Mortgage, Registration and Ownership Rights.

A property located at 2/22, Old Rajinder Nagar, New Delhi originally belonged to Champa Bhen Kundia. She mortgaged it to Associated India Financial Services Pvt. Ltd., which was later acquired by Citi Financial Consumer India Ltd. Ultimately, the loan was assigned to Kotak Mahindra Bank, one of the respondents in the case.

Key Events Leading to the Dispute

Unregistered Transactions:

On April 28, 2000, Champa Bhen Kundia allegedly sold the basement of the property to her son, Chandu Bhai, through an unregistered sale deed.

This basement was subsequently transferred to Satnam Singh and Surinder Wadhwa on March 30, 2001. It was later sold to Raj Kumar Vij (Respondent No. 2) through another unregistered agreement to sell on April 23, 2001.

SARFAESI Proceedings:

Champa Bhen Kundia defaulted on her loan, prompting Kotak Mahindra Bank to initiate proceedings under the SARFAESI Act, 2002.

On October 28, 2006, the bank issued a notice under Section 13 of the Act. Later, on September 6, 2007, the bank took physical possession of the property under Section 14 of the Act.

An auction was held on December 21, 2010, where Sanjay Sharma (the appellant) emerged as the highest bidder, purchasing the property for ?7.5 lakhs. The sale certificate was issued in his favor on December 27, 2010.

Respondent No. 2’s Claims:

Raj Kumar Vij (Respondent No. 2) challenged the auction, claiming ownership of the property based on the unregistered agreement to sell dated April 23, 2001. He also argued that he retained the right to redeem the property under Section 13(8) of the SARFAESI Act.

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Procedural History

Debt Recovery Tribunal (DRT):

On August 30, 2012, the DRT ruled in favor of Respondent No. 2. The tribunal canceled the auction and allowed Respondent No. 2 to redeem the property by paying off the loan dues.

Debt Recovery Appellate Tribunal (DRAT):

The DRAT reversed the DRT’s decision on September 3, 2014. It reinstated the auction sale and dismissed Respondent No. 2’s ownership claims.

Delhi High Court:

The High Court, on May 30, 2016, overturned the DRAT’s decision. It reinstated the DRT’s order, allowing Respondent No. 2 to redeem the property. Additionally, it directed a refund of the auction amount to the appellant, Sanjay Sharma.

Supreme Court Appeal:

Dissatisfied with the High Court’s ruling, the appellant approached the Supreme Court for relief.

Key Legal Issues

Validity of Ownership Claims by Respondent No. 2:

Were the unregistered documents submitted by Respondent No. 2 valid under Section 54 of the Transfer of Property Act, 1882, to establish ownership?

Legality of the Auction:

Was the auction conducted by Kotak Mahindra Bank under the SARFAESI Act legally valid?

Right of Redemption:

Did Respondent No. 2 retain the right to redeem the property? If so, was this right exercised within the legal timeframe?

Findings

Unregistered Documents:

The Court concluded that the unregistered sale deeds and agreements relied upon by Respondent No. 2 were invalid under Section 54 of the Transfer of Property Act, 1882. The law mandates that ownership of immovable property worth over ?100 can only be transferred through registered documents.

Auction Validity:

The Court determined that Kotak Mahindra Bank had conducted the auction in compliance with the SARFAESI Act. The appellant, Sanjay Sharma, was a bona fide purchaser who acquired a valid title to the property through the sale certificate.

Redemption Rights:

The Court observed that Respondent No. 2 had several opportunities to exercise his right of redemption before the auction but failed to do so. Under Section 13(8) of the SARFAESI Act, the right to redeem a property is not indefinite and must be exercised within the legally stipulated timeline.

Order

The Supreme Court set aside the High Court’s judgment and restored the DRAT’s 2014 order. It upheld the auction sale and directed Kotak Mahindra Bank to hand over possession of the property to the appellant, Sanjay Sharma.

Respondent No. 2 was allowed to withdraw any amounts deposited, along with applicable interest, by filing the necessary applications.

Legal Principles Reinforced

Importance of Registered Instruments:

The judgment reinforces that ownership of immovable property can only be legally transferred through registered documents.

Sanctity of Public Auctions:

Auctions conducted under statutory provisions, such as the SARFAESI Act, are binding unless there is clear evidence of fraud, collusion, or significant procedural irregularities.

Limited Scope of Redemption Rights:

The right to redeem property under the SARFAESI Act is time-sensitive and cannot be exercised once the auction is completed.

?Conclusion

The Supreme Court’s decision underscores the importance of adhering to statutory property transactions and auctions requirements. It protects the rights of bona fide purchasers while providing clarity on the limitations of redemption rights under the SARFAESI Act. This judgment ensures the sanctity of legally conducted auctions and emphasizes the necessity of registering property transactions for legal validity.

Case Title: Sanjay Sharma v. Kotak Mahindra Bank Ltd. & Others.

Date of Judgment: December 10, 2024

Bench: Justice B.V. Nagarathna and Justice Nongmeikapam Kotiswar Singh