he DRAT invalidated the auction due to the bank's non-compliance with the 30-day notice requirement under Rule 8(6) of the SARFAESI Act.
The Debts Recovery Appellate Tribunal (DRAT), Kolkata Bench of Justice Anil Kumar Srivastava (Chairperson) reviewed an appeal and observed that the failure of the bank to serve the mandatory 30-day notice under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 prior to the auction invalidated the sale proceedings, as strict compliance with procedural requirements is essential to uphold the integrity of the auction process. The tribunal further ruled that the sale was to be set aside, with the auction proceeds refunded to the purchaser, and the bank permitted to initiate fresh recovery actions.
The appellant in this case, a borrower of the respondent bank, challenged the dismissal of their SARFAESI Application by the Debt Recovery Tribunal (DRT), Visakhapatnam, concerning the sale of mortgaged property under the SARFAESI Act. The appellant contended that the bank failed to adhere to the mandatory 30-day notice requirement under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002, prior to the sale, arguing that the procedural lapses invalidated the auction proceedings. Despite the appellant’s earlier attempts to resolve the matter through a One-Time Settlement (OTS), the bank proceeded with a Demand Notice under Section 13(2) of the SARFAESI Act, followed by a Possession Notice and eventual sale proceedings.
The key issue examined by the Debt Recovery Appellate Tribunal (DRAT) was whether the bank complied with the statutory requirements for auction, particularly the 30-day notice stipulated under Rule 8(6). The appellant cited judgments from the Supreme Court, including Celir LPP v. Bafna Motors (Mumbai) Private Limited & Others, REEDLAW 2023 SC 09201 and Mathew Varghese v. M. Amritha Kumar, which stressed the necessity of a strict adherence to the notice period to safeguard borrower rights. In response, the respondent bank argued that all actions were taken in compliance with the statutory rules, and no procedural violations occurred.
Upon review, DRAT noted that the Supreme Court’s precedents emphasized the sanctity of the auction process and the importance of procedural compliance. However, the DRAT found that the bank had failed to serve the required 30-day notice before the auction, which was deemed a fundamental violation. This omission rendered the sale proceedings invalid, and the tribunal overturned the DRT's decision. The DRAT directed the bank to refund the sale proceeds with interest to the auction purchaser within 30 days but allowed the bank to pursue fresh recovery actions in accordance with statutory procedures. The case underscores the critical importance of adhering to procedural mandates under the SARFAESI Act to ensure the legitimacy of sale proceedings and protect the rights of borrowers.
Mr. Nemani Srinivas, Advocate represented the Appellant.
Mr. Dipanjan Datta and Mr. Subhojit Chowdhury, Advocates appeared for the Respondent.
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