DRAT Orders Transfer of Company Liquidation Appeal from Madras HC to DRT for Proper Legal Proceedings on Sale Irregularities [Read Order]

The appeal was initiated following a direction from the Madras High Court, which sought to challenge the sale of properties belonging to the appellant company in execution of a Recovery Certificate by the DRT. The appellant, acting through the Provisional Liquidator, contended that the sale was illegal and fraudulent, as the properties were sold without proper procedures, including publication, valuation, and bidding process. It was further alleged that the properties were falsely shown as mortgaged, and the sale price was significantly undervalued considering the assets’ worth.

The core issue before the DRAT was whether the sale conducted by the Recovery Officer was valid and whether the appellant’s rights had been duly protected. The appellant argued that the sale was tainted with irregularities, including no proper auction proceedings, absence of bidders, and no proper valuation, which adversely affected the interests of creditors and stakeholders.

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The respondents, including the Bank and the auction purchaser, contended that the sale was conducted in accordance with law, and the appellant had a remedy before the DRAT, which they claimed was not properly invoked.

Justice G. Chandrasekharan, Chairperson of the Tribunal, observed that the appeal was primarily based on the direction from the High Court to approach the DRAT. However, the statutory provisions under the Recovery of Debts and Bankruptcy Act, 1993, clearly specify that appeals against orders of the Recovery Officer should be filed before the DRT within 30 days, and any challenge to the sale proceedings itself must be made through the prescribed legal channels.

The Tribunal noted that the appellant had not challenged the original order before the DRT and that the appeal was therefore not maintainable before the DRAT at this stage.

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The Tribunal stated that the High Court’s direction to file the appeal before the DRAT was based on the submissions that the appellant had an effective remedy under the relevant law. Nonetheless, the law requires that such appeals be filed within the statutory period and through the proper proceedings before the DRT. Since these procedures had not been followed, the DRAT held that the appeal was liable to be transferred to the DRT for disposal, in accordance with law.

The DRAT disposed of the appeal by directing its transfer to DRT-III, Chennai, for adjudication on the merits, within three months from the date of receipt of the order, after providing opportunity for hearing to all parties. Both sides were directed to bear their own costs, and all pending interlocutory applications were closed.

The Tribunal reaffirmed that the appropriate forum for challenging sale irregularities under the Recovery Act is the DRT, and the appeal filed before the DRAT was transferred accordingly, adhering to the statutory provisions and procedural safeguards.

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