Sterling Holiday Resorts Ltd. Vs P.M. Associates & Ors. (Supreme Court of India)
SARFAESI Auction: A Sale Certificate Cannot Cure an Illegal Sale
Finality Depends on a Lawful Auction
The Supreme Court has invalidated the auction sale of Sterling Holiday Resorts’ Fernhill resort at Ooty, holding that the sale process violated mandatory statutory safeguards, an operative restraint order and the auction conditions.
The Court emphasised that the protection ordinarily given to confirmed auction sales presupposes an auction conducted in accordance with law. Confirmation and issuance of a sale certificate cannot confer legitimacy on a fundamentally defective process.
Allowing the borrower’s appeals, the Court set aside the Madras High Court judgment that had upheld the sale certificate and recognised the purchaser’s entitlement to possession.
Resort Mortgaged for Institutional Loans
Sterling Holiday Resorts had obtained loans of ₹2.06 crore from IFCI and ₹3.24 crore from Tourism Finance Corporation of India, secured by a joint equitable mortgage over the resort.
Following default, the lenders initiated recovery proceedings. IFCI subsequently invoked the SARFAESI Act, took symbolic possession and issued an auction notice dated 25 March 2010, fixing a reserve price of ₹20 crore and scheduling the auction for 28 April 2010.
On 7 April 2010, the Debts Recovery Appellate Tribunal restrained further SARFAESI proceedings, subject to the borrower depositing ₹1 crore. The borrower deposited that amount the following day, making the restraint operative.
