Proper Valuation Needed Before Fixing SARFAESI Auction Reserve Price: DRAT Kolkata

The Debts Recovery Appellate Tribunal (DRAT) at Kolkata has held that an e-auction cannot be invalidated solely because the reserve price is below the distress value, emphasising that proper valuation and due process are the governing requirements.

A coram of Chairperson Justice Anil Kumar Srivastava observed, “In case, proper valuation has not been made and the reserve price is fixed taking into consideration the inaccurate valuation report, the intending buyer may not come forward treating the property as not worth to be purchased by him. It means that a proper valuation of the secured asset should be made through an approved valuer by the Authorised Officer. The valuation should be made prior to the issuance of the auction notice wherein reserve price is fixed by the Authorised Officer.”

The tribunal added, "In the present case, Authorised Officer duly consulted with the secured creditor. Committee of the Officers of the Bank in their report dated 18.04.2022 have given cogent reasons for reducing the reserve price below the distress value which was in accordance with law. It appears that the Learned DRT overlooked the provisions of Rule 8(5) of the Rules and also the report of the Committee comprising the officers of the Bank dated 18.04.2022. Learned DRT was persuaded by the fact that the Reserve price is fixed below the distress value but did not take any consideration to relevant provisions and the report."

Allowing an appeal filed by the Authorised Officer of State Bank of India, the tribunal set aside the July 27, 2023 order of the DRT Visakhapatnam, which had allowed the borrower's securitisation application only on the ground of reserve price.

The case arose from proceedings initiated by Sree Lakshmi Silks and its guarantors, who had challenged the possession and e-auction notices, including on the ground of improper valuation and illegality in fixing the reserve price.

The tribunal noted that a valuation report dated October 13, 2021 assessed the market value at Rs 1.22 crore and distress value at Rs 97.92 lakh. It also recorded that the auction was conducted after multiple failed attempts and that a committee of bank officials had recommended fixing the reserve price at Rs 86 lakh, which was accepted.

Holding that the reserve price was fixed based on a valid valuation and a reasoned decision, the tribunal found that the DRT had overlooked the statutory framework and the committee's report and dismissed the securitisation application.