Supreme Court Upholds Auction Sale by Bihar State Financial Corporation, Borrowers' repeated defaults and litigation tactics fail to invalidate auction of mortgaged property.
In a significant ruling, the Supreme Court of India has overturned the judgments of the lower courts, thereby upholding the auction sale conducted by the Bihar State Financial Corporation (BSFC) in 1996. The auction had been challenged by the borrowers, Ranjeet Motel & Ors, who consistently defaulted on their loan repayments and engaged in extensive litigation to delay the recovery process.
The appellants, BSFC and the auction purchaser, contended that the borrowers were habitual defaulters who failed to comply with the repayment schedules set by the High Court of Patna. Despite multiple opportunities to regularize their account, the borrowers resorted to successive rounds of litigation. The Supreme Court, while analyzing the case, emphasized that the fairness expected of financial corporations should not extend to the point of impairing their ability to recover dues.
Justice Sanjay Karol, writing for the bench, noted that the borrowers had failed to establish any fraud, collusion, or material illegality in the auction process. The Court highlighted that BSFC had acted within its statutory rights under Section 29 of the State Financial Corporations Act, 1951, and had afforded the borrowers numerous chances to discharge their liabilities. Despite these opportunities, the borrowers did not make any genuine efforts to repay the loan.
The Supreme Court criticized the borrowers’ conduct of initiating multiple litigations, which was deemed an abuse of the judicial process. The judgment underscored that the rights established through the statutory sale could not be unsettled after such a long period, especially in the absence of any proven fraud or collusion.
The ruling also clarified that the suit was not barred by the principle of res judicata or by Section 69(2) of the Partnership Act, as the validity of the auction sale was not directly in issue in previous proceedings. The decision reaffirms the limited scope of judicial review in cases involving the statutory powers of financial corporations, emphasizing that fairness is not a one-way street and should be balanced with the corporation's right to recover its dues.
Bottom Line:
State Financial Corporations must exercise their statutory powers under Section 29 of the SFC Act fairly and reasonably, but fairness is not a one-way street, especially when borrowers are habitual defaulters.
Statutory provision(s): State Financial Corporations Act, 1951 Sections 29, 30; Civil Procedure Code, 1908 Section 11; Indian Partnership Act, 1932 Section 69(2).
Bihar State Financial Corporation v. Bhushan Singh, (SC) : Law Finder Doc id # 2937238
