High Courts Can Examine Valuation, Reserve Price In Recovery Proceedings Under Supervisory Jurisdiction: Supreme Court
The Supreme Court on Friday observed that high courts may invoke their supervisory jurisdiction to examine valuation and reserve price fixation in recovery proceedings where credible issues are raised regarding the adequacy of valuation or the fairness of the process.
A bench of Justices J.B. Pardiwala and R. Mahadevan made the observation while dismissing an appeal filed by an auction purchaser challenging a Madras High Court judgment dated February 6, 2020, which had remitted the matter to the Debts Recovery Tribunal for reconsideration of the valuation of certain properties sold in recovery proceedings.
“Where credible issues are raised regarding the adequacy of valuation or the fairness of the process leading to the fixation of the reserve price, the supervisory jurisdiction of the Court may be invoked to ensure that the recovery proceedings have been conducted in a manner that secures the best possible value of the property,” the bench observed.
The dispute arose from recovery proceedings initiated by Indian Bank against a borrower and its guarantors. The bank had filed an application before the DRT in 1998 seeking recovery of about Rs 45.68 lakh along with interest. A recovery certificate was subsequently issued, and the mortgaged properties were attached and brought to auction.
The auction was conducted on October 29, 2010, pursuant to the recovery proceedings. The auction was conducted on October 29, 2010, pursuant to the recovery proceedings. Auction purchaser Om Sakthi Sekar, who is the appellant, emerged as the highest bidder with a bid of about Rs 2.10 crore, and the sale was later confirmed by the DRT. A sale certificate was issued in February 2011 and registered thereafter.
The guarantors challenged the recovery proceedings and auction sale before various forums, including the Debts Recovery Appellate Tribunal and the Madras High Court. While the High Court upheld the validity of the auction and recovery proceedings, it directed the DRT to reconsider the valuation of the properties and the fixation of the reserve price.
Upholding this approach, the Supreme Court observed that although confirmed auction sales generally deserve protection, such protection is not absolute. The court noted that the High Court had only remitted the matter to the DRT for examining the valuation with reference to the valuation report and other relevant materials.
The court said:
“Moreover, the direction issued by the High Court merely remits the matter to the DRT for examination of the valuation with reference to the relevant materials on record including the valuation report and the circumstances in which the reserve price came to be fixed. Such a limited remand does not prejudge the rights of the auction purchaser but enables the DRT to assess whether the valuation and fixation of the reserve price were in accordance with law.”
Ultimately, the Supreme Court dismissed the appeal filed by the auction purchaser.