Summary
The Supreme Court upheld a High Court direction to IDBI Bank to issue a sale certificate to auction purchasers whose confirmed SARFAESI auction the bank had cancelled unilaterally. Rule 9(4)-(5) of the Security Interest (Enforcement) Rules, 2002 applies only where the purchaser has defaulted, and the time for paying the balance can be extended by written agreement. Here the delay was the bank's own doing, and the bank could not raise a Rule 9(4) default for the first time in its counter affidavit.
Issues
- Whether the auction purchasers defaulted in depositing the balance sale consideration within the time under Rule 9(4) of the Security Interest (Enforcement) Rules, 2002, so as to entitle the bank to cancel a confirmed auction.
- Whether the bank could justify the cancellation on a ground of default under Rule 9(4) raised for the first time in its counter affidavit.
- Whether the period under Rule 9(4) is absolute, and whether upholding the sale amounted to extending a statutory period contrary to Union Bank of India v Rajat Infrastructure.
Provisions considered
- Rule 9(4) and 9(5), Security Interest (Enforcement) Rules, 2002Reading the two sub-rules together, the Court held that forfeiture and resale follow only on the purchaser's default in paying the balance within 15 days or such extended period as is agreed in writing. The period is not sacrosanct; the bank's silence on the purchasers' requests for time amounted to an implied written extension, and the non-payment was attributable to the bank, not the purchasers. (¶¶ 12, 13, 14, 15, 16, 17, 19, 21)
- Article 142, Constitution of IndiaThe bank relied on Rajat Infrastructure to argue that the Rule 9(4) period cannot be extended even under Article 142. The Court held that case inapplicable because it was not extending or creating any period, only holding that Rule 9(4) operates when the purchaser is in default. (¶ 21)
Held
- The validity of an order must be judged on the reasons stated in it, which cannot be supplemented by a counter affidavit. The cancellation letter of 24.12.2019 said nothing about any default under Rule 9(4), so the bank could not raise that plea for the first time in the writ proceedings (applying Mohinder Singh Gill v Chief Election Commissioner). (¶ 12)
- Under Rule 9(4) and (5), there must first be a default by the auction purchaser before the auction can be cancelled and the deposit forfeited, and the 15-day period for paying the balance is not absolute but extendable by written agreement between the purchaser and the secured creditor. (¶¶ 13, 14, 15)
- Having issued the auction notice after its own complaint to the CBI, without disclosing it, the bank could not use that complaint or the later ED advisory, which only required title documents to be kept safe, to refuse the sale certificate. The guarantor's interim stay came after the sale was confirmed and did not bar issuing the certificate. The purchasers sought more time only because the bank could not accept payment, and the bank's silence amounted to an extension with consent. (¶¶ 10, 11, 16)
- Since the purchasers were always ready and willing to pay and the non-acceptance of the balance was solely attributable to the bank, they were not defaulters, and non-payment within the stipulated period was not fatal under Rule 9(4) and (5). (¶¶ 17, 18, 19)
- The cancellation of the confirmed auction without notice or hearing to the purchasers violated the principles of natural justice and was illegal. (¶ 20)
- Rajat Infrastructure, which bars use of Article 142 to override express statutory provisions, did not help the bank, because the Court was neither creating nor extending any statutory period; Rule 9(4) does not apply where there is no default by the purchaser or where the fault lies with the auctioneer. (¶ 21)
Result
Appeals dismissed with no order as to costs; the High Court's direction to issue the sale certificate and register the sale deed in favour of the auction purchasers after they deposit the balance auction amount within four weeks was upheld.