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2015 (5) TMI 13 - SUPREME COURT

2015 (5) TMI 13 - SUPREME COURT - TMI - Validity of auction sale - Sale of property mortgaged with bank - Property mortgaged by guarantor without having the right to do it - Held that:- Legislature has succinctly stated that the liability of the guarantor is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. This Court has decided on this question, time and again, in line with the intent of the legislature. In Ram Kishun and Ors. v. State of U.P. and .....

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al debtor. In the loan agreement, which is the contract before us, there is no clause which shows that the liability of the guarantor is not co-extensive with the principal debtor. Therefore Section 128 of the Indian Contract Act will apply here without any exception.

Sale was confirmed on 15th November, 2006. The sale certificate was also issued in favour of the auction purchaser after paying the requisite stamp duty and registration fees which, as pointed out to us on behalf of the .....

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ty and good conscience also has to play a role in the matter in question on the given facts and after considering the conduct of the respondents (C.L. Vimla and others) in the matter. - since the auction purchaser has already paid the full amount of sale consideration and is in possession of the property in question for more than about 8 years, for equity and good conscience, we do not intend to interfere with his possession and we, therefore, set aside the order passed by the High Court - Decid .....

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naki Chandra Ghose, J. 1. Leave granted. 2. These appeals, by special leave, arise from the Judgment and Order dated 23.12.2010 passed by the Division Bench of the High Court of Karnataka at Bangalore in Writ Petition No.3531 of 2007, Writ Petition No.17320 of 2007 and Writ Petition No.17544 of 2007, whereby Writ Petition No.3531 of 2007 filed by C.L. Vimla was allowed while Writ Petition Nos.17320 and 17544 of 2007 filed by the auction purchaser and Central bank of India respectively, were dism .....

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amily members. Her husband, during his life time, executed a Will dated 31.05.1995 bequeathing his undivided share in favor of his sons equally and while settling the property he granted life interest in favour of the guarantor. However, he has not authorized her to sell or mortgage the property. The property was mortgaged in favour of Central Bank of India (hereinafter referred to as "the Bank") for raising a loan of ₹ 17,50,000/- for family business. The business suffered loss. .....

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as she had not signed the joint memo. One of her sons N. Surya Bhagavan has signed it. Her advocate has also signed the Joint Memo. It was only on 5.4.2006 when she learnt that the property has been ordered to be sold by auction. She also learnt about the signing of Joint Memo by N.Surya Bhagavan and the Bank. So she filed Writ Petition No.6625 of 2006 before the High Court of Karnataka for setting aside the award dated 20.03.2004 of the Lok Adalat, as far as she was concerned. The High Court by .....

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006. The guarantor filed an interim application being I.A. 1464/2006 on 17.10.2006 before the DRT for setting aside the same. The office of the DRT raised an objection stating that the application amounted to an appeal. The Guarantor requested the DRT on 2.11.2006 not to confirm the sale since her case was pending before the Lok Adalat at High Court. The copy of the bid sheet did not contain the full particulars of the auction purchasers. Thus, she moved an application seeking stay of delivery o .....

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007, the High Court Lok Adalat permitted the appellant to request the DRT to defer the proceedings. An application made in this regard was dismissed on 22.2.2007. The High Court Lok Adalat held on 5.2.2007 that the guarantor not being a party to the joint memo to referring the matter to the Lok Adalat, the decree is not binding on her. While the guarantor was agitating her right in the property, the sale conducted is not valid in law, so she sought for setting aside the sale. 5. In Writ Petition .....

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framed issues on the inherent power of the Lok Adalat, the action of the Debt Recovery Tribunal (DRT) in deciding the interim applications filed by the guarantor and the possession by the auction purchaser and payment of solatium to the Central Bank of India. On the issue of the inherent power of the Lok Adalat, the High Court after relying on a number of decisions held that as the guarantor was not a party to the Joint Memo, the decree would not be binding on her. Regarding the validity of the .....

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ween the Lender and the Borrower. The appellant contends that there is no provision under the Legal Services Authority Act, 1987 ("the Act", for short) which entitles the Lok Adalat to set-aside or adjudicate on its own orders. Under Section 21 of the Act of 1987 the awards of the Lok Adalat are given the status of a decree of a Civil Court and finality is given to them. Under Section 21(2), no appeal lies to any Court against the award. The High Court has erred in upholding that the s .....

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r to settle the matter by paying ₹ 33.50 Lakhs as per award dated 20.03.2004. The High Court has failed to appreciate that Respondent No.1 and her family members had availed loan for business purposes. They were unable to repay the loan amount. Thus, it is apparent that various proceedings were initiated by Respondent No.1 with a mala fide and fraudulent intent to stall the recovery proceedings. The High Court failed to appreciate that huge amounts exceeding ₹ 52,45,967/- were due, a .....

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l only a portion thereof. The learned counsel for the appellant finally concluded that the High Court was not justified in rejecting the request made by the appellant that if for any reason the Court came to the conclusion that the auction of the property is to be set-aside, 20 per cent of the bid money should be awarded to the appellant Bank as solatium. 8. The learned counsel for Respondents contends that the appellant has suppressed material facts, that the award passed by the Lok Adalat was .....

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the Respondents. No notice was issued on the Joint Memo to the Respondents. Before the Lok Adalat, Respondents alleges that the Joint Memo was filed whereunder the partners of Satyashree Silks would repay the sum of ₹ 33,50,000/-. The learned counsel contends that N. Surya Bhagavan had no authority to enter into a contract on behalf of the Respondents. After lapse of two years, the property was attached and notice of proclamation for sale was published on the ground of non-payment of amou .....

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lat for recalling of the award passed. 9. Learned counsel for the respondents further contends that when the recall application of the respondents was pending before the Lok Adalat, the appellant published sale proclamation. In the proclamation it was stated specifically that the property would be put for sale in lots, and it was further directed that if the amount is realized from sale of 1st lot, the sale would be stopped immediately. As per the contention of the Respondents, this vital docume .....

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Indian Contract Act, 1872. The legislature has succinctly stated that the liability of the guarantor is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. This Court has decided on this question, time and again, in line with the intent of the legislature. In Ram Kishun and Ors. v. State of U.P. and Ors., (2012) 11 SCC 511, this Court has held that "in view of the provisions of Section 128 of the Contract Act, the liability of the guarantor/suret .....

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to obtain a decree against the surety and the principal debtor. The surety has no right to restrain execution of the decree against him until the creditor has exhausted his remedy against the principal debtor for the reason that it is the business of the surety/guarantor to see whether the principal debtor has paid or not. The surety does not have a right to dictate terms to the creditor as to how he should make the recovery and pursue his remedies against the principal debtor at his instance&qu .....

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enerally, our attention has been drawn to Clause 2 where Respondent No.1, C.L. Vimala and one of her sons N. Ramesh Babu, have stated under the relevant part of the clause as under: "2)......in relation to the subject matter of this guarantee or any judgement or award obtained by you against the principal debtor shall be binding on us...." 14. This Court has held in United Bank of India v. Bengal Behar Construction Company Ltd. and others, (1998) 8 SCC 653, that the Clauses in the lett .....

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of the letter of guarantee, in terms states that any action settled or stated between the bank and the principal debtor or admitted by the principal debtor shall be accepted by the guarantors as conclusive evidence. In view of this stipulation in the letter of guarantee, once the decree on admission is passed against the principal debtor, the guarantors would become liable to satisfy the decree jointly and severally." (Emphasis supplied) Thus, we see no reason why the Joint Memo, which stat .....

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e joint memo, when she could have by reasonable means made herself aware of the proceedings. 16. It appears that respondent No.1 Smt. C.L. Vimla filed writ petitions one after the other, being Writ Petition No.6625 of 2006 filed on 1st June, 2006, and another writ petition, being Writ Petition No.8186 of 2006, was filed by her two sons on 20 th June, 2006. The said writ petitions were also dismissed by the High Court. Smt.C.L. Vimla had life interest of 1/6th share in the property in question. I .....

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ilities of the bank by the respondents. But it appears that, time and again, they have failed to comply with the orders. 17. The respondent Nos.3 to 8 who were actual owners of the property in dispute have remained ex-parte throughout, i.e. from the date of filing of Miscellaneous Petition dated 29th April, 2006, challenging the award dated 20th March, 2004. Respondent No.1 had the only right of residence in respect of the property in question. She did not dispute the fact that she was the guara .....

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that the High Court did not consider the said facts and further it has escaped from the mind of the High Court that the auction purchaser has purchased the auctioned property for sale consideration of ₹ 3.27 crores and 25% of the sale consideration was duly paid on 5th October, 2006 and furthermore on 19th October, 2006, the balance amount of sale consideration was duly paid by the auction purchaser. We have further noted that the sale was confirmed on 15th November, 2006. The sale certifi .....

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