Property Sold Below Distress Value Violating Rule 8(6) SARFAESI Rules: DRAT Directed Bank to Refund Auction Amount with 8% Interest [Read Order]

The sale notice dated 07.07.2014 did not comply with Rule 8(6), missing auction details and redemption rights, and was published even before issuance.

The Debt Recovery Appellate Tribunal (DRAT), Allahabad, set aside an auction sale after finding that the mortgaged property had been sold below its distressed value and that the bank failed to comply with mandatory requirements under Rule 8(6) of the SARFAESI Rules.

The matter arises from a housing loan of ₹2.5 lakh granted in 2001, secured by a mortgage of the property. After default, the account was classified as NPA, and a demand notice was issued in December 2007, followed by symbolic possession in December 2013.

An earlier auction in 2009 failed due to a lack of bidders, but a fresh auction notice was issued in July 2014, leading to the sale of the property in August 2014 for ₹14.35 lakh, with a sale certificate and registered deed executed in September 2014.

The borrower, Ram Bahadur Rai, argued that the bank failed to comply with mandatory notices under Section 13(4) and Rule 8(6) of the SARFAESI Rules, which were not served. The auction sale was conducted at an undervalued price, below even the distress value assessed by the bank’s own valuer. also contended that the DRT failed to consider these irregularities while dismissing the securitisation application.

On the other hand respondent argued that the bank contended that all notices had been duly served and the sale was conducted in accordance with the law. The auction purchaser supported the bank’s arguments, stating that she had deposited the entire consideration and obtained a registered sale deed.

The bench, Justice R. D Khare ( chairperson ), found that while demand and possession notices were served, the auction sale was marred by irregularities as the property valued at ₹21 lakh (market) and ₹15.75 lakh (distress) was sold for only ₹14.35 lakh, below distress value and the sale notice of 07.07.2014 failed to comply with Rule 8(6), lacking key details and being published even before issuance.

Consequently, the tribunal set aside the auction sale of 28.08.2014, directed the bank to refund the auction amount with 8% simple interest if possession was not delivered, and ordered the bank to provide outstanding dues details within 20 days for the borrower to clear within a month.

Also held that in case the appellant fails to deposit the same within the stipulated period, the bank shall feree to proceed for its recovery in accordance with the provisions of the act and rules made thereunder.

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