DRAT Kolkata Upholds Rejection of Bank-Borrower Settlement That Kept Auction Purchaser In the Dark

The Kolkata bench of the Debts Recovery Appellate Tribunal (DRAT) has upheld a DRT order refusing to accept a settlement between Indian Bank and its borrower.

It found that the auction purchaser was kept in the dark despite being a party to the proceedings and despite a final order directing refund of the auction consideration having attained finality.

Chairperson Justice Anil Kumar Srivastava observed:

“When the order dated 07.03.2024 was passed by Learned DRT on merits setting aside the sale conducted by the Bank and for refund of the sale, consideration was passed and attained finality, then it was incumbent upon the Bank to comply with the said order. But neither the order was complied with nor any mention is made in the settlement. Admittedly, the Auction Purchaser was a party in the pending S.A. but was not made a party to the settlement. It means that the Auction Purchaser was kept in dark before arriving at a settlement.”

The borrower had challenged a possession notice issued by Indian Bank under the SARFAESI Act by filing a securitisation application before the DRT. During the pendency of the proceedings, the secured assets were auctioned for Rs 1.40 crore.

On March 7, 2024, the DRT passed a detailed order holding the auction sale illegal. It set aside the sale and directed the bank to refund Rs 1.59 crore to the auction purchaser along with interest at 12% per annum. The bank subsequently withdrew its appeal against that order. As a result, the DRT's directions attained finality.

Thereafter, on August 21, 2024, the borrower and the bank entered into a one-time settlement for Rs 2.03 crore. The borrower deposited the settlement amount. The bank then issued a No Due Certificate.

The bank also withdrew O.A. No. 619 of 2019 against the borrower. The withdrawal was accepted by the DRT on November 21, 2024.

The borrower and the bank thereafter filed a joint application seeking dismissal of the securitisation application on the basis of the settlement. The DRT, however, refused to accept the compromise.

The DRT noted that the auction purchaser, who was already a party to the proceedings, had objected to the proposed withdrawal. It also took note of a contempt petition filed by the auction purchaser, alleging that the bank had not complied with the March 7, 2024 order directing it to refund the auction money.

Counsel for the borrower and the bank argued that the dispute had been settled and a joint plea for withdrawal had been filed. In those circumstances, they contended, the borrower could not be compelled to pursue the securitisation proceedings any further.

The auction purchaser opposed the move. It argued that the settlement had been reached without its knowledge, even though it was a party to the case.

It further argued that neither the settlement nor the No Due Certificate referred to the amount deposited by it. The auction purchaser also pointed out that the DRT's order setting aside the sale and directing refund had attained finality. Yet, the bank had failed to comply with it.

The DRAT noted that the auction purchaser was a party to the securitisation application. It further noted that the DRT had passed a detailed order holding the sale illegal, setting aside the auction and directing refund of Rs 1.59 crore with interest.

Despite this, the auction purchaser was not made a party to the subsequent settlement between the borrower and the bank. Nor did the settlement make any mention of the amount deposited by the auction purchaser.

Since the DRT's order had attained finality following withdrawal of the bank's appeal, it was incumbent upon the bank to comply with it. Holding that the DRT was justified in refusing to accept the settlement, the DRAT found no illegality or infirmity in the impugned order. It accordingly dismissed both appeals.