Court’s Decision:
The Supreme Court modified the judgments of the High Court, directing the 4th respondent (Co-operative Bank) to pay interest at 6% per annum on the auction amount of Rs. 81,20,000 to the appellant (auction purchaser) from the date of deposit until the date of refund. The Court set aside the direction to pay an additional 5% compensation, holding that this was inadequate. The appeal was partly allowed.
Facts:
The 4th respondent, a Co-operative Bank, had extended a business loan of Rs. 25,00,000 to the 1st, 2nd, 5th, and 6th respondents. Following defaults on repayment, the bank initiated recovery proceedings, resulting in a sale proclamation for the auction of the 1st and 2nd respondents’ property. The appellant, being the highest bidder, purchased the property for Rs. 81,20,000 in July 2019. However, after the 1st and 2nd respondents deposited the due amount, the High Court set aside the auction sale and directed the refund of the auction amount along with 5% compensation.
Issues:
The primary issue was whether the appellant was adequately compensated for being deprived of the use of Rs. 81,20,000 for over three years due to the auction being set aside by the High Court.
Petitioner’s Arguments:
The appellant argued that the compensation of 5% of the auction amount was insufficient and that he should be awarded interest for the period during which he was deprived of using the deposited amount.
Respondent’s Arguments:
The 4th respondent contended that the appellant was adequately compensated through the 5% solatium as per the Karnataka Co-operative Societies Rules, 1960. They argued that no further interest was payable, especially since the deposited amount had been received by the bank in October 2022.
Analysis of the Law:
The Court examined Rule 38 of the Karnataka Co-operative Societies Rules, 1960, which provides for compensation to an auction purchaser when a sale is set aside. While 5% compensation is specified under the rules, the Court held that in this case, the compensation was inadequate given the significant delay in refunding the auction amount to the appellant.
Precedent Analysis:
The Court did not specifically cite prior judgments, but it emphasized the principles of equity and fairness, particularly in cases where an auction purchaser is deprived of their funds for an extended period through no fault of their own.
Court’s Reasoning:
The Court reasoned that the appellant was entitled to interest on the auction amount, as the funds had been deposited in July 2019 and were not returned until after significant delays. The Court noted that the bank had retained the amount, and despite the auction being set aside, the appellant had been deprived of the use of the funds for an extended period. Therefore, simple interest at 6% was deemed appropriate compensation.
Conclusion:
The Supreme Court modified the High Court’s decision, setting aside the direction to pay 5% compensation and instead directing the 4th respondent to pay simple interest at 6% per annum on the auction amount of Rs. 81,20,000 from July 2019 until the actual refund was made. The appeal was partly allowed.
Implications:
This ruling emphasizes the need for adequate compensation in cases where an auction purchaser is deprived of significant sums due to delays in refunding auction amounts. The Court’s decision underscores that statutory compensation may not always be sufficient, and interest may be warranted to ensure fairness in such cases.