IN WPO 2166 OF 2022 - CAL HC- Calcutta High Court directs SBI to refund entire bid amount of over Rs 55 lakh received following an e-auction of a loan defaulting company wherein the Bank mala fide avoided to issue Sale Certificate
Justice Sabyasachi Bhattacharyya [14.07.2023]

Read More : Avlokan Commosales Private Limited v. State Bank of India

Simran Singh

New Delhi, July 21, 2023: In a refund claim, the Calcutta High Court has directed the State Bank of India (SBI) to refund the entire bid amount of Rs.55,19,250 along with interest to the petitioner company that was successful as bidders in an e-auction held under the SARFAESI Act, 2002 by the bank, consequent upon the default in payment of loan by a debtor

The Single Judge Bench of Justice Sabyasachi Bhattacharyya stated that the moment SBI accepted the proposal of One Time Settlement (OTS) of the borrower and the borrower paid the amount, which was received by the Bank, the automatic effect in law was that the auction sale which was being geared up to be conducted in favour of the petitioners got nullified.  “Since the genesis of the sale was the non-payment of the loan taken by the borrower Sancheti, the moment the loan was repaid in terms of the OTS, the sale automatically fell through, thereby leaving no option for the petitioners but to be satisfied with refund of the money paid for the sale.”

The Court stated it was the Bank which undertook the auction sale and confirmed the sale, who was to execute the Sale Certificate in favour of the purchaser. Phoenix, being a third party assignee of the Bank, did not acquire any right to unilaterally execute such Sale Certificate with regard to the auction sale. In the least, the Bank was also a necessary party to the sale certificate and Phoenix could, as an assignee, be a confirming party thereto.

The Bench stated that “…the purported Sale Certificate issued on March 28, 2022, that too, in the teeth of the restraint order from issuing such Sale Certificate, by Phoenix alone was palpably de hors the law and irregular as well as illegal. Such Sale Certificate, thus, was void ab initio, being in contravention of a restraint order, and, on the grounds as indicated above, cannot be given effect to at all. ”

The Bench further stated that such a finding itself was rather dubious, since the same would be otherwise unnecessary, unless specifically recorded at the instance of the parties thereto, that was, the borrower and the Bank, to avoid the consequence of the sale being ‘set aside, which would attract the mischief of the co-ordinate Bench order saddling the Bank with the liability of paying interest

In the matter at hand, Avlokan participated in an auction sale held by SBI. After winning the auction, Avlokan paid the bid amount of Rs.55,19,250. However, SBI did not issue a Sale Certificate in its favour. The petitioner, then repeatedly asked SBI to either issue the Sale Certificate or refund their bid amount with interest. SBI initially took the stand that they were restrained from issuing the Sale Certificate due to an order passed by the Debt Recovery Tribunal  (DRT), thus, the Bank stated that the matter was sub-judice before the DRT and shall be put up before the said Forum to seek appropriate direction.

Later, SBI stated that they were in the process of assigning the loan account to Phoenix ARC Private Limited and asked Avlokan to take up the matter with Phoenix once the deed of assignment was executed. Thereafter, the petitioner then filed a writ petition in Court seeking a refund wherein it was initially ordered that the SBI was to refund petitioner's amount plus interest, however, SBI appealed but the Division Bench upheld the order.

The allegation regarding suppression of purported Sale Certificate dated 28-03-2022 issued by Phoenix, in the writ petition, was considered by the Division Bench and, despite such consideration, the order of the Single Judge was not interfered with. SBI, and not Phoenix, was directed to make the deposit with the Registrar. In view of the same, the Sale Certificate issued in the present case lost relevance. The SBI, even after declaring its inability to transfer the property, was now resiling from the position that they were bound to refund the amount. Having taken advantage of the Division Bench order, the SBI had already sought for extension of time to deposit the amount directed by the Trial Judge on 17-05-2022. In fact, the application of Phoenix to be added as a party was also turned down by a co-ordinate Bench.

The Court thus observed that though a Sale Certificate was issued by Phoenix which was invalid as SBI was restrained from issuing it. The Court stated that the auction sale never materialised in substance hence directed SBI to release the entire deposited amount along with accrued interest to Avlokan noting that the said interest amount deposited by SBI till date was sufficient.

The Bench stated that “the intention of the Bank to avoid its liability towards the present petitioners is clear from the said developments. In the order recording amicable settlement, the SBI had it recorded conveniently, to suit its purpose, that SA No.168 of 2018 was disposed of under the category of “amicable settlement”. It was further added by the Tribunal that it was not certified as to merit or demerit of the case. ”

The Bench noted that the respondent-Bank had offered and sanctioned the One Time Settlement (OTS) to the borrower by letter dated 21-08-2021, which led to the amicable settlement and stated that the said letter was hurriedly issued by the Bank, after about one month from the order of the co-ordinate Bench dated 16-07-2021, under which the Bank was under duress to refund the entire amount of consideration, along with interest, to the petitioners in the event the sale was set aside.

The Bench was of the view that the aforesaid developments clearly showed the mala fides adopted by the Bank in its conduct, insofar as, upon the cloud of payment of interest being cast on it if the sale was set aside, it hurriedly issued a letter accepting the OTS proposal and sanctioning it by the same letter dated 21-08-2021 and had the Tribunal record the disposal by ‘setting aside the sale’, but on ‘amicable settlement’, further going to the extent of observing that it was ‘not certified as merit or demerit of the case’, in a bid to avoid any finding that the sale was set aside. “However, the chronology of events makes such attempt of the Bank transparent and obvious. ”

The Bench stated that no Sale Certificate could have been issued during the relevant period, since there was a specific restraint order passed by the Tribunal on 07-08-2018. The said order clearly restrained the respondent-Bank from issuing the Sale Certificate and from taking further steps till the hearing and disposal of the SA. The hearing and disposal of the SA, although by amicable settlement, took place only on 01-03-2022 and, as such, any Sale Certificate which was purportedly issued during such period was null and void ab initio. Moreover, the purported Sale Certificate sought to be relied on by the Bank was not issued by the Bank, which was the vendor in the auction sale and the creditor, but one Phoenix ARC Private Limited, to which the Bank had allegedly assigned the loan of the borrower.  “Thus, the net effect of the entire transactions was that the Bank had assigned the loan of the borrower to Phoenix, in a transaction in which the present petitioners were not parties and, as such, were not bound by the same. ”

The Court stated that for all practical purposes, the Sale Certificate having not been issued in due process of law to the petitioners, the auction sale never went through or was finalised. Thus, there was no scope of further ‘setting aside’ of such sale, which was never finalised in the true sense of the term. “Taking the spirit of the order of the co-ordinate bench dated July 16, 2022, for all practical purposes, it is to be deemed that the sale never went through due to the conduct of the Bank in accepting the OTS after the order of the co-ordinate Bench from the borrower and taking the amount in terms of such OTS. “ Hence, there could not be any doubt that the Bank was liable to pay interest on the sum of Rs.55,19,250/- as per the spirit of the direction dated 16-07-2021.

The Court noted that the SBI had already deposited the entire amount, to the tune of Rs.55,19,250/-, together with interest at the rate of 14 per cent per annum from the date of deposit on 25-07-2018 and in proportion to the amounts deposited from time to time thereafter with the Registrar, Original Side of this Court in terms of the order dated 17-05-2022 passed in the present writ petition. In such view of the matter, the Bench state that the said amount ought to be disbursed to the petitioner in its entirety, along with the interest accrued thereon. Since the Registrar, Original Side maintained the said amount in an interest bearing deposit account with automatic renewal, the claim of interest of the petitioners till date of receipt of the amount was satisfied.

Accordingly, the petition was allowed, thereby directing the Registrar, Original Side to release the entire amount as deposited by the respondent-Bank with the Registrar, Original Side pursuant to the direction dated 17-05-2022 passed in the present writ petition, along with interest accrued thereon, to the petitioners and/or their duly authorised representative, within one month from date upon withdrawal of the same from the account where the same had been deposited. Such disbursal of the amount by the Registrar, Original Side to the petitioners, however, shall be subject to deduction of all statutory deductible amounts payable to the Registrar, Original Side for having rendered the necessary services in depositing such amount and ancillary expenses.