Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2025 Supreme(Online)(DRAT) 227

DEBT RECOVERY APPELLATE TRIBUNAL
Justice Anil Kumar Srivastava, CJ
A Lokareddy (Loknath Reddy) – Appellant
Versus
The Authorised Officer, State Bank Of India – Respondent
APPEAL No. 164 of 2018 | S.A. 772 of 2013

Advocates:
For the Appellants/Petitioners: Mr. Ashok Kr. Dhandhania, Mr. Soumo Mukherjee, Ms. Sweta Mishra
For the Respondents: Ms. Mekhla Kanji, Mr. Nemani Srinivas

Mandatory issuance of fresh sale notices under the SARFAESI Act is required when prior auctions are not conducted, ensuring compliance with statutory procedures.

Headnote:(A) SARFAESI Act, 2002 - Section 17 - Auction sale - Securitization application filed by guarantor challenging auction sale conducted without proper notice - Court held that issuance of fresh sale notice under Rule 8(6) and 9(1) is mandatory when the earlier auction sale could not proceed - Auction sale set aside and bank directed to refund sale consideration with interest. (Paras 8, 36-38)

(B) Auction Procedure - Requirement of clear notice - Court reaffirmed that unless a clear 30 days’ notice is given to the borrower, no sale can occur - Non-compliance with notice requirements vitiates auction process. (Paras 31-35)

(C) Collusion - The court noted prima facie collusion between the auction purchaser and secured creditor due to lack of proper notice and communication before the auction. (Paras 33-34)

Facts of the case:
The appellant, a purchaser, challenged an auction sale conducted by the bank without issuing required notices under the SARFAESI Act after a prior sale was stayed by the High Court. The bank proceeded with the auction despite non-compliance with legal requirements.

Findings of Court:
The court found that the auction sale was conducted without proper notice, thus vitiating the process. The auction purchaser was entitled to a refund of expenses incurred.

Issues: The court addressed whether the auction sale was lawful due to the lack of required notices and whether the borrower's actions constituted a waiver of rights.

Ratio Decidendi: The court ruled that the bank's failure to issue mandatory notices under the SARFAESI Act invalidated the auction sale, emphasizing the necessity of compliance with statutory requirements.

Result: Appeal partly allowed, directing the bank to refund the auction purchaser's expenses with interest.

Table of Content
1. background of auction and securitization application. (Para 1 , 2 , 3)
2. legal points considered by drt. (Para 4 , 5)
3. previous appeals and remand orders. (Para 6 , 7)
4. drt's findings on auction legality. (Para 8 , 9)
5. observations on the absence of appeal by the bank. (Para 10 , 11 , 12)
6. arguments by the appellant regarding auction validity. (Para 13 , 14 , 15 , 16 , 17 , 18 , 19)
7. respondent's counterarguments. (Para 20 , 21 , 22 , 23 , 24 , 25)
8. securitization applicant's status and compliance. (Para 26 , 27)
9. issue of notice non-issuance. (Para 28 , 29)
10. judicial precedents on auction notice requirements. (Para 30 , 31 , 32 , 33)
11. case distinctions and implications. (Para 34 , 35)
12. compensation and reimbursement considerations. (Para 36 , 37)
13. final order and modifications. (Para 38 , 39)

The Appellate Tribunal

Instant appeal has arisen against an order dated 25.07.2018 passed by the DRT-IHyderabad in S.A. No. 772 of 2013 (R Baleeshwaraiah Vs. The AO, State Bank of India & Ors.). Feeling aggrieved by the judgement and order the auction purchaser (respondent no.4 in S.A.) preferred the appeal.Respondent no. 1 and 2 in appeal are secured creditor while respondent no.3, R Baleeshwaraiah, is the securitization applicant and respondent no.4, R. Madhusudan, is the borrower.

2. As per pleadings of the parties, securitization application u/s 17 of the SARFAESI Act, 2002 (hereinafter referred to as Act) was filed by the guarantor challenging the sale notice dated 05.11.2012 and the auction sale held on 16.02.2013 which was conducted in favour of respondent no.4,Loknath Reddy, appellant herein. It is stated that securitization applicant, namely, R. Baleeshwaraiah, respondent no.3 herein, was a guarantor of OD loan of Rs.4.00 lakhs granted in favour of respondent no. 4 herein, R. Madhusudan, by the State Bank of India, respondent no.1 and 2 herein. Notice u/s 13(2) of the Act was issued and served. Notice u/s 13(4) of the Act was issued and on 17.12.2012 auction sale notice was published for proposed auction sale of the secured asset of House No.12-41, Nagarkurnool Village and Mandal, Mahabubnagar district. Securitization applicant has paid an amount of Rs.1,48,226/- to the bank when the debt due was Rs.4,38,503/-. Legal notice dated 04.12.2012 was issued by him alleging that only an amount of Rs.2,38,503/- was due and he is ready and willing to pay the same. Reply was given by the bank stating that the total due was Rs.6,01,829/-. It appears that the amount of Rs.2.00 lakh over and above Rs.4.00 lakhs was also granted by the bank which the securitization applicant was not liable to pay.

3. Auction sale notice dated 17.12.2012 was published fixing the auction date on 18.01.2013, but securitization applicant filed Writ Petition no. 768 of 2013 before the Hon’ble High Court of Telangana at Hyderabad wherein stay of the auction sale was granted subject to payment of Rs.4.00 lakh within four weeks, in default stay shall stand vacated and it shall be open to the bank to proceed with sale of the property. However, securitization applicant deposited Rs.50,000/- on 11.02.2013. Bank without giving another notice conducted the auction sale on 16.02.2013 in favour of the auction purchaser. Accordingly, securitization application was filed praying for a declaration that the impugned notice issued u/s 13(4) of the Act, the notice for sale dated 05.11.2012 and consequential auction held on 16.02.2013 as also the sale certificate dated 15.07.2014 registered with the Sub- Registrar, Nagarkurnool as illegal and unlawful.

4. Respondent no.1 and 2 bank filed opposition contending that respondent no.3 in the S.A. availed financial assistance wherein securitization applicant was a guarantor and he mortgaged the secured asset by deposit of title deed. Default was committed by the borrower in repayment of loan. The loan account was classified as NPA. Notice u/s 13(2) of the Act was issued and served, but no representation u/s

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2025 Supreme(Online)(DRAT) 227

DEBT RECOVERY APPELLATE TRIBUNALJustice Anil Kumar Srivastava, CJA Lokareddy (Loknath Reddy) – AppellantVersusThe Authorised Officer, State Bank Of India – RespondentAPPEAL No. 164 of 2018 | S.A. 772 of 2013

Mandatory issuance of fresh sale notices under the SARFAESI Act is required when prior auctions are not conducted, ensuring compliance with statutory procedures.

DEBT RECOVERY APPELLATE TRIBUNAL
Justice Anil Kumar Srivastava, CJ
A Lokareddy (Loknath Reddy) – Appellant
Versus
The Authorised Officer, State Bank Of India – Respondent
APPEAL No. 164 of 2018 | S.A. 772 of 2013