Kotak Mahindra Bank’s Negligence in Serving Auction Notice Voids Sale: DRAT upholds 9% Interest Refund to Purchaser [Read Order]

The Debts Recovery Appellate Tribunal (DRAT), Kolkata, has dismissed an appeal filed by Kotak Mahindra Bank Ltd., thereby affirming the order of the Debts Recovery Tribunal (DRT), Visakhapatnam, which had annulled an e‑auction sale and directed refund of the auction purchaser’s deposit with interest on account of banks negligence in serving auction notice as per under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002.

The case was filed by borrower Vudutha Rajendra Prasad against Kotak Mahindra Bank and others, challenging the validity of the e‑auction sale notice dated 24 July 2023.

The DRT found that the bank’s authorised officer had failed to comply with statutory requirements under Rule 8(6) and Rule 9(1) of the Security Interest (Enforcement) Rules, 2002, particularly the obligation to serve and publish the sale notice upon the securitisation applicant. As a result, the auction was set aside, and the bank was directed to refund the deposit of the auction purchaser with 9% interest per annum from the date of payment until repayment.

Kotak Mahindra Bank appealed to the DRAT, challenging only the award of interest. The bank argued that the tender documents contained a clause expressly prohibiting bidders from claiming any interest, and that the auction purchaser, having accepted the terms, was bound by them.

The respondents countered that the auction purchaser’s deposit had remained with the bank due to its own procedural lapses, and that the purchaser was entitled to interest as compensation. They emphasized that the auction was invalidated due to the bank’s negligence, not due to any fault of the purchaser.

Justice Anil Kumar Srivastava, after reviewing the record, upheld the DRT’s findings. He observed that the authorised officer had committed patent illegalities by failing to serve and publish the mandatory notice under Rule 8(6).

Citing the Supreme Court’s ruling in CELIR LLP v. Bafna Motors (2024) 2 SCC 1, the Tribunal reiterated that banks and their officers are duty‑bound to strictly follow statutory provisions, and that greater powers under SARFAESI entail greater responsibilities.

The DRAT rejected the bank’s reliance on the tender clause barring interest claims, holding that such contractual terms cannot override statutory obligations or shield the bank from liability arising from its own negligence.

The tribunal noted that the DRT had already taken a lenient view by not imposing exemplary costs on the bank, and that awarding interest at 9% was a fair measure to ensure that the auction purchaser did not suffer due to the bank’s lapses.

Accordingly, the DRAT dismissed the appeal and confirmed the DRT’s order dated 12 March 2025.

The Tribunal directed that the refund with interest must be completed within 30 days, thereby reinforcing the principle that auction purchasers are entitled to protection when banks fail to adhere to statutory procedures.

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