DRAT Holds Bank of Maharashtra Liable for Interest on Funds Held for Over 3 Years After Botched Sale [Read Order]

The Debts Recovery Appellate Tribunal (DRAT), Allahabad, has modified an order of the Debt Recovery Tribunal, holding Bank of Maharashtra liable to pay interest on auction proceeds it held for over three years after a sale was quashed due to procedural errors.

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The appeal was filed by Bhagwan Singh Arora, the auction purchaser of a property sold by the bank. The original borrowers had challenged the auction, and the DRT quashed it due to the bank's non-compliance with the SARFAESI Rules regarding possession notices. While the DRT ordered the bank to refund the auction amount to Arora, it did so after a period of more than three years and without any interest.

Justice R. M. Khare, Chairperson, observed that the fault for the failed auction lay solely with the bank. The tribunal noted that the appellant, a bona fide purchaser, not only lost the property but was also deprived of his funds for over three years due to the bank's negligence. It was held that since the bank held the funds and likely earned interest on them, it would be unjust to allow the bank to be enriched at the expense of the appellant who suffered a loss.

This decision reinforces the principle that secured creditors must meticulously follow the procedures laid down in the SARFAESI Act. A failure to do so not only jeopardizes the recovery proceedings but also exposes the bank to liability for the financial losses incurred by innocent parties, such as auction purchasers, who act in good faith.

Consequently, the DRAT modified the DRT's order, directing Bank of Maharashtra to pay simple interest at 8% per annum on the auction amount from the date of its deposit until the date of its refund. The bank was also ordered to pay Rs. 1.00 lakh towards the appellant's legal costs and court fees.

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