights to sell the property to recover outstanding amounts.
The High Court erred in setting aside the auction based solely on price appreciation over five years.
The auction purchaser must pay interest at a rate of 12% per annum on the bid amount from 2013 to 2018 to account for the delay.

Accordingly, the Supreme Court reversed the High Court’s decision, confirming the validity of the auction while imposing an interest liability on the auction purchaser.

Conclusion

This case underscores the critical importance of adhering to financial commitments and the consequences of repeated defaults. The Supreme Court reaffirmed that judicial review in financial disputes must be limited to procedural fairness and that defaulters cannot indefinitely delay legal proceedings. Additionally, the ruling emphasized the importance of ensuring fair pricing mechanisms in public auctions conducted by financial institutions.

Petitioner Name: Rajasthan Financial Corporation Jaipur.
Respondent Name: M/S Jain Bandhu Sneh Resorts Private Limited.
Judgment By: Justice L. Nageswara Rao, Justice B. R. Gavai.
Place Of Incident: Rajasthan.
Judgment Date: 27-04-2022.

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