25 May 2121

The secured creditor should conduct his actions such that the constitutional right to property is preserved, rather than it being deprived of - Bombay High Court

Case : Arjun Fakira Bari v. Divisional Joint Registrar and Ors. Writ Petition No. 5627 of 2019

Court : Bombay High Court

Bench : Justice N. J. Jamadar

Decided on : 25 May 2121

Relevant Statutes


Article 226 of the Constitution of India.

Section 101 & 154 of the Maharashtra Co-operative Societies Act, 1960.

Rules 86-A to 86-F & 107 of the Maharashtra Co-operative Societies Rules,1961

Brief Facts and Procedural History

1The petitioner had availed a loan of Rs.75,000/- from respondent No.3-Society. The loan was advanced on the terms and conditions incorporated in the sanction letter. It was to be repaid within a period of 60 months thereof. Under the terms thereof, the petitioner and his father mortgaged an immovable property in favour of respondent No.3 under a Mortgage Deed and thereby created security interest thereon.

2. A part of the loan amount remained outstanding. To recover the outstanding amount a notice of auction sale was published in the newspaper by the respondent Nos.3 and 4. Respondent No.3 preferred an application for a grant of certificate under section 101 of the Maharashtra Co-operative Societies Act, 1960. Respondent No.7 issued the recovery certificate along with a demand notice.

3. Respondent Nos.3 and 4 sold the subject land to respondent Nos. 8 and 9 for Rs.21,01,000/-. After the auction sale, the petitioner made repeated efforts to pay the outstanding amount to respondent Nos. 3 and 4.

4. Therefore, the petitioner preferred a revision application before respondent No.1. In the meanwhile, during the pendency of the said revision application, respondent No.7 confirmed the sale. Eventually, respondent No.1 dismissed the revision application.

5. Being aggrieved, the petitioner preferred a writ petition. The writ petition was partly allowed and remand the matter back to respondent No.1. Post remand, the petitioner amended the revision application and assailed the legality, propriety and correctness of the order granting recovery certificate. Respondent No.1 again dismissed the revision application.

The Issues of the Case

Whether, the recovery certificate issued by respondent no. 7 is in violation of Rule 86-A to 86-F of the Maharashtra Co-operative Societies Rules, 1961?

Whether, the demand notice issued was in conformity with the provisions of sub-rule (3) of Rule 107 of the Maharashtra Co-operative Societies Rules, 1961?

Whether the order of attachment was served on the petitioner?

Whether the upset price was fixed subsequent to the auction?

Whether the auction sale of the subject land was far exceeding in value than the outstanding amount due?

The Observations of the Court

1. The Honourable Bombay High Court found that the revisional authority was justified in entering the finding that the challenge to the recovery certificate could not have been entertained beyond the prescribed period of limitation in the absence of an application for condonation of delay.

2. The Honourable Bombay High Court observed, sub-rule (3) of Rule 107 of the Maharashtra Co-operative Societies Rules, 1961 which provides that a demand notice in the specified format be issued indicating the name of the defaulter and the amount due. The court found that the demand notice referred to the certificate issued by the respondent no.7, wherein outstanding amount was quantified at Rs.1,31,769/- and the interest thereon was also directed to be paid at the rate 19% p.a., gave a sufficient indication to the borrower as to what was due from the borrower.

3. Pertaining to 3rd issue, prima facie, the material on record indicate that not only the attachment order was served on the petitioner but also that the petitioner pursued the remedies questioning the entries in the revenue record of the subject land on the basis of the said attachment order.

4. The Honourable Bombay High Court found that respondent no.4 solicited approval for the upset price after about two months of the auction. The determination of reserve or upset price beforehand has a salutary purpose. It eliminates the element of arbitrariness in the conduct of auction sales and acceptance of the bids. It was further observed that there was no provision that compelled a creditor to first proceed against the mortgaged property. The recovery must adhere to the prescription in the Rules.

5. The Honourable Bombay High Court noted some judgments of the Supreme Court which spelt out a solemn duty on the part of the executing court to bring only such portion of the property for sale the proceeds of which would be sufficient to satisfy the decretal debt and went on to hold that the sale held without examining this aspect and in violation of this statutory mandate would be illegal and without jurisdiction, by construing the expression, “necessary to satisfy the decree” as incorporating the statutory obligation.

6. The Honourable Bombay High Court referred to the case of Mathew Varghese vs. M. Amritha Kumar and others, (2014) 5 Supreme Court Cases 610,] wherein while emphasizing the need to scrupulously pursue the action to recover the loan amount expeditiously, the Supreme Court reminded that the secured creditor should so conduct his actions that the constitutional right to property is preserved, rather than it being deprived of.

The Decision Held by the Court

1. The Honourable Bombay High Court held that the auction sale suffered from a fundamental error in law and resulted in serious prejudice to the petitioner.

2. The Honourable Bombay Court order that:

a. The petition stands partly allowed. The auction sale in respect of the subject land in favour of respondents nos.8 and 9, confirmed by respondent no.7 stands set aside.

b. The sale certificate executed by respondent no.4 in favour of respondents nos.8 and 9 and registered, stands cancelled.

c. The amount of Rs.6,04,619/- deposited by the petitioner in High Court, along with interest accrued thereon, be paid to respondent no.3.

d.  Respondent no.3 shall refund the sale price of Rs.21,01,000/- to respondent nos.8 and 9 along with interest at the rate of 10% p.a. from the date of deposit till payment within the period of six weeks from today.

e. In the circumstances, there shall be no order as to costs.

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