DRT Chandigarh Sets Aside Indian Bank Auction, Awards Rs 30 Lakh Compensation To Auction Purchasers

The Chandigarh Debts Recovery Tribunal (DRT) has set aside Indian Bank's auction of two mortgaged plots secured against credit facilities availed by S.G.K. Industrial Corporation.

The tribunal held that auctioning the plots as a single unit prejudiced the borrowers. It also found that the auction notice was not published 15 days before the sale.

The Tribunal also directed the bank to pay Rs 30 lakh compensation to the auction purchasers and refund the sale consideration with interest, stamp duty, and registration charges.

Presiding Officer A.S. Narang observed that auctioning the two plots as one unit had prejudiced the borrowers.

“Be that as it may. the Bank had put both plots to auction as one unit. I am of the considered view, that this certainly prejudiced the case of the Applicants. A smaller plot would fetch more buyers and better value than a larger combined plot. The Bank failed to consider this aspect.”, the tribunal observed.

S.G.K. Industrial Corporation had availed a cash credit facility of Rs 70 lakh, a vehicle loan of Rs 18 lakh and a FITL facility of Rs 10.95 lakh from Indian Bank. One plot had been mortgaged by proprietor Kunal Grover. Another had been mortgaged by guarantor Sidharath Grover.

The account was classified as a non-performing asset on October 28, 2021. The bank thereafter initiated recovery proceedings. It first took symbolic possession of the secured assets. Physical possession was later obtained.

Several attempts to auction the secured assets did not attract buyers. During this period, the borrowers submitted one-time settlement proposals to the bank. One proposal offered Rs 42 lakh in full and final settlement. The borrowers also deposited Rs 10 lakh as an upfront amount.

Before the Tribunal, the borrowers contended that the bank had taken possession of machinery and equipment that had not been hypothecated. They also contended that notices continued to be addressed to Sidharath Grover after his death in May 2023. According to them, his legal heirs were not impleaded.

The borrowers also challenged the March 2024 auction. They contended that the auction notice was published on March 17, 2024. The sale was conducted on March 29, 2024.

Indian Bank opposed the challenge. It contended that the sale notice had been served on the borrowers. The notice was also pasted on the secured properties and published in newspapers. The bank further maintained that the adjoining secured assets had been sold as one unit.

The auction purchasers contended that they were bona fide purchasers. They pointed out that they had paid the entire sale consideration. They also contended that they had subsequently spent money on improvements to the property.

After examining the record, the Tribunal noted that the secured assets comprised two plots. One was owned by Kunal Grover. The other was owned by Sidharath Grover. The Tribunal also noted that Sidharath Grover had died before the auction. No notice had been served upon his legal heirs.

The tribunal further noted that the borrowers had offered to settle the account for Rs 42 lakh. It also noted that the bank did not respond to that proposal. The property was subsequently sold for Rs 33.52 lakh.

On this aspect, the tribunal observed:

“Further, though the Applicants were ready to settle the account for Rs.42.00 lacs, the Bank did not respond and instead sold the property for Rs.33.52 lacs. I am of the considered view, that the auction is liable to be set aside.”

The Tribunal also found that the mandatory notice requirement had not been complied with.

On this issue, the tribunal held, “The Bank did not publish the auction notice 15 days prior to the auction. The publication was made on 17.03.2024, and the auction was fixed for 29.03.2024.”

The tribunal consequently set aside the auction conducted on March 29, 2024. It directed Indian Bank to refund the entire sale consideration to the auction purchasers. The refund must also include stamp duty and registration charges. The tribunal further awarded interest at 12% per annum from the date of deposit until payment.

The Tribunal also directed the bank to pay compensation of Rs 30 lakh to the auction purchasers within one month.

Awarding compensation, the Tribunal held, “The Auction Purchasers are also awarded compensation of Rs.30.00 lacs for the unnecessary inconvenience caused to them by the illegal act of the Bank.”

The tribunal directed the auction purchasers to hand over all title documents to the bank after receiving the amounts due to them. They were also directed to restore possession to the bank. The tribunal clarified that the bank would be at liberty to auction the property again.