DATE: 20/01/2025
BENCH: Justice J.B. Pardiwala and Justice R. Mahadevan
FACTS:
The present appeal arises from a judgment delivered by the High Court of Karnataka on June 15, 2019, in Writ Petition No. 47721/2017. The dispute pertains to an auction conducted by the Indian Bank under the provisions of the SARFAESI Act, following the default in loan repayment by M/s. Arihant Sarees, the borrower. The borrower had mortgaged the property in favor of the bank, which proceeded with an auction on July 31, 2007, where the appellant was declared the highest bidder. A sale certificate was issued in his favor on November 30, 2007, and he subsequently began developing the property. While the borrower did not challenge the auction, Respondent No. 4, the guarantor, contested its legality before the Debt Recovery Tribunal (DRT), arguing that the bank had not followed the mandatory procedural requirements. The DRT ruled in favor of the guarantor on January 23, 2009, and set aside the auction, citing procedural lapses, including failure to provide the required 30-day notice.
The bank, dissatisfied with the DRT's order, appealed to the Debt Recovery Appellate Tribunal (DRAT), which on April 11, 2017, reversed the DRT's decision and upheld the auction, stating that the bank had complied with legal requirements. The guarantor then challenged the DRAT's ruling before the Karnataka High Court, which allowed the writ petition and reinstated the DRT’s decision. The High Court held that, as per the law applicable at the time of the auction, a clear 30-day notice was mandatory before selling the property. It found that the second sale notice, published on July 16, 2007, did not provide a full 30-day period before the auction on July 31, 2007, rendering the sale invalid. The appellant, being the auction purchaser, has now approached the Supreme Court, challenging the High Court’s decision.
ISSUES:
The main issue in this case is regarding the judgment made by the High Court, and whether the judgment passed by the High Court has put the appellant in adverse situations.
JUDGEMENT WITH REASONING:
In light of the facts and circumstances of the case, the Supreme Court allowed the appeal and set aside the judgment and order passed by the High Court of Karnataka. The Court held that the auction sale conducted in 2007 had attained finality, and setting it aside solely on the ground of a minor procedural infraction would cause undue hardship to the auction purchaser. The Court declined to impose costs on Respondent No. 4 but emphasized that such litigation, which disrupts settled transactions after an extended period, should be discouraged.
The Supreme Court reasoned that while procedural compliance is essential, a rigid application of statutory provisions without considering practical realities would lead to an inequitable outcome. The High Court had interfered with the auction solely based on the number of days required for auction notice issuance, ignoring the fact that the appellant had already developed the property, obtained necessary approvals, and invested a substantial amount in construction. The Court referred to the principle established in Shiv Shanker Dal Mills v. State of Haryana (1980) 2 SCC 437, which held that writ jurisdiction is discretionary and should not be exercised to enforce strict legal formulations where no substantive injustice has occurred. The Court emphasized that equity and public interest considerations must guide the exercise of extraordinary jurisdiction under Article 226 of the Constitution.
Furthermore, the Court highlighted that judicial remedies should not be used to unsettle long-concluded transactions, particularly when there is no evidence of bad faith or deliberate violation of law. The appellant, as a bona fide purchaser, had acted on the belief that the auction was legally valid, and disturbing the sale after more than a decade would not serve the ends of justice. The Court, therefore, exercised its equitable jurisdiction to uphold the validity of the auction sale and prevent unnecessary hardship to the appellant.
ANALYSIS:
The Supreme Court's decision in this case underscores the importance of balancing procedural compliance with equitable considerations, particularly when significant time has elapsed since the original transaction. While the High Court focused strictly on the 30-day notice requirement, the Supreme Court took a broader view, emphasizing that minor procedural lapses should not invalidate long-settled transactions, especially when no substantive injustice has occurred. By referring to Shiv Shanker Dal Mills v. State of Haryana (1980) 2 SCC 437, the Court reinforced the principle that writ jurisdiction is discretionary and should not be exercised mechanically to enforce statutory formalities at the cost of practical justice. Given that the auction had attained finality in 2007 and the appellant had made substantial investments in developing the property, the Court found that invalidating the sale would cause disproportionate harm to an innocent purchaser while serving no meaningful purpose.
Additionally, the Court's ruling highlights the principle that judicial intervention should not disrupt long-settled commercial transactions unless there is compelling evidence of bad faith or serious legal violations. The appellant, having purchased the property in good faith, was entitled to rely on the finality of the auction, and unsettling the transaction after more than a decade would undermine commercial stability and erode confidence in auction-based property sales. The Court recognized that while procedural safeguards must be adhered to, the remedy under Article 226 of the Constitution is discretionary, allowing courts to deny relief if doing so serves the broader interests of justice. By setting aside the High Court’s ruling, the Supreme Court reinforced the necessity of a pragmatic and equitable approach in cases where technical legal breaches do not result in actual prejudice to any party.
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