Kolkata: The Calcutta High Court has held that a bank is legally entitled to release a mortgaged property back to the borrower if the entire outstanding loan dues are cleared before a sale certificate is issued in favour of an auction purchaser, and that such action does not amount to a criminal offence.
Justice Ajay Kumar Gupta upheld the rejection of a protest petition filed by an auction bidder who had sought criminal action against bank officials and others after an auction sale failed to culminate in transfer of the property. The court agreed with the findings of the lower courts that the dispute between the parties was civil in nature and did not disclose the ingredients of offences such as cheating, criminal breach of trust or criminal conspiracy.
The case arose from the auction of a mortgaged property by a public sector bank under the SARFAESI mechanism after the borrower defaulted on loan repayment. A real estate company participated in the auction, emerged as the highest bidder and deposited 25 per cent of the bid amount initially, followed by payment of the balance sum.
However, the sale certificate was not issued in its favour as proceedings relating to the loan account were pending before the Debt Recovery Tribunal. According to the bidder, during this intervening period, bank officials entered into a settlement with the borrower and guarantors, accepted repayment of the entire dues and released the mortgaged property without the bidder’s knowledge, allegedly causing wrongful loss.
On these allegations, a criminal complaint was lodged. After investigation, police filed a closure report, taking the view that the dispute was essentially civil. The trial court accepted the closure report and rejected the protest petition, a decision that was later affirmed by the sessions court. Challenging these orders, the bidder approached the High Court.
While dismissing the revision, the High Court observed that the law preserves the borrower’s statutory right of redemption until the stage of transfer is completed.
It noted that although an auction purchaser acquires certain rights after being declared the successful bidder, those rights are not absolute and cannot override the borrower’s right to redeem the property before issuance of a sale certificate. The court also referred to the auction terms, which expressly reserved the bank’s right to cancel or modify the sale without assigning reasons. The High Court dismissed the revision and vacated
all interim orders.