The Supreme Court of India has reaffirmed the sanctity of public auctions, holding that they cannot be set aside lightly unless tainted by fraud, collusion, or grave irregularities. The bench comprising Justice B.V. Nagarathna and Justice Nongmeikapam Kotiswar Singh delivered the ruling in Sanjay Sharma vs. Kotak Mahindra Bank Ltd. (Civil Appeal No. ___/2024), resolving a long-standing dispute over the auction sale of a mortgaged property under the SARFAESI Act.
Background of the Case
The dispute revolved around the auction of a basement property in Old Rajinder Nagar, New Delhi, by Kotak Mahindra Bank Ltd. (Respondent No. 1) to recover debts owed by the borrower, Champa Bhen Kundia. The appellant, Sanjay Sharma, successfully bid for the property in a public auction conducted on December 21, 2010, and received a sale certificate. However, the auction was challenged by Respondent No. 2, claiming ownership of the property through an unregistered agreement to sell executed in 2001.
The case underwent multiple rounds of litigation, with conflicting rulings from the Debt Recovery Tribunal (DRT), the Appellate Tribunal, and the Delhi High Court. The matter eventually reached the Supreme Court.
Key Legal Issues
1. Sanctity of Public Auctions: Could the auction sale be set aside based on Respondent No. 2’s unregistered ownership claim?
2. Validity of Ownership Claims: Did Respondent No. 2 have a legal title to the property through unregistered documents?
3. Right of Redemption: Could Respondent No. 2 exercise the right of redemption after the auction?
Supreme Court’s Observations
The Supreme Court made critical observations about the integrity of public auctions and the legal requirements for claiming ownership of immovable property:
1. Public Auctions Are Presumed Valid:
“A sale by way of public auction cannot be set aside lightly, except on grounds that go to the core of such sale processes, such as fraud, collusion, or grave procedural irregularities,” the Court observed. It emphasized that minor irregularities or procedural deviations do not warrant nullifying an auction, as it would disrupt the recovery process under the SARFAESI Act.
2. Unregistered Documents Cannot Confer Ownership:
The Court ruled that Respondent No. 2’s ownership claim was invalid as it was based on an unregistered agreement to sell. Under Section 54 of the Transfer of Property Act, 1882, and Section 17 of the Registration Act, 1908, ownership of immovable property can only be transferred through a registered sale deed. The bench noted:
“Where the sale deed requires registration, ownership does not pass until the deed is registered, even if possession is transferred and consideration is paid.”
3. Right of Redemption Is Time-Bound:
The Court highlighted that the right of redemption under Section 13(8) of the SARFAESI Act is available only until the public auction is conducted. It remarked that Respondent No. 2 had multiple opportunities to exercise this right but failed to do so.
Court’s Decision
The Supreme Court overturned the Delhi High Court’s ruling that had set aside the auction. It reinstated the order of the Appellate Tribunal, which had upheld the auction sale. The bench directed Kotak Mahindra Bank Ltd. to hand over possession of the property to the appellant, Sanjay Sharma. The Court also reserved the appellant’s right to seek legal remedies to secure possession.
Representation
– Appellant: Sanjay Sharma, represented by Mr. R.C. Kaushik and Mr. M.K. Goel.
– Respondent No. 1: Kotak Mahindra Bank Ltd., represented by Mr. Arun Aggarwal and Ms. Anshika Agarwal.
– Respondent No. 2: Represented by Ms. Kanika Agnihotri and Mr. Rajeev Singh.
