Failure to Serve Possession & Sale Notices on Corporate Guarantor: DRAT Upholds DRT Order, Dismisses Canara Bank’s Appeal [Read Order]

The Debts Recovery Appellate Tribunal (DRAT), Allahabad Bench, has dismissed Canara Bank’s appeal and upheld the order of the Debts Recovery Tribunal (DRT) quashing SARFAESI proceedings initiated against the respondent.

The order was made due to the failure of the bank to serve possession and sale notices under the SARFAESI Act, 2002, and the Security Interest (Enforcement) Rules, 2002, to the corporate guarantor.

Canara Bank had extended credit facilities to Antriksh Builders, the respondent secured by guarantees from directors Sanjeev Mittal and Seema Mittal, as well as corporate guarantor M/s Rishabh Heights Pvt. Ltd.

An equitable mortgage was created over the property by depositing the title deeds. When the borrowers defaulted, the account was classified as NPA. A demand notice under Section 13(2) was issued on 22 April 2016 for dues of ₹2.22 crore. Subsequently, a possession notice dated 16 July 2016 was issued under Section 13(4), and an auction sale notice was published on 30 June 2022, leading to an auction on 5 August 2022.

The borrowers challenged the proceedings before the DRT. The Tribunal allowed the application, setting aside the possession notice, auction sale, and sale certificate, and directed restoration of the property to the borrowers along with refund of auction consideration to the purchaser.

Canara Bank appealed, contending that notices had been duly served through speed post and newspaper publication, and that the borrower’s application was time-barred. The Bank also sought the deletion of corporate guarantor Rishabh Heights Pvt. Ltd. from the array of parties.

The respondents argued that possession and sale notices were never served on the corporate guarantor and Seema Mittal, violating Rule 8(1) and Rule 8(6) of the Rules, 2002. They highlighted that the possession notice was published beyond seven days, contrary to Rule 8(2), and that affixation was irregular as it was pasted on open land.

They also pointed to inconsistencies in postal receipts and publications, showing that notices were dispatched only to some parties. The auction purchaser supported the respondents, noting that while consideration was deposited, a refund was justified if the proceedings were void.

The bench of RD Khare (Chairperson) examined the record and found that while the demand notice was properly served and had attained finality, the possession notice was not served on the corporate guarantor. Affixation was irregular, and postal receipts were filed belatedly before DRAT, which was impermissible.

Similarly, the sale notice dated 30 June 2022 was addressed only to Antriksh Builders and its directors, but not to the corporate guarantor, and postal receipts showed dispatch only to two parties. This amounted to a violation of Rule 8(6).

The Tribunal also rejected the Bank’s contention regarding condonation of delay, noting that the order had attained finality as it was never challenged separately. Further, the attempt to absolve the corporate guarantor was disallowed, as Rishabh Heights Pvt. Ltd. had already been held liable.

Concluding that the DRT had rightly set aside the SARFAESI proceedings, the DRAT dismissed Canara Bank’s appeal.

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