CASE ANALYSIS : BANK OF BARODA V.

KARWA
TRADING CO., (2022) 5 SCC 168, 10-02-2022

SUBMITTED BY:

NAME: ANANYA RAY

Dr. STHITHA PRAJNA MOHANTY

(ASSISTANT PROFESSOR
KIIT SCHOOL OF LAW)
BANK OF BARODA V. KARWA TRADING CO., (2022) 5 SCC 168, 10-02-2022

FACTS:
In this legal matter, Bank of Baroda provided a term loan and cash credit limit to a borrower
against the collateral of an industrial plot and a residential property. Subsequently, the
borrower defaulted on the repayment terms, causing their account to be classified as a
Non-Performing Asset (NPA) by 2012. Pursuant to this default, the bank invoked proceedings
under the SARFAESI Act. Various actions were taken by the bank, including issuing notices
under the Act, obtaining symbolic possession of the residential property, and conducting an
auction in an attempt to recover the outstanding dues. However, disagreements emerged
concerning the auction process, the received bids, and the specific sum required from the
borrower to regain possession of the residential property, leading to the core legal contentions
in the case.

ISSUE:
What is the precise amount or conditions required for the borrower to regain possession of the
residential property after defaulting on loan payments, as per the provisions of the
SARFAESI Act, concerning recovery and the borrower's obligations to settle outstanding
liabilities for reclaiming ownership of the mortgaged property?

CONTENTIONS:
Plaintiff (Bank of Baroda):
1. The bank contended that the Division Bench of the High Court erred in directing the
release of the property and handover of possession to the borrower upon payment of an
additional sum of Rs.17 lakhs only.
2. They argued that the borrower's payment of Rs.71 lakhs, despite being the highest bid in
the auction, did not discharge the entire outstanding liability, which was
Rs.1,85,37,218.80 as of 07.01.2013.
3. The bank highlighted that accepting Rs.71 lakhs as full payment would contradict the
SARFAESI Act's provisions, as it did not cover the entire amount due and expenses
incurred by the secured creditor.

Defendant (Borrower):
1. The borrower contended that the Division Bench's judgment, directing the property's
release on a total payment of Rs.65.65 lakhs, was equitable and didn't warrant
interference.
2. They argued that the bank, too, agreed that the property could be released upon payment
of Rs.65.65 lakhs, thus asserting the fairness of the Division Bench's decision.
3. The borrower maintained that as they were willing to pay the specified amount, the
court's ruling for property release was justifiable and in accordance with the highest bid
received in the auction.

JUDGEMENT:
The court allowed the appeal filed by Bank of Baroda. The Division Bench's order directing
the release of the mortgaged property to the borrower upon payment of Rs.65.65 lakhs was
overturned and set aside. The Single Judge's order, which had set aside the Debt Recovery
Tribunal's directive regarding property release, was restored.
The court directed the bank to initiate fresh auction proceedings for the residential property.
Moreover, the Debt Recovery Tribunal (DRT) was instructed to decide and dispose of the
borrower's application under Section 17 of the SARFAESI Act on its merits. It was
emphasized that the borrower could not be absolved from the entire outstanding liability until
the full amount due, along with costs and expenses, was paid to the secured creditor in
accordance with the SARFAESI Act.
The judgment reinforced the strict interpretation of the SARFAESI Act, highlighting that the
borrower's obligation to regain possession of the property relied on complete discharge of
outstanding liabilities, not solely on the highest bid in the auction. Therefore, until the
borrower settled the entire outstanding amount owed, the property couldn't be fully released,
affirming the rights of the bank to proceed with auction proceedings in accordance with the
Act.

RATIONALE:

The rationale behind the judgment in this case was centered on upholding the legal provisions
and principles outlined in the SARFAESI Act. The court's decision rested on several key
points:
1. Interpretation of SARFAESI Act: The judgment emphasized the strict adherence to the
SARFAESI Act's provisions, particularly regarding the borrower's liabilities and the
secured creditor's rights. It highlighted that the borrower's obligation to reclaim
possession of the mortgaged property extended beyond the highest bid received in the
auction. \
2. Full Discharge of Liabilities: The court stressed that the borrower couldn't be absolved
from their entire outstanding liability merely by making a partial payment, even if it
aligned with the highest bid. The judgment emphasized that complete settlement of the
 entire outstanding dues, including all costs and expenses, was necessary as per the Act's
provisions.
3. Rights of the Secured Creditor: The judgment reaffirmed the secured creditor's rights to
conduct auction proceedings afresh for the property and to enforce the Act's
requirements in recovering the outstanding amount owed. It underlined that the
borrower's obligation to the creditor could not be met through partial payments or bids
that did not cover the full extent of their liabilities.

The court's rationale focused on maintaining the integrity of the SARFAESI Act, ensuring
strict adherence to its provisions in determining the borrower's obligations for regaining
possession of the property and securing the rights of the secured creditor in the recovery
process.

CRITICAL ANALYSIS:

The legal case between Bank of Baroda and the borrower presents a critical examination of
the application of the SARFAESI Act's provisions in resolving disputes concerning
mortgaged property. The court's judgment focused on upholding the strict interpretation of the
Act, emphasizing the borrower's obligation to fully discharge outstanding liabilities, including
all dues and expenses, to regain possession of the property. This rigid adherence to legal
formalities ensures the sanctity of the law; however, it may overlook the practical aspects and
the borrower's intent to settle the debt partially, potentially leading to a lack of flexibility in
resolving disputes.
While the court's stance upholding the Act's provisions preserves the rights of the secured
creditor and enforces legal compliance, it might be perceived as lacking consideration for
contextual nuances. The judgment's strict interpretation may not account for situations where
the borrower demonstrates a substantial effort to repay a significant portion of the debt, albeit
falling short of the total amount owed. This approach raises questions about the balance
between legal adherence and practical fairness, potentially limiting opportunities for
negotiated resolutions beneficial to both parties.

Moreover, the court's emphasis on the Act's strict interpretation could lead to a lack of
flexibility in addressing unique or exceptional circumstances. This rigidity might overlook the
borrower's genuine intent to resolve the debt issue and regain possession of the property,
potentially impeding opportunities for mutually acceptable resolutions that consider both
legal requirements and the practicalities of the situation. The critical analysis of this case
reveals a tension between legal compliance and the need for nuanced, context-specific
resolutions in disputes governed by the SARFAESI Act.

CONCLUSION:

The judgment in the case concerning Bank of Baroda and the borrower reaffirms the court's
commitment to upholding the strict provisions of the SARFAESI Act. It underscores the
borrower's obligation to fully discharge outstanding liabilities to regain possession of the
mortgaged property. While prioritizing legal compliance, this approach might overlook
contextual nuances and the borrower's intent to settle the debt partially, potentially limiting
the scope for negotiated resolutions. The case emphasizes the need to balance legal rigor with
a nuanced understanding of practical circumstances to achieve equitable outcomes in disputes
governed by the SARFAESI Act.