DRAT held that the violation of the mandatory notice period under the SARFAESI Act rendered the auction sale invalid.
The Debts Recovery Appellate Tribunal (DRAT), Kolkata Bench headed by Justice Anil Kumar Srivastava (Chairperson) reviewed an appeal and held that non-compliance with the mandatory 30-day notice period between the issuance of the sale notice under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002, and its publication under Rule 9(1), renders the auction sale invalid, irrespective of subsequent procedural compliance. The DRAT emphasized that statutory requirements under the SARFAESI Act must be strictly adhered to, upholding the sanctity of procedural mandates in auction sales.
The Debts Recovery Appellate Tribunal (DRAT) adjudicated an appeal arising from the order of the Debts Recovery Tribunal-II (DRT-II), Hyderabad, which had set aside the auction sale notice dated 19.12.2016 and the sale certificate dated 15.04.2017. The appellant bank had sanctioned an overdraft facility of ₹30 lakh to the respondent borrower in 2011, which was later classified as a Non-Performing Asset (NPA) due to irregular repayments. Pursuant to this, the bank initiated proceedings under the SARFAESI Act, 2002, issuing a demand notice under Section 13(2) on 02.05.2016 and a possession notice under Section 13(4) on 20.08.2016. An auction sale notice was issued on 21.12.2016, published on 29.12.2016, and the auction was conducted on 31.01.2017.
The respondent borrower challenged the auction sale process, contending non-compliance with Rule 8(6) of the Security Interest (Enforcement) Rules, 2002. The DRT-II framed key issues, including whether the sale notice was served and published as mandated under Rule 8(6), compliance with Rule 9(4) on the deposit of the purchase price, and the validity of the auction sale. The DRT-II found procedural lapses in the timeline between the sale notice and auction, holding that the 30-day statutory requirement under Rule 8(6) was violated, though compliance with Rule 9(4) was upheld. As a result, the auction sale was set aside.
On appeal, the appellant bank argued adherence to statutory provisions and cited precedents underscoring the sanctity of public auctions under the SARFAESI Act, including Celir LLP v. Bafna Motors (Mumbai) Private Limited, REEDLAW 2023 SC 09201 and Valji Khimji & Co. v. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd. Conversely, the DRAT reaffirmed the borrower’s argument that post-amendment to Section 13(8) of the Act, the right of redemption was extinguished upon issuance of the auction sale notice but emphasized compliance with procedural mandates. Relying on the Supreme Court's rulings in Mathew Varghese v. M. Amritha Kumar and Narandas Karsondas v. S.A. Kamtam, the DRAT highlighted that failure to maintain the mandatory 30-day period between notice issuance and auction publication rendered the sale invalid.
The Tribunal observed a clear procedural lapse, as the notice was served on 21.12.2016, published on 29.12.2016, and the auction was conducted on 31.01.2017, violating the prescribed notice period under Rules 8(6) and 9(1). Referring to Sri Sai Annadhatha Polymers v. Canara Bank, the DRAT concluded that the auction lacked legal validity due to non-compliance with statutory requirements. Upholding the DRT-II’s order, the DRAT dismissed the appeal and declared the auction process unsustainable, ensuring procedural integrity in enforcement under the SARFAESI Act.
Mr. Pankaj Kumar Mukherjee, Advocate represented the Appellant.
Mr. Nemani Srinivas, Advocate appeared for the Respondent.
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REEDLAW 2024 DRAT Kol 08205
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