The DRAT set aside the auction sale for non-compliance with the mandatory 30-day notice requirement under Rules 8(6) and 9(1) of the SARFAESI Rules.
The Debts Recovery Appellate Tribunal (DRAT), Kolkata Bench headed by Justice Anil Kumar Srivastava (Chairperson) addressed an appeal and held that the auction sale conducted on 07.11.2013 was invalid as the bank failed to comply with the mandatory 30-day clear notice requirement under Rule 8(6) and 9(1) of the Security Interest (Enforcement) Rules, 2002. The presumption of valid service based on the returned postal notice marked “unclaimed” was insufficient, and the bank’s inconsistent positions regarding the service of notice further undermined the auction’s legality, warranting the sale’s cancellation.
The present appeal was preferred against the judgment and order dated 11.02.2020 passed by the learned DRT-I Hyderabad in S.A. 652 of 2013, whereby the S.A. was dismissed. The matter had a long-chequered history, originating from an application under Section 17 of the SARFAESI Act, 2002 challenging the sale notice dated 04.10.2013 issued by the State Bank of India for public auction of the secured property on 07.11.2013. The appellant had availed a term loan of Rs.16 lakhs in 2010, which became irregular, leading to the classification of the account as an NPA. A demand notice under Section 13(2) of the Act was issued on 08.08.2012 for Rs. 13,91,158.33. Subsequent to this, symbolic possession was taken on 03.12.2012, and physical possession was obtained on 04.05.2013 with the District Magistrate’s aid.
The appellant’s representation for possession re-delivery was not considered, prompting a writ petition before the Hon’ble High Court of Andhra Pradesh, which directed the bank to reconsider the representation. Despite this, the bank proceeded with the sale notice on 04.10.2013. The appellant challenged the sale notice on the grounds of non-service and failure to publish it in two leading newspapers as mandated under Rules 8(6) and 9(1) of the Security Interest (Enforcement) Rules, 2002. The bank countered, stating that all procedures were duly followed, the notice was issued and dispatched via registered post on 03.10.2013, and valuation reports were obtained as required. It was argued that the auction purchaser complied with all timelines.
The learned DRT initially dismissed the S.A. on 21.11.2014, observing that the bank had adhered to the 30-day notice period between the sale notice issuance and the auction date. However, the appellant sought a review, and on 02.08.2017, the DRT allowed the review, holding that the sale violated Rules 8(6) and 9(1) as no proof of service or postal acknowledgement of the sale notice was available. The auction sale was consequently set aside.
The bank filed an appeal before the DRAT, Kolkata, submitting new documents, including the sale notice dated 30.09.2013, postal receipts, and acknowledgement allegedly showing delivery on 08.10.2013. The DRAT set aside the review order and remanded the matter back to the DRT to verify whether the mandatory 30-day notice requirement had been fulfilled and whether the Tribunal could review its prior order. On remand, the bank produced records to show that the notice dispatched on 03.10.2013 was returned as “not claimed.” The DRT, dismissing the S.A. once again, held that the 30-day notice period had been observed between the issuance of the notice and the auction.
Before the DRAT, the appellant contended that the bank’s stand on service of notice had been inconsistent throughout the proceedings. Initially, no clear plea for service was taken, and later, conflicting submissions were made regarding the acknowledgement. It was also argued that even if the notice was presumed to have been served on 08.10.2013, the auction conducted on 07.11.2013 fell on the 30th day, thereby violating the mandatory 30-day clear notice rule laid down under Rules 8(6) and 9(1). In contrast, the bank maintained that due procedure had been followed, and the auction purchaser, who had been in possession for 11 years, should not be disturbed.
The DRAT observed that the bank’s inconsistent positions regarding the service of notice raised concerns about compliance with the mandatory provisions. The Tribunal criticized the DRT’s presumption of service merely on the basis of a returned registered post marked “unclaimed,” holding that such service could not satisfy legal requirements. It referred to the Supreme Court’s decision in Mathew Varghese v. M. Amritha Kumar and Others, REEDLAW 2014 SC 02201, which emphasized that both the borrower’s individual notice and the public notice must ensure a clear 30-day period before the auction. The Tribunal reiterated that mandatory compliance with Rules 8(6) and 9(1) is essential to uphold the validity of the sale.
In light of these findings, the DRAT concluded that the auction conducted on 07.11.2013 failed to meet the statutory requirements due to non-compliance with Rules 8(6) and 9(1). The bank’s inability to provide conclusive proof of proper service of the sale notice rendered the auction sale unsustainable in law. Consequently, the appeal was allowed, and the auction sale was set aside.
Mr. Nemani Srinivas, Advocate represented the Appellant.
Mr. Pankaj Kumar Mukherjee, Advocate appeared for the Respondent bank.
Ms. Mekhla Kanji, Advocate appeared for Respondent No. 2.
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