the Supreme Court emphasized the need for equitable compensation for an auction purchaser when a sale is set aside, awarding interest on the deposited funds.

The Supreme Court of India, in Salil R. Uchil vs. Vishu Kumar & Ors., modified the High Court’s judgments, holding that while setting aside a legally conducted auction sale on equitable grounds, the auction purchaser must be adequately compensated. The Court directed the Co-operative bank who initiated the auction to pay simple interest to the appellant, Salil R. Uchil, on the purchase amount he deposited for the property.

Background: The Co-operative Bank, initiated proceedings to recover a loan of Rs. 25,00,000/- from the borrowers and after a dispute before the Assistant Registrar of Co-operative Societies and Recovery Officer, the bank was awarded Rs. 21,92,942/- with interest and costs.

To recover the dues, the Assistant Registrar of Co-operative Societies and Recovery Officer conducted an auction of a property owned by the borrowers, and the appellant's highest bid of Rs. 81,20,000/- was accepted. The appellant then deposited the entire amount with the Assistant Registrar of Co-operative Societies and Recovery Officer, and a sale confirmation certificate was issued.

The High Court, noting that the borrowers had deposited the entire due amount with interest within three months of filing the writ petition, set aside the auction sale on equitable grounds. The High Court directed the bank to refund the auction amount to the appellant, along with an additional 5% of the amount as compensation, as per Rule 38 of the Karnataka Co-operative Societies Rules, 1960 (the Rules) and aggrieved by the direction the appellant, Salil R. Uchil, appealed the High Court's judgment to the Supreme Court.

Though, the appellants, per se, challenged the judgment of setting aside of the auction sale, he appeal ultimately focused on the adequacy of the compensation awarded and argued that the 5% solatium was inadequate as it did not account for the interest he lost from being deprived of the use of Rs. 81,20,000/- for a considerable period.

The Supreme Court agreed that the appellant was entitled to more than the 5% compensation, as he was deprived of the use of a significant sum of money for a prolonged period due to circumstances beyond his control and clarified that the High Court’s decision to set aside the auction was not based on any illegality in the auction process, but rather on equitable considerations.

The Apex Court also held that the respondent bank, having accepted the High Court's finding that the appellant deserved compensation, was liable to pay interest to the appellant. The Court noted that the bank received the auction amount from the 3rd respondent in October 2022.

The Supreme Court modified the High Court's judgments, setting aside the direction to pay 5% solatium. The Court directed the bank to pay simple interest at 6% per annum on Rs. 81,20,000/- to the appellant, from the date of deposit (July 21, 2019) until the date of refund. The bank was ordered to pay the entire interest amount to the appellant within six weeks.

On examining Whether a purchaser of a property in a legally conducted auction, which is subsequently set aside on equitable grounds, is entitled to compensation beyond a nominal percentage, considering the loss of interest on the deposited funds.

The Supreme Court's judgment in Salil R. Uchil vs. Vishu Kumar & Ors. underscores the principle of fairness in legal proceedings. While the Court acknowledged the High Court's discretion to set aside the auction sale based on equitable considerations, it emphasized that such decisions must not unfairly burden innocent parties. By awarding the appellant interest on the deposited amount, the Supreme Court ensured that he was adequately compensated for the financial loss he incurred due to the prolonged legal process, even though he was not at fault. This decision sets a precedent for future cases where legally valid transactions are undone based on equitable principles, reminding courts to consider the impact on all stakeholders and to provide appropriate redress.

Coram: JUSTICE ABHAY S. OKA & JUSTICE UJJAL BHUYAN. Between: Salil R. Uchil vs. Vishu Kumar & Ors. DOJ:18-10-2024