SANGLI ZILLA PARISHAD EMPLOYEES CO OP CREDIT SOC LTD. v. NAINADEVI SAHAKARI SAKHAR KARKHANA LTD. AND ANR
Auction Purchaser Liability Under SARFAESI Act: Impleadment in Execution Proceedings for Prior Owner's Dues Denied; "As Is Where Is" Clause Limited to Secured Liabilities.
Court: Bombay High Court
Citation: 2025:BHC-KOL:3029
Decision Date: 01-12-2025
List of Laws
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act); Code of Civil Procedure; Co-operative Societies Act (Implied)
Case Brief
- Facts: A Co-operative Credit Society (the petitioner) obtained an award against Ninaidevi Sahakari Sakhar Karkhana Limited (respondent no. 1) for non-repayment of a loan. The petitioner initiated execution proceedings. While these proceedings were pending, the Maharashtra State Co-operative Bank initiated recovery proceedings against respondent no. 1 under the SARFAESI Act and auctioned its assets. Dalmia Bharat Sugar and Industries Limited (respondent no. 2) purchased the secured assets in the auction and received a sale certificate. The petitioner then sought to implead respondent no. 2 in the execution proceedings, arguing that as the auction purchaser, respondent no. 2 was liable for the dues of respondent no. 1.
- Procedural Posture: The petitioner's application to implead respondent no. 2 in the execution proceedings was rejected by the Civil Judge Senior Division, Islampur. The petitioner challenged this rejection by filing a Writ Petition in the High Court of Judicature at Bombay, Circuit Bench at Kolhapur.
- Issue: Whether an auction purchaser of assets under the SARFAESI Act can be impleaded as a party in execution proceedings initiated by a creditor against the original owner of the assets, based on the argument that the auction purchaser is liable for the original owner's dues. Specifically, whether the auction purchaser assumes the liabilities of the previous owner by virtue of purchasing the assets in an "as is where is" condition.
- Holding: The High Court held that the auction purchaser (respondent no. 2) cannot be impleaded as a party in the execution proceedings because they are not liable for the dues of the original owner (respondent no. 1), especially since the petitioner did not have a charge on the assets. The Writ Petition was rejected.
- Reasoning: The Court reasoned that purchasing assets in an auction under the SARFAESI Act does not automatically make the purchaser liable for the business debts of the previous owner unless the entire business as a going concern was purchased. The Court relied on the Supreme Court's judgments in State of Karnataka and Another Vs. Shreyas Papers (P) Ltd. and Rana Girders Limited Vs. Union of India and Others, which clarified that the transfer of "ownership of the business" is required to make the transferee liable for the transferor's liabilities. The Court noted that the tender notice and sale certificate stipulated that the purchaser agreed to discharge liabilities attachable to the secured assets, but the petitioner's dues were not secured against the assets. The Court also pointed out that the petitioner was not a secured creditor and that the original owner still existed. The "as is where is" condition in the auction notice only obligates the purchaser to pay for encumbrances presently on the property or those that may arise in the future, as per the tender conditions, but does not extend to unsecured debts of the previous owner.