CELIR LLP versus MR. SUMATI PRASAD BAFNA & ORS. (13/12/2024) — Supreme Court headnote

AI-generated headnote. Verify against the judgment before relying on it. Paragraph numbers refer to the judgment.

Summary

In contempt proceedings by an auction purchaser whose sale the Supreme Court had upheld in Celir LLP v. Bafna Motors (2023), the Court held that the borrower could not revive a challenge to the SARFAESI auction in its pending securitisation application, having abandoned it before the High Court and not raised it in the earlier appeal (Henderson principle and election). The borrower's assignment of the property to a third party during the pendency of the SLP was hit by lis pendens despite no registered notice under the Maharashtra amendment to Section 52 TPA, and was declared void. The borrower and transferee had acted in contempt, but in view of their apologies and amends they were given a last chance to comply with detailed directions.

Issues

Whether the borrower and the subsequent transferee committed contempt of the judgment dated 21.09.2023 in Civil Appeal Nos. 5542-5543 of 2023, though it contained no prohibitory order or specific direction against them, and whether they were bound to cancel the release deed and hand over possession and title deeds.
Whether the borrower's securitisation application before the DRT challenging the auction could continue after the Supreme Court directed issue of the sale certificate, and whether the sale certificate conferred absolute title on the auction purchaser.
Whether the assignment of the secured asset to the subsequent transferee during the pendency of the SLP was hit by lis pendens despite no notice of pendency being registered as required by the Maharashtra amendment to Section 52 of the Transfer of Property Act, 1882.
When a confirmed sale of a secured asset under the SARFAESI Act may be set aside.

Provisions considered

Section 2(b), Contempt of Courts Act, 1971Civil contempt as wilful disobedience of a court's judgment or order or wilful breach of an undertaking; read with Article 129, the Court held that deliberate conduct aimed at frustrating or circumventing its decision amounts to contempt even without a prohibitory order or specific direction, though the power must be used sparingly and on proof beyond reasonable doubt. (¶¶ 182, 184, 185, 194, 195, 199, 200, 201, 202)
Article 129, Constitution of IndiaThe Supreme Court, as a court of record, has power to punish for contempt of itself and to issue restitutive directions nullifying any advantage gained by contumacious conduct, including declaring transactions void. (¶¶ 186, 221, 222)
Section 52 (including the Bombay Amendment Act, 1939), Transfer of Property Act, 1882Lis pendens begins on institution of a proceeding; a transfer during the pendency of the SLP was bound by its outcome. Under the Maharashtra amendment, failure to register a notice of pendency does not make the doctrine inapplicable: it only denies the litigant the benefit as of right, leaving courts to decide on the facts, and here non-registration was not fatal. (¶¶ 157, 158, 159, 163, 166, 167, 168, 169, 171, 172, 173, 174, 176)
Section 17, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002A complete code empowering the DRT to examine all measures of the secured creditor, including a claim to redeem; the borrower had sought redemption there and, by moving the High Court for the same relief, elected that forum and had to raise all grounds about the auction there. (¶¶ 124, 125, 126, 127, 128)
Section 13(8), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002The Court recalled that the earlier judgment held that, under the amended provision, the borrower's right of redemption lasts only until publication of the sale notice under Rule 9(1); the borrower's challenge to the validity of that notice was integral to that issue and ought to have been raised then. (¶¶ 130, 131, 154)
Rule 9, Security Interest (Enforcement) Rules, 2002Once the sale was confirmed under Rule 9(2) and the certificate issued under Rule 9(6) as directed, the sale was complete and absolute and nothing survived in the DRT proceedings; a confirmed sale is set aside only for fraud, collusion, inadequate pricing or a fundamental procedural error, not an unprejudicial irregularity raised belatedly. (¶¶ 154, 204, 213, 214, 215, 216, 217, 218, 219)
Section 11, Explanation VII, Code of Civil Procedure, 1908Constructive res judicata was traced to the Henderson principle, which bars relitigation of issues that could and should have been raised earlier, and of pleas raised and then abandoned, as an abuse of process. (¶¶ 135, 140, 141, 142, 143, 144, 145, 151)

Held

Under the Henderson principle, a facet of abuse of process and the basis of constructive res judicata, a party must bring forward its whole case; issues that could and should have been raised earlier, and pleas raised but later abandoned, cannot be relitigated in later proceedings, before a different forum or disguised as a distinct remedy, save in exceptional circumstances. Piecemeal litigation fragmenting issues across forums is itself an abuse of process. (¶¶ 135, 140, 144, 145, 146, 149, 150, 151, 153)
Having moved the High Court for the same relief pending before the DRT, the borrower elected that forum and, by its undertaking there, waived the securitisation application and any challenge to the SARFAESI measures. It never raised the validity of the auction notice in the earlier appeal or review, though that question was integral to the cut-off for redemption, so it could not reagitate it before the DRT or in contempt proceedings; its contention that the sale certificate was subject to the DRT proceedings was an afterthought and a collateral attack on the earlier judgment. (¶¶ 117, 121, 127, 128, 129, 148, 154)
The earlier judgment, setting aside the High Court order in full, holding that redemption after the auction notice was impermissible, directing refund of the redemption money and directing issue of the sale certificate, necessarily upheld the auction, rendered the DRT proceedings infructuous, required the borrower to return possession and title deeds and to cancel the release deed and assignment, and excluded inconsistent rights; the sale culminating in the certificate was complete and absolute. (¶¶ 154, 204, 205)
A party in doubt about a judgment must seek clarification from the court that passed it rather than adopt a self-serving reading. Lower courts and tribunals should not reinterpret a higher court's decision that determines the parties' inter se rights; they should relegate the parties to that court and adjourn their own proceedings sine die. (¶¶ 205, 206)
Lis pendens under Section 52 TPA applies from the institution of a proceeding, irrespective of the transferee's good faith; the assignment made while the SLP was pending was hit by it. Under the Maharashtra amendment, absence of a registered notice of pendency does not automatically exclude the doctrine; it only denies the litigant the benefit as of right, and courts decide on the facts, protecting a genuinely diligent purchaser without notice. Here non-registration was not fatal, as the auction purchaser could not register, the haste of the transaction made registration by the bank impracticable, and the transferee admittedly knew of the pending proceedings. (¶¶ 159, 163, 164, 167, 168, 171, 172, 173, 174, 175, 176)
Though a transfer pendente lite is not void under Section 52, a court exercising contempt jurisdiction may reverse it or declare it void so that contumacious conduct does not benefit the contemnor; since the assignment rested on the High Court order later set aside, the borrower's right to transfer was non est and the assignment void. (¶¶ 177, 180, 181, 222)
Contempt extends beyond disobedience of explicit or prohibitory orders to deliberate conduct aimed at frustrating proceedings or circumventing a court's decision, though the power is to be used sparingly and on proof beyond reasonable doubt. Letters to MIDC and the Sub-Registrar, the inconsistent stand on possession, a police complaint distorting the judgment, and a suit seeking to invalidate the sale certificate amounted to contempt by the borrower and the subsequent transferee. (¶¶ 199, 200, 201, 202, 207, 208)
Given their unconditional apologies, withdrawal of the civil suit and undertaking to comply, the Court gave the borrower and the transferee one last opportunity and did not, for the present, hold them guilty of contempt. (¶ 209)
A confirmed auction sale ought not to be set aside except on grounds going to the core of the sale, such as fraud, collusion, inadequate pricing or underbidding, or a fundamental procedural error; a mere irregularity causing no substantial injury, or a ground that could have been raised before confirmation, does not suffice. Even if the auction were later held invalid, a confirmed purchaser's rights would not necessarily be lost. (¶¶ 213, 214, 215, 216, 217, 218, 219, 220)
The objection that physical possession was never sought in the main appeals was rejected; the Court may issue restitutive directions at any stage to remedy acts done in violation of its orders. (¶¶ 221, 222)

Result

Directions issued: auction upheld and title under the sale certificate dated 27.09.2023 declared absolute; release deed to be cancelled and S.A. No. 46 of 2022 withdrawn within one week; assignment dated 28.08.2023 declared void, with possession and title deeds to be handed to the bank within a week (police aid if obstructed); police complaint to be withdrawn; Rs. 129 crore refunded without interest after compliance; transferee left to recover from the borrower; respondents not held guilty for now; listed for compliance in two weeks.