Point of Law: Rule 9(2) of the 2002 Rules and its provisos would indicate that a sale shall be confirmed in favour of a purchaser who has offered the highest sale price in the bid. The sale shall not be confirmed if the amount offered by sale price is less than the reserve price and that the sale at a lower price ought not be confirmed without the consent of the borrower.

JUDGMENT :

BIREN VAISHNAV, J.

1. This Letters Patent Appeal has been filed by the original petitioners – appellants herein assailing the order of the learned Single Judge dated 04.09.2020. By the order under challenge, the learned Single Judge dismissed the petition, confirming the order passed by the Debt Recovery Tribunal dated 21.02.2020 in Securitization Application No. 257 of 2019.

2. The facts in brief are as under:

2.1 The appellants had obtained an overdraft facility, initially of Rs. 100 lakhs from Bank of Baroda – the respondent no. 1. It was subsequently enhanced to Rs. 350 lakhs. For the said overdraft facility, the appellants had by way of security, mortgaged the cold storage unit and some residential properties by depositing title deeds.

2.2 Having defaulted on payment of interest, the appellants requested for an additional term loan in the nature of Funded Interest Term Loan (FITL) which the bank granted so as to facilitate repayment of default in interest payments of the existing overdraft account. Such term loan was for an amount of Rs. 46.60 lakhs. The bank, on the appellants’ default on the FITL facility issued a notice under Section 13(2) of the SARFAESI Act calling upon the appellants to clear an outstanding amount of Rs.4,21,28,889/-. The case of the appellants before the Debt Recovery Tribunal in their challenge to the notice and the proceedings initiated under the Securitization Act was that the default under the FITL could not have been used to invoke the provisions of the SARFAESI Act viz-a-viz the properties mortgaged for the overdraft facility which was initially granted. It was their case that as there was no fresh mortgage for FITL facility, such property could not have been the subject matter of recovery proceedings. The additional grounds on which the recovery proceedings were challenged before the Tribunal was for non compliance of Rule 8(5) of Security Interest (Enforcement) Rules, 2002 (for short ‘the 2002 Rules’).

2.3 The Tribunal by its order dated 21.02.2020 rejected the application of the appellants holding that on reading the terms and conditions of the FITL facility, it was evident that the same was a rephasement of the overdraft facility and the mortgage executed for the original overdraft facility could be treated as a continuing security as the purpose of FITL.

3. The learned Single Judge, on a challenge made to the order of the Tribunal, in para 10 of the order under challenge held as under:

“10. This takes the court to the next question as to whether FITL transaction is independent of the original transaction of over-draft facility. One crucial aspect which remains undisputed is that FITL facility was availed of by the petitioner for repayment of interest due on the over-draft facility. To that extent, undisputedly, there is an overlapping between the two transactions. It is evident from the record that, somewhere in the year 2017, a need was felt to help loanees in distress to help them tide over the financial crisis being faced by them then; it appears that under the advise of RBI a meeting headed by Collector of Banaskantha District was held wherein certain guidelines were prescribed and the modalities for rephasement of the facilities were evolved and offered to the distressed loanees on the terms and conditions as may be agreed upon. It is unnecessary for this court to deliberate in detail on this subject; suffice it to say that the petitioner seems to have made an application after the said event, to the bank pointing out his inability to repay the instalment with interest. It appears that thereafter FITL in the sum of Rs.46.00 lakhs was sanctioned and availed of by the petitioner without objecting to the offer. It thus cannot be disputed that FITL is a rephasement of original facility which facility was concededly secured. It is no doubt true that security documents other th