Allowed

Union Bank of India v. Aditya Constructions

DRAT4 Aug 2025REGULAR APPEAL/76/2023

Case brief

AI extract

What is this about?

The DRAT allowed appeals by the secured creditor and auction purchaser, setting aside the DRT order that dismissed the bank's securities application. The Tribunal held that fixing a reserve price below the distress sale value, despite a valid valuation report and multiple auction attempts, did not constitute an irregularity.

What did the court decide?

Judgment and order dated 30th January, 2023 passed by the Learned DRT-II Hyderabad in S.A. No. 185 of 2019 is set aside.

Union Bank of India versus Aditya Constructions — Banking and Recovery | DRAT (2025)

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Reportable/Non-Reportable

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Appeal No.76 of 2023 & Appeal No. 40 of 2023 -DRAT-Kolkata

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IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT

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KOLKATA

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HON’BLE MR. JUSTICE ANIL KUMAR SRIVASTAVA CHAIRPERSON

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Appeal No. 76 of 2023

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(Arising out of S.A. No. 185 of 2019 in DRT-II Hyderabad)

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Union Bank of India (formerly known as Andhra Bank) Asset Recovery Branch, #249/3RT, I Floor, S.R. Nagar Main Branch, Hyderabad -500038.

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.…Appellant

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-Versus-

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M/s Aditya Constructions, represented by its Proprietor Sri M. Ramesh Reddy (1) 8-2-601/B/22 Bhanu Co-operative Society Road No. 10, Banjara Hill, Hyderabad -500034.

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Mr. Paturi Dharmender Reddy, H. No. 6-1-96/7, Walker Town, Padmarao Nagar, Secunderabad -500025.

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3. Mr. Shyam Sunder Palreddy, Hills, Hyderabad -500033.	Flat	No. -59, Road No. 71, Jubilee ….Respondents
Counsel for Appellants		Ms. Usha Doshi
Counsel for Respondent No.1		Mr. Debasish Chakraborty
Counsel for Respondents No.	3	Mr. Nemani Srinivas

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With

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Appeal No. 40 of 2023 (Arising out of S.A. No. 185 of 2019 in DRT-II Hyderabad)

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Shyam Sunder Palreddy, son of Sri Ram Reddy, resident of Flat No. 59, Road No. 71, Jubilee Hills, Hyderabad -500033.

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.…Appellant

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-Versus-

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Union Bank of India, Specialised Asset Recovery Management Branch, 3^rd Floor, Andhra Bank Building, Sultan Bazar, Koti, Hyderabad – 500095, Represented by its Authorised Officer.

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Appeal No. 76 of 2023 & Appeal No. 40 of 2023-DRAT-Kolkata

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M/s Aditya Constructions represented by M. Ramesh Reddy Resident of 8-2-601/B/22, Bhanu Co-operative Society, Road No. 10, Banjarahills, Hyderabad -50034.

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Sri Paturi Dharmender Reddy, son of Sri Madhav Reddy, resident of H.No. 6-1-96/7, Walker Town, Padmarao Nagar, Secunderabad -500025.

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….Respondents Counsel for Appellants Mr. Nemani Srinivas Counsel for Respondent No. 1 Ms. Usha Doshi Counsel for Respondent No. 2 Mr. Debasish Chakrabarty

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JUDGMENT : 4^th August, 2025

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THE APPELLATE TRIBUNAL :

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Both the Appeals (Appeal No. 76 of 2023 and Appeal No. 40 of 2023) have arisen against a common judgment and order dated 30^th January, 2023 passed by Learned DRTII Hyderabad allowing the S.A. No. 185 of 2019 (M/s Aditya Constructions versus Union Bank of India and others). Hence, both the Appeals are being disposed of by a common judgment.

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2. Appeal No. 76 of 2023 is preferred by the secured creditor i.e. Union Bank of India (formerly Andhra Bank) and Appeal No. 40 of 2023 is preferred by the auction purchaser against the impugned judgment.

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3. As per pleadings of the parties, facts of the matter are that Respondent M/s Aditya Constructions represented through its partner Sri M. Ramesh Reddy availed the credit facilities to a tune of Rs.10.50 crores against hypothecation

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Appeal No. 76 of 2023 & Appeal No. 40 of 2023-DRAT-Kolkata of all stocks and receivables as primary security and mortgage of immovable properties as described in the S.A. at schedule ‘A’ and ‘B’. There were irregularities in repayment. Accordingly, loan account was classified as NPA. Notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as “the Act”) was issued on 20^th June, 2017 which was neither served nor published upon the borrower. Possession Notice under Section 13(4) of the Act dated 20^th September, 2017 was served upon the borrower. Provisions of Rule 8(1) and 8(2) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as “the Rules”) were not complied with. Notices were not affixed on conspicuous part of the secured assets and not published in the two leading newspapers. Notice under Rule 8(6) of the Rules dated 12.02.2019 was published after a gap of one year and five months without following Rule 8(5) of the Rules. It was also not in the prescribed Format-IVA of the schedule. Properties were under valued while fixing the reserve price. Securities were not registered with the Central Registry. Hence, the Bank is not entitled to enforce the securities.

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4. Sale notice dated 07.10.2019 was posted on 10.10.2019 which was received by the borrower on 15.10.2019 fixing the auction on 25.10.2019 wherein mandatory gap of 15 days was not there. It was also not published in accordance the Rules. Further, Sale Notice dated 19.12.2019 fixing the auction on 10.01.2020 was

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Appeal No. 76 of 2023 & Appeal No. 40 of 2023-DRAT-Kolkata issued without complying the directions of the Hon’ble High Court in WP No. 23860 of 2019.

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5. Bank filed the reply statement stating that the Bank followed the procedure in accordance with law. Account became irregular and was classified as NPA on 17.05.2017. Notice under Section 13(2) of the Act was issued on 20^th June, 2017 demanding an amount of Rs.11,39,50,775/which was received on 28.06.2017. Borrower promised to pay the outstanding dues. Notice under Section 13(4) of the Act was issued on 20.09.2017 which was acknowledged by the borrower. It was also published in two newspapers ‘Andhra Jyothi’ in Telugu and ‘The New Indian Express’ in English on 22.09.2017 and was also affixed on the secured assets. Subsequent thereto, different sale notices were issued on 20.12.2017,12.06.2018, 09.10.2018, 12.02.2019, 07.05.2019, 02.08.2019 but could not be materialized. All these notices were issued in accordance with law. Schedule ‘A’ property was auctioned vide notice dated 07.10.2019 on 25.10.2019. Thereafter e-auction notice was issued on 19.12.2019 fixing e auction on 10.01.2020 in respect of Schedule ‘B’ property which was sent by the registered post to the borrower on 20.12.2019 published in ‘Sakshi’ Telugu newspaper and ‘The Times of India’ English newspaper on 21.12.2019. It was also affixed on the conspicuous part of the secured assets. Auction was successfully conducted on 10.01.2020 and the auction purchaser Sri M. Shyam Sunder Palreddy became the highest bidder for an amount of Rs.5,35,00,000/-. 25% of the bid amount was deposited on

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Appeal No. 76 of 2023 & Appeal No. 40 of 2023-DRAT-Kolkata 08.01.2020 and after confirmation of sale, 75% of the bid amount was deposited on 21.03.2020. The reserve price was fixed on the basis of valuation report received from approved valuer and in consultation with the Committee of the Zonal office. Notices under Rule 8(6) of the Rules. were duly served upon the borrower wherein reserve price was also mentioned but no objection was received by the borrower prior to auction. Accordingly, auction was conducted in accordance with law.

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6. Auction purchaser Respondents No. 2 and 3 filed the opposition adopting the contention raised by the secured creditor.

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7. Learned DRT framed the following issues for determination.

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(i) Whether the applicant made out any valid ground for setting aside the proceedings initiated by the 1^st respondent bank under the SARFAESI Act against the SA schedule properties?

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(ii) Whether the 1^st respondent bank has properly followed the procedure while proceeding against the SA schedule properties?

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(iii) To what relief?

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8. Learned DRT recorded a finding that the notice under Section 13(4) of the Act were published within 7 days from the date of taking symbolic possession of the secured assets.

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Appeal No. 76 of 2023 & Appeal No. 40 of 2023-DRAT-Kolkata 9. Accordingly, there is no violation or infraction of Rule 8(2) of the Rules, 2002.

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10. It was further held that there was no violation of Rule 8(6) and 9(1) of the Rules, 2002.

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11. Compliance of Rule 9(3) and 9(4) of the Rules was also made by the Bank as well as the auction purchaser.

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12. Learned DRT recorded a finding that the Bank failed to produce any material document basing upon which reserve price was fixed below the distress sale value in respect of Schedule ‘B’ property wherein the valuation report dated 08.05.2018 was relied upon. Reserve price was fixed for Rs.4,95,00,000/while the distress sale value was Rs.5,93,52,000/-. Accordingly, Learned DRT recorded a finding that there was violation of Rule 8(5) of the Rules. Valuation was not properly done. Accordingly, Learned DRT allowed the Securitisation Application by setting aside the e- auction held on 10.01.2020. Securitisation Application was dismissed upholding the e auction in respect of SA schedule ‘A’ property held on 25.10.2019 consequent directions for taking over the possession of SA schedule ‘B’ property were also issued.

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13. Feeling aggrieved by the impugned judgment, auction purchaser as well as the Respondent Bank preferred two separate appeals.

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14. At the very outset, it is to be observed that the securitization Application under Section 17 of the Act was filed by the borrower on different grounds wherein Learned DRT repelled all the grounds in the Section 17 Application

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Appeal No. 76 of 2023 & Appeal No. 40 of 2023-DRAT-Kolkata

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except for the issue of fixing of reserve price by the Authorised officer as has been observed in the earlier part of the judgment. No Appeal is filed by the borrower against the findings recorded against him by the Learned DRT. Hence, those findings attain finality. The only issue to be looked into is as to whether the reserve price fixed by the Authorised Officer was in accordance with law or not?

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15. Rule 8(5) of the security Interest (Enforcement) Rules 2002 reads as under:

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“(5) Before effecting sale of the immovable property referred to in sub-rule (1) of Rule 9, the authorized officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:-

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(a)by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or

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(b) by inviting tenders from the public;

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(c) by holding public auction including through e-auction mode; or]

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(d) by private treaty:

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[Provided that in case of sale of immovable property in the State of Jammu and Kashmir, the provisions of Jammu and Kashmir Transfer of Property Act, 1977 shall apply to the person who acquires such property in the State.]”

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16. It is not in dispute that it was not a case of first sale, rather it was a case of 6^th sale i.e. earlier e auction sale notices were issued on 12.03.2018, fixing reserve price for Rs. 7,41,90,000/- again on 18.07.2018 fixing a reserve price for Rs. 6,67,71,000/-, on 12.12.2018 fixing reserve price of Rs.6,00,93,000/- on 29.05.2019 fixing Rs,5,50,00,000/- on 07.10.2019 for Rs. 4,95,00,000/- and finally on 10.01.2020 for Rs. 4,95,00,000/-. Successful bidder made a bid for

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Appeal No. 76 of 2023 & Appeal No. 40 of 2023-DRAT-Kolkata Rs.5,35,00,000/-. Reserve price was fixed by the Committee of the Bank. In the present case a valuation Report was obtained by the Authorised officer on 08.05.2018 from one V. Radha Krishna and R.K. Consultant wherein the valuer assessed the valuation at fair market value at Rs.7,41,90,000/- realizable value was Rs.6,67,71,000/while the distress sale value was Rs.5,93,52,000/-. The reserve price fixed was Rs.4,95,00,000/- in a six attempt of auction while the first attempt was made on 12.03.2018. Every time there was a decrease in the reserve price as no bid was received by the Authorised officer.

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17. In Ram Kishun And Others -vs- State of Uttar Pradesh & Others [(2012) 11 SCC 511] it was held by the Hon’ble Apex Court in paras 13, 14, 17 and 24 that-

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“13. Undoubtedly, public money should be recovered and recovery should be made expeditiously. But it does not

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mean that the financial institutions which are concerned only with the recovery of their loans, may be permitted to behave like property dealers and be permitted further to dispose of the secured assets in any unreasonable or arbitrary manner in flagrant violation of the statutory provisions.”

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“14. A right to hold property is a constitutional right as well as a human right. A person cannot be deprived of his property except in accordance with the provisions of a statute. (Vide Lachhman Dass vs.Jagat Ram and State of M.P.V. Narmada Bachao Andolane) Thus, the condition precedent for taking away someone's property or disposing of the secured assets, is that the authority must ensure compliance with the statutory provisions.”

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“17. Therefore, it becomes a legal obligation on the part of the authority that property be sold in such a manner that it may fetch the best price. Thus, essential ingredients of such sale remain a correct valuation report and fixing the reserve price. In case proper valuation has not been made and the reserve price is fixed taking into consideration the inaccurate valuation report, the intending buyers may not come forward treating the

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Appeal No. 76 of 2023 & Appeal No. 40 of 2023-DRAT-Kolkata property as not worth purchase by them, as a moneyed person or a big businessman may not like to involve himself in small sales/deals.”

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"24. It is evident that law requires a proper valuation report, its acceptance by the authority concerned by application of mind and then fixing the reserve price accordingly and acceptance of the auction bid taking into consideration that there was no possibility of collusion of the bidders. The authority is duty bound to decide as to whether sale of part of the property would meet the outstanding demand. Valuation is a question of fact and valuation of the property is required to be determined fairly and reasonably."

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18. Court is the custodian of the interest of the Company and its creditors. Hence, it is the duty of the Courts to see that the price fetched at the auction. In the Divya Manufacrturing Company Private Limited Tirupati Woollen Mills Shramik Sangharsha Samity & Another - vs- Union Bank of India & Others [(2000) 6 SCC 69, the Hon’ble Apex Court held that the confirmation of sale by a Court at a grossly inadequate price wherein it is a consequent of any irregularity or fraud in the sale should be set aside on the ground that it was not just and proper exercise of judicial discretion. Law requires a proper valuation report which is accepted by the authority concerned by application of mind and then fixing the reserve price accordingly and acceptance of the auction bid taking into consideration that there was no possibility of collusion between the bidders. Valuation is a question of fact and is required to be determined fairly and reasonably.

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19. Valuation of the secured assets has to be made by the Authorised Officer before the date of sale. It has been held

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Appeal No. 76 of 2023 & Appeal No. 40 of 2023-DRAT-Kolkata by the Hon’ble Apex Court in catena of judgments that more is the power given to an authority, more are the responsibilities of the authority. It means that when wide powers have been given to the Authorised Officer under the SARFAESI Act, then it also imposes certain duties upon the Authorised Officer. He cannot act arbitrarily. He has to follow the rules and the laws. No doubt, if a Borrower fails to repay the loan taken by him from the financial institution or Bank, secured assets has to be auctioned and sold by the Bank through its Authorised Officer. But it does not mean that the Authorised Officer should auction the property without following the law. Law requires that there is a legal obligation on the part of the Authorised Officer that property be sold in such a manner that it may fetch the best price. This is the essential ingredient on which sale remains on the valuation report and fixing the reserve price. In case, proper valuation has not been made and the reserve price is fixed taking into consideration the inaccurate valuation report, the intending buyer may not come forward treating the property as not worth to be purchased by him. It means that a proper valuation of the secured asset should be made through an approved valuer by the Authorised Officer. The valuation should be made prior to the issuance of the auction notice wherein reserve price is fixed by the Authorised Officer. We can take judicial notice of the fact that prices of land or property are escalating and the Borrower has a legal right to get the appropriate value of his

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Appeal No. 76 of 2023 & Appeal No. 40 of 2023-DRAT-Kolkata property to be auctioned by the Authorised Officer. If any negligence is caused or committed by the Authorised Officer in obtaining the valuation report before issuance of the auction notice, it may go against the interest of the Bank. Authorised Officer is also a public servant who has to perform his duties diligently with devotion. Any act or omission of the Authorised Officer, which is against the settled norms of diligence and devotion to duty, would amount to misconduct on his part. Authorised Officer is also required to follow the law.

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20. As far as facts of the present case are concerned, admittedly the auction could be materialized in the sixth attempt made by the Bank. It will not be out of place to mention here that the notice under Rule 8(6) of the Rules, 2002 were duly served upon the borrower wherein reserve price was also mentioned but at no stage any objection was ever raised by borrower for under valuation of the property. Learned Counsel for the borrower Respondent submits that the market value of the property as per provisional information as per records of the Registration Department was Rs.3,500/- per square yard while value of the property was assessed by the valuer considering 30,000/- per square yard. Valuer has already assessed the valuation on the basis of the present market value in the area which was much much above as per market value as per the Registration Department. However, it is also to be observed that value assessed in the Registration Department is for the purposes of payment of the stamp duty etc. When the

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Appeal No. 76 of 2023 & Appeal No. 40 of 2023-DRAT-Kolkata valuer has already made the assessment on the basis of market value, I do not find any irregularity in the assessment made by the valuer.

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21. The Authorised officer in the impugned auction fixed the reserve price on the basis of the report of the Committee duly constituted by the secured creditor Bank. The Committee has taken into consideration the previous proposed auctions which could not be materialized and the reserve price fixed thereon. Accordingly, reserve price was fixed by the Authorised officer.

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22. Learned DRT recorded a finding to the effect that the reserve price was fixed below the distress sale value but the value fixed by the authorized Officer was fixed with due consultation with the secured creditor and it was on sixth auction. Accordingly, I do not find any irregularity having been committed by the authorized officer in fixing the reserve price. Findings recorded by the Learned DRT to this extent is against law which is liable to be set aside. 23. Accordingly, Appeal deserves to be allowed. Judgment and order dated 30^th January, 2023 passed by the Learned DRT -II Hyderabad in SA No. 185 of 2019 is set aside.

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ORDER

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Appeal No. 76 of 2023 and Appeal No. 40 of 2023 are allowed. Judgment and order dated 30^th January, 2023 passed by the Learned DRT-II Hyderabad in S.A. No. 185 of 2019 is set aside. Consequently, S.A. No. 185 of 2019 is dismissed.

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Appeal No. 76 of 2023 & Appeal No. 40 of 2023-DRAT-Kolkata

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No Order as to costs.

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File be consigned to Record Room.

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Copy of the order be placed in the record of Appeal No. 40 of 2023.

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Copy of the Judgment/ Final Order be uploaded in the Tribunal’s Website.

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