NATIONAL LAW INSTITUTE UNIVERSITY,

BHOPAL

Project
On
S. Karthik v N. Subhash Chand Jain

45277_2019_6_1501_30379_Judgement_23-Sep-2021.pdf

CIVIL APPEAL NO. 5920-5923/2021

SUBMITTED BY:
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CERTIFICATE

This is to certify that the case analysis of “S. Karthik & Ors. V. N. Subhash Chand Jain &
Ors. 2021 SC” has been prepared and submitted by who is currently pursuing B.A.LLB.
(Hons.) at National Law Institute University, Bhopal in fulfillment of Common Law Method
course. It is also certified that this is original analysis of case and has neither been submitted
to any other university nor published anywhere else.

Date: November 7th, 2021

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ACKNOWLEDGMENT

The unconditional support of many people has made this project possible. I wish to
express my sincere gratitude to Prof. who helped me to develop this
project into a coherent whole through his helpful insight and brilliant knowledge. I also
thank other professors of the University for helping me find the research material
appropriate for this study. I also wish to extend my thanks to the authority of the
university. I also wish to express my gratitude to my friends and family who helped me
complete this project successfully.

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LIST OF ABBREVIATIONS

 & : And
 AIR : All India Report
 Anr. : Another
 Art. : Article
 CRIM : Criminal
 CriLJ : Criminal Law Journal
 CrPC : Criminal Procedure Code
 HC : High Court
 Hon’ble : Honorable
 S : Section
 SC : Supreme Court
 SCC : Supreme Court Cases
 SCR : Supreme Court Reports
 U/A : Under Article
 UOI : Union of India
 v. : Versus
 vol : volume

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LIST OF CASES

 Mathew Varghese v. M. Amritha Kumar and others

  Vasu P. Shetty v. Hotel Vandana Palace and others
 J. Rajiv Subramaniyan and another v. Pandiyas and others
   Kalpesh P.C. Surana v. Indian Bank
 Dwarika Prasad v. State of Uttar Pradesh  and others
 Shakeena and Anr. v. Bank of India & Ors.
   Narandas Karsondas v. S.A. Kamtam  and another

LIST OF STATUTES

 Securitization and Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 (‘the SARFAESI Act’)

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TABLE OF CONTENTS

1. BACKGROUND OF THE CASE.......................................................................................6

1.1. NAME AND DATE OF THE JUDGMENT:.................................................................7
1.2. NAME OF JUDGES:......................................................................................................7
1.3. BENCH:..........................................................................................................................7
1.4. NUMBER OF OPINIONS:.............................................................................................7
1.5. TYPES OF OPINION:....................................................................................................7
1.6. NAMES OF JUDGES WHO DELIVERED THE OPINION.........................................7
1.7. CONCURRING OPINION:............................................................................................8

2. FACTS OF THE CASE.......................................................................................................9

2.1. CONCRETE FACTS OF THE CASE................................................................................9
2.2. MATERIAL FACTS.........................................................................................................11
2.3. IMMATERIAL FACTS....................................................................................................11
2.4. GENERALISATION OF MATERIAL FACTS...............................................................12

3. LEGAL PROVISIONS AND ISSUE INVOLVED.........................................................14

4. ARGUMENTS....................................................................................................................15
4.1. MAIN POINTS OF ARGUMENTS BY APPELLANT...................................................15
4.2. MAIN POINTS OF ARGUMENTS BY THE RESPONDENTS.....................................15

5. ANALYSIS OF THE JUDGMENT..................................................................................17

6. JUDGMENT.......................................................................................................................19
6.1. JUDGEMENT IN REM................................................................................................19
6.2. JUDGEMENT IN PERSONA.......................................................................................19

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1. BACKGROUND OF THE CASE

1.1. NAME AND DATE OF THE JUDGMENT:

S. Karthik & Ors. Versus N. Subhash Chand Jain & Ors. 1

Judgment given on: September 23rd, 2021

1.2. NAME OF JUDGES:

 L Nageswara Rao
 BR Gavai
 BV Nagarathna

1.3. BENCH:
The following case was decided by a 3 Judge Bench.

1.4. NUMBER OF OPINIONS:

There is only one opinion in the judgment.

1.5. TYPES OF OPINION:

Unanimous Opinion.

1
(2021) ibclaw.in 162 SC

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1.6. NAMES OF JUDGES WHO DELIVERED THE OPINION
This judgment is written by BR Gavai J.

1.7. CONCURRING OPINION:

Not applicable.

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2. FACTS OF THE CASE

2.1. CONCRETE FACTS OF THE CASE

 The background of the case was that, Ace Concrete Private Limited (the borrower)
was a company engaged in the manufacture and sale of ready mixed concrete and
related business activities, and it had availed loans from the fifth respondent, Indian
Overseas Bank. In pursuance of the same, the appellants and respondent had
mortgaged their four properties as collateral security and executed guarantee for the
credit facility granted to the borrower.

 Thereafter there was a transaction/Memorandum of Understanding between the

borrower and one M/s. AKR Holdings Private Limited, as per which the entire share-
capital of the borrower was to be transferred to AKR Holdings and the Management
was also to be transferred in favor of AKR Holdings.2

 As per the agreement, AKR Holdings was to take over the entire liability of the
borrower and also to get the four mortgaged properties released to the appellants and
respondent Nos. 2 to 4. It was however, the contention of the appellants that the AKR
Holdings in collusion with the respondent-Bank sold all the assets of the borrower
hypothecated to the respondent Bank and also did not get the mortgaged properties
released, as agreed.

 The borrower was, therefore, categorized as ‘Non-Performing Asset (NPA)’ on April

1, 2011, and the Bank issued notice u/s 13(2) of the SARFAESI Act for a liability of
Rs.20,24,05,000.

 On February 20, 2012, the appellants and respondent filed a Securitisation

Application before the DRT, Chennai, and an interim stay was granted restraining the

2
Ramroop, “S. Karthik & Ors. Vs. N. Subhash Chand Jain & Ors. Archives” (IBC Laws) <https://ibclaw.in/drb-
case-name/s-karthik-ors-vs-n-subhash-chand-jain-ors/> accessed November 9, 2021.

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 Bank from proceeding further with the First Sale Notice. However, this was subject to
deposition of 50% of the outstanding amount within the period.

 Through interim order, the DRT, Chennai, directed the appellants and respondent to
deposit Rs. 1 crore to show their bona fides and granted a month’s time to procure
prospective purchasers to clear the entire dues by selling the mortgaged properties.
Accordingly, an amount of Rs.1 crore came to be deposited on July 31, 2012.

 The DRT, Chennai, thereafter, passed an interim order, thereby restraining the Bank
from bringing the mortgaged properties for sale pursuant to the Second Sale Notice.
However, instead of complying with the order, the guarantors filed an application and
sought a direction that the amount so directed to be deposited by the DRT, should be
permitted to be deposited either in the purchasers account or in separate suspense
account in the Indian Overseas Bank, Kilpauk Branch.

 The application came to be dismissed by the DRT, Chennai. The Bank was then
granted liberty to proceed with the sale. Aggrieved, a Civil Revision Petition was filed
before the Madras High Court, which restrained the Bank and the auction purchaser
from taking physical possession of the mortgaged properties.

 The DRT then set aside the Second Sale Notice and consequent sale of the mortgaged
properties and imposed cost of Rs. 50,000 on the Bank for willfully violating the
provisions of law. The DRT also directed the Bank to refund the amounts paid by the
auction purchaser along with 10% interest per annum.

 It further directed the Bank to refund the surplus sum of Rs.4.48 crore to the third
respondent-Shanthi Sivasamy with 10% interest per annum. The order passed by the
DRT came to be challenged before the DRAT, which maintained the direction of the
DRT, insofar as the payment of excess amount to the third respondent was concerned.

 The Larger Bench noticed that unlike international banks, the banks and financial
institutions in India earlier did not have power to take possession of securities and sell
them.

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2.2. MATERIAL FACTS

 As per the agreement, AKR Holdings was to take over the entire liability of the
borrower and also to get the four mortgaged properties released to the appellants and
respondent Nos. 2 to 4.3 It was however, the contention of the appellants that the AKR
Holdings in collusion with the respondent-Bank sold all the assets of the borrower
hypothecated to the respondent Bank and also did not get the mortgaged properties
released, as agreed.

 On February 20, 2012, the appellants and respondent filed a Securitisation

Application before the DRT, Chennai, and an interim stay was granted restraining the
Bank from proceeding further with the First Sale Notice. However, this was subject to
deposition of 50% of the outstanding amount within the period.

 Through interim order, the DRT, Chennai, directed the appellants and respondent to
deposit Rs. 1 crore to show their bona fides and granted a month’s time to procure
prospective purchasers to clear the entire dues by selling the mortgaged properties.
Accordingly, an amount of Rs.1 crore came to be deposited on July 31,2012.

 The Larger Bench noticed that unlike international banks, the banks and financial
institutions in India earlier did not have power to take possession of securities and sell
them.

2.3. IMMATERIAL FACTS

 The application came to be dismissed by the DRT, Chennai. The Bank was then
granted liberty to proceed with the sale. Aggrieved, a Civil Revision Petition was filed

3
“S. Karthik & Ors vs N Subhash Chand Jain & Ors (Supreme Court)” (Digest of case lawsSeptember 24,
2021) <https://itatonline.org/digest/verdicts/s-karthik-ors-vs-n-subhash-chand-jain-ors-supreme-court/>
accessed November 9, 2021.

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 before the Madras High Court, which restrained the Bank and the auction purchaser
from taking physical possession of the mortgaged properties.

 The DRT, Chennai, thereafter, passed an interim order, thereby restraining the Bank
from bringing the mortgaged properties for sale pursuant to the Second Sale Notice.

 However, instead of complying with the order, the guarantors filed an application and
sought a direction that the amount so directed to be deposited by the DRT, should be
permitted to be deposited either in the purchasers account or in separate suspense
account in the Indian Overseas Bank, Kilpauk Branch.

 The DRT then set aside the Second Sale Notice and consequent sale of the mortgaged
properties and imposed cost of Rs. 50,000 on the Bank for willfully violating the
provisions of law. The DRT also directed the Bank to refund the amounts paid by the
auction purchaser along with 10% interest per annum.4

2.4. GENERALISATION OF MATERIAL FACTS

 Ace concrete private limited obtained a loan from the Indian Overseas Bank in lieu of
the some of the properties which were mortgaged. with the Bank, and as the guarantor
to the loan the an agreement was entered into with the AKR holdings.

 AKR Holdings in collusion with the Indian Overseas Bank did not get the propertoes
released and rather intended to sell all the properties.

 It is pertinent to note herein that the interim stay had been granted by the DRT,
Chennai staying to proceed with the sale on First Sale Notice.

 When the 2nd sale notice was issued, it was set aside by the DRT as it was in non-
compliance with the DRT orders, and non compliance with the legal provisions. This
4
“S. KARTHIK & ORS. VERSUS N. SUBHASH CHAND JAIN & ORS.” (www.indianemployees.com)
<https://www.indianemployees.com/judgments/details/s-karthik-ors-versus-n-subhash-chand-jain-ors>.

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 fact is important in order to reckon the time period between the date of the notice and
the date of the sale.

3. LEGAL PROVISIONS AND ISSUE INVOLVED

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  The court did not the go into the provisions involved in the case, rather relied upon
the judgement of the Mathew Varghese case, which had in depth dealt with the
provisions of the SARFAESI Act. Viz. Section 13(1), 13(8) and 35 and 37 along with
the Rules 8 and 9.

 The issue involved in the present case is that whether the sale by auction would be
vitiated if there is no 30 days time period within the date of the notice and the date of
the sale. Whether the Rule 8 and 9 of the Security Interest (Enforcement) Rules, 2002
and the Mathew Varghese judgement, which provide for the 30 days, time period is
the mandatory authority on point or just directory?

4. ARGUMENTS

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4.1. MAIN POINTS OF ARGUMENTS BY APPELLANT

Shri K.V. Viswanathan, learned Senior Counsel appearing on behalf of the appellants, had
contended that:

 That the notice about the sale (second notice) was only for the period of 10 days, and
the sale by way of the auction was on the very next days. The sole contention is that
only 10 days were given to pay the outstanding dues, and there is non-compliance of
the 30 days time period in light of the Mathew Varghese judgement. Also, he
contended that there is blatant violation of the provisions of the SARFAESI ACT and
the rules thereof. I.e. Rule 8 sub rule 6, and Rule 9 sub rule 1 of the Security Interest
(Enforcement) Rules, 2002.5 He further contended as per the statutory rules, there
ought to be 30 days time period between the date on which the notice was given and
the date on which the sale is to be held of the immovable assets.
 The counsel further contended that by relying upon the judgment of this Court in the
case of Mathew Varghese v. M. Amritha Kumar and others, that if the sale does not
take place in pursuance of the mandate given under the Rule 8 and 9 and also the
judgement foretasted then there has to be do novo sale, and no party could be allowed
to exploit the vulnerable party, as there should be maximum derivation from the
secured assets.

4.2. MAIN POINTS OF ARGUMENTS BY THE RESPONDENTS

1. Counsel on behalf of the Bank:

Ms. Anitha Shenoy, learned Senior Counsel appearing on behalf of the respondentBank, had
contended that the second notice which was issued on the date 9.7.2012 cannot by any stretch
of imagination be construed as the fresh notice, rather it was the follow up and the
5
“New Constitution of India” [1937] International Affairs.

PAGE 15
continuation of the first notice. She placed reliance on the judgement of the Madras High
Court in the case of Kalpesh P.C. Surana v. Indian Bank. As per which she contended, that
there is no requirement under the law to provide 30 days notice period while issuing the
second notice. It only applies on the first notice. She further contended that the ample time
had been given to the appellants to make the payments, which they clearly failed to do. She
also pleaded that the Bank has acted in compliance of the orders passed by the DRT and High
Court, so no fault could be placed upon the Bank.

2. Counsel for the auction purchaser:

Shri K.K. Mani, learned counsel appearing on behalf of the respondent No.1the auction
purchaser, had contended that the auction purchaser had deposited the whole amount by 2012
itself and he is being deprived of the sale benefits. He had placed reliance on the judgement
of the Apex Court in the case of Dwarika Prasad v. State of Uttar Pradesh and others and also
the case of Shakeena and Anr. v. Bank of India & Ors. It was further contended that Banks
could have taken action under the Section 14 of the SARFAESI ACT, but they failed to do so
since last 9 years.

3. Counsel for Respondent 3

Shri Saju Jakob, learned counsel appearing for respondent No.3Shanthi Sivasamy, has
contended that the appellants are the promoters and the directors. He further contended that
the amount of 12 Crore that has been received by the Bank was in lieu of the property
mentioned for 3rd sale notice which is item C in the Schedule. He further contended that the
first two notices were already accounted by the Bank. And the 3 rd sale notice was for the
amount of 6 Lakh Rupees. And, there is requirement of directing the refund amount back to
the Respondent No.3

5. ANALYSIS OF THE JUDGMENT

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By relying upon the Judgment of the Mathew, the Apex Court reiterated that creditor should
furnish on the buyer with the notice about the date and time with an ample time, and also
about the sale or transfer, such that the borrower can take all possible steps in order to
retrieve his property, and purpose of this is that the borrower not being exploited by the
creditor and he derives maximum benefit out of the secured assets in the sale. The court
further held by referring to the Rule ( sub-rule 1 that no sale shall take place prior to the lapse
of 30 days of the notice time given to the other party, and also without conveying to the
borrower, or publishing about the sale in the newspaper. The court did the liberal
interpretation to the word or occurring in the Rule, and held that such to be read as
conjunction and not disjunction. Therefore, the result would be that the creditor has the
obligor to put notice to the borrower, and also to publish about the sale in the newspaper. The
court held that the maximum benefit should be allowed to be derived out of the secured asset,
and no one should be able to exploit or no one should be in the vulnerable position.

The court relying upon the Mathew Varghese case, held that if the sale could not be done
even after furnishing 30 days notice period on the buyer, and reasons are such which could
not be attributed to the buyer, then the creditor is left with no option than to do de novo
procedure.

The court in the present case held that notice had been issued on the 21 Jan 2012, where after
the guarantors had approached the DRT seeking and stating they can sell the property within
span of 15 days and then would pay the entire consideration within next 15 days, and
thereafter any outstanding amount would be settled. Based on the consideration of the
guarantors the DRT had allowed the contention and had also put the stay on the sale that was
supposed to happen. So, the court held that the sale was halted because of the interim stay
that had been granted by the DRT.

The court further held that in the case of the Mathew case, the 30 days were stipulated
between the notice period and the date on which the sale could take place. But, nowhere in
the foretasted judgement had it talked about the time period between the individual notices.
As regards the present case, there has been compliance with the ratio of the Mathew
Varghese case. That is why it has been said in the judgement that the word or in the Rule 9
sub rule 1 to be read as the conjunction and, and implication would be that there would be 30

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days within the notice and sale. The court held that in the present there was ample time for
the redemption, which the appellants failed to seek.

The court held that the claim of the Appellant could not be sustained in light of the judgement
of this court in the case of Mathew Varghese, wherein the court itself relied upon the
Narandas Karsondas Judgement; wherein it had been held that the right of the redemption
which is conferred under the Section 60 of the Transfer of the Property Act, 1882, is
invariably available with the mortgagor unless it is vanquished by the act of the parties.

It was also held that once the conveyance is executed and the mortgagor interest is transferred
with the registration instrument, the mortgagor right to redemption is extinguished. The court
held that in the present case, every attempt has been made to frustrate the very purpose of the
SARFAESI Act.

6. JUDGMENT

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6.1. JUDGEMENT IN REM
Following is the ratio decidendi of the judgment:

The court reiterated the object and purpose behind the SARFAESI Legislation by saying that
it had been enacted for the purpose of “securitization and empowering banks and financial
institutions to take possession of the securities and to sell them without the intervention of the
Court”6. The court also held that the banks and the financial institutions of our country do not
possess the power by which they can take possession and sell thereafter the securities of the
debtors, which is unlike what international banks possess. Thus, the court said that because of
being deprived of such power there is slow rate of the recovery of the loans which are
defaulted and there is surge in the cases of the NPAs (Non-Performing assets). The court also
held that in the domain of the financial markets, the banking and the financial sectors do not
have the level playing field.

6.2. JUDGEMENT IN PERSONA

The Apex Court in this case was dealing with the auction sale of mortgaged property which
was continuously blocked by the guarantors on some pretext or another and eventually Indian
Overseas Bank disposed off the property through auction sale by way of a 2nd notice under
SARFESI Act by giving notice of 10 days and the question before the Hon'ble Court was
whether the mandatory 30 days notice had to be given or not in a subsequent sale. The court
differentiated the Mathew Varghese decision, on which the appellants relied, by concluding
that the initial transaction could not take place owing to reasons attributable to the guarantors
as a result of several and prolonged litigations. The court also interpreted Section 60 of the
Transfer of Property Act, which states that the mortgagor's right to redemption is
extinguished upon execution of the transfer and registration of the mortgagor's interest by
registered instrument. Finally, in Para 76, the court stated the reason and purpose for enacting
the SARFESI Act.

6
Statement and Objects, SAFAESI ACT

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Finally, the appeal was denied, and the court, in exercising its authority under Article 142 of
the Indian Constitution, ordered that ownership of the property be transferred to the auction
purchaser within 8 weeks, as well as that the rent earned during this time be paid to the
auction purchaser.

This decision reaffirms the adage that litigation does not always pay and that the truth always
triumphs.

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