The consent of borrowers to auction overrides strict adherence to procedural safeguards under the SARFAESI Act, ensuring auction validity despite minor irregularities.

JUDGMENT

ANIL KSHETARPAL, J.

1. The present Petition, filed by the Petitioner, assails the correctness of the order dated 02.03.2016 [hereinafter referred to as “Impugned Order”] passed by the learned Debts Recovery Appellate Tribunal [hereinafter referred to as “DRAT”], Delhi, in Appeal No. 37/2016, titled M/s Karishma Enterprises & Anr. v. Syndicate Bank & Anr

2. The issue that arises for consideration in the present petition is whether the learned DRAT erred in failing to appreciate the prior conduct and explicit consent of Respondent Nos.1 and 2 to the sale of the mortgaged property as duly recorded in the learned Debt Recovery Tribunal’s [hereinafter referred to as “DRT”] order dated 16.04.2014 and in disregarding the fact that despite having consented to such directions, the Respondents nevertheless challenged the order in Appeal No. 303/2014, which was ultimately disposed of as not pressed and infructuous by the learned DRAT vide order dated 16.12.2014.

FACTUAL MATRIX:

3. In order to comprehend the issues involved in the present case, relevant facts, in brief, are required to be noticed.

4. The Petitioner Bank is a body corporate duly constituted under the Companies Act, 1970, having its head office at Manipal, Karnataka and branch offices, amongst others, at International Business Branch, Connaught Place, New Delhi-110001. The Respondent No.1 is a proprietorship firm, through its Proprietor, Sh. Vijay Kumar, and is the Principal Borrower. The Respondent No.2 is the Mortgagor/Guarantor of the credit facility granted in favour of the Respondent No.1 and the Respondent No.3 is the auction purchaser of the mortgaged property.

5. In terms of Sanction Letter No. SOD/ODMS dated 19.09.2007, the Petitioner Bank extended a credit facility of Rs. 100 lakhs to Respondent No.1, secured by the guarantee and mortgage furnished by Respondent Nos.1 and 2. To secure the said facility, Respondent Nos.1 and 2 deposited the title deeds of the properties measuring 275 sq. yds., 325 sq. yds., and 400 sq. yds. bearing No. 1/5875 out of Khasra No. 4436/3456/1855/16, situated at Village Chandrawali, in the Abadi of Kabool Nagar, Shahdara, Delhi [hereinafter referred to as “the three mortgaged properties”], with the Petitioner Bank and duly executed the Composite Hypothecation Agreement, the Deed of Guarantee, and the Letter confirming the deposit of title deeds, all dated 12.10.2007.

6. In 2008, M/s Madhav Enterprises, through Respondent No.2, sought an additional credit facility of Rs. 225 lakhs, for which Respondent No.2 extended the existing mortgage and confirmed that the liabilities arising under the facilities sanctioned to Respondent No.1 would continue for the newly sanctioned limits.

7. Subsequently, on 19.09.2009, the Petitioner Bank reviewed and renewed Respondent No.1’s credit facility to Rs. 100 lakhs, whereupon Respondent Nos.1 and 2 executed the requisite security documents, including the Composite Hypothecation Agreement, General Agreement, Deed of Guarantee and Undertaking for creation of a second/subsequent mortgage, all dated 25.09.2009. Respondent No.2 further reaffirmed the subsistence of these liabilities through confirmation letters dated 17.03.2010. Thereafter, on 20.12.2010, the Petitioner Bank again renewed the said credit facility of Rs. 100 lakhs, following which, Respondent Nos.1 and 2 executed the corresponding renewal documents on the same date.

8. After availing of the above credit facilities, the Respondent Nos.1 and 2 failed to adhere to the financial discipline and defaulted in making payment of the amount and interest thereon.

9. Further, the Respondent No.1, vide stock statement dated 06.07.2012 for the quarter ending June 2012, reported nil opening stock of raw material and work-in-process, indicating that no manufacturing activity or regular business was being undertaken during the relevant period. By 31.12.2012, the accounts of Respondent Nos.1 and 2 had become highly irregular, with the Overdraft (“OD”) and Cash Cr