IDFC First Bank Ltd vs Dharmendra Popatlal Patel & Ors

Ashok Menon, Chairperson

The Appellant IDFC First Bank Ltd. impugns the order of the Debts Recovery Tribunal No.-II, Ahmedabad (D.R.T.) dated 10.01.2022 allowing the Securitisation Application No. 183 of 2021 in favour of the Applicants therein and quashing the auction sale of the secured assets conducted by the Appellant Bank under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’ for short).

The question that arises for consideration in the Appeal is whether there was a violation of the provisions of Rule 8(5) of the Security Interest (Enforcement) Rules, 2002 (‘Rules’ for short) while selling the secured assets by way of a private treaty as contemplated under the Rules.

A perusal of the facts of the case in hand would be beneficial to arrive at a conclusion.

The Appellant Bank sanctioned a home loan to the Respondents/ Applicants repayable in equated monthly instalments. The Respondents defaulted the payment which resulted in their account being classified as Non-Performing Assets (NPA) on 31.08.2017. Demand Notice issued under Sec. 13(2) of the SARFAESI Act on 16.10.2017 did not yield any result. The Appellant filed an application before the District Magistrate, Surat on 30.10.2018 for physical possession of the secured assets under Sec. 14 of the SARFAESI Act, and the same was allowed on 18.12.2018. Aggrieved by the measures taken against them, the Respondents approached the D.R.T. under Sec. 17 of the SARFAESI Act by filing S.A. No. 22 of 2019. During the pendency of the S.A., the Respondents agreed to pay some amount to regularize the account. Recording the settlement arrived at between the parties, S.A. No. 22 of 2019 was disposed of on 15. 01.2019. The Respondents, however, failed to comply with their undertaking to regularize the account although they paid some amount towards the debt and the Appellant Bank proceed with the Sarfaesi measures. The secured property was put on sale repeatedly on 15.03.2021, 16. 04.2021 and on 27.04.2021, but the attempted auctions failed for want of bidders on all three occasions. The reserve price that was fixed initially at ₹52,94,800/- was reduced to ₹48 lacs for the last two attempts to sell. Yet the auctions failed for want of bidders. The Appellant Bank was left with no other option but to attempt to sell the property by way of a private treaty as contemplated under Rule 8(5) (d) of the Rules. The third Respondent was agreeable to purchase the property for a consideration of ₹50 lacs which was still higher than the reserve price, on 08.06.2021. The sale was confirmed and the sale certificate was issued on 28.06.2021. Respondents Nos. 1 and 2 challenged the Sarfaesi measures all over again in the present S.A. No. 183 of 2021 instituted on 25.06.2021.

The Respondents have in their S.A. raised the contention that the actual market value of the property is ₹90 lacs. And hence the reserve price of ₹48 lacs fixed for sale was highly inadequate. They have already paid a sum of ₹22,55,912/- towards the debt. They were also willing to pay the balance. However, the Bank sold the residential property of the Applicants at a throwaway price by means of a private treaty. The Appellant Bank opposed the S.A. by contending that the second application under Sec. 17 of the SARFAESI Act was hit by the principal of estoppel, waiver and acquiescence.

There is no doubt that Respondents Nos. 1 and 2 had agreed to the disposal of the earlier S.A. No. 22 of 2019 which entails relinquishing their objections to the Sarfaesi measures till the stage of taking over the possession of the secured assets under Sec. 14 of the SARFAESI Act. They are, therefore, not entitled to challenge the Sarfaesi measures till the point of taking over possession. The present S.A. would, therefore, have to be confined to challenge the Sarfaesi measures subsequent to the taking of possession of the secured assets under Sec. 14 of the SARFAESI Act. Only the measures taken consequent to the handing over of the possession of the secured asset coils be challenged in the present S.A., and the measures taken by the Appellant were the three failed attempts of the auction sale, and thereafter the private sale conducted by the Appellant Bank. It is pertinent to note that the secured debtors did not raise any objection to the fixing of the reserve price till the property was ultimately sold by way of a private treaty to the third Respondent. The debtors do not have a case that they were not served a notice of the three attempted auctions which failed. When the first auction failed to attract any bidders for a reserve price of ₹52,94,800/- on 15.03.2021, it was deemed proper to attempt a fresh auction on 06.04.2021 by reducing the reserve price to ₹48 lacs. But the auction failed again. A third attempt to auction the property at the very same reserve price of ₹48 lacs also proved futile on 27.04.2021. Respondents Nos. 1 and 2 do not have a case of violation of the Rules or insufficiency of the reserve price during the three attempted auctions. The Appellant Bank had issued a notice to the debtors about their intention to sell the property by way of a private treaty with the third Respondent. Still, they did not object. Only when the sale was ultimately concluded on 08.06.2021 did Respondents Nos. 1 and 2 approach the D.R.T. with present S.A. No. 183 of 2021 on 25.06.2021. The contention of the learned counsel for Respondents Nos. 1 & 2 that the provisions of Rule 8(5) have not been complied with, which was upheld by the learned P.O. apparently appears to be erroneous. The three attempted public auctions were admittedly held after complying with Rule 8(5). Sale by private treaty is a method of sale of secured assets other than by public auction or public tender and would come within the purview of Rule 8(8) of the Rules which read thus:

“(8) Sale by any method other than public sale or public tender, shall be on such terms as may be settled between the secured creditor and the purposed purchaser in writing.” (emphasis is mine)

A reading of the above sub-rule would indicate that the secured debtor's involvement in the sale by way of a private treaty is not contemplated. The learned counsel has relied upon a decision of the Hon’ble Supreme Court in Vasu P Shetty v/s Hotel Vandana Palace & Ors. (2014) 5 SCC 660 wherein it is held that the secured creditor is not relieved from its obligation to follow the mandatory requirements of Rules by serving notice of the auction to the borrower every time an auction is held. And that in a private sale of the immovable asset conducted by a secured creditor there must be an agreement in writing between the borrower and secured creditor to effect the sale by private treaty under Rule 8(8) of the Rules. It is pertinent to notice that the above decision was delivered prior to the amendment of Rule 8(8) with effect from 04.11.2016 wherein it has been specified that the private treaty shall be on such terms as may be settled between the secured creditor and the proposed purchaser. The borrower has no role in such terms pertaining to a private treaty.

Under the circumstances, I find that the finding of the learned Presiding Officer is erroneous and needs to be set aside.

Resultantly, the Appeal is allowed and the impugned order of the D.R.T. dated 10.01.2022 is set aside. The sale in favour of the third Respondent shall stand confirmed.