DRAT sets side Auction Sale Due to Stale Valuation Report, upholds Proceedings despite Death of Mortgagor [Read Order]

The Debts Recovery Appellate Tribunal (DRAT), Allahabad, has partially allowed an appeal filed by a borrower, setting aside an auction sale conducted by the Bank of Baroda.

The appellate tribunal found that the bank violated mandatory rules by depending on a valuation report that was ten months old at the time of the sale. The appellant, Mukesh Kumar, had availed financial assistance from the bank. He secured an equitable mortgage for the residential plot.

After the default in the payment, the account was classified as a Non-Performing Asset (NPA) in October 2017. Later, the bank issued demand and possession notices under the SARFAESI Act, 2002. Further, they proceeded to auction the property on November 29, 2018.

When the appellant challenged these actions, his Securitization Application (S.A.) was dismissed by the lower Tribunal. He then appealed to the DRAT, raising concerns about the service of notices, the death of the mortgagor, and the validity of the property valuation.

The DRAT, led by Justice R. D. Khare, perused the property's valuation report. The Tribunal noted that the valuation was conducted in February 2018, while the actual auction did not take place until late November 2018, a huge gap of nearly ten months.

The Tribunal noted the settled legal principle that property values can change over a six-month interval. It was found that the bank violated Rule 8(5) of the Security Interest (Enforcement) Rules, 2002. Therefore, the DRAT ruled that the auction sale and all later actions were liable to be set aside.

The appellant also argued that the bank's proceedings were void because they were conducted against a dead person, as the mortgagor had passed away in 2009.

However, the Tribunal rejected this contention. It noted that the appellant, who is a legal heir of the deceased, had never informed the bank of the death. The Tribunal held that since the bank was kept in the dark regarding the mortgagor's demise, the proceedings remained valid on this front.

As a result, the DRAT upheld the validity of the bank’s notices and the overall recovery process, but struck down the auction sale due to the procedural lapse. The Tribunal ordered that while the rest of the lower court's order remains intact, the specific auction sale dated November 29, 2018, is set aside.

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