Legal Contention Over Loan Recovery and Auction Dispute: A Supreme Court Review
Category: Commercial Law
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VERSUS M/S U.P GUN HOUSE & ORS.
Case No: CIVIL APPEAL NOS. 6244-6245 OF 2021
Dated on: JANUARY 22, 2024.
Coram: HON'BLE JUSTICE SANJIV KHANNA and HON'BLE JUSTICE DIPANKAR DATTA
Facts of the Case
This is a matter of civil appeals numbered 6244 and 6245 of 2021, where Bombay Mercantile Cooperative Bank Ltd. (through an authorized signatory) is the appellant, and M/S U.P. Gun House & Ors. is the respondent. The order came up before the Supreme Court of India on the 22nd day of January 2024, before Hon'ble Mr. Justice Sanjiv Khanna and Hon'ble Mr. Justice Dipankar Datta.
The dispute was in relation to a financial transaction—it emerged that the appellant was liable to the respondent in the sum of Rs. 22,53,004, adjusted over drafts. The same amount was also dispatched to the respondent by a cheque dated March 21, 2013, but the respondent refused to accept the same. On the availability of requisite documents of service notice prescribed under the Security Interest (Enforcement) Rules, 2002, a dispute arose.
The legal dispute was primarily focused on the statutory conditions governing the Enforcement of Security Interest under Rules 8 and 9 of the 2002 Rules. The auction purchaser took subsequent further steps after the so-called notice on November 30, 2012, and went ahead and constructed flats and sold them to third parties. The respondent was aware of the aforesaid auction and consequent actions, wherein the flats were sold to third parties by the auction purchaser.
Legal Provisions
Security Interest (Enforcement) Rules, 2002:
Particularly, Rule 8 and Rule 9 providing for obligatory service of notice.
Article 142 of the Constitution of India:
Empowering the Supreme Court with the jurisdiction to pass orders for doing complete justice in any cause or matter pending before it .
Submissions by Appellant
The appellant stated that he had sent a cheque for Rs. 22,53,004 to the respondent, which went unaccepted. They also brought in the procedural lapses and wanted to emphasize the fact of respondent's knowing about the auction process. They wanted to clarify the issue pointing to the auction schedule known to the respondent, but the respondent overlooked to maintain the proper record of service of the notice.
The reliance of the respondent was upon the decision of the Supreme Court in the case of "Mathew Varghese v M. Amritha Kumar & Ors.," where it was submitted that in a complaint, notice is a mandatory requirement under Rules 8 and 9 of the 2002 Rules. They pointed out that the appellants have clearly fallen into a procedural error which, per se, rendered all the actions of enforcement made without valid service of notice null and void.
Court's Observation
The Supreme Court admits the procedural overlook by the appellant and that he failed to keep a record witness of the convening service notice. At the same time, it took the notice of the respondent-wise knowledge regarding the process of auction and hence balanced the equities in the matter. Court using the powers under the Constitution under Article 142 ensured justice is rendered, at the same time with the knowledge that it is complicated transactional history and consequential sale of constructed flats to the innocent third party.
It is held that the Bombay Mercantile Cooperative Bank will pay Rs. 54,00,000 to the respondent. In this respect, however, shall be in discharge of the whole claim once and for all. To be clear such payment after deduction of Tax At Source (TDS) is also directed to be paid within five weeks from the date of receipt of copy of this order. To be electronically paid, within a week, the respondent will give his bank account details to the appellant.
In addition, the court set aside the impugned High Court orders dated July 2, 2019 and November 25, 2019. The sale transaction in favor of Abdul Haleem Siddiqui stands confirmed and, accordingly, there may be an end to the dispute. All the pending applications shall stand disposed of without any order as to costs.
Judgement
Reading through this judgment will bring to light important aspects of enforcing security interests by rectifying the lapses in procedure, culminating in equitable relief to both the parties, hence deserving the invocation of Article 142 of the Indian Constitution. The important facet portrayed in the case is procedural accuracy within the financial dispute with regard to maintaining balance between equity and legality on the part of the Court in the process of dispensing justice.
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Written by: Adv Anik
