Supreme Court Upholds Auction Sale Cancellation in Maharashtra Land Dispute

The Supreme Court of India, in its judgment dated July 9, 2024, resolved a long-standing dispute involving the auction sale of land in Maharashtra. The case, M/S AL-CAN EXPORT PVT. LTD. vs. PRESTIGE H.M. POLYCONTAINERS LTD. & ORS., revolved around the legality and procedural fairness of a land auction conducted by revenue authorities in Maharashtra under the Maharashtra Land Revenue Code, 1966. The Court ultimately upheld the cancellation of the auction, citing significant procedural violations and lack of transparency.

Background of the Case

The dispute arose from an auction sale conducted by the Tahsildar, Talasari, Maharashtra, concerning land originally owned by Prestige H.M. Polycontainers Ltd.. The property was mortgaged to the State Bank of India and later assigned to Asset Reconstruction Company (India) Ltd. (ARCIL) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The property was put up for auction due to unpaid dues amounting to ₹29,52,000.

Key Events Leading to the Dispute

Demand notices were issued in October and November 2007, notifying Prestige H.M. Polycontainers Ltd. of the outstanding dues.
The Tahsildar proceeded with an auction of the property on December 3, 2008, declaring M/S AL-CAN EXPORT PVT. LTD. as the highest bidder.
The sale certificate was issued on the same day, and possession of the property was handed over on December 4, 2008.
Objections were raised by ARCIL and other creditors, stating that the auction process did not comply with mandatory legal procedures.
The Additional Commissioner, Konkan Division, later set aside the auction sale, leading to an appeal in the Bombay High Court.

Arguments by the Appellant (AL-CAN EXPORT PVT. LTD.)

The appellant, represented by senior counsel P.S. Patwalia, argued that:

The auction process was conducted fairly and in compliance with the Maharashtra Land Revenue Code, 1966.
The company was a bona fide purchaser and had invested significantly in developing the land.
The objections raised by creditors were invalid since the auction had already been confirmed.
The Additional Commissioner lacked jurisdiction to cancel the auction.
The failure to issue a fresh proclamation before the sale did not materially impact the fairness of the auction.

Arguments by the Respondent (ARCIL & Others)

Senior counsel Amar Dave, representing ARCIL, contended that:

The auction was conducted in violation of mandatory legal procedures under Sections 192 to 210 of the Maharashtra Land Revenue Code.
There was undue haste in conducting and confirming the sale, leading to procedural irregularities.
The Tahsildar failed to provide a 30-day notice period as required under Section 194.
The possession of the property was handed over to the appellant before the sale was officially confirmed.
ARCIL, a creditor with a valid mortgage, was not notified of the sale in advance.
The sale was conducted at an undervalued price, causing financial loss to creditors.

Key Issues Considered by the Supreme Court

1. Was the auction conducted in compliance with the law?

The Court found that the auction sale was conducted in violation of several statutory provisions, including:

Failure to provide a 30-day notice as required under Section 194.
Improper valuation of the property, leading to an undervalued sale.
Handover of possession to the purchaser before formal confirmation of the sale.

2. Did the Additional Commissioner have jurisdiction to cancel the sale?

The Court ruled that the Additional Commissioner was within his jurisdiction to hear the appeal under Section 247 of the Maharashtra Land Revenue Code and to cancel the auction sale.

3. Was the appellant a bona fide purchaser?

The Court determined that the appellant was not a bona fide purchaser as the auction was conducted with significant irregularities and the appellant was aware of potential legal challenges.

Supreme Court’s Verdict

The appeal was partially allowed, affirming the High Court’s order to cancel the auction sale.
The Court provided an opportunity for the appellant to retain the land by depositing ₹4 crore with ARCIL within six months.
Failure to deposit the amount would lead to re-auctioning of the property.
Pending contempt proceedings before the Bombay High Court would be terminated if the amount was deposited.

Key Takeaways

Strict adherence to auction procedures: The ruling reinforces that auction sales by government authorities must strictly comply with statutory provisions.
Importance of creditor rights: The judgment acknowledges the rights of secured creditors in land auctions.
Judicial oversight in land transactions: The case highlights the judiciary’s role in ensuring fair and transparent auctions.
Opportunity for equitable resolution: The Court’s directive allowing the appellant to retain the property upon payment ensures a balanced resolution.

Conclusion

The Supreme Court’s decision provides clarity on land auction laws in India and reinforces the principle that auctions conducted by public authorities must adhere to legal and procedural norms. By setting aside an improperly conducted auction while providing an alternative resolution, the judgment ensures both legal compliance and economic fairness.

Petitioner Name: M/S AL-CAN EXPORT PVT. LTD..
Respondent Name: Prestige H.M. Polycontainers Ltd. & Ors..
Judgment By: Justice J. B. Pardiwala, Justice Manoj Misra.
Place Of Incident: Maharashtra.
Judgment Date: 08-07-2024.

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