Mandatory Notice of 30 Days Was Not Given to the Borrower Before Holding the Auction/Sale: Supreme Court Sets Aside Auction Sale for Non-Compliance

The Supreme Court of India set aside an auction sale due to the failure of the Bank of Baroda to adhere to mandatory notice requirements under the Security Interest (Enforcement) Rules, 2002, thus upholding the previous judgments of the Debt Recovery Tribunal (DRT) and the Debt Recovery Appellate Tribunal (DRAT).

Legal Point of the Judgment: The judgment underlined the critical importance of compliance with statutory notice requirements, specifically the necessity of a 30-day notice to the borrower before conducting an auction sale, as mandated by the SARFAESI Act and related rules.

Facts and Issues: The appellants, Govind Kumar Sharma & Anr., who were tenants of the property put to auction, emerged as the highest bidders in the sale conducted by the respondent bank after the original borrower defaulted. However, the sale was contested and subsequently set aside due to the bank’s failure to provide the legally required notice to the borrower, raising significant questions about the validity of such auction sales under the SARFAESI Act.

Notice Requirements: The court emphasized the bank’s admission of failing to serve the mandatory 30-day notice to the borrower, which led to the auction sale being deemed invalid. This compliance was highlighted as foundational to the legality of enforcement actions under the SARFAESI Act.

Financial Adjustments and Interest Rates: The appellants were directed to receive a refund of the auction money along with compound interest at 12% per annum, calculated from the date of deposit to the actual payment. The court expressed a punitive view towards the bank for its oversight, noting that such errors lead to unnecessary litigation.

Status and Possession Rights: With the auction sale annulled, the court restored the appellants’ status as tenants, correcting the lower tribunal’s directive that had erroneously required the bank to take possession before refunding the auction money.

Restitution and No Dues Certificate: The court ordered the bank to reconcile accounts and issue a No Dues Certificate to the borrower upon settling all transactions, ensuring a clear resolution of the financial entanglements created by the auction sale.

Decision: The auction sale was set aside, and the appellants’ status as tenants was reinstated. They are entitled to the return of their auction money with 12% compounded annual interest.

 Date of Decision: April 18, 2024

Govind Kumar Sharma & Anr. Vs Bank of Baroda & Ors.