In cases where the sale deed requires registration, ownership does not pass until the deed is registered, even if possession is transferred and consideration is paid without the registration, reiterated the Supreme Court. Further, it held that a public auction cannot be set aside until there is any material irregularity or illegality committed in holding the auction or if such auction was vitiated by any fraud or collusion.
The case is related to a property (basement) in New Delhi bought in a public auction by one Sanjay Sharma from Kotak Mahindra Bank Ltd for Rs7.50 lakh. Raj Kumar Vij and others who were in possession of the property challenged the auction, claiming that they had bought it through a registered general power of attorney (GPA) and the agreement to sell.
In an order last month, the division bench of justice BV Nagarathna and justice Nongmeikapam Kotiswar Singh said, "Mr Vij is presently in possession of the scheduled premises on the strength of the registered GPA dated 16 April 2001 as well as the agreement to sell of the same date, the fact remains that the agreement to sell executed by Champa Bhen Kundia (the original owner and borrower of the loan) is not by a registered document. In the circumstances, Kotak Mahindra Bank could not have known that even prior to her seeking a loan and mortgaging the very same property to the Bank on 16 June 2001, there was already an encumbrance as such created in favour of Mr Vij. Therefore, the Bank although had done its due diligence, would not have known the fact that there was a prior transaction in respect of the very same secured asset."
In this case, Ms Kundia is the original owner and borrower of Associated India Financial Service Pvt Ltd. Citi Financial Consumer India Ltd took over Associated India Financial Service and later assigned its debts to Kotak Mahindra Bank.
Ms Kundia ‘sold’ the secured asset for Rs4 lakh to her son, Chandu Bhai by an unregistered sale deed on 28 April 2000. Subsequently, the basement of the secured asset was 'transferred' to Satnam Singh and Surinder Wadhwa for Rs90,000 through another unregistered sale deed on 30 March 2001. Further, an unregistered agreement to sell, dated 23 April 2001, allegedly transferred the basement of the secured asset to Mr Vij, respondent no2 in the case.
"Therefore, all the documents relied upon by Mr Vij to claim ownership of the basement of the secured asset are unregistered documents and fail to meet the requirements of a valid sale under Section 54 of the Transfer of Property Act," the apex court says, adding, "Mr Vij thus did not have any title to claim the ownership of the basement of the secured asset. All the transactions made in respect of the secured asset from Ms Kundia to the subsequent vendors were through an unregistered deed including the agreement to sell dated 23 April 2001 through which Mr Vij was claiming ownership of the basement of the secured asset."
Kotak Mahindra Bank, as a financial institution, took steps against Ms Kundia under sections 13 and 14 and other relevant provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act and conducted the auction of the property on 21 December 2010 to recover the outstanding debt. Mr Sharma, being the highest bidder and promising to pay Rs7.50 lakh, was permitted by Kotak Mahindra Bank and the sale certificate was issued in his favour on 27 December 2010 after accepting his bid.
However, during the pendency of its appeal before the DRT the auction proceedings were challenged by Mr Vij and others challenged the auction before the debt recovery tribunal (DRT), debt recovery appellate tribunal and subsequently before the Delhi High Court (HC). The HC set aside an order passed by the appellate tribunal on 3 September 2014 and restored the order passed by the DRT on 30 August 2012 in setting aside the auction sale. It also directed Mr Sharma to be refunded Rs7.50 lakh with an interest as decided by the DRT.
Aggrieved by the order, Mr Sharma approached the Supreme Court.
During the hearing, the counsel for Mr Vij contended that the objections raised by his client to the auction by Kotak Mahindra Bank were not considered. "Kotak Mahindra Bank, having ignored the objection raised by Mr Vij vis-a-vis the proposed auction of the secured asset has in fact let down not only the potential auction-purchaser but also has adversely affected the right, title and interest of Mr Vij vis-a-vis the secured asset," the counsel stated.
However, the bench says the submission by the counsel for Mr Vij could not have any bearing as far as the rights of Mr Sharma are concerned. "In the absence of there being any registration of the said agreement dated 23 April 2001, Mr Sharma could not have detected, whether there was any kind of prior interest created in favour of Mr Vij. In fact, for the very same reason, Kotak Mahindra Bank also would not have been in the knowledge of the fact even if due diligence exercise had been carried out by the Bank as the agreement to sell was not a registered instrument."
Further, the apex court noted that the counsel for Mr Vij vehemently argued for his client to have the right of redemption of the property on payment of the dues. However, the SC says this right is not unfettered and there is a statutory limitation prescribed to it.
"As per the unamended section 13(8) of the SARFAESI Act, the right of the borrower to redeem the secured asset was available till the sale or transfer of such secured asset. Subsequent to the amendment in 2016, the right of redemption available to the borrower would be available only till the date of publication of the notice under Rule 9(1) of the Security Interest (Enforcement) Rules, 2002. The material on record shows that ample opportunities were given to Mr Vij to avail the said right on redemption vide orders dated 23 November 2007, 8 August 2009 and 30 August 2012 passed by the DRT. However, he failed to make use of the said opportunities provided to him," the bench says.
While setting aside the HC order, the apex court directed Kotak Mahindra Bank to take steps to hand over possession of the scheduled premises to Mr Sharma. It says, "We also reserve liberty to Mr Sharma to take possession in accordance with law by making a suitable application before the DRT or the HC, as the case may be, for the purpose of collecting the keys of the scheduled premises that have been deposited by Mr Vij."
Mr Vij is allowed to withdraw with interest amounts he deposited before the DRT, the appellate tribunal, the HC and with Kotak Mahindra Bank by making suitable applications.
(SLP (C) No330/2017 Date: 10 December 2024)
