In a significant ruling, the Supreme Court of India has upheld the rights of auction purchasers while dismissing IDBI Bank’s appeal against a High Court judgment. The court observed that the bank’s unilateral cancellation of an e-auction sale violated the principles of natural justice and directed IDBI Bank to issue the sale certificate and execute the sale deed in favor of the auction purchasers.
The bench, comprising Justice Pankaj Mithal and Justice R. Mahadevan, passed the judgment in the case of IDBI Bank Ltd. v. Ramswaroop Daliya & Ors. (Civil Appeal Nos. 8159-8160 of 2023). The court ruled against the bank’s decision to cancel the auction held on April 10, 2018, for a property in Telangana, which was sold to the respondents for a sum of ₹1.42 crore.
Background of the Case
The dispute arose after IDBI Bank conducted an e-auction on April 10, 2018, for a property in Telangana’s Bogaram village. The respondents, Ramswaroop Daliya and others, emerged as the highest bidders and deposited 25% of the sale amount, ₹36 lakh, on the day of the auction. However, due to various reasons, the bank refused to accept the balance payment of ₹1.06 crore within the stipulated time and eventually canceled the auction on December 24, 2019.
The purchasers approached the High Court, challenging the bank’s cancellation of the auction. The High Court ruled in their favor, stating that the purchasers were always ready and willing to pay the balance amount and that the bank’s refusal to issue the sale certificate was unjustified. IDBI Bank appealed the High Court’s decision in the Supreme Court.
Key Legal Issues
1. Unilateral Auction Cancellation: The central issue before the court was whether the bank was justified in canceling the auction unilaterally without providing notice or an opportunity for the purchasers to be heard, especially after accepting 25% of the sale amount.
2. Applicability of Rule 9(4) of Security Interest Rules: The bank argued that the respondents failed to deposit the remaining auction amount within the mandatory 90 days under Rule 9(4) of the Security Interest (Enforcement) Rules, 2002, thus justifying the cancellation.
3. Principles of Natural Justice: The court had to determine whether the bank’s actions violated the principles of natural justice, given that no opportunity was provided to the purchasers to explain the delay or rectify the situation.
Supreme Court’s Observations
The Supreme Court rejected IDBI Bank’s contention, observing that the bank had manifestly erred in unilaterally canceling the auction without issuing any notice to the purchasers. The court emphasized that the cancellation violated the principles of natural justice. It noted:
“The cancellation of the auction sale vide communication dated 24.12.2019 is purely unilateral in nature without any notice or opportunity of hearing to the respondents. The said cancellation as such is per se in violation of the principles of natural justice and is illegal.”
The court further clarified that the respondents had continuously demonstrated their willingness to deposit the balance amount and even submitted a bank draft for ₹1.06 crore as proof of their readiness. Despite this, the bank had refused to issue the sale certificate, citing extraneous reasons such as an advisory from the Enforcement Directorate (ED) and a writ petition filed by a guarantor. However, the court found these reasons to be insufficient to justify the cancellation.
Decision and Conclusion
The court concluded that there was no default on the part of the respondents, who had acted in good faith throughout the process. It held that IDBI Bank could not rely on technicalities such as Rule 9(4) to justify its actions when the purchasers were not at fault.
“The provisions of sub-Rules (4) and (5) of Rule 9 will only come into play when there is default on part of the party i.e., the auction purchaser, and will not apply where there is no default or where the default lies with the auctioneer i.e., appellant-Bank.”
The Supreme Court upheld the High Court’s decision, directing IDBI Bank to accept the balance auction amount within four weeks, issue the sale certificate, and register the sale deed in favor of the respondents.
Case Title: IDBI Bank Ltd. v. Ramswaroop Daliya & Ors.
Case Number: Civil Appeal Nos. 8159-8160 of 2023 (arising from S.L.P. (C) Nos. 8159-8160 of 2023)
