Borrower Can Directly Challenge Recovery Officer's Auction Sale Confirmation Before DRT: Allahabad High Court

Section 29 of the RDDBFI Act, 1993 applies the Second and Third Schedules to the Income Tax Act, 1961 and the Income Tax (Certificate Proceedings) Rules, 1962, to recovery under the Act, as far as possible and with necessary modifications.

Section 30(1) opens with a non-obstante clause excluding Section 29 and permits any person aggrieved by an order of the Recovery Officer made under the Act to appeal to the Tribunal within thirty days. Section 30(2) empowers the Tribunal to confirm, modify or set aside an order made by the Recovery Officer under Sections 25 to 28.

Rule 60 of the Second Schedule requires a borrower applying to set aside a sale to make a deposit, and under Rule 61 a sale is not to be set aside unless the amount recoverable under the certificate is deposited.

The bench of Justice Saral Srivastava and Justice Garima Prashad held,

“we hold that 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.”

A proprietorship firm was sanctioned a cash credit limit of Rs.12 lakhs on 22.01.1992 by Banaras State Bank Limited, later merged with Bank of Baroda, against an equitable mortgage of immovable property at Bareilly.

On default, the Bank filed an original application under Section 19 of the Act for Rs.38,36,871 with interest at 18.5% per annum with quarterly rests, which the DRT allowed ex parte on December 21, 1999.

The Recovery Officer attached the property on August 6, 2001, and drew up the proclamation of sale on July 10, 2003 and held the auction on August 25, 2003, at which the property was sold for Rs.35,20,000.

In a separate appeal by the borrower, the DRAT stayed confirmation of the sale on 23.12.2003. The Recovery Officer nonetheless confirmed the sale on 09.01.2004.

The borrower appealed under Section 30, and the DRT set aside the confirmation of sale on April 29, 2005. He then compromised with the Bank, which issued a No Objection Certificate on June 13, 2005, and withdrew his DRAT appeal. The auction purchaser's appeal against the order of the DRT was dismissed by the DRAT on 19.10.2005.

On a writ petition by the auction purchaser, a single judge set aside both orders on March 11, 2024 holding that the appeal was not maintainable for want of pre-deposit under Rule 60 or 61 and that the DRT could not set aside the auction proceedings when no such relief had been prayed for. It held that on dismissal of the borrower's DRAT appeal, the interim order and all consequential proceedings fell. The borrower and the Bank filed these special appeals.

The Court held that Section 25(a) is the enabling provision under which the Recovery Officer attaches and sells property, and that Section 29 supplies only the procedure by which the sale is executed. Both the attachment order and the proclamation of sale here had been passed under Sections 25 and 29 of the Act, it held.

“Rule 63 is merely the procedural machinery used to finalise the sale authorised by the Parent Statute namely RDDBFI Act, 1993, and any final order confirming that sale draws its ultimate legal authority from Section 25 (a) of RDDBFI Act, 1993.”

An order confirming sale being referable to Section 25(a), the Court held it was directly appealable under Section 30(1). It added that it was bound by the view of a coordinate bench in Kamal Kishore Dheer v. Debts Recovery Appellate Tribunal.

Rejecting the argument that confirmation of sale is a ministerial act, the Court held,

“It is trite law that the Court should be reluctant to interfere with the sale of property by auction but that protection is not absolute, and in a given case, if the Court finds that there is element of fraud or material irregularities have been committed in conducting the sale, the supervisory jurisdiction of the Court can be invoked to ensure the fairness in the auction proceeding to secure the best possible value of the property. Therefore, we are of the view that the Recovery Officer while passing an order of confirmation of sale must apply his mind to ensure that the auction of sale had taken place strictly in accordance with the procedure prescribed in the relevant Statute.”

On the objection that the DRT had granted relief which was not prayed for, the Court held that the grounds in the memorandum of appeal had put in issue the fixation of the reserve price, the publication of the proclamation and the participation of a single bidder. It held that the DRT had framed an issue covering the legality of the attachment, the proclamation and the auction. The auction purchaser had never objected to that issue being framed and had acquiesced in its adjudication, held the Court.

“once the DRT came to the conclusion that orders of attachment, proclamation of sale and auction of immovable property were illegal, the DRT was well within its right and had the jurisdiction under Rule 18 of Rules 1993 to set aside the order of attachment, proclamation of sale and auction of immovable property to secure the ends of justice.”

Relying on Valji Khimji and Company v. Official Liquidator of Hindustan Nitro Product (Gujarat) Limited and Others, in which the Supreme Court distinguished an auction requiring confirmation from one that does not, the Court held that no right accrued to the auction purchaser until the Recovery Officer confirmed the sale under Rule 63, so his failure to challenge the earlier orders caused him no prejudice.

The findings of irregularity returned by the DRT and affirmed by the DRAT had not been assailed either before the single judge or before it, and had attained finality. On the record, it observed that the property described in the original application as mortgaged measured 694 square yards, while the property put to auction measured 4950 square yards.

“The area of land put for auction was about more than seven times the area of land that was mortgaged.”

The Court held that the proclamation of sale had been published in English in a Hindi daily, contrary to Rule 52(2) of the Second Schedule, which requires the proclamation to be made in the language of the district. It held that the valuation report had put the market value of the property at Rs.80,55,468 and its forced sale value at Rs.56,12,000.

“the minimum price which the property would have fetched if sold on Forced Sale Value was Rs.56,12,000/- whereas in the instant case, only one bidder i.e respondent no.1 participated and the property was sold out at Rs.35,20,000/-much below not only the market value, but also the forced sale value.”

Holding that the single judge had also acted beyond jurisdiction in declaring invalid a compromise between the borrower and the Bank which the auction purchaser had never challenged in appropriate proceedings, and noting that the sale certificate remained unregistered and possession remained with the borrower, the Court set aside the judgment of the single judge, dismissed the writ petition and allowed both appeals.

For Appellant: Kartikeya Saran, Ujjawal Satsangi, Veerendra Kumar Shukla

For Respondent: Ashok Kumar Lal, Maneesh Mehrotra, Shreya Gupta

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