DRT held that the failure to serve the auction notice to the borrower before its publication violated the borrower's right to redeem the property, rendering the auction void under the SARFAESI Act.
The Debts Recovery Tribunal, Allahabad Bench, headed by the Presiding Officer Mr. R.M. Kushawaha, held that the premature publication of an auction sale notice, without proper service to the borrower, violates Section 13(8) of the SARFAESI Act and the associated rules. This breach infringes upon the borrower’s right to redeem the property, rendering the auction sale invalid. The Tribunal emphasized that strict adherence to statutory timelines and service requirements is crucial to protecting borrowers' legal rights in SARFAESI proceedings.
In this case before the Debts Recovery Tribunal (DRT), the applicants filed a Securitization Application (SA), challenging the auction sale notice issued by the Central Bank of India on April 15, 2023, and the subsequent auction proceedings conducted under the SARFAESI Act to recover ₹4,09,00,855. The applicants argued that the Bank had breached procedural requirements, alleging irregularities in the valuation of the property, flawed service of the auction notice, and non-compliance with statutory notice periods. They contended that the property’s distress valuation was unjustifiably low and conducted without proper inspection, alleging that the Bank’s valuation practices compromised the sale's fairness. Further, the applicants claimed the auction notice was served late and not adequately circulated in local newspapers, potentially diminishing the pool of prospective buyers.
The Tribunal examined whether the auction sale proceedings complied with the SARFAESI Act's provisions, particularly concerning the right to redeem the property. It found that the respondent Bank had indeed violated Section 13(8) of the SARFAESI Act and Rules 8(6) and 9(1) of the Security Interest (Enforcement) Rules, which mandate the proper serving of the sale notice before its publication to ensure borrowers retain the right to redeem the property. The DRT observed that the auction notice was published on April 17, 2023, even before being properly served to the borrower, with the notice sent to an incorrect address, undermining the applicants’ redemption rights. Citing precedent from Celir LLP v. Bafna Motors, (Mumbai) Private Limited and Others, REEDLAW 2023 SC 09201, the DRT reiterated that premature publication of the sale notice contravenes borrowers' rights and invalidates the auction process.
Further procedural issues arose regarding the auction purchaser’s delayed deposit of the remaining bid amount, breaching Rule 9(3)’s mandatory 15-day deadline for bid payments. Although an extension was granted by the Bank, the DRT held that this irregularity impacted the legitimacy of the sale. Additionally, it noted the failure to register the property with the Central Registry, as required under Section 26D of the SARFAESI Act. Given these violations, the DRT concluded that the auction sale process lacked procedural integrity, rendering the Bank's actions ineligible to deprive the borrower of their redemption rights. Ultimately, the Tribunal annulled the auction, affirming the applicants' right to redeem their property and holding that the Bank’s procedural breaches had substantively impacted this right.
Mr. K. Kartikeya Advocate represented the Applicant.
Mr. Himanshu Tewari, Advocate appeared for Respondent No. 1.
Mr. Rakesh Mishra, Advocate appeared for the Auction Purchaser.
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