DRAT ruled that procedural terms in auction notices were directory and upheld substantive justice over technicalities in SARFAESI cases.
The Debts Recovery Appellate Tribunal (DRAT), Mumbai Bench headed by Justice Ashok Menon (Chairperson) addressed an appeal and held that the procedural stipulations in auction notices, such as the timeline for EMD deposit, are directory rather than mandatory unless explicitly stated, and deviations do not invalidate the auction process if statutory compliance under the SARFAESI Act and its Rules is upheld. The Tribunal emphasized that substantive justice must prevail, and chronic defaulters cannot exploit technicalities to disrupt lawful recovery measures.
The Debts Recovery Appellate Tribunal (DRAT) adjudicated an appeal filed by the Indian Bank against the order dated 18.02.2022 of the Debts Recovery Tribunal-II (DRT), Ahmedabad, in Securitisation Application (S.A.) No. 118 of 2020. The DRT had set aside the auction sale notice dated 15.02.2020, the subsequent sale conducted on 07.03.2020, and the sale certificate issued in favour of the fourth respondent, the successful auction purchaser. Additionally, the DRT had directed the Indian Bank to refund the sale consideration along with interest to the fourth respondent and restore possession of the secured asset to the borrowers, citing substantial payments made by them against outstanding dues.
The DRAT overturned the DRT's order, holding that the latter erred in setting aside the auction sale based on alleged procedural irregularities. The dispute arose after the borrowers defaulted on a secured loan, leading to their account being classified as a Non-Performing Asset (NPA). Indian Bank initiated recovery measures under the SARFAESI Act, issuing a demand notice under Section 13(2), taking symbolic possession under Section 13(4), and ultimately proceeding with an e-auction of the secured asset. The fourth respondent emerged as the sole and highest bidder. While there was a delay in submitting the Earnest Money Deposit (EMD) as per the auction notice, all statutory requirements under Rule 9(3) of the Security Interest (Enforcement) Rules, 2002, were fulfilled.
The DRAT emphasized that procedural terms in auction notices, such as the timeline for depositing EMD, are directory rather than mandatory unless explicitly stated otherwise. It further clarified that statutory compliance under the SARFAESI Act and its rules takes precedence over procedural stipulations. The Tribunal rejected the DRT’s reliance on the borrowers’ partial payments as a valid ground for setting aside the sale, noting that the borrowers had failed to fulfil their obligations within the agreed timelines or redeem the mortgage.
The DRAT underscored that chronic defaulters should not benefit from procedural technicalities to frustrate recovery measures. It held that the auction process and sale confirmation complied with statutory requirements and that the DRT’s order undermined the principle of substantive justice. Consequently, the DRAT allowed the appeal, set aside the DRT’s order, and upheld the validity of the auction sale in favour of the fourth respondent.
Mr. Ajikuamar, i/b M/s VNA Legal, Advocate represented the Appellant.
Ms Mumtaz Khan, Advocate appeared for Respondent No. 1 to 3.
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