Ownership of Immovable Property Not Transferred Without Registered Sale Deed: Supreme Court in SARFAESI Auction Case
Safiya Malik
The Supreme Court of India, in a judgment dated December 10, 2024, overturned a Delhi High Court decision and reinstated an earlier order of the Appellate Tribunal in favor of the appellant, Sanjay Sharma. The case, arising under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, centered on the auction of a mortgaged property and raised critical issues concerning auction purchasers’ rights and unregistered agreements to sell.
The dispute originated from the auction of a secured asset located in Old Rajinder Nagar, New Delhi. The property was mortgaged by its original owner, Champa Bhen Kundia, to secure a loan that eventually became non-performing. Kotak Mahindra Bank, as the assignee of the debt, initiated proceedings under the SARFAESI Act and obtained possession of the property through statutory measures.
The bank conducted a public auction on December 21, 2010, during which Sanjay Sharma emerged as the highest bidder. A sale certificate was issued to him on December 27, 2010, for ₹7,50,000. However, the auction was challenged by respondent No. 2, who claimed ownership of the property through an unregistered agreement to sell executed before the mortgage.
Respondent No. 2 approached multiple legal forums, including:
- Debt Recovery Tribunal (DRT): Filed S.A. No. 118/2007, which culminated in a favorable order on August 30, 2012, allowing redemption of the property.
- Appellate Tribunal: The appellant challenged the DRT’s order, and the Appellate Tribunal set it aside on September 3, 2014, restoring the auction sale.
- Delhi High Court: Respondent No. 2 subsequently filed W.P.(C) No. 6881/2014, resulting in the High Court reinstating the DRT’s decision and permitting redemption within 30 days.
Aggrieved by the High Court’s order, Sanjay Sharma approached the Supreme Court.
The Supreme Court examined the unregistered agreements relied upon by respondent No. 2 to assert ownership. Referring to Section 54 of the Transfer of Property Act, the Court observed that a sale of tangible immovable property valued at ₹100 or more requires registration to confer ownership. The Court stated, “Where the sale deed requires registration, ownership does not pass until the deed is registered, even if possession is transferred and consideration is paid.”
The Court further rejected the High Court’s finding that the bank had constructive notice of respondent No. 2’s claim under Explanation II to Section 3 of the Transfer of Property Act. It held that unregistered agreements, not discoverable through due diligence, do not impose such notice. “Unless the deeds of conveyance were registered, respondent No. 1 did not have access to the said information since there would be no entry of such transfer in the encumbrance records,” the Court noted.
The Supreme Court adjudicated upon the appellant’s rights as a bona fide auction purchaser, observing that the auction complied with all statutory requirements under the SARFAESI Act. It stated, “The statutory right of redemption is subject to limitations, and respondent No. 2’s failure to exercise this right cannot invalidate the appellant’s lawful acquisition of the property.”
The Court observed that respondent No. 2 had multiple opportunities to redeem the property but failed to do so. It referred to orders dated November 23, 2007, September 8, 2009, and August 30, 2012, which extended opportunities for redemption but went unutilized.
The Supreme Court reinstated the Appellate Tribunal’s order dated September 3, 2014, and set aside the High Court’s decision. It directed:
- Kotak Mahindra Bank to facilitate the appellant in taking possession of the property.
- Respondent No. 2 to withdraw any amounts deposited during litigation upon suitable application.
- The appellant to approach the DRT or High Court for assistance in recovering possession if necessary.
The Court observed, “The rights of a bona fide purchaser at a public auction cannot be undermined by claims that lack legal foundation.” It further stated, “Statutory compliance ensures the validity of auction sales, balancing the interests of borrowers, creditors, and purchasers.”
Case Title: Sanjay Sharma v. Kotak Mahindra Bank Ltd. & Others
Case Number: Civil Appeal No. /2024 (arising from SLP (C) No. 330/2017)
Bench: Justice B.V. Nagarathna and Justice Nongmeikapam Kotiswar Singh
[View/Download order]
