Case Note & Summary
The petitioners, Sri T.S. Nataraj, Sri Harsha N., and Smt. N. Seema, filed a writ petition under Articles 226 and 227 of the Constitution of India before the High Court of Karnataka at Bengaluru, challenging an e-auction notice dated 08.09.2021 issued by the Authorized Officer of the State Bank of India (respondent No. 2) and the consequent sale certificate dated 07.10.2021 issued in favor of the auction purchaser, M/s Shri Chaamundi Aldehydes (respondent No. 4). The petitioners also sought a direction to the bank to consider their case under the One Time Settlement (OTS) scheme. The dispute arose from a loan default by the petitioners, leading the bank to initiate recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The bank issued a possession notice under Section 13(4) and subsequently an e-auction notice for sale of the secured asset. The auction was scheduled for 07.10.2021, and the notice was issued on 08.09.2021. The petitioners contended that the notice period was only 29 days, violating Rule 8(6) of the Security Interest (Enforcement) Rules, 2002, which mandates a minimum 30-day notice before auction. The bank argued that the notice was valid and that the petitioners had an alternative remedy under Section 17 of the SARFAESI Act. The court analyzed the timeline and found that the notice period was indeed 29 days, falling short of the mandatory 30-day requirement. The court held that Rule 8(6) is mandatory and non-compliance renders the auction void. Consequently, the court quashed the e-auction notice and the sale certificate, and directed the bank to consider the petitioners' representation for OTS in accordance with law. The writ petition was allowed.
Headnote
A) SARFAESI Act - Auction Notice - Rule 8(6) of Security Interest (Enforcement) Rules, 2002 - Mandatory 30-Day Notice - The court considered whether the e-auction notice dated 08.09.2021 for sale scheduled on 07.10.2021 complied with the mandatory 30-day notice period under Rule 8(6). Held that the notice period was only 29 days, violating the rule, and the sale was void. (Paras 1-10) B) SARFAESI Act - Sale Certificate - Validity - Consequence of Invalid Auction - The court examined whether the sale certificate issued on 07.10.2021 could be sustained when the underlying auction was invalid due to insufficient notice. Held that the sale certificate is also liable to be quashed as it is based on a void auction. (Paras 1-10) C) SARFAESI Act - One Time Settlement (OTS) - Direction to Consider - The court considered the petitioners' prayer for direction to the bank to consider their case under the OTS scheme. Held that since the auction and sale certificate are quashed, the bank shall consider the petitioners' representation for OTS in accordance with law. (Paras 1-10)
Issue of Consideration
Whether the e-auction notice and sale certificate issued by the bank are liable to be quashed for non-compliance with Rule 8(6) of the Security Interest (Enforcement) Rules, 2002, which mandates a 30-day notice period before auction.
Final Decision
The writ petition is allowed. The e-auction notice dated 08.09.2021 and the sale certificate dated 07.10.2021 are quashed. The bank is directed to consider the petitioners' representation for One Time Settlement in accordance with law.
Law Points
- Rule 8(6) of Security Interest (Enforcement) Rules
- 2002 requires 30 days notice before auction
- Section 13(2) of SARFAESI Act
- 2002
- Section 13(4) of SARFAESI Act
- Section 17 of SARFAESI Act
- Article 226 of Constitution of India
- Article 227 of Constitution of India
