DRAT upheld the validity of the auction sale and dismissed the S.A. for the failure to timely challenge the notices under the SARFAESI Act.
The Debts Recovery Appellate Tribunal (DRAT), Kolkata Bench, headed by Justice Anil Kumar Srivastava, reviewed two appeals and held that the applicant’s failure to timely challenge the notices under Sections 13(2) and 13(4) of the SARFAESI Act or file a representation under Section 13(3A) resulted in the waiver of their right to contest the auction sale. The DRAT further held that the sale notice was valid as the plant and machinery were correctly identified as immovable assets. Consequently, the DRAT set aside the DRT’s order and dismissed the S.A.
In the present case, two appeals, Appeal Nos. 103 of 2018 and 24 of 2018, were filed from a common judgment passed by the learned DRT-II Hyderabad on 22.01.2018. Appeal No. 103 of 2018 was filed by Canara Bank (formerly Syndicate Bank) challenging the order in S.A. 101 of 2017, where the DRT had set aside the auction sale of 30.05.2012 and directed the bank to reclaim possession of the property. Appeal No. 24 of 2018 was filed by the auction purchaser, M/s. Manasarowar Ispat (India) Ltd., challenging the same judgment.
The applicant, M/s. Shalimar Alloys Pvt. Ltd., had taken a loan of Rs. 1385.00 lakhs from Syndicate Bank, later merged with Canara Bank. After the loan account became irregular, the bank issued notices under Section 13(2) and Section 13(4) of the SARFAESI Act and took possession of the factory premises. The property was sold at auction in 2012 for Rs. 9.01 crore, although the outstanding dues were only Rs. 1050.00 lakhs. The applicant argued that the sale notice was defective because it included plant and machinery, which had not been mentioned in the earlier demand and possession notices. They also claimed that the inventory of assets was not prepared in the presence of the authorized officer and the property was sold for undervaluation.
The learned DRT, upon considering the arguments, framed two issues: (i) whether the applicant had a valid ground to quash the auction sale, and (ii) what relief the applicant was entitled to. On the first issue, the DRT concluded that the sale notice was defective because the plant and machinery were not mentioned in the earlier notices, and set aside the auction sale. In response, the appellants raised issues about the timeliness of the S.A. and the validity of the notices. They contended that the applicant had waived the right to challenge the notices by failing to make a representation under Section 13(3A) or challenge the sale notice in time.
Upon reviewing the case, the court observed that the applicant had failed to challenge the notices or file a representation within the statutory time frame, effectively waiving their right to contest the notices. The court further noted that the applicant had waited until the sale certificate was issued before filing the S.A., and no procedural violations were raised regarding the secured creditor’s actions. Regarding the sale notice, the court examined whether plant and machinery were part of the secured assets. It was found that the plant and machinery, as part of a steel re-rolling mill, were permanently embedded in the earth, making them immovable property, as supported by a valuation report and the auction process.
The court also considered that the mortgage was created with full knowledge of the property’s nature and that the plant and machinery, though hypothecated, were part of the secured assets. Since the applicant failed to challenge the notices in a timely manner and waived their right to do so, the court concluded that the challenge to the auction sale was invalid. The DRAT, therefore, ruled that the learned DRT had erred in declaring the sale notice defective and set aside the earlier judgment, allowing the appeals and dismissing the S.A.
Mr. D. Basu Roy and Ms. Rakhi Mondal, Advocates represented the Appellant.
Mr. Debasish Chakraborty and Ms. Nemani Srinivas Advocates appeared for the Respondent.
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