DRAT Quashes SARFAESI Auction for Rule 8 Violations, Rendering Sale Void
- REEDLAW
- Sep 18
- 4 min read
REEDLAW Legal News Network reports: In a pivotal ruling, the Debts Recovery Appellate Tribunal (DRAT), Allahabad, recently set aside a SARFAESI auction sale after finding that the secured creditor had failed to adhere to the mandatory procedural safeguards prescribed under Rule 8 of the Security Interest (Enforcement) Rules, 2002. The Tribunal held that deficiencies in statutory notice and valuation requirements rendered the auction void, thereby nullifying the creditor’s subsequent physical possession of the secured asset.
The Debts Recovery Appellate Tribunal (DRAT), Allahabad, chaired by Justice R.D. Khare (Chairperson), while adjudicating a batch of two appeals, ruled that the secured creditor’s omission to comply with the statutory mandates of proper notice and valuation under the SARFAESI Act fatally vitiated the auction process. The Tribunal concluded that such non-compliance invalidated the sale itself and stripped the creditor of any legal authority to retain possession of the property.
The Appellate Tribunal examined two connected appeals under Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, arising from a common order of the Debts Recovery Tribunal (DRT), Jabalpur. The dispute stemmed from loan facilities extended to a partnership firm, for which properties of the partners had been mortgaged. Following loan default, the account was classified as a non-performing asset, and the Financial Creditor initiated measures under Section 13 of the SARFAESI Act. Demand and possession notices were issued, and the secured property was subsequently sold in an e-auction, with a sale certificate issued and possession delivered to the auction purchasers.
The Borrowers challenged the proceedings before the DRT, which initially allowed the securitisation application by quashing the possession notice, auction notice, and sale certificate, directing restoration of possession. Appeals by the Financial Creditor and the auction purchasers were dismissed. Subsequent challenges before the High Court resulted in a remand for fresh adjudication, and the Supreme Court declined to interfere. Upon reconsideration, the DRT again allowed the securitisation application and invalidated the enforcement steps, prompting the present appeals.
The Appellate Tribunal found that the Financial Creditor failed to prove due service of the possession notice under Rule 8(1) of the Security Interest (Enforcement) Rules, 2002. The courier bill relied upon did not establish delivery of the possession notice, nor were there receipts or tracking records. The Tribunal also noted violations of Rule 8(6) and 8(7), as the sale notice was published in newspapers on the same date it was allegedly issued, without prior service on the Borrowers, and no evidence of affixation at the property was produced. The auction notice lacked a clear description of the property and a separate reserve price, amounting to further non-compliance. Contentions regarding limitation and non-joinder of the partnership firm were rejected, as these issues had attained finality or were immaterial.
Considering the auction purchasers’ claim for compensation, the Tribunal observed that they had received possession within two months of the sale certificate and continued to enjoy rental income. Interest at 9% per annum on the auction amount, as awarded by the DRT, was deemed adequate, but reimbursement of verified expenses incurred for execution of the sale deed was also directed. Other claimed expenditures, such as renovation and incidental charges, were disallowed for want of proof.
Consequently, the appeal of the Financial Creditor was dismissed. The appeal of the auction purchasers was partly allowed to the extent of permitting recovery of expenses incurred for execution of the sale deed in addition to the auction amount with interest at 9% per annum. The Financial Creditor was directed to refund the auction amount with interest and reimburse the approved expenses within fifteen days of taking possession of the property, while providing the Borrowers with details of outstanding dues to facilitate repayment. In default of repayment within the stipulated period, the Financial Creditor retained the liberty to pursue recovery in accordance with law.
Mr. Himanshu Tewari, Advocate, represented the Appellant.
Mr. Akshat Agrawal, Advocate, along with Mr. V.K. Shukla, Advocate, appeared for the Borrower.
Mr. Alok Rai, 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.
Already a subscriber? Click the link below to access the full document and linked case laws.
REEDLAW Legal Research & Analysis is India’s most trusted legal publishing and research platform, empowering legal professionals with structured judicial insights and authoritative legal intelligence since 1985.
Our comprehensive legal intelligence platform covers Corporate Insolvency, Bankruptcy, SARFAESI, Company Law, Contract, MSMEs, Arbitration, Debt Recovery, and Commercial Laws. Through curated journals — IBC Reporter and Bank CLR — and an advanced digital database, REEDLAW simplifies complex legal research for professionals, institutions, and academia across India.
Comments