Unregistered Sale Documents Cannot Override Valid SARFAESI Auction: Supreme Court Rules in Favour of Auction Purchaser
Background and Overview
The Supreme Court of India, in the matter of Sanjay Sharma Vs Kotak Mahindra Bank Ltd. & Ors., delivered a significant ruling affirming the sanctity of concluded auction sales conducted under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act"). The judgment reaffirms that ownership of immovable property cannot be claimed on the basis of unregistered sale deeds and that a validly concluded public auction ought not to be disturbed in the absence of fraud, collusion, or material procedural irregularity.
Facts of the Case
The Secured Asset and the Chain of Unregistered Transactions
The secured asset in question was a piece of land measuring 55.7 sq. yards along with the building and basement of House No. 2/22, Old Rajinder Nagar, New Delhi – 110018. The original owner of this property was one Champa Bhen Kundia.
A series of transactions involving the basement of this property were executed through unregistered documents:
- Champa Bhen Kundia allegedly sold the basement to her son Chandu Bhai via an unregistered sale deed dated 28.04.2000 for a consideration of Rs. 4,00,000/-.
- Chandu Bhai subsequently purported to transfer the basement to Satnam Singh and Surinder Wadhwa through another unregistered sale deed dated 30.03.2001 for Rs. 90,000/-.
- Satnam Singh and Surinder Wadhwa then executed an unregistered Agreement to Sell dated 23.04.2001 in favour of Raj Kumar Vij (respondent No. 2), purporting to transfer the basement to him.
None of these instruments were registered, and consequently, none of them satisfied the legal requirements for a valid transfer of immovable property.
The Mortgage and Assignment
Champa Bhen Kundia, the original owner, borrowed funds from M/s Associated India Financial Service Pvt. Ltd. and mortgaged the secured asset on 16.06.2001 — subsequent to all the above unregistered transactions. The financing company was eventually taken over by M/s Citi Financial Consumer India Ltd., which later assigned the debt to Kotak Mahindra Bank Ltd. (respondent No. 1).
Default, Possession, and Auction
Upon default in repayment, Kotak Mahindra Bank issued a notice dated 28.10.2006 under Section 13 of the SARFAESI Act to Champa Bhen Kundia. Since no compliance followed, the Bank obtained an order from the Chief Metropolitan Magistrate, Delhi, and physical possession of the secured asset was taken over by a Court Receiver under Section 14 of the SARFAESI Act on 06.09.2007.
A public auction notice was published in the newspaper Business Standard on 20.11.2010, and the auction was conducted on 21.12.2010. Sanjay Sharma (the appellant) emerged as the highest bidder at Rs. 7,50,000/-, and a sale certificate was issued in his favour on 27.12.2010.
Litigation History
Proceedings Before the Debt Recovery Tribunal (DRT)
Respondent Nos. 2 to 6, claiming to be successors-in-interest of the borrower and purchasers of the property, filed an application under Section 17 of the SARFAESI Act being S.A. No. 118/2007 before the Debt Recovery Tribunal–III (DRT).
The DRT by its order dated 23.11.2007 directed respondent Nos. 2 to 6 to deposit Rs. 2,00,000/- by 26.11.2007. Respondent Nos. 3 to 6 complied, but respondent No. 2 (Raj Kumar Vij) failed to make the deposit.
Subsequently, by order dated 08.09.2009, the DRT disposed of S.A. No. 118/2007, directing respondent No. 2 to pay approximately Rs. 2,50,000/- to the Bank within sixty days. This order was challenged before the Debt Recovery Appellate Tribunal (DRAT) by respondent Nos. 3 to 6, but the DRAT disposed of the appeal on 02.06.2010 without interfering with the DRT's order.