DRAT held that non-compliance with statutory notice requirements under the SARFAESI Act rendered the auction sale invalid.
The Debts Recovery Appellate Tribunal (DRAT), Kolkata Bench headed by Justice Anil Kumar Srivastava (Chairperson) addressed an appeal and held that strict compliance with the mandatory notice requirements under Rules 8(6) and 9(1) of the Security Interest (Enforcement) Rules, 2002, is essential for the validity of an auction sale under the SARFAESI Act. Failure to adhere to the statutory notice periods renders the sale process invalid, preserving the borrower’s right of redemption under Section 13(8) until compliance is achieved.
The appeal stemmed from the order dated 14.12.2018 of the DRT, Visakhapatnam, which dismissed SARFAESI Application No. 107 of 2005 filed by the appellant. The appellant, who had availed a mortgage loan from the respondent bank, challenged the classification of the loan account as NPA and the subsequent SARFAESI proceedings initiated by the bank. Despite an unsuccessful challenge to the demand notice under Section 13(2) of the SARFAESI Act through W.P. 22077 of 2003 before the Andhra Pradesh High Court, the appellant continued to contest the proceedings, particularly after the rejection of an OTS proposal and the issuance of a sale notice dated 10.01.2005. Multiple writ petitions and appeals followed, including W.P. 778 of 2005 and W.P. 14968 of 2005, all of which were dismissed. The appellant eventually withdrew W.A. 1096 of 2005 to pursue remedies before the DRT, only for the application to be dismissed on grounds of maintainability.
After an appeal before DRAT, Kolkata, resulted in a remand of the matter to the DRT, the Tribunal dismissed the application once again. In the present appeal before the DRAT, the appellant argued that the respondent bank had failed to comply with the mandatory requirements under Rules 8(6) and 9(1) of the Security Interest (Enforcement) Rules, 2002. The key issue was whether the bank had issued the required 30-day notice under Rule 8(6) for the sale notice dated 10.01.2015 and a subsequent 15-day notice for the auction sale under the proviso to Rule 9(1). The appellant alleged that these lapses violated their statutory right of redemption under Section 13(8) of the SARFAESI Act, while the respondent bank maintained that the sale process was conducted in adherence to the law.
The DRAT referred to seminal judgments, including Mathew Varghese v. M. Amritha Kumar and Others, REEDLAW 2019 SC 02201, which highlighted the borrower’s right of redemption until the publication of the auction sale notice. It also considered Celir LPP v. Bafna Motors (Mumbai) Private Limited & Others, REEDLAW 2023 SC 09201 and Valji Khimji And Company v. Official Liquidator of Hindustan Nitro Product (Gujarat) Limited & Others, REEDLAW 2008 SC 08201, which stressed the importance of procedural compliance and the sanctity of public auctions. Analyzing the timeline, the Tribunal found that the sale notice dated 10.01.2015, published on 18.01.2015, and the auction conducted on 24.01.2015 violated both the 30-day notice requirement of Rule 8(6) and the 15-day notice requirement under Rule 9(1).
The DRAT concluded that the respondent bank’s failure to comply with the mandatory notice provisions invalidated the auction. It set aside the DRT’s order, declared the sale held on 24.01.2015 invalid, and directed the bank to refund the sale consideration to the auction purchasers with interest at the prevailing fixed deposit rate. The bank was granted liberty to initiate fresh recovery proceedings in accordance with the law. The decision reinforced the principle that strict adherence to statutory procedures under the SARFAESI Act is essential to uphold borrowers’ rights and ensure the legitimacy of auction sales. The Tribunal’s ruling, thus, serves as a critical reminder of the procedural safeguards enshrined in the law for both borrowers and secured creditors.
Mr. Nemani Srinivas, Advocate represented the Appellant.
Ms. Aparajita Rao and Ms. Swastika Roy, Advocates appeared for Respondent No. 1 and Respondent No. 2.
Mr. Subhojoy Sen, Advocate appeared for Respondent No. 4 and Respondent No. 5.
Mr. Surajjit Chakraborty, Advocate appeared for Respondent No. 6.
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