Allowed

T Narayana Rao v. State Bank of India

DRT17 Apr 2025SA/195/2022

Case brief

AI extract

What is this about?

This debt recovery tribunal allowed a securitization application filed by guarantors challenging a second auction of mortgaged property. The court directed the bank to set aside the auction due to insufficient notice period between service and auction date as per Security Interest Rules.

What did the court decide?

The impugned auction is set aside; the sale certificate is cancelled; the bank must refund the bid amount with interest to the purchaser within one month and proceed afresh with the auction.

T Narayana Rao versus State Bank of India — Contract and Commercial Disputes | DRT (2025)

¶1

IN THE DEBTS RECOVERYTRIBUNAL.I^{AT HYDERABAD}

¶2

DATED THIS THE¹ 7TH DAY OF APRIL, 2025

¶3

PRESENT: GUMMADI GOPICHAND,^{PRESIDINGOFFICER}

¶4

sA.No.195/2022

¶5

T.Narayana Rao,

¶6

Smt.T.Vasantha Laxmi Both the Applicants No. 1&2 are Residing at Ashok Nagar village, Khanpur Mandal, Warangal District.

¶7

. . . Applicants

¶8

Versus

¶9

State Bank of India, Stressed asset Recovery Branch-ll, H.No.1-8-563/ 1, 1"t floor, Opp.Sandhdya Theatre, RTC X roads, ChikkadapallY, Hyderabad-500 020.

¶10

Rep. by its Authorized Officer

¶11

M/s Shiva Sai Industries Jeevantharaopally Road, Mulugu(V)&(M), Warangal Dist., Rep. by its Managing Partner

¶12

Sri Yaddanapalli JosePh^Manmet S/o Sri Innaiah Yaddanapalli, H.No.C3- 173, GUDA Colony, Chandanagar, Hyderabad3f-:B (Respondent No.3 is imPlea 221 ..R. orders dt. 19.12,2022 in I.A.1 o-n. ffi*"-t# Counsel for the Applicants Reddy Counsel for l,t Respondeg!.bank G. Prabhakor Sharma 2"d Respondent Exparte Counsel for Respondent No.3 Sri V.V.Ramana

¶13

iORD^ER.'

¶14

This Securitization application is filed by the^{Applicants u/s.17of the} SARFAESI Act,2002 challenging the Sale^{Noticesdt.12.07.2022 and} 03.09.2022 issued by the lstRespondent^{Bank and also the auction} conducted on 26.09.2022 in respect^{of the scheduleproperty and to} declare the confirmation of sale and sale^{certificate issuedby the 1st} Respondent Bank in respect of the schedule^{propertyas null and void.}

¶15

The averments made in the application, in brief,^{are as under,-}

¶16

Respondent No.2 availed credit facilities from^{the l"t Respondent} bank whereas the Applicants stood as^{guarantors and created} mortgage in respect of the schedule^{property.TheApplicantswere} partners of Respondent No.2 firm but they^{offered to sell their} shares in favourof the existing^partners of^{the RespondentNo2} company by executing a Release^{Deed dt.27.O3.2O14. The} lstRespondent Bank issued Auction Sale Notice^{dt.L6.O7.2Ol4for} conducting auction on 12.08.2OI4in^respect of^{the schedule property} belonging to the Applicants. When the^{Auction Sale notice} dt.16.O7.2014 was issued in respect of^{the propertiesofthe} Respondent NO.2, the Respondent^{No.2 approached this Tribunal} and obtained stay. Challenging the^{auction proceedingsinitiatedbythe} lstRespondent Bank, the Applicants^{filed SA 602l2Ol4 before this} Tribunal and the said SA was allowed.^{Thereafterthe lst Respondent} Bank issued pre-sale notice wlr^{3(6) ofSecurity Interest} (Enforcement) Rules,2OO2 on 04.05.2022^{in respect of the schedule} property and the Applicants submitted their^{objectionsto the said} Respondent Bank addressed^letter dt. t+. per publication of Sale Notice sale of the schedule^{propertywill be} condi+c(ed of ?8.mffi said notice was not affixed^{on the} scheduh property l : ...: and not published in two leading +'^{^-{'} '-: r the said sale notice, the^Authorised 2

¶17

of{icer of the Bank has not obtained correct and fresh valuation from the approved valuer before fixing the date of auction against the schedule property u/r 8(5) of Rules,2OO2. The lstRespondent Bank again issued Sale Notice on O3.O9.2O22 for sale of the schedule property but the said sale notice was not affixed on the schedule property and it was not published in two leading newspapers. The said notice was served on the Applicants on 14.09.2022 whereas the auction was conducted on 26.09.2022, without giving 15 days time to the Applicants from the date of service of the Notice of Sale as contemplated u/r 8(6) r/w Rule 9(1) of Security Interest (Enforcement) Rules, 2OO2 and hence the auctionconductedon26.O9.2022 and aiso the consequent sale certificate issued in favour of the Respondent No.3, auctionpurchaser in respect of the schedule property are liable to be set aside. Hence the SA.

¶18

The lst Respondent Bank filed its Reply denying all the adverse allegations made in the application and contended that the Applicants Sri Martha Rajendra Prasad,Smt.Pallati Prameela, Sri Martha Markandeya and Smt.Nagavelli Ahalya stood as guarantors for the loan facilities availed by the 2"d Respondent from the lst Respondent Bank and created mortgage in respect of the schedule property. 2"dRespondent committed default in repaying the loan amounts due and so, the loanaccount was classified as NPA and the l"tRespondent bank issued demand notice dt,27.12.2013, possession notice dt.O2.O4.2O1.4 and notice for sale dt.21.O4.2O14 calling upon the Applicants and others to pay the amount as demanded. The Applicants and others Iiled SA 60212074 challenging the said sale proceedings before this Hon'ble Tribunal and the said SA was allowed by this Tribun ifu^{the impugnedsale and cancelling the} sale ent Bank filed Review application No.15/ d the issed by this Tribunal vide order dt.27.O2 id orders dt.l2.06.2Ol9 and 27.O2.2OVW. thb^{'adEtibh"'purclt?#.} filed writ petitions before the (F-r!)

¶19

W,ffiW

¶20

Hon'ble High court of Telangana and the Hon'ble High court disposed the said writ petitionsconfirming the orders of this Hon'ble Tribunal. Thereafter the 1st Respondent Bank continued the recovery proceedings and issued NoticePrior to Sale on 04.O5.2022 u/r 8(5)&(6) of Security Interest (Enforcement) Rules, 2OO2 and the said notice was served on the l"t Applicant and returned unserved on 2nd Applicant with an endorsement "refused'. Thereafter the lst Respondent Bank issued Sale notice dt. 12.07.2022 for conducting auction on 18.O8.2022 and the said notice was published in Business Standard and Mana Telangnana daily newspapers on 13.07.2022 and the same was affixed on the schedule property.Challenging the said sale notice dt.L2.o7.2o22 fixing the auction on Lg.og.2o22, the Applicants once again filed present SA but however the said auction was failed for want of bidders. So the 1st respondent bank issued fresh Sale Notice dt.03.09.2022 fixing the date of auction on26.O9.2022 and the said notice was published in Financial Express and Mana Telangana daily newspapers and the said notice was affixed on the schedule property. After publication, the 1st Respondent bank through letter dt.05.09.2022 by enclosing the paper publications, intimated the Applicants about the sale of the property on26.O9.2022 and the said letter was served on the Applicants. The l"t respondent Bank also obtained letter dt.14.11.2022 from the postal department who confirmed the service of the said letter on the Applicants.

¶21

on 26.09.2022, the l"tRespondent Bank conducted auction of the schedule property and in the said auction, Respondent No.3 became successfulbidder for .an::qrpgunt of Rs. 1,48,02,OOO l- The 1st Respondent effi4AgWaa$?2.""ued sale confirmationletter to the Respo"ae.fi'.-.fto.2, a&fltion pfu)ir".r to pay 2}o/o of bid, amount i*i'^,,xr' €;J} ' zr '..' whichincludes ."'loo/o EMb amoun{,t.i lnpursuance of the said confirmatiortrrette r,Xnl dUSAHS"rt N,.i,b paid 2lo/o of bid amount and also paidbahnce ':,t. ..'' JSo/o of the -,sate ; .,'; ,'consideration .l 1,: on 1O.1O.2O22.

¶22

1:."

¶23

Thereafter the lstRespondent Bank issued Sale certificate in favour of the Respondent No.3. After conducting auction of the schedule property, the Applicants got amended the SA. The 1st Respondent Bank followed the procedure contemplated under the provisions of SARFAESI Act, 2OO2 and Rules made thereunder in conducting auction of the schedule property and there are no illegality and irregularity and so, the SA is liable to be dismissed.

¶24

The Respondent No.3 auction purchaser fiIed his Reply contending that ali the measures initiated by the 1st Respondent Bank are valid. Being the borrowers, the Applicants cannot challenge the auction proceedings initiated by the 1st Respondent Bank. He paid the entire sale consideration and sale certificate was also issued in his favour and so, the auction conducted by the 1"t Respondent Bank is valid and legal.

¶25

Heard Ld. Counsel for the Applicants, ld. Counsel for the 1st Respondent Bank and Respondent No.3 whereas Respondent No.2 remained set exparte.

¶26

7 . Now, the points that arise for consideration are,-

¶27

i) Whether the Applicants haue established any ualid grounds for setting aside the auction conducted bg the 1"t Respondent Bank in respect of the on 26.O9.2022?

¶28

To what

¶29

ii) potnt No.til t !: ^, 1 7 ApR 2025 !r !i_,, ,)4 .'rA

¶30

1. During the coursetf .qrguments, Counsel for the Applicants and the Ld. Counscl ,o. ,1r. 1st dent Bank & Respondent No.3 reiterated their respective - versions as stated supra.

¶31

The und.

¶32

facts availed lolsputed ;l"iJ;:';:l'a'['[he^Resp'nden'[ N' 2 ,:T.::'ii:i.:il' ;:T_j::;:F,,,Mff irfi"irfl{:fl :.:;# "'^;;"T";"T;;' T;'F:Fi:; :\J:: ::;;i::;,,1. issued demand notice dt.21.o4.2013' possession notice ,;;;:r-., o::o'o "o "'"" .. ..," cha,,engi,',1"t#::il::1 same ." .,,Ii.;Tl ;::;::,"-., .o uo#i- ;l';nr::i ili and orde. oj:I.oo,:r:Hjrbunar^and ,n.' ooorr"ation o.^{"t''order in sA 602/ 14} by the Ho.rlbt. High court o, the ,"t Respondent bank ur, ,"rurgana ," ;,:';.:.,:":rff;r.fi; dispute ....orrr the fact ,nro "r"tion purcl subsequer,",""rl; ffin",'"J; issued Notice prior to sale o,.ott t4'o5'2o22 u/r 8(6) of security Interest (Enforcement) Rures, 2oo2 and also dt.12.02.2022 r"" ^l^,, .:.:" illx;1]{; Sale Notice dt. 12.02.2022 but however no auctj the Bank in pursuance of the said notice .. ;:1 ff;:":': :l there is no need to decide the validiv or otherwise of the said sare Notice dt.I2.OT.2O22.Subsequently, the l"t Respondent Bank issued fresh Auction Sare Notice dt.03.0 g.2022 urro "orrructed auction of the schedule property on26.09.2022 and in the said auction, Respondent No.3 became successfulbidder for a sale consideration of Rs'1,48,0z,ooo1f,Nihe-,p$t the entire sale consideration and sale certificate vvr Lrrrucr' L(- = ay,,.4ff012 i #,r;*VV,o:22 'V;i| r4{'v1y.," *****^was .. u'. .alSo hrco issued b v y rt he lst rst Respondent ppo^^nro*+ BankD^, in favour of ni'rfJ tAe'auc ion "rc t ion p urr. h, . fi ,..i.

¶33

¶34

10' At present,df..,anplicants are challenging the auction conducted by the lst Reslibnde4t Bank,in respect of the schedule property on 26.09.2022 onthe premise that no fifteen days notice is issued to the

¶35

-,- ",.,:-.. -"..j 6

¶36

App.lircants before co g(1) ;T$T;:"Y.^ffi.'::": as c'n'[eo': I ':;.";Iru:ffir,Tfi:{}^f that as per thr provisions or "rtr,o.i.!l^{:'securiry Interest ,"ro'} not ress secured creditor '^2oo2' the ;ed orficer ,, ; ".:rff":.:T,::rcement) nrr.. rs a.v" t" --"t3i^:r;" sare. "r'nt' case' notice ;onducti"g^{ttJ "".,ooH:TJ} Apprican,t''theitt"t"'theborro"t;"'shallservenor !s on ,o.on.rr' conducted ;Tff: :; ;,:,:#:i}#*I:nffi^{:r;il" -:i} aside on the very ground that 15 davs TT:'i"'::':::.: :"';: Appricants from the date of receipt of the sare nofice. 12. In support of his contentions, Ld. counser for the Appricants relied upon the judgement of Hon,bre High court of And,hra prqd,esh in writ petition JVos.17935 & 253g7/2org wherein in para No.1o, it is held that:

¶37

7o:Hauing regarding to the principre taid d,otpn in the aboue referred jud.gement, it hq.s to be necessarilg construed thqt lo.oz.2olz was the dqte of seruice of notice under Rule 9(1) of the securitg rnterest (Enforcement) Rules, 2OO2 on the borrouter. If that being sor this Cour-t, is of the opinion that the Bank to adhere to the "gWrlr;.ents of Rule 9 of the Securitg Interest ttl RulesT'ZOOZ i.e., 75 dags'^{gap betweenthe} serttice of notiee and^{the date of auction"'} C1 lr

¶38

Ld. Counselialso^{repliedupon the judgement of Hon'ble High Court of} hmjab *, iargana at^{Chandigo'h betueen Viiag Mqdan & others}

¶39

¶40

Vs. Punjab National Bank & others reported in 2O22^{O Supreme} (P&H) 9OS wherein it is held in Para No.40 as follows:

¶41

40.^uln the decision of M/s Hoshiarpur Roller Flour Mills Prlaate Limited and Another [7], a sale^notice dt.27.11.2O2O was issued bg the Bank^proposing to sell the mortgage propertg to the^{petitionerson} 15,12.2020, but the so,me u)as^put in^{Registered post}

¶42

for^{seruice on the petitionerson 12.72.2020, three} das prior to the sale, and lt reached the^petitioners on 75.72.2020, the date of the sale. This^{Court held} that a minimurz. 15 dags^gap Jor a^{subsequentsale is} required to be rnaintained betueen the date^of seruice of the notice and the date oJ the^sale and^it set aside the sale".

¶43

Ld. Counsei also replied upon the^judgement of^{Hon'ble Debts} Recooery Appellate Tribuno,l-Allahabad betuteen^{Allahabad Bank} Vsshankar Rice Products & others reported in^{II (2022) BC 72} (DRAT) wherein it is held in Para No.9 as follows:

¶44

9:"As such the so'le notice in^{question too,s a second} sale notice.It is also admitted^case of the^{Bqnk that} the sale notice usas published in neuspaper^on 09.12.2O1Oand the sale u)as conducted on22,72.2O2O. Thus, the propertg utas^{auctioned onlg} usithin 72 dags Jrom the sentice and^{publicationoJ} sale notice. Rule 8(6) read ulth Rule 9(1)^oJ ffi% Interest (Bnforcement) Rules,^2OO2 1? it 1i^:;;1r the mandatory provislon of 30 dags'^sale ) . notice to the borrou)er, so that he, if so^{roishes, mag}

¶45

Per contra, Ld. Counsel for the 1st Respondent Bank argued that Sale Notice dt.O3.09.2022 was published in two daily newspapers and it was also served on the Applicants and since the proposed auction is a subsequent sale, Iifteen days notice is sufficient. Thus the auction conducted by ths 1"t Respondent Bank on 26.09.2022 in respect of the schedule property is quite valid and legal and the same is binding on the Applicants.

¶46

t4. In support of his contentions, Ld. Counsel for the 1"t Respondent bank relied upon the judgement of Hon'ble High Court Jor the State o;f Telangana at Hgd.erabad in Writ Petltion Nos.2832O & 28947/2018 betuteen M/s Vinagak Steels Limited vs. M/s On Vishnu Pipes P.Ltd, wherein it is held in Para Nos.21& 23 which is as follows:

¶47

21:^cln the instant case, the 30 d.ags gap betuteen the notice u/r 8(6) and notice u/r 9(1) uas maintained.. /):----'':":-. 1.,".-^{".-"1 ii'ftj.,,st cond sq.le notice uras issued u/r 9(1) toith} Jifteen -:.-^{,4i :} _.:. 'i., I, " d*;s.. grace period betueen the sale notice and date ,^'-,a- 1,:U '1 ,., ;:" o;f .ailction. As second. dttempt utas also not dags grace perlod. These tuto notices are in u:ith Rule 9(7) proviso, as it stand,s uhen tuo notices were issued.

¶48

The Tribunal grosslg erred in holding that afrer notice u/r 8(6), there must be 30 d.ags gap belore

¶49

issuing a notice under ntle 9(1). Such a requirement utrls as per amendment of Section 13(8) and Rule 8(6)& Rule 9(1). After amendment of Rule 9(1), there is no requirernent to issue notice u/r 8(6) for second and subsequent sale notices and onlg under Rule 9(1) second and subsequent sq.le notices are to issued bg maintaining a gap of 75 dags between notice d.ate and quction dqte".

¶50

The l"t Respondent Bank along with their Reply, filed material documents to substantiate that they followed the procedure laid down under the provisions of SARFABSI Act and Rules, 2OO2 in issuing pre-sale notice and sale notice to the Applicants and in conducting auction of the schedule property. As per the said documents, it is clear that the l"t Respondent Bank obtained valuation report from the approved valuer of the Bank for fixing reserve price in respect of the schedule property. The impugned auction was ionducted on 26.09.2022 and before conducting the said auction, the 1"t Respondent issued intimation about the sale of the properties to the Applicants herein enclosing the notice of sale dt.03.09.2022 and the said intimation was sent through Regd. post on 06.09.0222 and the said notice was admittedly received by both the Applicants. But as per the copies of postal acknowledgment filed by the l"t Respondent Bank, it is clear that the Applicants received the said notice on 14.09.2022. The said notice was published in Financial Express and Mana Telangana daily newspapers as evidenced by the copies of paper publicaiion filed by the l"tRespondent Bank. ffre saiO.-Sf-f-,ii&jE.wes also aflixed on the schedule properry as ..',/ -,',.i.'".:'t.z .11:i ,, . l. depicted.in the.lo"hoto'S$qqfu filed by the 1"t Respondent Bank.

¶51

;i. j'.
l. ,;t'' ::t.
: .- *\t
,
17 :rt ,$5
,TjI
<'.; i.i'
r.' . .,.S1;';,rf,- -t,4,,li ,g;I
' ; ylI I'1.', .'..". ,. .' jl' 10

¶52

Rule 9(1) of Security Interest (Enforcement) Rules 2OO2 deals with notice to be served to the borrower before conducting auction of the security interest of the immovable property.

¶53

9(1) proviso is extracted below for better appreciation:

¶54

9(1): No sale of immouable propertg under these rttles, in first instance shall tq.ke place before the expiry of thirty dags from the date on uthich the public notice of sale is published in neutspapers crs referred to in the prouiso to sub-rule (6) of ntle 8 or notice of sale has been seraed to the borrower.

¶55

1,6. As per the proviso of Rule 9(1) of Security Interest (Enforcement) Rules, 2OO2 referred supra, it is clear that before conducting sale of the immovable property, after failure of the first sale, the Authorized officer shail serve, affix and publish the notice of sale not less than fifteen days to theborrower for any subsequent sale.

¶56

,$\

¶57

But in the instant case, admittedly, after issuing Rule 8(6) notice, the l"t Respondent Bank issued Notice of Sale dt.12.O7.2O22 as contemplated u/r 9(1) of Security Interest( Enforcement) Rules, 2OO2 for conducing auction of the schedule property but the auction was not materialized for want of bidders. So for conducting subsequentsale, fresh sale notice dt.03.09.2O22was issued by the Authorized officer of the lstRespondent Bank. But even though the

¶58

frruticewasissuedon03.09,2o22butthesaidnoticewasserved f*-*f$frk licants on 14.09 .2o22whereas the auction was conducted be_camesucdessful bidder. In view of the ratio laid by the Hon'ble . ttl\

¶59

'^" Debts.RlCoVerV Appellate Tribunal, Allahabad, Hon'ble High Court of Punjab'&, $aryana and Hon'ble High Court of Andhra Pradesh in the

¶60

'ffiijlq, z--'a 1' .. -. ./.r"",referreddecisions, it is very clear that for conducting su-bs€Quent sale, fifteen days gap from the date of service of notice 1.1

¶61

and date of auction is required. But in the instant case, auction was conducted on 26.09.2022 and sale notice was served on the Applicants on 14.09.2022 and thus there is no fifteen days gap between the service of notice of sale and date of auction. So on this very ground, the impugned auction conducted by the 1"t Respondent Bank in respect of the schedule property on 26.09.2022 is liable to be set aside. So this point is answered accordingly.

¶62

Point No (iil

¶63

In the result, SA 195/2022 is allowed by setting aside the impugned auction conducted by the 1"t Respondent Bank in respect of the schedule property on 26.09.2022 pursuant to the Auction Sale Notice dt.03.09.2022. Consequently, the 1st Respondent Bank is directed to take steps for cancellation of the impugned sale certificate dt.1O.lO.2022 issued in favour of Respondent No.3, auction purchaser in respect of the schedule property. Accordingly, the 1"t Respondent Bank is directed to refund the amount deposited by the Respondent No.3 i.e. auction purchaser of the schedule propert5r towards the bid amount along with interest @ 9oh p.a. simple from the date of deposit till the date of repayment, within one month from the date of receipt of this order. The lst Respondent Bank is at liberty to proceed afresh with the auction of the schedule property strictly in accordance with the provisions of SARFAESI Act, 2OO2 and Rules made thereunder. No costs.

¶64

Communicate a copy of this Order to the parties concerned.

¶65

me in tle open thisthe 1Vh day of April,2025).

¶66

1 I ,ron ?flffi

¶67

sdl -
(G. GOPICHANDI
PRESIDING OFFICER
ffiuil'o''
12

T Narayana Rao v. State Bank of India

Case brief

What is this about?

What did the court decide?

T Narayana Rao 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

Union Bank of India versus M/S.. Mokshit Enterprises

Union Bank of India versus M/S. Pushpak Energy Industry

Bank of India versus M/S. Chandramouli Wines

Union Bank of India versus M/S. Tirumala Cloth Stores

Union Bank of India versus M/S. Gopagoni Sridhar Transport Co.

State Bank of India versus Sri Raja Rajeshwari Industries