Property Auction SARFAESI & RDDBFI Act for Non Payment of Loans

Last Updated on May 27, 2024 by Satish Mishra

In this post we will talk about the procedure for auction of property by bank if the borrower fails to pay his debt.

The SARFAESI Act applies to loans above Rs. 1 lakh that are classified as NPAs. It excludes loans where more than 80% has been repaid and certain types of assets like agricultural land.

The SARFAESI Act does not cover the following assets: Money or security issued under the Sale of Goods Act, 1930 or Indian Contract Act, 1872. Any lease, hire-purchase, conditional sale, or any other contract where no security interest has been created.

The SARFAESI Act is only applicable to loans that are secured by collateral such as property, stocks, or bonds.

To stop an auction under the SARFAESI Act, a borrower can file a stay application before the appropriate authority, typically the Debt Recovery Tribunal (DRT).

M/s Sajjan Chemicals Corporation and Another v. Punjab and Sind Bank

NAME OF THE COURT- Debts Recovery Appellate Tribunal, Delhi

DATE OF DECISION- 13^th January, 2020

NAME OF THE PARTIES-

Petitioners-

M/s Sajjan Chemicals Corporation and Anr.

Kanwaljeet Singh

Respondents-

Punjab and Sind Bank

The Authorized Officer

TIMELINE –

7^th January, 2016- The Securitization Application that was filed by the Appellants was disposed off.
10^th January, 2018- Miscellaneous Application that was filed by the Appellants as the Securitization Application was disposed.
13^th January, 2020- The present appeal is filed by the applicants because the Miscellaneous Application was also dismissed.

BRIEF STATEMENT OF FACTS-

In the present case, the appellants are the security applicants in front of the Debts Recovery Tribunal. They were aggrieved by the order that was passed in the year 2018 as part of their Securitization Application under Section 17(1) of the SARFAESI Act. This disposed the earlier final order that was passed in the year 2016 and hence the presence appeal was filed. The order that was passed in the year 2018 was a part of the miscellaneous application that was filed by the appellants in lieu of the Securitization Application being disposed.

The Appellants in the present case had taken some loan from the respondent bank and for the repayment of the loan, they mortgaged their property. Since the Appellant failed to repay their loan, the bank that was lending the money, classified it as a Non-performing Asset and took over the property as recourse under the SARFAESI Act. The appellants filed a Securitization Application under the DRT and they were provided with an opportunity for clearing all their dues. Finally the Securitization Application was disposed.

ALSO READ- PROCEDURE UNDER SARFAESI ACT, 2002 IN DRT CHANDIGARH

PETITIONER’S ARGUMENTS/ EVIDENCES-

The Miscellaneous Application that is under challenge here states that- The application was on behalf of Kanwaljeet Singh and it was filed under Section 17(7) of the SARFAESI Act read along with Section 19(25) as well as Section 22 of the RDDBFI Act, read along with Rule 18 of the Debt Recovery Tribunal Procedure Rules, and alleged that the notice under Section 13(2) of the SARFAESI Act claiming an amount of about 35 lakhs. Following that, the applicant has been continually depositing an amount with the respondent bank and the bank had already received about 32 lakh rupees but still it took over the possession of the residential property in New Delhi.

The Counsel of the Applicants further contended that the Applicant was unable to deposit of the amount that is passed by the tribunal because of the fact that his mother suffered from cancer and a large part of the expenditure went in treating her. Therefore, the reason for failure to pay is a trustworthy and bona fide.

The Counsel for the applicants further stated that the respondent did not proceed for an auction with the property and its value of reserve price of Rs.54 lakhs. There was no mandatory notice that was issued by the respondent bank although the bank was supposed to adhere to the guidelines issued under Rule 8(6) of the Security Interest Enforcement Rules. Therefore, the applicant prayed for the sale of the property be stayed and time be extended for depositing the amount.

The Counsel for the applicants submitted that an amount of 32 lakhs has been paid. The calculation of the interests was not made by the respondents. Only a sum of about 18 lakhs stands payable by the applicant. Therefore a wrong calculation was made by the respondents.

RESPONDENT’S ARGUMENTS/ EVIDENCES-

The Counsel for the Respondents has filed a reply to the miscellaneous application stating that the application can be dismissed due to a material fact being dismissed from the Court. The Respondents have further contended that the applicant has suppressed the fact that the order passed in the year 2017 mentioned that the bank was well within its rights to take over the possession of the property in question in case the cheque of 3 lakh rupees was bounced.

Further, the respondent bank denied all the submissions that were made by the applicants in the present application stating that the present application is an abuse of the process of law, and hence no extension can be granted, and hence prayed for the dismissal of the present application.

The Respondents argued that a sum of 54 lakhs stands payable by the applicant. The applicant had already paid a sum of 32 lakhs. As per the calculation of the applicant 18 lakhs are due. The court held in the previous application that if the 3 lakh cheque was bounced bank, then the bank can proceed in accordance with the law.

CONTROVERSY INVOLVED FOR ADJUDICATION-

Whether the Respondents are entitled to sell the property of the Appellants.

FINDINGS OF THE COURT-

Having perused the facts and evidences at hand, and after having heard both the counsels, The Court came to the conclusion that the Securitization Application was filed on behalf of the Appellants M/s Sajjan Chemicals Corporation via the proprietor Shri Kamaljeet Singh. The appellant was ordered to deposit an amount of Rs. 10 lakhs along with an interest amounting to 13.5%. It was also laid down that in case of the default in payment by the applicant; the respondent was at liberty to proceed in accordance with the law.

Since the above mentioned order was not followed by the applicant and the applicant filed another application, for which order passed by the tribunal was that the amount of Rs 30 Lakhs followed by 7 lakhs that was supposed to be paid by the applicant that very day, with a DD for 4 lakhs and a cheque for 3 lakhs and in case the cheque is bounced bank then the respondent bank is at liberty to take over the property.

The Court held that since the bank felt that the appellants did not comply with the order finally placed by the DRT, they can take over the property and auction the same. The Applicants at this stage filed a miscellaneous application, however the auction took place and the application stood disposed.

ALSO READ- DEMAND NOTICE UNDER SARFAESI ACT

The Court held that there was no necessity of impleadment of the auction purchasers in the present case. One of the auction purchasers happened to be a senior officer in the respondent bank that had auctioned the property in the first place. If the auction purchasers feel that they are not being given the possession of the property auctioned, and are not being issues a legal sale certificate, they can start their independent legal fight for appropriate reliefs to which they would feel entitled to.