Bank May Enter into One Time Settlement with Borrower if Auction Sale Not Confirmed

The High Court of Kerala, in the case of Ajmal K V v. Union Bank of India (2024 KER 18508) on March 5, 2024, held that where a sale certificate has not been issued in favour of the auction purchasers for the confirmation of the auction sale, there is nothing that prevents the bank from entering into a one-time settlement with the borrowers.

In the instant case, the sale of a secured asset to e-auction purchasers was cancelled by the bank and a one-time settlement facility was extended to the original borrowers. The auction purchasers filed this writ alleging that the sale was illegal and unsustainable. It was contended that once auction notice is published, the mortgagor loses the right to redeem the secured asset.  The statute has given a free hand to the secured creditor to enforce any security interest without the interruption of the court or Tribunal.

The court observed that the acceptance of a bid alone will not conclude a sale and that the sale will be concluded only when the Bank finally confirms acceptance of the bid and issues a Sale Certificate. Pointing out that the terms of the sale notice itself contained a clause that the sale can be cancelled at any time at the discretion of the Bank, the court held that in the absence of a confirmation of sale in favour of the petitioners by the issuance of a sale certificate, the purchasers would not acquire any right or interest over the mortgaged property.

The court also held that although the right of redemption of borrowers stands extinguished upon publication of the auction notice, it does not prevent the borrowers from entering into a one time settlement as long as the sale certificates are not issued in favour of the auction purchasers for the mortgaged assets. However, the purchasers were entitled to a reasonable interest of 12% on the amount deposited by them.