RDDBFI Act | Borrower Can Challenge Confirmation Of Sale Directly Before DRT Without Pre-Deposit Under Rules 60/61 Of IT Act: Allahabad High Court

"The legislature has provided the borrower a concurrent remedy; either to invoke Rule 60 or 61, or to approach the DRT directly by filing an appeal under Section 30 (1) of the RDDBFI Act, 1993 within thirty days from the date a copy of the order passed by the Recovery Officer confirming the sale is issued to him." Allahabad High Court, in a significant ruling dated 7 September 2026, held that a borrower is not mandated to first exhaust the remedies under Rule 60 or 61 of the Second Schedule to the Income Tax Act, 1961, or make a pre-deposit thereunder, to challenge an order of confirmation of sale passed by a Recovery Officer.

A bench of Justice Saral Srivastava and Justice Garima Prashad observed that Section 30 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act) provides an independent appellate remedy against any order of the Recovery Officer, including the confirmation of a sale.

The litigation arose from the recovery proceedings initiated against the borrower, M/s Durga Rice and Dall Mills, by the Banaras State Bank. Following a default, the Recovery Officer attached and auctioned the mortgaged property. The borrower challenged the confirmation of the sale before the Debt Recovery Tribunal (DRT) under Section 30 of the RDDBFI Act. While the DRT and the Debt Recovery Appellate Tribunal (DRAT) set aside the sale due to material irregularities, a learned Single Judge reversed these orders, citing the borrower's failure to make a pre-deposit and lack of specific pleadings regarding the auction proceedings.

The primary issues before the High Court were whether an appeal under Section 30 of the RDDBFI Act is maintainable without invoking the pre-deposit requirements of Rules 60 and 61 of the Second Schedule of the Income Tax Act, and whether a Tribunal possesses the residuary power under Rule 18 of the Debts Recovery Tribunal (Procedure) Rules, 1993 to set aside an auction when the specific prayer in the appeal was only to set aside the confirmation of sale.

Court’s Observations on Appellate Remedy

The Court clarified that Section 30(1) of the RDDBFI Act begins with a non-obstante clause, giving it overriding effect over Section 29, which incorporates the procedural rules of the Income Tax Act. The bench observed that the order of confirmation of sale under Rule 63 of the Second Schedule of the Income Tax Act is referable to the powers of the Recovery Officer under Section 25(a) of the RDDBFI Act. Consequently, an aggrieved borrower is entitled to approach the DRT directly under Section 30 without being burdened by the pre-deposit conditions of the Income Tax rules.

Court Clarifies Scope of Section 30 RDDBFI Act

The bench emphasized that treating Rules 60 and 61 as a mandatory prerequisite would render the appellate power of the DRT illusory. Relying on the principle of harmonious construction, the Court held that the legislature intended to provide a concurrent remedy to ensure that orders passed by a Recovery Officer are subject to judicial review, particularly when they involve arbitrary or unreasonable exercise of power.

Bold pull-quote on the intent of auction

"The object of the auction is to secure optimum realisable value of the property... If that path is cut down or closed, the possibility of fraud or to secure inadequate price or underbidding would loom large."

Court’s Observations on Residuary Powers

The Court further held that the DRT is not powerless to grant appropriate relief simply because a specific prayer was not framed in the initial appeal. Under Rule 18 of the Procedure Rules, 1993, the Tribunal has the inherent power to pass orders to secure the ends of justice and prevent the abuse of its process. Since the grounds of appeal explicitly challenged the irregularities in the auction, the Tribunal was justified in setting aside the entire auction process.

Material Irregularities and Language Requirements

The High Court noted that the Recovery Officer failed to follow Rule 52(2) of the Second Schedule of the Income Tax Act, which mandates that the proclamation of sale be made in the "language of the district." In this instance, the auction notice was published in English for a Hindi-speaking district, which the Court deemed a fatal irregularity. Furthermore, the property was sold for Rs. 35.20 Lakhs, which was significantly lower than the forced sale value of Rs. 56.12 Lakhs estimated in the valuation report, evidencing a failure to secure a fair price.

The Division Bench set aside the judgment of the learned Single Judge, noting that the auction process was vitiated by procedural infirmities and material irregularities. The Court underscored that while the interests of a bona fide auction purchaser merit protection, such protection cannot override the statutory mandate for a fair and transparent recovery process. Consequently, the Writ Petition was dismissed, and the orders of the DRT and DRAT were restored.

Date of Decision: 07 September 2026