Validity of Auction Sales Under Multi-State Co-operative Societies Act: A Landmark Judgment

The Supreme Court case of Ludovico Sagrado Goveia v. Cirila Rosa Maria Pinto and Others revolves around the legal validity of an auction sale conducted under the Multi-State Co-operative Societies Act, 1984. The judgment addressed whether execution proceedings under the repealed Act could continue under the 2002 Act. This case provides a crucial interpretation of legal provisions governing cooperative societies and their execution mechanisms.

Background of the Case

The case originated when M/s Gable Builders, represented by its proprietor, obtained a loan of Rs. 40 lacs from the Mapusa Branch of the Goa State Cooperative Bank Ltd. The loan was sanctioned for the purpose of constructing a bungalow. To secure the loan, the borrower executed a mortgage deed dated 2.12.1997, mortgaging an 8000 sq. meter property.

However, the principal borrower defaulted on the loan, leading the bank to initiate recovery proceedings under Sections 74 and 76 of the Multi-State Co-operative Societies Act, 1984. The Assistant Registrar of Cooperative Societies passed an award on 5.10.2000, holding the borrower and two sureties jointly and severally liable to repay Rs. 55,04,583/- along with 21% compounded interest.

Execution and Auction Proceedings

Following the award, a demand notice was issued by the bank on 12.6.2001 for Rs. 60,59,646/- plus 19% interest per annum. As the borrowers failed to pay, the bank referred the award for execution to the Sale and Recovery Officer. Multiple auction notices were issued between January 2002 and February 2007, but no bidders showed interest. The bank then opted for a sealed tender process, and the appellant, Ludovico Sagrado Goveia, emerged as the highest bidder with Rs. 86,00,000/-.

A Sale Certificate was issued in favor of the appellant on 23.4.2007. However, instead of utilizing the remedy available under Rule 37(13) of the Multi-State Co-operative Societies Rules, 2002, which allowed a borrower to redeem the property by depositing the dues within 30 days, the borrower filed a writ petition before the Bombay High Court at Goa.

High Court’s Ruling

The Bombay High Court ruled in favor of the borrower, stating that the 1984 Act had been repealed by the Multi-State Co-operative Societies Act, 2002, which came into force on 19.8.2002. The High Court concluded that the execution proceedings must be conducted under the Arbitration and Conciliation Act, 1996, making the auction process invalid.

Arguments Before the Supreme Court

Petitioner’s Arguments

• The appellant argued that Section 126(6) of the 2002 Act specifically states that legal proceedings initiated under the 1984 Act would continue unaffected.
• Since the execution proceedings began before 19.8.2002, they were valid under the old law.
• The auction sale was properly conducted, and the borrower failed to utilize statutory remedies to redeem the property.

Respondent’s Arguments

• The respondents contended that since the 1984 Act was repealed, all awards under it had to be executed as per the 1996 Act.
• The auction process violated statutory requirements, including notice period mandates.
• The sale was malafide and intended to benefit the auction purchaser.

Supreme Court’s Decision

The Supreme Court analyzed Section 126(6) of the 2002 Act, which explicitly states that all legal proceedings pending at the time of enactment would continue under the old law. The Court noted that execution under Section 85(c) of the 1984 Act was already in progress, and therefore, it did not need to follow the 1996 Act.

The Court further observed that the borrowers had multiple opportunities to clear their dues but failed to do so. The auction sale was widely advertised, and there was no evidence that the property was sold at an undervalue. Additionally, the borrower did not invoke Rule 37(13) or 37(14) to set aside the sale within 30 days.

Therefore, the Supreme Court set aside the High Court’s judgment and upheld the validity of the auction sale.

Key Takeaways

• Legal proceedings under the repealed 1984 Act continue unaffected under the 2002 Act.
• Execution proceedings that commenced before the repeal remain valid.
• Borrowers must utilize available legal remedies within prescribed timelines.
• Auction sales conducted in compliance with statutory requirements are legally binding.

In conclusion, this judgment reinforces the principle that procedural integrity in cooperative society disputes must be upheld and that borrowers must act within legal frameworks to protect their interests.

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Download Judgment: Ludovico Sagrado Gov vs Cirila Rosa Maria Pi Supreme Court of India Judgment Dated 06-09-2016-1741883690943.pdf