'Sorry State Of Affairs': Supreme Court Pulls Up Punjab National Bank For Settling With Borrower After Auction Sale Of Secured Property

A bench of Justices JB Pardiwala and Sandeep Mehta directed PNB to issue a final sale certificate to the auction purchaser. The Court was dealing with a plea filed by the auction purchaser, who was aggrieved by the bank's decision to refund the sale amount deposited by him, instead of issuing a sale certificate.

The Court said that it was a sorry state of affairs for a nationalised bank to operate like this. “Why the banks are turning a blind eye to all this? Nationalized banks? Sorry state of affairs. Don't do this, otherwise the auctions are losing their sanctity. Nobody will participate; financial institutions, bank will be at a loss. No one will come forward to purchase secured assets. They will think why should I get into this trouble, I can invest this money somewhere else,” the court said.

The Court questioned why PNB entered into a settlement without informing the auction purchaser. "If you at all wanted to enter into an agreement, should you not have made the auction purchaser a party in the proceedings in the Lok Adalat? This is collusion", Justice Pardiwala remarked.

PNB initiated recovery proceedings against the borrower under the SARFAESI Act. The borrower filed a securitisation application before the Debt Recovery Tribunal (DRT), Dehradun challenging the recovery proceedings. In the case before DRT, PNB and the borrower reached a settlement during National Lok Adalat while the bank had already conducted the auction of the property.

The auction purchaser had deposited ₹42 lakh via RTGS. The bank claimed that it was not aware of the deposit. The bank claimed, once it became aware of the deposit, it refunded the amount. Subsequently, the DRT summoned the Manager and General Manager in proceedings filed by the borrower. PNB filed a writ petition against the DRT order before the High Court, which issued notice in the petition.

Aggrieved by the bank's actions, the auction purchaser filed the present SLP against the HC order issuing notice in PNB's plea. Noting the “gross” facts of the case, the Supreme Court on Tuesday summoned the CMD of the bank to appear before the Court on Wednesday.

During the hearing on Wednesday, Attorney General for India R Venkatramani, appearing for PNB, acknowledged that the bank made a mistake. “I am not for a moment trying to defend. I said you can't do it. The CMD does not know why it happened. I asked him to set his house in order. He will do an enquiry”, he said.

Justice Pardiwala responded, “The only idea of asking the CMD to be here is to convey that the bank needs to take a policy decision in these type of litigation. Today we have one nationalized bank, there are many nationalised banks in the country. What is to be done now?”

The AGI said “we will have to go to the pre-settlement position, logically speaking. Both parties will have to be given their dues and the final sale certificate would have to be issued.”

The Court then recorded the AGI statement that the bank would immediately withdraw its writ petition from the Allahabad High Court and then issue a final sale certificate to the auction purchaser.

The Court directed the bank to unconditionally withdraw the writ petition and issue final sale certificate to the auction purchaser within 48 hours of the withdrawal and execute deed of conveyance as required by law.

The Court further emphasised that constitutional courts should not ordinarily interfere with DRT proceedings. "We impress upon the CMD of the Bank and the General Manager of the area concerned to be very very careful in these type of litigations. in a catena of decisions of this Court, it has been conveyed in so many words that in SARFAESI matters, High Courts should not exercise their writ jurisdiction. This applies even to the financial institutions and banks. Once a law is laid down that the High Courts should be loathe in exercising its writ jurisdiction in SARFAESI matters, why the banks should approach the Constitutional courts? Learned Attorney General would submit that the bank shall take a policy decision at the earliest in this regard." 

The Court further asked the bank to initiate departmental action against officials responsible the issue. "We are disturbed by the settlement which was arrived at between the bank and the borrower in the Lok Adalat. In such circumstances, we expect the bank to proceed departmentally against all those erring officials of the bank who are responsible for this particular litigation."

When the AGI requested not to make this observation, Justice Pardiwala responded, "No, this observation will remain. You tell us whether you have really applied your mind, whether there was any mischief, whether there was any collusion." Ultimately, the Court added in the order, "Insofar as proceeding against airing officials is concerned, will it will leave it to the better discretion of the bank."

The Court said that if the borrower is aggrieved by the auction proceedings and the issuance of the sale certificate, it can initiate appropriate legal proceedings. The Court kept the matter next week.