Case Note & Summary
The petitioner, Smt. K. Padma, auction purchaser of a property in a bank recovery sale, filed a writ petition under Articles 226 and 227 of the Constitution challenging the order of the Debt Recovery Appellate Tribunal (DRAT) dated 30.6.2008. The dispute arose from credit facilities availed by respondent No.3, M/s. Tubeman Private Limited, from respondent No.2, State Bank of India, on the personal guarantee of its directors, respondent No.4 Smt. Laxmi Agarwal and her husband. The bank initiated recovery proceedings before the Debt Recovery Tribunal (DRT) due to default, obtaining an injunction under Section 19(12) of the RDDBFI Act and a recovery certificate. The property in question was attached and auctioned on 9.12.2004, where the petitioner emerged as the successful bidder for Rs.32,50,000. Respondent No.4 and her husband raised objections, including a claim that the property was already attached by Bank of Baroda, but these were rejected. Subsequently, respondent No.4 set up respondent No.1, K. Ramachandra, under an alleged sale agreement dated 25.11.2003 to defeat the auction sale. Respondent No.1's objections were rejected by the Recovery Officer on 10.2.2005. Aggrieved, respondent No.1 appealed to the DRAT, which, by the impugned order, set aside the auction sale and directed refund of the petitioner's deposit with interest at 9% p.a. The petitioner contended that the sale agreement was fraudulent, collusive, and created to defraud creditors. Respondents argued that the sale was vitiated by material irregularities—lack of notice, defective sale proclamation, and rejection of a higher settlement offer of Rs.40 lakh while selling for Rs.32.50 lakh—and that the loan was later settled under a One Time Settlement scheme in 2012. The judgment was reserved (C.A.V.) and the record does not contain the final decision.
Issue of Consideration
Whether the Debt Recovery Appellate Tribunal was justified in setting aside the auction sale confirmed in favour of the petitioner and directing refund of the bid amount with interest
Law Points
- Rights of auction purchaser
- Validity of auction sale
- Fraudulent agreements to defeat claims
- One Time Settlement
- Duty of recovery officer
- Section 19(12) RDDBFI Act
Case Details
2014 LawText (KAR) (12) 4
WRIT PETITION No.14876/2008 (GM-DRT)
D.H. Waghela, Budihal R.B.
P S Rajagopal, M A Subramani, S R Krishna Kumar, Deepak, T N Vishwanath, N S Sanjay Gowda
K Ramachandra, State Bank of India, M/S Tubeman Private Limited, Smt Laxmi Agarwal
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Nature of Litigation
Writ petition under Articles 226 and 227 of the Constitution of India challenging an order of the Debt Recovery Appellate Tribunal that set aside an auction sale and directed refund.
Remedy Sought
Petitioner-auction purchaser sought quashing of the DRAT order dated 30.6.2008 and restoration of the confirmed auction sale.
Filing Reason
The DRAT set aside the auction sale on the ground of irregularity and misled by a higher settlement offer, causing loss of the property to the auction purchaser.
Previous Decisions
Recovery Officer rejected respondent No.1's objections on 10.2.2005; DRT allowed the original application and issued recovery certificate; DRAT in M.A. No.167/2007 set aside the sale and ordered refund; earlier writ petitions by respondent No.4 were dismissed.
Issues
Whether the Debt Recovery Appellate Tribunal was justified in setting aside the auction sale confirmed in favour of the petitioner?
Whether the alleged sale agreement dated 25.11.2003 between respondent Nos. 4 and 1 was fraudulent and intended to defeat the auction purchaser's rights?
Whether the auction sale was vitiated by material irregularities such as lack of notice and defective sale proclamation?
Submissions/Arguments
Petitioner argued that the auction sale was validly conducted and confirmed; the agreement between respondent Nos. 4 and 1 was collusive and created to defraud creditors; the auction purchaser's rights should be protected.
Respondents contended that the auction purchaser had no independent right; the sale suffered from material irregularities—no notice of attachment, defective sale proclamation, and sale fixed without defaulter's consent; the bank rejected a higher settlement offer of Rs.40 lakh but sold the property for Rs.32.50 lakh; the loan was later settled under OTS, making the sale unnecessary.
Judgment Excerpts
the petitioner claims that she is auction purchaser of the property in question in the auction sale conducted by the recovery officer.
The 3 rd respondent had, like many such others, availed Scheme for One Time Settlement, 2012 and paid total sum of Rs.37.00 lakh and on receipt of the entire sum, the bank addressed letter dated 25.3.2013 informing the 3 rd respondent that its loan account was closed and the title deeds of the mortgaged property were also returned.
there is absolutely no infirmity in the order of DRAT warranting interference. The said order is just, equitable and proper inasmuch as the petitioner is directed to be refunded the amount deposited by her with interest at 9% p.a.
Procedural History
State Bank of India filed O.A. No.256/2000 before DRT, Bengaluru, for recovery of dues; injunction granted on 21.9.2000 under Section 19(12) of RDDBFI Act; original application allowed on 8.1.2001; recovery certificate issued on 16.1.2003 (DCP 2549); Bank of Baroda also obtained recovery certificate on 25.2.2003 in O.A. No.6/2001; attachment orders issued; auction sale conducted on 9.12.2004; petitioner emerged as successful bidder; respondent No.1 filed objections, rejected by Recovery Officer on 10.2.2005; respondent No.1 filed appeal before DRAT, Chennai (Appeal No.342/2006); DRAT allowed appeal on 30.6.2008, set aside sale, and ordered refund with 9% p.a. interest; writ petition filed challenging DRAT order.
Acts & Sections
- Recovery of Debts due to the Banks and Financial Institutions Act, 1993: Section 19(12)
- Constitution of India: Articles 226, 227
- Security Interest (Enforcement) Rules, 2002: Rule 9(4)
