Case Note & Summary
The case arises from a recovery proceeding initiated by the 4th respondent Co-operative Bank against borrowers (1st, 2nd, 5th, 6th respondents) for a business loan of Rs.25,00,000/-. The Assistant Registrar of Co-operative Societies (3rd respondent) allowed the dispute and ordered recovery of Rs.21,92,942/- with interest. In auction proceedings, the appellant Salil R. Uchil was the highest bidder at Rs.81,20,000/- for the property of the borrowers, and a sale confirmation certificate was issued on 5th September 2019. The appellant deposited the full amount on 21st July 2019. The borrowers (1st and 2nd respondents) filed a writ petition before the Karnataka High Court to set aside the auction. The learned Single Judge set aside the auction on equitable grounds as the borrowers had deposited the entire due amount of Rs.25,61,400/- within three months of filing the writ petition, and directed the bank to refund the auction amount to the appellant along with 5% solatium under Rule 38(4)(b) of the Karnataka Co-operative Societies Rules, 1960. The Division Bench affirmed this. The appellant appealed to the Supreme Court, primarily on the issue of compensation. The Supreme Court noted that the auction was set aside on equitable considerations, not under the statutory rules, and that the 5% solatium had no legal basis. The Court held that the appellant was entitled to interest on the deposited amount from the date of deposit (21st July 2019) till the date of refund, as he was deprived of the use of the money through no fault of his own. The Court directed the 4th respondent bank to pay simple interest at 6% per annum on Rs.81,20,000/- from 21st July 2019 till the date of actual refund, within six weeks. The impugned judgments were modified accordingly, and the appeal was partly allowed.
Headnote
A) Co-operative Societies - Auction Sale - Compensation to Auction Purchaser - Rule 38 of Karnataka Co-operative Societies Rules, 1960 - When an auction sale is set aside on equitable grounds and not under the statutory rules, the auction purchaser is entitled to interest on the deposited amount from the date of deposit till refund, at a reasonable rate, in addition to or in lieu of statutory solatium. Held that 6% per annum simple interest is appropriate compensation (Paras 11-15). B) Constitutional Law - Writ Jurisdiction - Equitable Considerations - Article 226 of Constitution of India - High Court can set aside an auction sale on equitable grounds when the entire due amount is deposited by the borrowers, but must ensure adequate compensation to the auction purchaser who was not at fault. Held that mere 5% solatium is inadequate; interest at 6% per annum is warranted (Paras 12-14).
Issue of Consideration
Whether the appellant auction purchaser is entitled to interest on the auction amount deposited, and whether the 5% solatium granted by the High Court is adequate compensation.
Final Decision
The Supreme Court partly allowed the appeal. It modified the impugned judgments by setting aside the direction to pay 5% solatium and directed the 4th respondent bank to pay simple interest at 6% per annum on Rs.81,20,000/- from 21st July 2019 till the date of actual refund, within six weeks.
Law Points
- Compensation for auction purchaser when sale set aside on equitable grounds
- Interest on refund of auction amount
- Rule 38 of Karnataka Co-operative Societies Rules
- 1960
- Article 226 of Constitution of India
