Violation of Mandatory 15-Day Sale Notice under Rules 8 & 9 of SARFAESI Rules — Auction Sale Set Aside

REEDLAW Legal News Network reports: In a decisive ruling on the mandatory nature of auction procedure under the SARFAESI framework, the Debts Recovery Appellate Tribunal reiterated that strict compliance with the fifteen days’ sale notice requirement and the procedural safeguards prescribed under Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002, is indispensable for the validity of an auction sale. Any deviation from these statutory mandates, particularly in relation to service, publication, and deposit of sale consideration, was held to strike at the very root of the auction process and render the sale legally unsustainable.

The Appellate Tribunal, Allahabad Bench, headed by Justice R. D. Khare (Chairperson), while adjudicating the appeal, held that an auction sale conducted under the SARFAESI Act is vitiated where a clear fifteen days’ sale notice is not granted to the borrower. It was observed that Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002 impose mandatory obligations upon the secured creditor not only regarding service of sale notice and publication in newspapers but also in ensuring strict adherence to the timelines and conditions governing deposit of the sale consideration by the auction purchaser. Non-compliance with these statutory requirements was held to invalidate the auction process and justify interference by the Appellate Tribunal.

An appeal was preferred against the order by which the Tribunal below had dismissed the securitisation application and upheld the auction sale conducted by the Financial Creditor under the SARFAESI Act. It was an admitted position that financial assistance had been availed by the borrower, and the Appellant had stood as guarantor by creating an equitable mortgage over the secured property. The account was classified as NPA, and proceedings under Sections 13(2) and 13(4) of the SARFAESI Act were initiated, culminating in the issuance of an auction sale notice and the sale of the secured asset in favour of the auction purchaser. The Appellant challenged the entire action, alleging improper declaration of NPA, non-adjustment of amounts lying in her savings account, undervaluation of the property, and multiple violations of the Security Interest (Enforcement) Rules, 2002.

The Tribunal found that the contention regarding the property being agricultural land was untenable since the Appellant herself had admitted the existence of a shop on the land and the sale deed described the property as residential. It was further held that the Financial Creditor was justified in not adjusting the amount lying in the savings account of the Appellant, as there was no consent authorising such adjustment. The service of demand notice under Section 13(2) and compliance with Rules 8(1) and 8(2) relating to possession notice were found to be proper, as the notices were duly affixed, published in newspapers, and dispatched through registered post. The valuation of the property was also upheld, since the sale price exceeded the distress value and the realisable value assessed by the approved valuer, and therefore the allegation of undervaluation was rejected.

However, the Tribunal held that there was a clear violation of Rule 9(1) read with Rule 8(6) of the Rules, 2002, as a clear fifteen days’ sale notice had not been given to the Appellant. It was found that the sale notice was served on 09.08.2023 and the auction was conducted on 24.08.2023, which amounted to a sale on the fifteenth day itself, whereas the Rules mandated a clear fifteen days’ notice. The plea of the Financial Creditor that the Appellant had avoided service was rejected in the absence of any tracking report or documentary proof. The Tribunal further held that the newspaper publications relied upon by the Financial Creditor were defective, as the clippings did not disclose the name of the newspapers or the date of publication, rendering them unreliable and non-compliant with statutory requirements.

The Tribunal also found non-compliance with Rules 9(3) and 9(4) of the Rules, 2002, since the Financial Creditor had failed to place any material on record to show the dates of deposit of 25% and the remaining 75% of the sale consideration by the auction purchaser. It was held that when such objections were specifically raised, the burden lay upon the Financial Creditor to establish compliance, which it had failed to discharge. The Tribunal observed that the Tribunal below had erred in overlooking these mandatory violations and in holding that there was no irregularity in the auction process.

Accordingly, the auction sale dated 24.08.2023 and all consequential actions were set aside, while the earlier steps taken up to the possession notice were upheld. The appeal was allowed to the extent of quashing the auction sale. The Financial Creditor was directed to refund the entire auction amount to the auction purchaser along with simple interest at the rate of 8% per annum from the date of deposit till payment, subject to adjustment for the period during which possession, if any, had remained with the auction purchaser. The Financial Creditor was further directed to furnish the outstanding dues to the Appellant, granting her an opportunity to clear the same, failing which it was permitted to proceed afresh in accordance with law from the stage of issuance of the auction sale notice.

Mr. V.K. Shukla, Advocate, represented the Appellant.

Mr. Avinash Jaiswal, Advocate, appeared for the Respondent No. 1/Bank.

Mr. K. Kartikey, Advocate, holding the brief of Mr. D.S. Pandey, Advocate, appeared for the Auction Purchaser.

This is premium content available to our subscribers.

To access the full content related to this article — including the complete judgment, detailed legal analysis, ratio decidendi, headnotes, cited case laws, and updates on relevant statutes and notifications — we invite you to subscribe to REEDLAW’s premium research platform.

Click here to Subscribe and unlock exclusive access to structured legal analysis, judicial summaries, and a comprehensive legal research database.

Read Judgment

REEDLAW Legal Intelligence & Research is India’s most trusted legal publishing and research platform, empowering professionals with structured judicial insights and authoritative legal intelligence since 1985.

The platform offers comprehensive resources spanning Corporate Insolvency, Bankruptcy, Company Law, SARFAESI, Debt Recovery, Contract, MSMEs, Arbitration, Banking, and Commercial Laws. Through curated journals like IBC Reporter and Bank CLR, and an advanced Online Legal Research Database, REEDLAW simplifies complex legal research for professionals, institutions, and academia across India.