Breach of Rule 9(4) of Security Interest (Enforcement) Rules Without Written Extension: DRAT sets aside Sale Certificate and Auction Sale [Read Order]

The Kolkata bench of the Debt Recovery Appellate Tribunal (DRAT) has upheld the order of the Debt Recovery Tribunal (DRT) and has set aside the sale certificate and auction sale holding that there was a breach of rule 9(4) of the Security Interest (Enforcement) Rules, 2002 which requires the balance 75% of the bid amount to be paid within 15 days of confirmation of sale or within a written extension agreed with the bank. But no written extension was filed by the bank.

The dispute arose when M/s Apsara Constructions, the respondent, and its partners availed a loan of Rs. 1.75 crore from Canara Bank . The account turned irregular and was classified as a Non-Performing Asset (NPA). The Bank issued demand and possession notices under Sections 13(2) and 13(4) of the SARFAESI Act.

Subsequently, an e-auction was conducted on 27 December 2019, and the auction purchaser deposited 25% of the bid amount on 30 December 2019, as the days in between were bank holidays. The balance 75% was deposited on 21 March 2020, nearly three months later. A sale certificate was issued on the same date and registered in June 2020.

The borrowers challenged the auction before the DRT, alleging violations of statutory rules. The DRT found that while the initial notices were complied with, there was no proof of affixation of the possession notice on the secured assets, violating Rule 8(1).

More critically, the Tribunal held that the deposit of the balance 75% bid amount was not in accordance with Rule 9(4), which mandates payment within 15 days of confirmation of sale or within an extended period agreed upon in writing between the purchaser and the secured creditor, not exceeding three months.

In this case, the auction purchaser, the appellant Muneru Industries Pvt. Ltd., had sought 30 days’ extension, but no written agreement of extension was produced by the Bank.

Despite this, the payment was made after nearly 90 days. The DRT concluded that the auction sale and sale certificate were vitiated and directed refund of the sale consideration to the purchaser, while permitting the Bank to initiate fresh proceedings.

On appeal, the auction purchaser argued that the delay was due to a typographical error in the extension request and that the Covid-19 pandemic justified relaxation. The DRAT rejected these contentions, noting that neither the Bank nor the purchaser had produced any written agreement extending the time as required under Rule 9(4).

The Tribunal emphasised that statutory procedures must be followed strictly and cannot be waived casually.

The bench of Anil Kumar Srivastava (Chairperson) observed that the Bank had made misleading statements in its affidavit, claiming that 90 days was sought, whereas the record showed only 30 days.

The DRAT held that such irregularities went to the root of the auction process and amounted to collusion between the Bank and the purchaser.

The Tribunal relied on precedents, including General Manager, Sri Siddeshwara Cooperative Bank Ltd. v. Ikbal (2013), Varimadugu Obi Reddy v. B. Sreenivasulu (2023), and Union Bank of India v. Rajat Infrastructure Pvt. Ltd. (2023), which consistently held that Rule 9(4) is mandatory and requires a written agreement for extension.

It reiterated the principle that when a statute prescribes a procedure, it must be followed in that manner or not at all. In conclusion, the DRAT found no illegality in the DRT’s order. It confirmed that the auction purchaser had defaulted in complying with Rule 9(4), and the Bank had failed to establish any written extension. The appeal was dismissed, the sale certificate and auction sale were set aside, and the Bank was directed to refund the sale consideration.

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