2026 Supreme(Online)(DRAT) 235

DEBT RECOVERY APPELLATE TRIBUNAL
Shri G. CHANDRASEKHARAN
R DHANALAKSHMI AND ORS – Appellant
Versus
UNION BANK OF INDIA AND ORS – Respondent
11202/2018

A sale under the SARFAESI Act can be set aside for fundamental procedural errors like gross undervaluation, non-compliance with mandatory payment timelines, and irregular issuance of sale certificates. A secured creditor acts as a trustee and must secure the best price for the secured asset.

Headnote:(A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) - Sections 13(2), 13(4), 17 and 18 - Security Interest (Enforcement) Rules, 2002 - Rules 8(1), 8(2), 8(6), 8(7), 9(1), 9(3), 9(4) and 9(6) - The rights of a bona fide auction purchaser deserve due protection, but such protection is not absolute; where credible issues are raised regarding the adequacy of valuation or the fairness of the process leading to the fixation of the reserve price, the supervisory jurisdiction may be invoked to ensure that recovery proceedings have been conducted in a manner that secures the best possible value. (Para 48(I)(9)) - Secured creditors are trustees and must act cautiously, honestly, fairly and reasonably; they are duty-bound to ensure the maximum best price is received from the secured asset. (Para 48(I)(5)) - Compliance of Rule 9(4) regarding payment of balance purchase price is mandatory; the balance amount must be paid within 15 days of confirmation of sale or such extended period as may be agreed upon in writing between the secured creditor, the borrower, and the auction purchaser. (Paras 36, 48(I)(2)) - Non-compliance of mandatory Rule 8(7) regarding affixture of sale notice renders the sale invalid. (Para 48(I)(4)) - In the matter of sale of property, the dominant consideration is to secure the best price; failure to do so would result in substantial injury and amounts to material irregularity vitiating subsequent proceedings. (Para 48(I)(3)) - Valuation of the property taken at the time of granting loan is a crucial factor while obtaining valuation at the time of bringing the property for sale. (Para 48(I)(6)) - Financial institutions cannot act like property dealers and dispose of secured assets in an unreasonable or arbitrary manner. (Para 48(I)(8)) - The cause of action for challenging a sale notice and for challenging the sale itself are different; a second application for a different cause of action is maintainable. (Para 48(II)(3)) - Allegation of mere procedural violation is of no use unless substantial prejudice is demonstrated. (Para 48(II)(5)) - Once a sale is concluded, it cannot be set aside unless a fundamental procedural error has occurred or the sale certificate was obtained by misrepresentation or fraud. (Paras 48(II)(2), 48(III)(1)) - The principle of res judicata applies to different stages of the same proceedings. (Paras 42, 43) - An amendment in a SARFAESI application is permissible for impugning subsequent or consequential actions by the bank. (Para 54(I)(1)) - If an amendment application is allowed without any rider or condition, it is reasonable to presume that the amendment would relate back to the date of filing of the suit. (Para 54(I)(2)) - Amendment should be filed within the period of limitation prescribed under Section 17 of the SARFAESI Act. (Para 54(II)(1)) - DRT has no power to entertain an application presented beyond the period of 45 days from the date of the impugned measures. (Para 54(II)(2)) - Where the amendment changes the nature of the case, cause of action, or is prohibited by the law of limitation, it cannot be permitted. (Para 54(II)(3)) - An application under Section 17 of the Act can be filed only within 45 days, and the DRT has no inherent power to condone delay. (Paras 9(d)(3), 11) - The remedy under Section 17 is a complete code, conferring wide powers on the DRT to examine all measures taken by the secured creditor. (Para 9(h)) - The doctrine of election precludes a party from pursuing two inconsistent remedies. (Para 9(h)) - An order is not to be interfered with simply because another view is possible; a court sitting in appeal must ascertain that the decision is not afflicted by perversity or illegality. (Para 48(I)(7)) - The payment by cheque, which is realized subsequently, relates back to the date of receipt of the cheque. (Para 48(III)(2)) - For the purpose of Rule 9(4), 'parties' means the secured creditor, borrower, and the auction purchaser. (Paras 36, 37) - The sale of property by the bank and the manner of issuing a sale certificate must be in accordance with the SARFAESI Act and Rules; the division and apportioning of property among purchasers, and issuing sale certificates in favour of fewer persons than those in whose favour the sale was confirmed, is not contemplated by the Act. (Para 40) - The failure to serve a tender notice by a mandatory mode, such as affixture, can render the sale invalid. (Para 29) - The requirement of a 30-day notice for a sale under Rule 9(1) is mandatory. (Para 8) - The failure to state the name of the borrower in the tender notice and the absence of property boundaries are irregularities. (Para 7(k)) - An amendment that does not introduce a time-barred cause of action but merely supplements the original pleadings should be allowed, subject to the court's discretion. (Para 7(r)) - The Court/DRT can consider a plea to set aside a sale even if there is no specific prayer, if grave irregularities and violations of mandatory provisions are made out. (Paras 58, 59) - For the fault committed by the counsel for a party, the party should not be penalized. (Para 80) - Where the court has left the issue of the legality of the sale proceedings open to be decided by the Tribunal, the Tribunal cannot refuse to decide it on the ground that it is estopped due to the High Court's judgment. (Paras 68, 69, 70).

(B) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 17 - Limitation - An application under Section 17 of the SARFAESI Act can be filed only within 45 days from the date of the measures taken by the secured creditor; the Debts Recovery Tribunal has no power to condone delay beyond this period. (Paras 9(d)(3), 11) - The DRT is not a conventional civil court having inherent power to condone delay under Section 5 of the Limitation Act. (Para 9(d)(6)).

(C) SARFAESI Act - Pleadings - Relief not founded on the pleadings should not be granted. (Para 9(e)(1),(2)).

(D) SARFAESI Act - Res Judicata - The principle of res judicata applies not only to two different proceedings but also to different stages of the same proceedings. (Para 9(p)) - The principle of res judicata as explained in the Henderson case applies where a party approaches the High Court and the statutory Tribunal parallelly. (Para 9(h)). (E) SARFAESI Act - Valuation - Dominant consideration is to secure the best price; failure to do so amounts to material irregularity. (Para 48(I)(3)). (F) SARFAESI Act - Sale - The sale of secured assets must be done in accordance with the rules; the rights of a bona fide auction purchaser are protected, but not absolute; if irregularities are established, the sale can be set aside. (Paras 77, 82(c)).

Facts of the case:
The first appellant availed credit facilities from the respondent bank. The other appellants were guarantors. They created equitable mortgages over several properties. The bank issued a demand notice under Section 13(2) of the SARFAESI Act on 31.5.2006, followed by a possession notice on 14.8.2006, and a tender notice on 29.8.2006. The sale was conducted on 5.10.2006. The appellants filed a Securitisation Application (TSA 10/2016) challenging the possession notice and tender notice. The auction purchasers filed an application (IA 179/2016) to decide the maintainability of the SA. The DRT dismissed the SA and allowed the IA, holding that the SA had become infructuous after the sale. The appellants appealed to the Appellate Tribunal. The Appellate Tribunal found that the DRT had failed to consider the merits of the case and that there were serious violations of procedure, including gross undervaluation of the property, non-compliance with payment timelines under Rule 9(4), and irregularities in the conduct of the sale and issuance of the sale certificate.

Findings of Court:
The Appellate Tribunal held that the order of the DRT dismissing the SA and allowing the IA was liable to be set aside. It found that the property was grossly undervalued, that the tender notice gave an illegal extension of time for payment of the balance sale consideration, that the proof of affixture of the tender notice was not produced, that the balance sale consideration was paid after five months instead of the mandated 15 days, and that the sale certificate was issued in favour of two persons when the sale was confirmed in favour of three. It also noted that the DRT had erroneously believed it was estopped from deciding the merits of the case due to the High Court's judgment, a position the High Court itself had clarified was incorrect. The Tribunal, therefore, allowed the appeals, quashed the tender notice, the sale held pursuant to it, and the issuance of the sale certificate. It directed the bank to take back possession of the property and refund the sale consideration to the auction purchasers with interest.

Issues: The main issues were the maintainability of the SA after the sale had been conducted, the validity of the sale in light of alleged procedural violations (including undervaluation, improper notice, and irregular payment), and the applicability of the principle of res judicata.

Ratio Decidendi: The court ruled that the DRT had failed to exercise its jurisdiction by not considering the merits of the case, holding that the SA was not rendered infructuous by the sale. The court established that a secured creditor must act as a trustee and secure the best price for the secured asset. It held that fundamental procedural errors and violations of mandatory rules (such as Rule 9(4) of the SIE Rules) can invalidate a sale. It also held that a party cannot be penalized for the fault of its counsel in framing the pleadings.

Result: RA(SA) 25/2020 allowed by setting aside the dismissal order of TSA No.10/2016. MA (SA) 10/2020 allowed by setting aside the order allowing IA 179/2016. TSA No.10/2016 (SA 66/2006) was allowed, and IA No.179/2016 was dismissed. The bank was directed to take back possession of the secured asset and refund the sale consideration with interest to the auction purchasers.

Table of Content
1. what is the procedural history and background of the sarfaesi appeal? (Para 1 , 3 , 4 , 5)
2. what are the main contentions of the appellants and respondents? (Para 6 , 7 , 8 , 9 , 10 , 11 , 12)
3. what were the facts regarding the demand notice, possession notice, and service of notices? (Para 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27)
4. what were the irregularities in the tender notice, sale process, payment, and valuation? (Para 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47)
5. what is the court's analysis on the maintainability and merits of the sarfaesi application? (Para 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59 , 60 , 61 , 62 , 63 , 64 , 65 , 66 , 67 , 68 , 69 , 71 , 72 , 73 , 74 , 75 , 76 , 77)
6. what are the mandatory procedural violations found under sarfaesi act? (Para 78 , 79 , 80)
7. what is the final order and relief granted by the tribunal? (Para 81 , 82 , 83 , 84)

IN THE DEBT RECOVERY APPELLATE TRIBUNAL AT CHENNAI Dated the 21^st Day of April, 2026 PRESENT: HON'BLE MR. JUSTICE G. Chandrasekharan CHAIRPERSON RA(SA) 25/2020 &

MA(SA) 10/2020 (Arising out of TSA 10/2016 and IA 179/2016 on the file DRT-II, Ernakulam)

I. RA(SA) 25/2020 Between

1. R. Dhanalakshmi, Proprietrix, M/s Seemati Textiles, Represented by POA Holder R. Ananth Kumar, Dhanams, Curzon Road, Kolam.

Now, at House No.49/762, Arayacham Veedu, Kottamukku, Cutcherry P.O., Kollam 691 013. 2. Ramachandra Reddiar (Died)

Dhanams, Curzon Road, Kollam.

3. R. Veeresh Kumar, Dhanams, Curzon Road, Kollam Now, at House No.49/762, Arayacham Veedu, Kottamukku, Cutcherry P.O., Kollam 691 013.

4. R. Ananthakumar, Dhanams, Curzon Road, Kollam.

Now, at House No.49/762, Arayacham Veedu, Kottamukku, Cutcherry P.O., Kollam 691 013.

…….Appellants And

1. Senior Manager, Union Bank of India, Kollam Branch, Fatima Building, P.B. No.182, Beach Road, Kollam 691 001.

2. The Authorised Officer, Union Bank of India, Regional Office, Union bank Bhawan, Post Box No.307, M.G. Road Statue, Thiruvananthapuram 695 001.

3. Dr. Mumthas, Chandralayam, M.C.R.A.-77, Nellimukku, Kollam-12, Represented by POA Holder, M. Shahid Ahmed, Advocate, Chandralayam, M.C.R.A. – 77, Kollam -12.

Also at: House at No.99, Curzon Nagar, Curzon Road, Kollam 13.

4. Mr. Shahid Ahmed, Chandralayam, Nellimukku, Kollam 12.

Also at: House at No.99, Curzon Nagar, Curzon Road, Kollam 13.

5. Rajammal, Chandralayam, Nellimukku, Kollam 12 …Respondents Counsel for Appellants : Senior Counsel Shri P.B. Krishnan for Shri V.K. Peer Mohamed Khan Counsel for R1 and R2 : Shri A.S.P. Kurup & Co.

Counsel for R3 to R5 : Senior Counsel Shri Anil Xaviour for M/s Prem Rajakumari & Co.

II. MA (SA) 10/2020 Between

1. R. Dhanalakshmi, Proprietrix, M/s Seemati Textiles, Represented by POA Holder R. Ananth Kumar, Dhanams, Curzon Road, Kolam.

Now, at House No.49/762, Arayacham Veedu, Kottamukku, Cutcherry P.O., Kollam 691 013. 2. Ramachandra Reddiar (Died)

Dhanams, Curzon Road, Kollam.

3. R. Veeresh Kumar, Dhanams, Curzon Road, Kollam Now, at House No.49/762, Arayacham Veedu, Kottamukku, Cutcherry P.O., Kollam 691 013.

4. R. Ananthakumar, Dhanams, Curzon Road, Kollam.

Now, at House No.49/762, Arayacham Veedu, Kottamukku, Cutcherry P.O., Kollam 691 013.

…….Appellants And

1. Senior Manager, Union Bank of India, Kollam Branch, Fatima Building, P.B. No.182, Beach Road, Kollam 691 001.

2. The Authorised Officer, Union Bank of India, Regional Office, Union bank Bhawan, Post Box No.307, M.G. Road Statue, Thiruvananthapuram 695 001.

3. Dr. Mumthas, Chandralayam, M.C.R.A.-77, Nellimukku, Kollam-12, Represented by POA Holder, M. Shahid Ahmed, Advocate, Chandralayam, M.C.R.A. – 77, Kollam -12.

Also at: House at No.99, Curzon Nagar, Curzon Road, Kollam 13.

4. Mr. Shahid Ahmed, Chandralayam, Nellimukku, Kollam 12.

Also at: House at No.99, Curzon Nagar, Curzon Road, Kollam 13.

5. Rajammal, Chandralayam, Nellimukku, Kollam 12 …Respondents Counsel for Appellants : Senior Cou

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