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If the SARFAESI Auction Sale is Not Confirmed, the Forfeiture of the Advance Amount is Not Valid


The Debts Recovery Appellate Tribunal (DRAT), Chennai Bench comprising Justice S. Ravikumar was hearing an appeal on SARFAESI Act and held that the forfeiture of the advance amount in an auction sale conducted under the SARFAESI Act, 2002 is not valid if the sale has not been confirmed, and the terms and conditions of the sale notice contravene the statutory rules.


BACKGROUND:

This is an appeal against an order issued by the Debt Recovery Tribunal II (DRT) in Chennai. The appellant invoked Section 17 of the SARFAESI Act, 2002, seeking the return of a payment made for an auctioned property. The appellant argued that the forfeiture of the advance amount and the auction's terms and conditions were against public policy and in violation of the SARFAESI Act. They also claimed that the respondent suppressed the fact that a tenant occupied the property. The respondent argued that the appellant failed to pay the balance amount as per the auction's terms and conditions, justifying the forfeiture. The DRT ruled in favour of the appellant on the issue of invoking the SARFAESI Act but held that the appellant contravened the sale's terms and conditions and therefore was not entitled to a refund. The appellant appealed against the order of the DRT.


During the hearing, the appellant's counsel argued that the respondent did not disclose the actual possession status of the property and that the auction's terms and conditions could not override statutory rules. The Counsel claimed that the appellant was only obligated to pay the balance amount after the sale was confirmed, and since the sale had not been confirmed, the forfeiture was in violation of the rules. The respondent's Counsel supported the DRT order and argued that the appellant failed to pay the required balance amount. It was revealed that the property was subsequently sold for a lesser amount than the appellant's bid.


The main point of contention was the timing of the payment of the balance amount. The rules stated that the balance amount should be paid within 15 days of the confirmation of the sale, but the auction's terms and conditions specified payment within 15 days of the auction. The appellant argued that the rules should prevail over the auction's conditions. The DRT, however, favoured the respondent and rejected the appellant's claim. The appellant contended that the respondent did not inform them of the sale's confirmation. The respondent provided a document that claimed to be a confirmation letter, but the appellant's advocate argued that it was not in accordance with the rules and lacked the necessary details.


OBSERVATION:

The Debts Recovery Appellate Tribunal (DRAT) observed that the rules specified a procedure for confirmation and payment of the balance amount, which the respondent disregarded. The appellant's Counsel emphasized that the auction's terms and conditions could not override statutory rules. It was also argued that the respondent should have disclosed the encumbrance of the property related to the tenant's occupation. The appellant referred to a Supreme Court judgment to support their argument that tenancy should be considered an encumbrance. The DRAT noted that the DRT erred in disallowing the appellant's claim, as the forfeiture was in violation of the rules. Therefore, the DRT order was set aside, and the appellant was entitled to a refund of the advance amount with interest.


In conclusion, the appeal was allowed, and the respondent was ordered to refund the appellant Rs. 2,94,250/- with interest at 9% per annum from the date of the deposit.


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