In a strong message against misuse of judicial process, the Allahabad High Court imposed a cost of Rs.25 lakhs on two loan guarantors who had intentionally dragged litigation related to a property that was already auctioned in December 2017.
The ruling came from Justice Sangeeta Chandra, who observed that the petitioners (loan guarantors) tried to occupy the property unlawfully by misusing legal procedures, thereby polluting the stream of justice.
“This Court… finds that the petitioners have filed this writ petition in an attempt to deliberately pollute the stream of justice,” the Court stated.
Background of the Case
The case began when a relative of the petitioners took a Rs.90 lakh loan from Bank of Baroda under the Kamdhenu Dairy Scheme. The petitioners became guarantors and were also shown as joint holders of a property that was already mortgaged.
When the borrower defaulted, the account was declared an NPA, and the SARFAESI Act process was initiated. The bank issued a demand notice on 21 July 2016, but the petitioners claimed they were not served any such notice or even the one regarding symbolic possession of the property.
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Despite objections, the bank auctioned the property on 21 December 2017. The petitioners challenged this, claiming non-compliance with Rule 8(6)(a) of the Security Interest (Enforcement) Rules, 2002, as the auction notice allegedly didn’t mention outstanding dues.
The petitioners approached the Debt Recovery Tribunal (DRT), which initially sided with them, stating the notice wasn't served and that postal receipt alone wasn't enough proof. Since the property was jointly owned, both husband and wife should have been served notices.
However, on appeal, the Debt Recovery Appellate Tribunal (DRAT) overturned DRT’s decision. It noted that service to a shared address was sufficient and that the non-mentioning of encumbrances in the sale notice didn't invalidate the process.
“Non-mentioning of such encumbrance on the properties in the sale notice was of no consequence,” DRAT held.
When the case reached the Allahabad High Court, the petitioners were found shifting their stance. Initially, they admitted to being guarantors but later tried to amend this claim, which was rejected.
The Court highlighted how the petitioners had signed the loan documents and didn’t challenge DRT’s findings regarding this.
"The petitioners had misrepresented before the writ Court," the judgment remarked.
The Court also noted that the demand notice was annexed in their writ petition, clearly addressed with correct names and never returned unserved—contradicting their claim of non-service.
To strengthen its finding, the Court referred to key precedents, including:
- Krishna Kumar Gupta v. Manoj K. Sahu
- C.C. Alavi Haji v. Palapetty Muhammed & Anr
- Ajeet Seeds Ltd v. K. Gopala Krishnaiah
“Unless and until the contrary is proved by the addressee, service of notice is deemed to have been affected at the time at which the letter would have been delivered in the ordinary course of business.”
The Court emphasized that under Section 114 of the Evidence Act and Section 27 of the General Clauses Act, notices sent by registered post are deemed served unless proven otherwise.
The Court dismissed the petitioners' claim that the auction notice should have mentioned prior encumbrances. It clarified that proving an encumbrance requires:
- Three parties – one creating, one holding superior rights, and one with inferior rights
- Impact on property value
In this case, only two parties were involved: the bank and the auction purchaser, and the sale certificate confirmed the property was free from encumbrance.
The auction purchaser told the Court that despite paying the full amount and receiving the sale certificate, she could not enjoy possession due to the petitioners’ frivolous litigation. She also incurred expenses exceeding ₹1 crore over several years.
Citing K. Jayaram v. BDA, the Court reiterated:
“A litigant is bound to state all facts relevant to the litigation… if not, he plays fraud on the Court and the opposite party.”
It also referred to A. Shanmugam v. Ariya Kshatriya Rajakula Vamsathu Madalaya Nandhavana Paripalani Sangam, where the Supreme Court held:
“Once the court discovers falsehood… it must impose appropriate costs to ensure there is no incentive for wrongdoing in the temple of justice.”
The High Court dismissed the writ petition and held that the petitioners:
- Misled the court
- Prolonged the litigation deliberately
- Tried to unlawfully occupy the auctioned house
“The petitioners have not come with clean hands and have abused the process of the Court to retain possession of a house which they no longer own.”
Hence, the Court:
- Directed the petitioners to vacate the property within a month
- Imposed a ₹25 lakh cost, to be paid to the auction purchaser
Case Title: Sunita Nishad And Anr. v. Debt Recovery Appellate Tribunal through Registrar And Ors. [WRIT - C No. - 35050 of 2019]
