The Supreme Court quashed the e-auction sale as the proclamation violated Rule 53 of the Income Tax Act’s Second Schedule, applicable via the RDDB Act. It failed to disclose material encumbrances, specifically DDA’s claim for unearned increase. The Court held the sale was void, applying principles of restitution to refund the auction purchaser with interest.
Facts Of The Case:
The Delhi Development Authority (DDA) allotted a plot to Sarita Vihar Club on a leasehold basis. The club mortgaged the plot to Corporation Bank without obtaining the mandatory prior written consent from the Lieutenant Governor, as required by the lease deed. When the club defaulted on its loan, the Bank initiated recovery proceedings. The Debt Recovery Tribunal (DRT) ordered the sale of the plot. Despite DDA’s objections that the mortgage was illegal and it had statutory dues, the Recovery Officer proceeded with an e-auction. The property was sold to M/s Jay Bharat Commercial Enterprises (Auction Purchaser). Crucially, the auction proclamation failed to disclose DDA’s significant financial claim, known as “unearned increase,” against the property. The DDA challenged the auction, leading to this appeal before the Supreme Court, which centered on the validity of a sale conducted without disclosing a major encumbrance to potential bidders.
Procedural History:
The procedural journey began with the Debt Recovery Tribunal (DRT) allowing the Bank’s recovery application and the Recovery Officer ordering the sale of the property. The DDA’s objections to this sale were successively rejected by the Recovery Officer and the DRT. The DDA then filed a writ petition before the Delhi High Court, which was withdrawn after the Bank gave an undertaking that the auction would respect the lease terms. Following the auction, the DDA filed a fresh writ petition challenging the sale. The High Court dismissed this second petition, holding it was barred by principles analogous to res judicata since the first petition had been withdrawn. This dismissal by the High Court led to the present appeal before the Supreme Court, which ultimately set aside the impugned orders and the auction.
READ ALSO:Supreme Court Reinstates Conviction in Cheque Bounce Case, Slams High Court’s Interference
Court Observation:
The Supreme Court made several critical observations, holding that the e-auction sale was fundamentally flawed and illegal. It observed that the sale proclamation was issued in clear violation of Rule 53 of the Second Schedule to the Income Tax Act, 1961, as it failed to disclose the material encumbrance of DDA’s claim for “unearned increase,” which was essential for a bidder to judge the property’s nature and value. The Court further held that the Bank conducted the auction in breach of its undertaking given to the High Court to abide by the lease terms. On the issue of res judicata, the Court clarified that the dismissal of the first writ petition was not on merits but due to withdrawal based on the Bank’s undertaking, and thus the DDA had a fresh cause of action when the auction proceeded illegally. Finally, applying the principle of restitution, the Court strongly observed that the Auction Purchaser, an innocent party who acted in good faith, must be made whole, and the Bank, having advanced money on an illegal mortgage, must bear the responsibility and refund the entire amount with interest.
Download The Judgement Here