In this post we will discuss a DRAT appeal wherein it was held in the following case that the view that notice to the borrower under rule 8(6) of the Security Interest (Enforcement) Rules, 2002 is a mandatory requirement laid down by the statute, and failure to issue such a notice would vitiate the auction itself.
8(6) of the Security Interest (Enforcement) Rules, 2002
In the following article, the details and amicable necessities of Section 8(6) of the Security Interest (Enforcement) Rules, 2002 will be discussed. Under the following section, the authorized officer shall serve the borrower to sell his immovable assets 30 days before the sale.
SARFAESI Act (The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) was enacted to regulate financial assets’ securitization and enforcement of security interest created in respect of Financial Assets to enable the comprehension of such assets. The establishment of this Act intends to enable the Banks and Financial Institutes to recover their money cordially. The Act empowers the Banks and FI’s to auction the property mortgaged to recover such outstanding dues that are not paid for years despite repeated notices.
The Rules were brought into existence due to the lack of a debt recovery system in India. Debts Recovery Tribunals (DRT) and Debts Recovery Appellate Tribunals (DRAT) have been constituted under the DRT Act’s provisions for the establishment of Tribunals for expeditious adjudication and recovery of debts due to Banks and Financial Institutions and matters connected in addition to that.
The SARFAESI Act provides for the manner for enforcement of security interests by a secured creditor without a court or tribunal intervention. If any borrower fails to discharge his liability in repayment of any secured debt within 60 days of notice from the date of notice by the secured creditor, the secured creditor is conferred with powers under the SARFAESI Act to
- a) take possession of the secured assets of the borrower, including transfer by way of lease, assignment or sale, for realizing the secured assets
- b) takeover of the management of the business of the borrower, including the right to transfer by way of lease, assignment, or sale for realizing the secured assets,
- c) appoint any person to manage the possession of the secured asset of which is taken by the secured creditor, and
- d) require any person who has acquired any of the secured assets from the borrower and from whom money is due to the borrower to pay the secured creditor so much of the money as if sufficient to pay the secured debt.[1]
ALSO READ- PROPERTY AUCTION SARFAESI & RDDBFI ACT FOR NON PAYMENT OF LOANS
Facts
In the case of Lalit Mohan Aggarwal And Anr vs. Andhra Bank and Ors[2] The petitioner filed an appeal on the auction purchaser assails the order dated 13.03.2020, passed by the Debts Recover Appellate Tribunal, Delhi (DRAT). Under the impugned order, the DRAT has – while allowing the appeal preferred by the mortgager Mr.Atul Gupta being Appeal No. 498/2018, set aside the auction sale of the mortgaged property in favor of the petitioner held on 21.07.2015. The DRT, in its order, had rejected the mortgager’s plea was void and would be set aside as no notice under rule 8(6) regarding the auction sale held on 21.07.2015 was served on the appellant, and hence the auction was void.
As given under Section 8(6) of the Security Interest (Enforcement) Rules, 2002
The authorized officer shall serve the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5): Provided that if the sale of such secured asset is being affected by either inviting tenders from the public or by holding the public auction, the secured creditor shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include,
(a) The description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor;
(b) the secured debt for recovery of which the property is to be sold;
(c) the reserve price, below which the property may not be sold;
(d) time and place of public auction or the time after which sale by any other mode shall be completed;
(e) depositing earnest money as may be stipulated by the secured creditor;
(f) any other thing that the authorized officer considers material for a purchaser to know to judge the property’s nature and value.[3]
The following criteria are given under the section mention that the bank needs to notify the borrower and an advertisement in any two newspapers.
In the following case, the court heard arguments. It concluded that the 30 days’ notice under Rule 8(6) of Rules, 2002 was duly served on 05.03.2015 by the respondent bank. The publication was also affected on 19.06.2016 in the newspapers Hindustan Times and Amar Ujala. The notice dated 15.05.2015 was also duly addressed to the applicant/ director /borrower /guarantor/mortgagor as apparently seen from the letter and registered postal receipt placed on record. However, the notices served to the petitioner did not specify the date or the time of the auction.
After that, it is evident that no specific notice was issued to the mortgagor in terms of rule 8(6) of the Security Interest (Enforcement) Rules, informing him of the actual date, time, and place of the public auction. According to the petitioner, the publications made in the newspapers communicating the date, place, and time of the auction of the property in question were sufficient notice in compliance with rule 8(6). The DRAT has found no merit in this submission by placing the reliance on Mathew Varghese’s (supra) ‘s decision and, in our view, rightly so. We find that the relevant extract from Mathew Varghese (supra) had been taken note of by the DRT itself in para 33 of its decision extracted hereinabove, and the same leaves no manner of doubt that a statutory notice is required to be given to a borrower before holding of a public auction of the mortgaged property.
ALSO READ- DEMAND NOTICE UNDER SARFAESI ACT
Judgment
Therefore, it was held in the following case that the view that notice to the borrower under rule 8(6) of the Security Interest (Enforcement) Rules, 2002 is a mandatory requirement laid down by the statute, and failure to issue such a notice would vitiate the auction itself.
Case Quoted
The major case quoted in the following petition was the Mathew Varghese vs. M. Amritha Kumar & Ors[4]. In this case, the importance of individual notices along with an advertisement in the newspaper. Such individual notice is required to enable the borrower to make all efforts to retain their ownership by tendering dues to the secured creditor before the date of sale. Any sale or transfer effected without complying with this statutory requirement would be a constitutional violation and nullify the ultimate sale.
Conclusion
The Ruling has endeavored to save the privilege of the borrower’s property by guaranteeing that a borrower isn’t arranged without fair treatment of law. The hidden reason being that gotten leasers are not permitted to mishandle the vast powers gave to them under the SARFAESI Act. The privilege to the property is given under Article 300A of the Indian Constitution. Subsequently, any law denying an individual of his property will need to do as such in a sensible way. It very well may be contended that the solitary sensible way to deny an individual of his property is to offer him reasonable remuneration for the equivalent. This conversation, anyway, isn’t significant with the end goal of this post. The significant solitary point is that under the Constitution, no individual can be denied their property without the authority of law.
ALSO READ- APPEAL IN DRT CHANDIGARH AGAINST ORDER OF RECOVERY OFFICER
This post is written by Tanya Gorshi.
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[1] IARC, SARFAESI Act and Rules, http://www.iarc.co.in/content.php?cid=MjA=&mid=NQ==
[2]W.P.(C) 8749/2020 & CM APPL. 28188/2020
[3] The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, §8, Act no. 54 of 2002 (India).
[4][(2014) 5 SCC 610]
