Recently, the Delhi High Court examined whether the Debts Recovery Appellate Tribunal (DRAT) had erred in interfering with an auction sale that was conducted with the Respondents’ own explicit consent. The case arose from a long chain of default, multiple opportunities granted to the Respondent, and finally, the sale of a mortgaged property after the borrowers themselves stated before the DRT that selling “one property” would satisfy the bank’s outstanding dues. The Court’s attention centred on whether such consent operated as a waiver of procedural objections, and whether the classification of the Respondents’ account as a Non-Performing Asset (NPA) complied with RBI norms.
Brief Facts:
The case arose from credit facilities of Rs. 100 lakhs initially granted by a bank, later extended with an additional facility of Rs. 225 lakhs, all secured by the mortgage of three properties. Over time, the Respondents stopped business activity, and their OD/CC accounts remained irregular and exceeded sanctioned limits despite repeated reminders. The bank declared the account NPA and initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 SARFAESI Act. During proceedings before the DRT, the respondents submitted that selling one mortgaged property would be sufficient to clear the bank’s dues of about Rs. 1.06 crores. Acting on this submission, the DRT directed the sale of only one property, which was auctioned for Rs. 2.14 crores, substantially covering the outstanding amount. Despite this express consent and multiple opportunities to regularise the account, the respondents continued to litigate. The DRT later dismissed their challenge, the sale was confirmed, and the matter eventually reached the High Court after the appellate tribunal intervened.
Contentions of the Petitioner:
The counsel for the Petitioner-Bank contended that the DRAT had wrongly interfered despite the Respondents’ consistent defaults and their explicit consent to the sale. It was urged that the NPA classification strictly followed RBI’s 90-day norm, and the borrowers had not brought any material on record to show the account was ever regularised. The Petition- Bank also argued that once borrowers voluntarily agreed to the auction of one property and later participated in proceedings without objection, they waived the right to raise procedural challenges regarding valuation, publication, or sale formalities.
Contentions of the Respondent:
The counsel for the Respondents argued that the Petitioner - Bank prematurely classified their account as NPA before the expiry of the mandatory 90-day period. The counsel further contended that their statements before the DRT should not be treated as “consent” to the auction and that procedural lapses under Section 13(3A) of the SARFAESI Act and Rules 8 and 9 of the SARFAESI Rules invalidated the sale.
Observation of the Court:
The Court held that the Bank’s NPA classification strictly complied with RBI norms. The respondents’ account had remained continuously irregular well beyond the prescribed period, and in such circumstances, “the account stands impaired in the eyes of the regulatory framework, and the Bank must classify it as NPA on the day following such completion.” The Respondents failed to produce any material showing that the account was ever regularised.
The Court further noted that the respondents themselves informed the DRT that selling one property would be sufficient to satisfy the Bank’s dues. Acting on this clear representation, the DRT directed that only one mortgaged property be auctioned. The High Court emphasised that this statement amounted to “explicit consent to the sale of a mortgaged property,” and their later challenge contradicted their own voluntary stand.
The Court clarified that when a respondent voluntarily assents to the sale of the secured asset, the strict rigour of procedural requirements under Rules 8 and 9 of the SARFAESI Rules becomes materially relaxed. The Court observed that “such consent operates as a waiver of the insistence on strict procedural compliance… unless mala fides or demonstrable prejudice is established.” No such prejudice was shown.
It was also observed that the DRAT overlooked the respondents’ overall conduct and their repeated opportunities to pay. The Court stated that “the record clearly demonstrates their participation in the sale process… the learned DRAT failed to consider the explicit consent… as well as their prior conduct throughout the proceedings,” making the interference with the DRT’s order unwarranted.
The decision of the Court:
The Court allowed the petition, set aside the DRAT’s order, and restored the DRT’s dismissal of the respondents’ challenge. It upheld the auction sale, recognising it was conducted with unequivocal respondent consent and after the NPA classification was lawfully made. The appeal was accordingly disposed of.
Case Title: Canara Bank v. M/S Karishma Enterprises & Ors.
Case No.: W.P.(C) 6494/2016
Coram: Hon’ble Mr Anil Kshetarpal and Hon’ble Mr Justice Harish Vaidyanathan Shankar
Counsel for the Petitioner: Adv. Anju Jain, Adv. Hitesh Sachar, Adv. Dev Inder Singh & Adv. Deeksha Kingrani.
Counsel for the Respondent: Adv.Pulkit Aggarwal
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