Case Note & Summary
The petitioner, Invest Assets Securitisations & Reconstruction Private Limited, an assignee holding a pari passu charge with the first respondent Bank of Baroda, filed a writ petition under Articles 226 and 227 of the Constitution of India challenging the order dated 24/06/2024 passed by the Debts Recovery Appellate Tribunal (DRAT), Mumbai. The DRAT had dismissed the assignee's appeal and affirmed the order of the Debts Recovery Tribunal-I (DRT), Ahmedabad dated 31/03/2022, which confirmed the sale notice dated 24/09/2021. The assignee contended that the Recovery Officer had failed to comply with Regulation 37(1) of the Debts Recovery Tribunal Regulations, 2015, which requires obtaining a valuation report from an approved valuer and issuing a proclamation of sale in Form-22 before fixing the reserve price. The assignee argued that this requirement was mandatory and its non-compliance vitiated the auction sale in favor of the second respondent, Kemo Steel Industries Private Limited (the auction purchaser). The assignee had previously approached this Court in Writ Petition (L) No.30912 of 2023, which was disposed of on 18/12/2023 with a direction to the DRAT to consider the effect of violation of Regulation 37(1). However, the DRAT failed to do so and reiterated its earlier conclusion. The auction purchaser and the Bank opposed the petition, arguing that the assignee had not raised any objection at the time of fixing the reserve price or during the auction process, and the challenge was belated. The auction had been conducted on 18/11/2021, confirmed on 04/04/2022, possession delivered on 06/04/2022, and a sale certificate issued on 07/04/2022. The court analyzed Regulation 37(1) and noted that while the word 'shall' is used, no consequence of non-compliance is prescribed, indicating that the provision is directory. The court also observed that the assignee failed to demonstrate any prejudice, as the reserve price was reduced on three occasions due to lack of bidders, suggesting that the price was fair. The court held that the challenge was an afterthought and the assignee was disentitled to relief due to gross delay and failure to object at the appropriate stage. The writ petition was dismissed, and the impugned order of the DRAT was upheld.
Headnote
A) Debts Recovery Tribunal - Auction Sale - Regulation 37(1) of the Debts Recovery Tribunal Regulations, 2015 - Mandatory vs Directory - The court considered whether the requirement under Regulation 37(1) to obtain a valuation report from an approved valuer before fixing the reserve price is mandatory. Held that the provision is directory, as no consequence of non-compliance is prescribed, and the assignee failed to raise any objection at the time of fixing the reserve price or during the auction process. The belated challenge after confirmation of sale and delivery of possession was not entertained (Paras 1-22).
B) Debts Recovery Tribunal - Auction Sale - Delay and Laches - The assignee challenged the sale notice dated 24/09/2021 only after the auction was confirmed on 04/04/2022 and possession delivered on 06/04/2022. The court held that the challenge was an afterthought and the assignee was disentitled to relief due to gross delay and failure to object at the appropriate stage (Paras 7-22).
C) Debts Recovery Tribunal - Auction Sale - Prejudice - The assignee failed to demonstrate any prejudice caused by the alleged non-compliance with Regulation 37(1). The fact that the reserve price was reduced on three occasions due to lack of bidders indicated that the price was fair. The court held that in the absence of any material showing that the property was undervalued, the sale could not be set aside (Paras 15-22).
Issue of Consideration
Whether the failure to comply with Regulation 37(1) of the Debts Recovery Tribunal Regulations, 2015 (requiring valuation by an approved valuer and issuance of proclamation in Form-22 before fixing reserve price) renders the auction sale void, and whether the assignee's challenge is maintainable given the delay and lack of objection at the relevant stage.
Final Decision
The writ petition is dismissed. The impugned order dated 24/06/2024 passed by the Debts Recovery Appellate Tribunal, Mumbai is upheld. No order as to costs.
Law Points
- Regulation 37(1) of the Debts Recovery Tribunal Regulations
- 2015 is directory
- not mandatory
- failure to obtain valuation report from approved valuer does not automatically vitiate sale if no prejudice is shown
- belated challenge after confirmation of sale and delivery of possession disentitles relief.
Case Details
2024 LawText (BOM) (8) 82
Writ Petition (L) No. 22680 of 2024
A.S. Chandurkar, Rajesh S. Patil
Ashish Kamat (Senior Advocate) with Mohit Khanna, Harsh Behany, Gaurav Gandhi, Prachi Sanghvi i/b HN Legal for petitioner; Bhaskar Sharma with Shailesh Pai for respondent No.1; Abhinav Chandrachud with Charles D'souza i/b Mumtaz Khan for respondent No.2; Shubham Dhamnaskar i/b Phoenix Legal for respondent Nos.3 and 4
Invest Assets Securitisations & Reconstruction Private Limited
Bank of Baroda, Kemo Steel Industries Private Limited, Hans Ispat Limited, Shailesh Bhandari, Mukesh Bhandari
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Nature of Litigation
Writ petition under Articles 226 and 227 of the Constitution of India challenging the order of the Debts Recovery Appellate Tribunal (DRAT) dismissing the appeal of the assignee and affirming the order of the Debts Recovery Tribunal (DRT) confirming the sale notice.
Remedy Sought
The petitioner (assignee) sought to set aside the order dated 24/06/2024 passed by the DRAT and consequently set aside the auction sale of the secured asset for non-compliance with Regulation 37(1) of the Debts Recovery Tribunal Regulations, 2015.
Filing Reason
The assignee alleged that the Recovery Officer failed to obtain a valuation report from an approved valuer and issue a proclamation of sale in Form-22 before fixing the reserve price, which was mandatory under Regulation 37(1).
Previous Decisions
The DRT confirmed the sale notice on 31/03/2022. The assignee's appeal to the DRAT was dismissed on 04/08/2023. This Court in Writ Petition (L) No.30912 of 2023 on 18/12/2023 remanded the matter to the DRAT to consider the effect of violation of Regulation 37(1). The DRAT again dismissed the appeal on 24/06/2024.
Issues
Whether the failure to comply with Regulation 37(1) of the Debts Recovery Tribunal Regulations, 2015 renders the auction sale void.
Whether the assignee's challenge is maintainable given the delay and failure to object at the relevant stage.
Whether Regulation 37(1) is mandatory or directory.
Submissions/Arguments
Petitioner (assignee): Regulation 37(1) is mandatory; Recovery Officer failed to obtain valuation report from approved valuer and issue proclamation in Form-22 before fixing reserve price; DRAT ignored this Court's direction to consider effect of non-compliance; sale should be set aside.
Respondent No.2 (auction purchaser): Assignee failed to raise objection at the time of fixing reserve price; challenge is belated; no prejudice shown; Regulation 37(1) is directory; sale was conducted after multiple reductions in reserve price due to lack of bidders.
Respondent No.1 (Bank): Challenge is an afterthought and belated; assignee disentitled to relief.
Ratio Decidendi
The requirement under Regulation 37(1) of the Debts Recovery Tribunal Regulations, 2015 to obtain a valuation report from an approved valuer before fixing the reserve price is directory, not mandatory, as no consequence of non-compliance is prescribed. A belated challenge after confirmation of sale and delivery of possession, without any objection at the relevant stage and without demonstrating prejudice, disentitles the assignee to relief.
Judgment Excerpts
Despite a clear direction being issued by this Court to the DRAT to consider effect of violation of Regulation 37(1) of the Debts Recovery Tribunal Regulations, 2015, the DRAT failed to consider the said aspect.
The failure on the part of the assignee in raising any objection before the Recovery Officer coupled with the enormous delay in raising this plea disentitled the assignee to any relief whatsoever.
Since no consequence of the failure to obtain a valuation report from an approved valuer resulting in non-compliance of Regulation 37(1) was indicated in the Regulations, it was clear that the requirements prescribed were directory in nature and not mandatory.
Procedural History
The Recovery Officer fixed the reserve price on 19/09/2019 without obtaining a valuation report from an approved valuer. The sale notice was issued on 24/09/2021. The auction was conducted on 18/11/2021, and the sale was confirmed on 04/04/2022. Possession was delivered to the auction purchaser on 06/04/2022, and a sale certificate was issued on 07/04/2022. The assignee filed an objection on 20/09/2021 but did not raise the issue of non-compliance with Regulation 37(1). The DRT confirmed the sale on 31/03/2022. The assignee appealed to the DRAT, which dismissed the appeal on 04/08/2023. The assignee then filed Writ Petition (L) No.30912 of 2023, which was disposed of on 18/12/2023 with a direction to the DRAT to consider the effect of violation of Regulation 37(1). The DRAT again dismissed the appeal on 24/06/2024, leading to the present writ petition.
Acts & Sections
- Constitution of India: Articles 226, 227
- Debts Recovery Tribunal Regulations, 2015: Regulation 37(1)
