Partly allowed

A Loka Reddy Loknath Reddy v. State Bank of India

DRAT15 May 2025REGULAR APPEAL/164/2018

Case brief

AI extract

What is this about?

The Debt Recovery Appellate Tribunal partly allowed an appeal by an auction purchaser. It upheld that a fresh 30-day notice under the Security Interest (Enforcement) Rules, 2002 was mandatory after a prior sale notice lapsed. The bank's sale was set aside, but the purchaser was awarded stamp duty expenses with interest.

What did the court decide?

Set-aside of auction sale; granite purchaser entitled to Rs.1,07,510/- for stamp duty with 12% interest.

A Loka Reddy Loknath Reddy versus State Bank of India — Execution and Attachment | DRAT (2025)

¶1

¶2

Reportable / not reportable

¶3

IN THE DEBT RECOVERY APPELLATE TRIBUNAL - KOLKATA

¶4

HON'BLE Justice Anil Kumar Srivastava, Chairperson

¶5

APPEAL No. 164 of 2018

¶6

(Arising out of S.A. 772 of 2013 – DRT-I Hyderabad)

¶7

15.05.2025

¶8

A Lokareddy (Loknath Reddy) residing at House No. 12-41 (12-45) – Ramnagar Colony, Nagakurnool, Town, Mandal and Dist. Telengana – 509209.

¶9

... Appellant

¶10

--Vs--

¶11

The Authorised Officer, State Bank Of India, Main Branch Building, Mahaboobnagar, PIN 509001.

¶12

2.The Manager State Bank of India At Nagarkurnool Branch, Nagarkurnool (Mahaboobnagar) 509209,

¶13

3.R Baleeshwaraiah Residing at H No 15-129/1, Ragavendra Colony, Nagarkurnool Town and Dist. PIN 509209.

¶14

4.R Madhusudan Residing at H No 15-129/1, Ragavendra Colony, Nagarkurnool Town and Dist. PIN 509209.

¶15

... Respondents

¶16

For Appellant : Mr. Ashok Kr. Dhandhania, Ld. Senior counsel Mr. Soumo Mukherjee, ld. Adv. Ms. Sweta Mishra, ld. Adv.

¶17

For Respondent:Ms. Mekhla Kanji, ld. adv. for resp. 1 and 2 Mr. Nemani Srinivas, ld. Adv. for resp. no.3

¶18

The Appellate Tribunal

¶19

Instant appeal has arisen against an order dated 25.07.2018

¶20

passed by the DRT-IHyderabad in S.A. No. 772 of 2013 (R

¶21

Baleeshwaraiah Vs. The AO, State Bank of India & Ors.). Feeling

¶22

aggrieved by the judgement and order the auction purchaser

¶23

(respondent no.4 in S.A.) preferred the appeal.Respondent no. 1

¶24

and 2 in appeal are secured creditor while respondent no.3, R

¶25

¶26

Baleeshwaraiah, is the securitization applicant and respondent

¶27

no.4, R. Madhusudan, is the borrower.

¶28

As per pleadings of the parties, securitization application u/s

¶29

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

¶30

herein. It is stated that securitization applicant, namely, R. Baleeshwaraiah, respondent no.3 herein, was a guarantor of OD

¶31

loan of Rs.4.00 lakhs granted in favour of respondent no. 4

¶32

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

¶33

auction sale notice was published for proposed auction sale of the

¶34

secured asset of House No.12-41, Nagarkurnool Village and

¶35

Mandal, Mahabubnagar district. Securitization applicant has paid

¶36

an amount of Rs.1,48,226/- to the bank when the debt due was

¶37

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

¶38

ready and willing to pay the same. Reply was given by the bank

¶39

stating that the total due was Rs.6,01,829/-. It appears that the

¶40

¶41

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.

¶42

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

¶43

to proceed with sale of the property. However, securitization

¶44

applicant deposited Rs.50,000/- on 11.02.2013. Bank without giving another notice conducted the auction sale on 16.02.2013

¶45

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

¶46

the sale certificate dated 15.07.2014 registered with the SubRegistrar, Nagarkurnool as illegal and unlawful.

¶47

Respondent no.1 and 2 bank filed opposition contending that

¶48

respondent no.3 in the S.A. availed financial assistance wherein

¶49

¶50

securitization applicant was a guarantor and he mortgaged the secured asset by deposit of title deed. Default was committed by

¶51

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 13(3A) of the Act was made. Notice u/s 13(4) of the Act was issued, publishedand affixed.

¶52

Auction sale notice was issued and it was published in the newspapers on 27.12.2012 fixing the sale date on 18.01.2013, but in view of the order passed by the Hon’ble High Court in WP

¶53

No. 768 of 2013 auction sale was postponed. Due to noncompliance of the Hon’ble High Court order, bank proceeded further and conducted the auction sale wherein auction purchaser

¶54

became the highest bidder for the bid amount of Rs.13,09,500/-.

¶55

Sale consideration amount was paid by the auction purchaser

¶56

within stipulated time. Auction purchaser also filed opposition. All

¶57

the proceedings were conducted in accordance with law.

¶58

5. Learned DRT considered two points which are as under :

¶59

(i) Whether the proceedings initiated by the respondent bank u/s 13(4) of the Act and subsequent Rule 8(6) notice and also auction Notice dated 17.12.2012 for conducting auction of the schedule property on 16.02.2013 are illegal and liable to be set aside?

¶60

¶61

(ii) Whether the sale certificate bearing document No.4190/14 dated 15.07.2014 registered in favour of respondent no.4, the auction purchaser is illegal and liable to be set aside?

¶62

Learned DRT recorded a finding that all the proceedings conducted by the bank are in accordance with law. Notice u/s 13(2) and 13(4) of the Act are issued and served. Ultimately,

¶63

securitization application was dismissed on 29.04.2015.

¶64

Feeling aggrieved by the judgement and order Appeal No.54 of 2016 was preferred before the DRAT, Kolkata which was decided on 15.09.2017 wherein it was recorded that auction sale

¶65

was conducted without giving appropriate notice of sale. Accordingly, matter was remanded back to the learned DRT to examine whether the sale conducted on 16.02.2013 was in accordance with the provisions of Rule 8(6) and 9(1) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as Rules) and whether proper notice was required under Rule 8(6) and publication under Rule 9(1) of the Rules or not?

¶66

After remanding the matter, learned DRT decided the securitization application afresh and passed the impugned judgement and order whereby it was held that issuance of fresh sale notice under Rule 8(6) and 9(1) are mandatory when earlier

¶67

¶68

auction sale could not be conducted. Accordingly, it was held

¶69

that the bank had conducted auction sale without issuing a fresh sale notice. Consequently, securitization application was allowed

¶70

and the auction held on 16.02.2013 was set aside and bank was directed to refund the sale consideration amount with interest @ 12% from the date of deposit till the date of payment.

¶71

Feeling aggrieved by the judgement and order auction

¶72

purchaser preferred the appeal.

¶73

At this juncture it would be pertinent to observe that bank did not prefer any appeal rather file opposition to the appeal filed

¶74

by the auction purchaser.

¶75

I have heard learned counsel for the appellant auction

¶76

purchaser and the respondent bank as well as respondent no.4,

¶77

the borrower and perused the records.

¶78

In the opposition filed by the bank, it is stated that a letter

¶79

dated 14.02.2013 was sent to the

¶80

RachriBaleeshwaraiahintimating that 16.12.2013 was the date for conducting the auction.

¶81

Learned counsel for the appellant would submit that

¶82

admittedly impugned sale is a second sale. It is submitted that

¶83

¶84

first sale schedule to be held on 18.01.2013 which could not be conducted as guarantor filed a Writ Petition No 768 of 2013 before the Hon’ble High Court of Telangana at Hyderabad wherein a conditional order was passed on 09.01.2013 staying the auction sale for four weeks subject to payment of Rs.4.00 lakhs and in default it was ordered that stay shall stand vacated. Condition imposed by the Hon’ble High Court was not complied by the petitioner. Accordingly, automatically stay got vacated and sale was fixed on 16.02.2013.

¶85

Learned counsel for appellant has placed reliance upon the

¶86

judgement of the Hon’ble Apex Court in Mathew Varghese Vs.

¶87

M. Amritha Kumar & Ors. [(2014) 5 SCC 610) and submits that

¶88

since the first sale could not be conducted for the reasons attributable to the guarantor/borrower, hence, fresh notice was not required. Learned counsel further submits that it means a waiver by the borrower.

¶89

Learned counsel for the appellant has also placed reliance upon the judgement of Deenadayal Nagari Sahakari Bank

¶90

Ltd. & Anr. Vs. Munjaji & Ors. [(2022) 7 SCC 594] and it is submitted that in that case Rule 107(11)(f) of the MCS Rules was

¶91

¶92

challenged, this Rule is parametria to Rule 15 of the Income Tax (Certificate Proceedings) Rules, 1962. Since defaulter himself

¶93

waived his right no fresh notice was required.

¶94

Learned counsel further placed reliance upon Para 97 of S.

¶95

Karthik & Ors. Vs. N. Subhash Chand Jain & Ors. [(2022) 10 SCC 641) wherein it was held that since first sale could not be held due to the reason attributable to the guarantor, there was

¶96

no necessity of again following the same procedure of providing a

¶97

30 days’ clear notice.

¶98

Learned counsel for the appellant has further placed reliance

¶99

upon para 217, 218 and 219 of Celir LLP Vs. Sumati Prasad

¶100

Bafna & Ors. [2024 SCC OnLine 3727] and it is submitted that since there was no allegation of collusion, fraudulent or vitiated by inadequate pricing or underbidding, thus the auction cannot be said to suffer from any fundamental procedural error, as such does not warrant any interference of this Court and it could not be set aside.

¶101

Learned counsel further submits that sale was conducted on

¶102

16.02.2013 wherein appellant has deposited the total bid

¶103

amount. Subsequent thereto possession was also delivered to

¶104

¶105

the auction purchaser. Auction purchaser has spent a huge

¶106

amount for renovation of the secured asset. Hence, now after about 12 years auction conducted in favour of the appellant could

¶107

not be set aside.

¶108

It is further submitted that there was no plea of violation of Rule 8(6) and 9(1) of the Rules in the pleadings, but in the judgement of DRAT, Kolkata the matter was remanded back to DRT to examine the matter whether there was violation of Rule 8(6) and 9(1) of the Ruleswhich could not be looked into by the DRT.

¶109

Per contra, learned counsel for respondent would submit that borrower was always ready and willing to redeem the mortgage property. Demanded due was Rs.4,38.503/- while the borrower deposited Rs.1.98 lakhs. Thereafter possession was taken on 22.03.2012. It is submitted that guarantor filed the securitization application in 2013 which was decided by the learned DRT. Appeal was filed before DRAT, Kolkata and matter

¶110

was remanded back to DRT. DRT allowed the securitization application and thereafter, instant appeal was filed, which is

¶111

¶112

pending. The matter is not pending for any default on the part of

¶113

the borrower or guarantor.

¶114

It is further submitted that it is not a case of the bank that

¶115

borrower is a dishonest borrower. No doubt due to certain circumstances he could not repay the amount in time, but his conduct does not show or it could be inferred that he is a dishonest borrower. Had it been so, he would not repay about

¶116

50% of the loan amount i.e. Rs.1.98 lakhs.

¶117

It is further submitted that postponement of sale could not be attributable to the borrower asWrit Petition was filed before the Hon’ble High Court wherein conditional stay was

¶118

granted,borrower failed to comply the order of the Hon’ble High Court and stay got vacated. Although an amount of Rs.50,000/-

¶119

was deposited by him. There was no fault on the part of the borrower rather he was always willing to redeem the mortgage.

¶120

Learned counsel further submits that the auction date was

¶121

fixed for 16.02.2013 by the bank, but no notice as required under Rule 8(6) and 9(1) was issued. A letter was sent by the bank on

¶122

14.02.2013 intimating the date of auction on 16.02.2013. It is

¶123

further submitted that that there were five bidders participated in

¶124

¶125

the auction. How the five bidders came to know about the date

¶126

of the auction? How and why the letter dated 14.02.2013 was

¶127

sent by the bank? It shows there was collusion between the secured creditor, authorised officer and the auction purchaser.

¶128

It is further submitted that no appeal is filed by the bank against the impugned judgement. It means that the bank has accepted the lapse of non-issuing of notice under Rule 8(6) and

¶129

9(1) on their part. No appeal was filed by the auction purchaser or the bank against the judgement of DRAT, Kolkata for remanding back the matter to the DRT. Accordingly, judgement of DRAT, Kolkata attained finality.

¶130

It is further submitted that there was no fresh sale rather sale was conducted in continuation of earlier sale notice.

¶131

Admittedly, respondent no.3,R. Baleeshwaraiah, is the securitization applicant. It is also not in dispute that an amount of Rs.4.00 lakhs was sanctioned as OD in favour of respondent

¶132

no.4 R. Madhusudan wherein respondent no.3 was guarantor. There was no challenge to the notice u/s 13(2) and 13(4) of the

¶133

Act. Sale notice dated 17.12.2012 was issued fixing date of auction on 18.01.2013 wherein total due claimed was

¶134

¶135

Rs.6,01,829/- and reserve price was fixed at Rs.12.75 lakhs. It is

¶136

also undisputed that Writ Petition no. 768 of 2013 was filed by

¶137

the respondent no.3 before the Hon’ble High Court of Telangana

¶138

at Hyderabad wherein a conditional interim order was granted on 09.01.2013 staying the sale, subject to deposit of Rs.4.00 lakhs by the petitioner in default stay order shall remain vacated and bank shall proceed with the sale. It is also undisputed that amount of Rs.4.00 lakh could not be deposited by the petitioner and sale was conducted on 16.02.2013. It is not in dispute that notice under Rule 8(6) and 9(1) were not issued and served by the bank. Thereafter, in the appellate order, DRAT, Kolkata remanded back the matter to DRT to examine as to whether nonissuance of the notices under Rule 8(6) and 9(1) vitiates the auction or filing of writ petition by the respondent no.3 amounts

¶139

to waiver?

¶140

In the judgement dated 15.09.2017 passed by the DRAT,

¶141

Kolkata in Appeal No. 64 of 2016 the matter was remanded back to the DRT with a specific direction to examine the issue as to whether the sale conducted on 16.02.2013 is in accordance with

¶142

Rule 8 and 9 of the Rules or not and whether proper notice as

¶143

required under Rule 8(6) and the proper publication as required

¶144

¶145

under Rule 9(1) has been made or not? The secured creditor,

¶146

auction purchaser and borrower accepted the judgement as no appeal was filed.

¶147

Now we have to see the matter of non-issuance and non-

¶148

service of notice under Rule 8(6) and 9(1) of the Rules?

¶149

In the notice u/s 13(2) of the Act demanded amount was Rs.4,38,503/- wherein Rs.1.98 lakh was deposited by the borrower. Although a Writ Petition was preferred before the Hon’ble High Court wherein a conditional stay order was passed subject to payment of Rs.4.00 lakh by the petitioner. He could

¶150

not comply the order, it could not be inferred or could not be treated as waiver on his part. He was not treated to be an

¶151

unscrupulous litigant or dishonest borrower.

¶152

In this back drop, if we examine the judgement relied upon by the learned counsel for the appellant, we find that in the case of Mathew Varghese (supra) it was held by the Hon’ble Apex Court that the provision contained in Section 29 of the RDB Act, will be in addition to and not in derogation of the provisions of the

¶153

SARFAESI Act, the provisions contained in Rule 15, which is applicable by virtue of the stipulation contained in Section 29 of

¶154

¶155

the RDB Act, 1993, whatever is stated in sub-rule (2) of Rule 15

¶156

should be followed in a situation where a notice of sale notified as

¶157

per Rules 8 and 9(1) of the Rulesread along with Section 13(8) of

¶158

the Rules gets postponed. Such a construction of the provisions, namely, Section 13(8) and 37 of the SARFAESI Act, read along with Section 29 with the aid of Rule 15 could alone be made and

¶159

in no other manner.

¶160

Hon’ble Apex Court held that unless and until a clear 30

¶161

days’ notice is given to the borrower, no sale or transfer can be resorted to by the secured creditor. In the event of any such sale properly notified after giving 30 days’ clear notice to the borrower did not take place as scheduled for reasons which cannot be

¶162

solely attributable to the borrower. The secured creditor cannot effect the sale or transfer of the secured asset on any subsequent

¶163

date by relying upon the notification issued earlier. In other

¶164

words, once the sale does not take place pursuant to a notice

¶165

issued under Rule 8 and 9, read along with Section 13(8) for which the entire blame cannot be thrown on the borrower, it is imperative that for effecting the sale, the procedure prescribed

¶166

above will have to follow afresh, as the notice issued earlier would lapse.

¶167

¶168

As far as the case of Deendayal Nagari Sahakari Bank (supra) is concerned it would not be applicable since Rule 8(6) and 9(1) of the Rules are independent Rules.

¶169

As far as applicability of the case Sumati Prasad Bafna (supra) is concerned, although there was no collusion between the secured creditor and auction purchaser, but facts and circumstances of the instant case reflects that there was collusion

¶170

between the secured creditor, authorised officer and auction purchaser. Admittedly, no notice under Rule 8(6) and 9(1) was served or published by the secured creditor that the auction sale

¶171

will take place on 16.02.2013, but auction purchaser along with other bidders participated in the auction on 16.02.2013 and auction purchaser was declared as highest bidder. How the auction purchaser came to know about the date of the auction? It means there was some understanding between him and the secured creditor and he was intimated about the date of auction.

¶172

There was a prima facie collusion between the auction purchaser and the secured creditor.

¶173

In the case of S. Karthik (supra) there was a long-drawn litigation between the parties wherein auction sale notice was

¶174

¶175

published but it could not be effective due to one or other litigations initiated by the borrower that is why Hon’ble Apex

¶176

Court has observed at first para that :

¶177

“This caseis a classic example as to how an ingenious litigant, by taking recourse to a series of proceedings one after the other, has been successful in blocking the enforcement of a security interest, created in favour of a secured creditor, thereby defeating the very purpose for which the SARFAESI Act, 2002 was enacted”

¶178

The facts of the present case narrate a different story

¶179

wherein an amount of Rs.4.00 lakh only was the loan disbursed

¶180

by the secured creditor. Thereafter, Rs.1.98 lakhs was deposited

¶181

by the securitization applicant. Even thereafter when the auction

¶182

sale was initiated by the bank, Writ Petition was filed and an

¶183

interim order of stay was granted by the Hon’ble High Court with

¶184

a condition to deposit of Rs.4.00 lakh by the petitioner, which could not be complied with and said stay order got vacated. Thereafter, bank conducted the sale on 16.02.2013. The said order dated 09.01.2013 wherein four weeks’ time was granted,

¶185

expired on first week of February, 2013. Securitization applicant

¶186

neither waived his right nor any waiver is granted from getting

¶187

mandatory notice under Rule 8(6) and 9(1) of the Rules. Further,

¶188

a letter was sent by the authorised officer of the bank to the securitization applicant communicating that auction sale will be

¶189

¶190

held on 16.02.2013. If the secured creditor was of the view that

¶191

there was no requirement of compliance of the provisions of Rule 8(6) and 9(1) of the Rules, then why this letter was sent to the securitization applicant. If this letter was issued with the purpose of compliance of the provisions of Rule 8(6) and 9(1) and it was sent on 14.02.2013 and auction was fixed on 16.02.2013 which

¶192

in no case be held as a sufficient compliance of Rule 8(6) and 9(1) of the Rules. Accordingly, secured creditor conducted the sale on 16.02.2013 without complying the mandatory provisions of Rule 8(6) and 9(1), which makes the whole auction process vitiated.

¶193

Learned DRT has granted interest @ 12% to be paid to the auction purchaser on the amount of sale consideration. It is argued that appellant auction purchaser has spent substantial amount for renovation of the secured asset. Further, in an alternative in the appeal an amount of Rs.22,92,810/- is claimed by the appellant.

¶194

Learned DRT has not considered the amount of expenses incurred by the auction purchaser towards stamp duty and registration purpose. The auction purchaser, who bona fidely

¶195

¶196

participated in the auction process, purchased the property in a genuine auction, has been put to loss admittedly by the bank for

¶197

not taking proper measure in compliance of the Rules. Although,

¶198

no doubt, auction purchaser was well aware that securitization application was pending, but at the same time he is suffering a loss due to the lapse of the bank. It has been held by the Hon’ble

¶199

Apex Court in catena of judgements that when the authorised officer has been vested with enormous power under the SARFAESI Act, then he also owes some duty to follow the provisions of the Act and Rules. If a genuine auction purchaser suffers loss due to the inaction or omission committed by the

¶200

secured creditor bank, then definitely auction purchaser is

¶201

entitled for reimbursement of the same from the bank. It is not a case for grant of compensation to the auction purchaser. Accordingly, appellant auction purchaser is entitled for Rs.1,07,510/- as stamp duty paid by him towards registration of

¶202

the sale certificate along with interest at the rate of 12 per cent

¶203

simple from the date of registration till the date of payment.

¶204

On the basis of the above discussion, I am of the considered view that appeal is liable to be partly allowed.

¶205

¶206

O R D E R

¶207

Appeal is partly allowed by modifying the judgement and order dated 25.07.2018 passed by the DRT-I Hyderabad in S.A.

¶208

No. 772 of 2013. Order of the learned DRT is confirmed with modification that the appellant herein would also be entitled for refund of the amount of Rs.Rs.1,07,510/- from the secured creditor bank i.e. respondent no.1 with interest at the rate of

¶209

12% simple from the date of registration till the date of actual

¶210

payment. Costs easy.

¶211

File be consigned to record room.

¶212

Copy of the order be supplied to the appellant and the respondents and a copy be also forwarded to the concerned DRT. Copy of the judgement/Final Order be uploaded in the Tribunal’s website.

¶213

Order dictated, signed and pronounced by me in the open Court on this the 15^th day of May, 2025.

¶214

(Anil Kumar Srivastava, J) Chairperson

¶215

Dated : 15.05.2025 /pkb

¶216

A Loka Reddy Loknath Reddy v. State Bank of India

Case brief

What is this about?

What did the court decide?

A Loka Reddy Loknath Reddy v. State Bank of India

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

Coram

Case details

All orders in this case

Similar cases

Dhanalakshmi Bank versus M S Annapurna Oil and Mineral

Hdfc Bank versus M S North East Glass Industries

Indusind Bank Limited versus Manohara Greens Logistics Pvt. Ltd.

Ghanshyamdas Gems and Jewels versus Punjab National Bank and Ors.

Kanta Shah versus a P Mahesh Cooperative Urban Bank Limited

Ghanshyamdas Gems and Jewels versus State Bank of India