Once the rights of the auction purchaser are clear by a judicial decision, all parties must comply

Facts

The case revolves around a financial dispute where the petitioner, CELIR LLP, the successful auction purchaser, sought contempt proceedings against respondents, including the original borrower (Sumati Prasad Bafna), subsequent transferee (Greenscape IT Park LLP), and the secured creditor (Union Bank of India). The borrowers had defaulted on a Lease Rental Discounting (LRD) term loan amounting to approximately INR 123.83 crore, leading the bank to classify the loan as a Non-Performing Asset (NPA) and initiate auction proceedings under the SARFAESI Act. Despite multiple failed auctions, the ninth auction succeeded, with CELIR LLP as the highest bidder. However, disputes arose regarding the redemption of the mortgage by the borrower, subsequent transfer of the secured asset to Greenscape IT Park LLP, and compliance with court directives.

Contentions of the Appellant

1. The petitioner argued that despite the Supreme Court’s directive to issue a sale certificate and hand over possession of the secured asset, the respondents failed to comply.
2. CELIR LLP highlighted that it had paid an additional INR 23.95 crore as directed by the court to match the difference between the sale consideration and the redemption amount, yet possession and title deeds were not handed over.
3. The petitioner accused the respondents of willfully initiating multiple legal proceedings in various forums to obstruct the implementation of the Supreme Court’s decision.
4. The appellant maintained that the auction process complied with statutory requirements, including Rule 9(1) of the SARFAESI Rules, as it followed eight failed auctions.
5. CELIR LLP asserted that the borrower and the subsequent transferee acted in bad faith by transferring the secured asset despite the pending Supreme Court proceedings.

Contentions of the Respondents

Borrower (Respondent No. 1):

1. Argued that the Supreme Court’s earlier decision only interpreted Section 13(8) of the SARFAESI Act and did not address the validity of the ninth auction.
2. Contended that the auction was subject to the outcome of S.A. No. 46 of 2022, pending before the Debt Recovery Tribunal (DRT).
3. Asserted that the auction violated mandatory provisions under Rules 8(6) and 9(1) of the SARFAESI Rules requiring a 30-day notice period.
4. Claimed that the petitioner’s rights were limited to the terms of the auction notice and did not include physical possession of the asset.

Subsequent Transferee (Respondent Nos. 2 & 4):

1. Argued that they acquired the secured asset lawfully as bona fide purchasers before the Supreme Court’s decision.
2. Contended that no stay or prohibitory order existed during the asset transfer, thus invalidating allegations of contempt.
3. Asserted that the petitioner’s rights to the asset were inchoate, subject to the terms of the auction and statutory compliance.

Issues

1. Whether the respondents committed contempt by not complying with the Supreme Court’s directives to issue the sale certificate and transfer possession.
2. Whether the ninth auction conducted by the bank was valid and complied with statutory provisions under the SARFAESI Rules.
3. Whether the borrower’s redemption of the mortgage and subsequent transfer to Greenscape IT Park LLP were lawful.
4. Whether the petitioner’s rights to the secured asset extend to physical possession despite the terms of the auction notice.

Observations/Findings by the Supreme Court

1. The Supreme Court observed that its earlier judgment crystallized CELIR LLP’s rights to the secured asset and directed compliance by issuing the sale certificate and handing over possession.
2. The court rejected the borrower’s contention that the auction was invalid due to non-compliance with statutory notice periods, noting that the ninth auction followed eight failed auctions, thus requiring only a 15-day notice under Rule 9(1).
3. The court found the respondents’ actions, including multiple legal proceedings, as attempts to circumvent its earlier order.
4. The court emphasized the principle of finality in judicial proceedings and held that the respondents’ conduct amounted to an abuse of process.

Principle of the Case

The principle established is that auction sales conducted under the SARFAESI Act must adhere to statutory provisions, and once the rights of the auction purchaser are crystallized by a judicial decision, all parties must comply to uphold the rule of law and judicial authority.

Final Order

The Supreme Court found the respondents in contempt of its earlier judgment. It directed:

1. Immediate compliance with the issuance of the sale certificate and transfer of possession to CELIR LLP.
2. The refund of amounts paid by the borrower toward redemption of the mortgage.
3. An annulment of the Release Deed and subsequent Assignment Agreement executed in favor of Greenscape IT Park LLP.

Importance of the Judgment to Society

This judgment reinforces the sanctity of judicial orders and the principle of finality in legal proceedings. It safeguards the rights of auction purchasers under the SARFAESI Act and ensures that borrowers and third parties cannot exploit procedural ambiguities to undermine lawful auctions. The ruling underscores the necessity for all parties to respect judicial directives, thereby strengthening the rule of law and fostering trust in the judicial system.

Case Citation

Court Name: Supreme Court of India
Case Title: CELIR LLP v. Sumati Prasad Bafna & Ors.
Case No.: Contempt Petition (C) Nos. 158-159 of 2024
Date of Judgment: December 13, 2024
Judges: J.B. Pardiwala, J.