Refund Of Auction Amount Does Not Bar Auction Purchaser From Challenging DRT Order Under SARFAESI: DRAT Allahabad

The Debts Recovery Appellate Tribunal (DRAT) at Allahabad has held that a refund of the auction amount to a purchaser after a SARFAESI auction does not render the appeal infructuous, and the auction purchaser retains the right to challenge an order allowing the borrowers to redeem the secured property after the sale.

The observation was made by Chairperson Justice R.D. Khare while allowing an appeal filed by an auction purchaser against the order dated September 11, 2019, passed by the Debts Recovery Tribunal (DRT), Allahabad, which had allowed the borrowers to deposit the dues and redeem the secured property even after the auction had been conducted and the purchaser had deposited the bid amount.

“It is true that the total auction amount of Rs. 30,61,000/- has been returned by the Bank by way of demand draft in the name of the auction purchasers, but mere refund of the amount cannot preclude the auction purchasers to exercise the legal rights in their favour and the auction purchasers by receiving such amount have not waived their rights to challenge the order and get the issue adjudicated on merits,” the tribunal observed.

The dispute arose after the borrowers, who had obtained financial assistance from Allahabad Bank, defaulted in repayment, following which the bank initiated proceedings under the SARFAESI Act. An e-auction sale notice dated January 21, 2019 was issued scheduling auction of the secured property on February 21, 2019. The appellant emerged as the highest bidder and deposited the sale consideration in accordance with the statutory rules.

Subsequently, the borrowers approached the DRT by filing proceedings under the SARFAESI Act challenging the recovery action and sought to deposit the outstanding dues to redeem the property. The DRT permitted the borrowers to deposit the dues and allowed redemption even after the auction had taken place, following which the bank returned the auction amount of Rs. 30,61,000 to the auction purchaser through a demand draft.

Before the DRAT, the respondents contended that since the auction amount had already been returned, the appeal filed by the auction purchaser had become infructuous and was not maintainable.

Rejecting the contention, the appellate tribunal held that refund of the auction amount could not deprive the auction purchaser of the right to challenge the order, particularly when the demand draft issued by the bank had not been encashed and the purchaser had not waived his legal rights.

Holding that the tribunal below had erred in permitting redemption after the sale had already been completed and the bid amount deposited, the DRAT set aside the impugned order and allowed the appeal.