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March 4, 2022

If dues are paid before auction sale Recovery Officer of Bank cannot continue Auction Sale

by Mahesh Mara in Legal Court Judgement

If dues are paid before auction sale Recovery Officer of Bank cannot continue Auction Sale

Fact and Issue of the case

The present petition has been filed, invoking extra-ordinary jurisdiction of this Court under Article 226 of the Constitution of India for quashing of the order dated 12.05.2005 passed by the Debts Recovery Tribunal, Lucknow (for short “the Tribunal”) whereby the Recovery Officer has ordered for taking forcible possession from the petitioner of the mortgaged property, being building constructed over land measuring 5000.00 sq. ft. of Khasra No.797/01, Bhillawan, Ward Geetapalli, Alambagh, Lucknow. The petitioner had taken a loan of Rs. 12 lakhs for business purposes from the BOB on 06.11.2004 and mortgaged the property, being building constructed over land measuring 5000.00 sq. ft. of Khasra No.797/01, Bhillawan, Ward Geetapalli, Alambagh, Lucknow. The BOB had filed Original Application No. 154 of 2010 before the Tribunal for recovery of a sum of Rs. 14,34,234=00 against the petitioner.

The Original Application No. 154 of 2010 was decided ex-parte vide order dated 17.09.2010. The petitioner came to know about the said order dated 17.09.2010 in the year 2011 and, he filed Appeal No.96 of 2011, which was dismissed vide order dated 18.01.2012. In the meantime, the BOB had proposed to auction the mortgaged property and, the mortgaged property was auctioned in favour of respondent no. 3- on 31.01.2013. The respondent no. 3 had deposited some token amount with the BOB. The petitioner filed statutory objection against the auction proceedings on 28.02.2013. Ms. Shreya Chaudhaya, learned counsel for the petitioner, has submitted that before the confirmation of the sale, the petitioner had deposited the entire amount with up-to date interest with the BOB i.e. Rs. 19,50,000=00 through Bank Draft No.119413 dated 03.05.2003 issued by the Corporation Bank, Gomti Nagar, Lucknow and, the said bank draft was accepted by the BOB towards the full and final settlement of the loan amount. The BOB had issued ‘no dues certificate’ to the petitioner and, also written letter dated 07.05.2013 to the Recovery Officer of the Tribunal to the said effect.

An affidavit dated 10.05.2013 was also filed by the BOB before the Recovery Officer. The BOB had requested the Recovery Officer that prior to confirmation of the sale, the petitioner had deposited the entire amount with up-to date interest amount to Rs. 19,50,000=00 and, no other loan amount remained unpaid. In view of above, the BOB had requested the Recovery Officer to drop the proceedings pursuant to auction sale. However, the Recovery Officer, who heard the matter on 17.05.2013, vide order dated 28.06.2013 passed in DRC No. 556 of 2010 rejected the request of the BOB for dropping the proceedings and ordered the BOB to refund Rs.19,50,000=00 to the petitioner. The Recovery Officer, thereafter, on the same day, confirmed the sale in favour of respondent no. The petitioner had filed Writ Petition No. 4407 (M/S) of 2013 against the order dated 28.06.2013, which was dismissed by this Court on 11.07.2013 with liberty to the petitioner for filing appeal under Section-30 of The Recovery of Debts Due to Bank and Financial Institutions Act, 1993 (for short “the Act, 1993”). The petitioner, thereafter, had filed an appeal before the Tribunal, which was numbered as Appeal No.05 of 2013. During the pendency of the said appeal, the respondent no. 3 had moved an application in Case No. DRC 556 of 2010 before the Recovery Officer and the Recovery Officer passed the order dated 24.03.2014 for providing police protection to the respondent no. 3 for taking over possession of the mortgaged property. The petitioner had filed an application for recalling the order dated 24.03.2014 before the Recovery Officer inasmuch as against the order dated 28.06.2013 Appeal No.05 of 2013 was pending. The Recovery Officer, thereafter, passed order dated 25.05.2014 and recalled the earlier order dated 24.03.2014. Though Appeal No.05 of 2013 remained pending before the Tribunal, the Recovery Officer had passed another order on 12.05.2015, directed the Senior Superintendent of Police, Lucknow for providing police protection to the respondent no.3 for taking forcible possession of the mortgaged property. Though earlier the Recovery Officer had passed the order dated 25.04.2014, recalling the order dated 24.03.2014 passed for taking over forcible posses ion of the property in question on the ground that till the pendency of the appeal before the Presiding Officer of the Tribunal, it was not proper to take possession of the property in question.

Observation of the Court

The Recovery Officer was required to act in accordance with law to recover the dues of the BOB and, when the BOB had written to the Recovery Officer that he should not proceed further with the auction-sale, the Recovery Officer had no right to reject such request of the BOB and, proceed for confirmation of the sale. Rule-60 of the 2nd Scheduled of the Income Tax Act, 1961, relied on by respondent no. 2, would mean that before 30 days, from the date of the auction-sale, the sale should not be confirmed and, if the debtor deposits the dues as provided under the Rules, then sale would not be confirmed and property would be released in favour of the debtor. However, even after 30 days before confirmation, if the defaulter/debtor pays the entire dues, and the Bank issues no dues certificate and writes to the Recovery Officer not to proceed further with the auction to confirm the sale in favour of such purchaser, the Recovery Officer would be required to cancel the auction proceedings inasmuch as the Recovery Officer acts only for realizing the dues of the Bank/financial institution. In case Bank/financial institution is satisfied that its dues are paid before auction sale is confirmed, then the Recovery Officer would be required to cancel the auction sale, otherwise it would be travesty of justice to complete the sale of property of the borrower despite payment of entire dues and having been issued no dues certificate by Bank/financial institution.

In the present case, the BOB itself had written to the Recovery Officer not to proceed with the confirmation of sale as its entire dues were paid by the petitioner. The Recovery Officer had no right to ignore such a request of the BOB. It is also well settled that the auction purchaser has no right, title or interest over the immovable property till confirmation of sale of the said immovable property in his favour. The title of property passes to the auction purchaser with effect from the date of confirmation and not before confirmation of sale. In the present case, the borrower had paid the entire amount of Rs. 19,50,000=00 to the BOB before the sale was confirmed and, the BOB had issued ‘no dues certificate’ to the borrower and, filed an application before the Recovery Officer for cancelling the auction process, but the Recovery Officer had gone ahead to confirm the sale and rejected the application. The auction purchaser could claim refund of his money from the BOB with interest, but he did not have any right over the property before the sale was confirmed inasmuch as Recovery Officer had no right to confirm the sale after BOB wrote to him for cancelling the auction. The BOB had already received the entire amount and, written an application to the Recovery Officer for cancellation of the sale process, but despite that the Recovery Officer had proceeded to confirm the sale wholly illegally and unauthorizedly. In view thereof, the present petition is disposed of with a direction to the Tribunal to decide the appeal filed by the petitioner expeditiously in accordance with law, preferably within a period of one month and, till the appeal is decided by the Tribunal, the interim order passed by this Court on 19.05.2015 shall remain in operation.

Conclusion

The court has disposed off the petition and ruled in favour of the petitioner

Read the full order from below

If-dues-are-paid-before-auction-sale-Recovery-Officer-of-Bank-cannot-continue-Auction-Sale

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