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DRT Order Is Set Aside As No violation of Rule 8(6) & 9(1) Security Interest (E) Rules is discovered

The Debts Recovery Appellate Tribunal (DRAT), Kolkata Bench comprising Justice Anil Kumar Srivastava, Chairperson was hearing an appeal and held that the order of the Debts Recovery Tribunal (DRT) was set aside as no violation of Rules 8(6) and 9(1) of the Security Interest (Enforcement) Rules, 2002 was discovered.

In the present case, an appeal has been filed against an order by the Debts Recovery Tribunal (DRT) in S.A. 19 of 2018. The appellant bank, Canara Bank, sanctioned a KCC (Kisan Credit Card) loan of Rs. 28.00 lakh to the borrower, Smt. Gottipati Suneetha, for business purposes. The borrower defaulted on the loan repayment, leading to the classification of the loan as a Non-Performing Asset (NPA).

The bank issued notices under the provisions of the SARFAESI Act, 2002, including a notice under Section 13(2) and Section 13(4). Subsequently, an e-auction sale notice was issued, and the borrower filed a Securitization Application challenging the bank's actions. During the proceedings, the borrower filed an application for a stay on the e-auction sale notice, which was conditionally declined by the DRT.

Due to the borrower's non-compliance with the conditional order, the e-auction was conducted, and the highest bidders were declared. However, the DRT later set aside the e-auction sale, citing violations of Rules 8(6) and 9(1) of the Security Interest (Enforcement) Rules, 2002. The appellant bank, feeling aggrieved by this order, filed the present appeal.

The appellant argued that the notices were issued in accordance with the law and referred to several judgments to support their position. They contended that there was no violation of Rule 8(6) and 9(1) of the Rules of 2002. They also argued that the ground of under-valuation of the secured asset was not valid.

The appellant highlighted recent judgments that clarified the interpretation of the rules and supported their arguments. They emphasized that the requirement of a 30-day gap between notices under Rule 8(6) and Rule 9(1) was not necessary, as per these judgments.

The DRAT observed that in the present case, there is a clear gap of 30 days between the date of publication of notice under Rule 8(6) of the Rule of 2002 and the date of the auction sale. Hence, the learned DRT has committed illegality in holding that there is a violation of Rules 8(6) and 9(1) of the Rules of 2002.

The DRAT noted that the respondent argued that the property was under-valued and there is a violation of Rule 8(5) of the Rules of 2002. The auction sale was held on 06.02.2018. The valuation was assessed on the basis of the valuation report of Shri P. Srinivas, Registered Valuer of the Wealth Tax and Income Tax, vide his report dated 17.11.2017 wherein he assessed the value at the market rate Rs. 80.00 lakh; realizable value at Rs. 70.00 lakh and forced sale value at Rs. 65.00 lakh. The property was sold at Rs. 80.10 lakh. Accordingly, there is no violation of Rule 8(5) of the Rules of 2002 and the property was not under-valued.

The DRAT noted that learned DRT has erred in holding that there is a violation of Rules 8(6) and 9(1) of the Rules of 2002. Accordingly, the judgement and order passed by learned DRT were set aside and an appeal was allowed.

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