DRAT uphold DRT’s Order setting aside the auction sale conducted by the bank under SARFAESI Act

The Debts Recovery Appellate Tribunal, New Delhi (DRAT) in the matter of Satya Prakash Bansal v. The Karur Vyasya Bank Limited and Another, REED 2021 DRAT Del 06209, upheld the Debts Recovery Tribunal, New Delhi (DRT) judgment dated 22 August 2020, whereby the DRT had allowed the Securitisation Application filed by the Borrower, quashing the auction sale conducted by the Bank under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and directing the Bank to refund the auction money with 6% interest to auction purchaser.

BACKGROUND

The present matter involved two appeals namely, Appeal No. 97/2020 and Appeal No.98/2020, both of which arose from a common order dated 22 August 2020 passed by the DRT in S.A. No. 56/2019 (Application) filed by Jewel International Pvt Ltd. (Borrower).

The Borrower had defaulted in repayment of the loan to the Karur Vyasya Bank (Bank) and resultantly, its account was declared as a Non-Performing Asset (NPA). Thereafter, a demand notice under section 13(2) of SARFAESI Act was served upon the Borrower requiring it to clear the outstanding dues, which were over twenty crores, within sixty days but the dues were not cleared. The Bank then decided to enforce its security interest in the mortgaged property. After taking physical possession of the mortgaged property, the Bank put it up for auction on 20 March 2019. At this stage the Borrower filed the present Application before the DRT challenging the measures initiated by the bank under SARFAESI Act.

The DRT initially passed an interim order on 20 March 2019 stating that the bank could go ahead with the auction but there would be no confirmation of sale till further orders of the DRT. Later, videorder dated 22 September 2020, the Application was partly allowed and while rejecting the challenge of the Borrower to the initial measures under the SARFAESI Act, the auction sale held on 20 March 2019 was quashed and the Bank was directed to refund the auction money with 6% interest to Satya Pal Bansal (auction purchaser). Aggrieved thereof, the Bank filed Appeal No. 97/2020 under section 17(1) of SARFAESI Act against the Borrower and Satya Pal Bansal (auction purchaser) filed Appeal No. 98/2020 for increase in the interest rate on the amount of auction money paid by him to the Bank.

ANALYSIS

The DRAT noted that although the DRT on 20 March 2019 had restrained the Bank from confirming the auction in favour of the highest bidder till further orders, the Bank had confirmed the sale in favour of the auction purchaser by demanding from him the balance amount of 75% of the bid amount and which he had paid also. The DRAT stated that the Bank could have demanded and accepted 75% of the bid amount from the auction purchaser only if it was confirming the sale, which it had already been restrained from doing so. Hence, it is clear that the Bank wanted to recover part of its dues from the auction purchaser by hiding the stay order against confirmation by the DRT. Thus, based on the foregoing, the DRAT concluded that the Bank violated the directions given under the DRT’s order dated 20 March 2019 and consequently, dismissed Appeal No. 97/2020.

In Appeal No. 98/2020, the auction purchaser had sought an increase in interest rate as awarded by the DRT while directing the Bank to refund to him the auction money with six percent interest. The auction purchaser argued that DRAT in one appeal had awarded 12% interest and therefore, DRT was not justified in granting interest at 6% only. The DRAT stated that the auction purchaser neither filed a separate Application against the Bank, nor filed any written statement in that regard. Accordingly, Appeal No. 98/2020 was also dismissed.