The Supreme Court partially allowed the appeal of the auction purchaser, who was deprived of the use of Rs.81,20,000 due to the cancellation of an auction sale. The Court held that the compensation of 5% of the auction amount granted by the High Court was inadequate. The 4th respondent (Co-operative Bank) was directed to pay simple interest at the rate of 6% per annum on Rs.81,20,000 from the date of deposit till the actual refund to the appellant.

1. Loan Default and Auction Proceedings (Paras 2-3):

   • The 1st, 2nd, 5th, and 6th respondents took a loan of Rs.25,00,000 from the 4th respondent (a Co-operative Bank).
   • Upon default, the 4th respondent initiated recovery proceedings. The Assistant Registrar (3rd respondent) allowed the dispute, ordering recovery of Rs.21,92,942.
   • Property of the 1st and 2nd respondents was auctioned on 22nd July 2019 for Rs.81,20,000, which the appellant deposited.

2. High Court Intervention (Paras 4-5):

   • The 1st and 2nd respondents challenged the auction in the Karnataka High Court, which set it aside on equitable grounds as they had deposited Rs.25,61,400 in the Court.
   • The High Court directed the refund of the auction amount to the appellant with an additional 5% as compensation.

3. Supreme Court Appeal and Challenge (Paras 6-7):

   • The appellant challenged the High Court's decision, primarily on the ground of inadequate compensation.
   • The appeal focused on the issue of compensating the appellant for the loss of use of the deposited amount.

Submissions:

• Appellant’s Submission (Para 9):
  The appellant argued that the 5% solatium was inadequate and sought interest for the period during which he was deprived of the use of Rs.81,20,000.

• 4th Respondent’s Submission (Para 10):
  The 4th respondent bank contended that the compensation of 5% was sufficient and argued that any liability to pay interest should start only after the bank received the amount on 13th October 2022.

Consideration by the Court:

1. Adequacy of Compensation (Paras 11-14):

   • The High Court set aside the auction on equitable grounds, not because the auction was illegal. The Court noted that the appellant was deprived of Rs.81,20,000 from 21st July 2019 without fault on his part.
   • The Supreme Court held that 5% compensation was insufficient and directed payment of interest at 6% per annum from the date of deposit till the refund.

2. Liability of the 4th Respondent (Para 14):

   • The 4th respondent (Co-operative Bank) was held liable for paying the interest, even though the auction amount was lying with the 3rd respondent. Since the auction was conducted at the instance of the bank, it was responsible for compensating the appellant.

Acts and Sections Discussed:

• Karnataka Co-operative Societies Rules, 1960

  • Rule 38(4)(b): Provisions regarding setting aside of auction sales if arrears are deposited within 30 days, along with 5% compensation to the auction purchaser.

• Article 226 of the Constitution of India:

  • The High Court exercised its discretionary powers under this Article to set aside the auction on equitable considerations.

Ratio Decidendi:

The Supreme Court held that when an auction is set aside on equitable grounds, the auction purchaser, who has been deprived of the use of the deposited amount, must be compensated adequately. A solatium of 5% under the Karnataka Co-operative Societies Rules is insufficient if there is a prolonged delay in refund. In such cases, awarding interest at 6% per annum on the auction amount is appropriate to ensure fair compensation.

Subjects:

• Auction Set-Aside, Compensation for Auction Purchaser, Interest on Auction Deposit, Co-operative Societies, Karnataka Co-operative Societies Rules, 1960, Article 226 Jurisdiction.