The Chennai Bench of the Debts Recovery Appellate Tribunal (DRAT), presided over by Justice S. Ravikumar, recently heard an appeal on the SARFAESI Act. During the hearing, the tribunal held that the forfeiture of the advance amount in an auction sale conducted under the SARFAESI Act, 2002 is not valid if the sale has not been confirmed and if the terms and conditions of the sale notice contravene the statutory rules.
Brief Facts:
This case revolves around an appeal against an order issued by the Debt Recovery Tribunal II (DRT) in Chennai. The appellant invoked Section 17 of the SARFAESI Act, 2002, to seek the return of a payment made for a property that was auctioned. The appellant argued that both the forfeiture of the advance amount and the terms and conditions of the auction were against public policy and violated the SARFAESI Act. Additionally, they claimed that the respondent had concealed the fact that the property was occupied by a tenant. The respondent, on the other hand, argued that the appellant failed to pay the remaining amount as per the auction's terms and conditions, justifying the forfeiture. The DRT ruled in favor of the appellant regarding the invocation of the SARFAESI Act but held that the appellant had violated the sale's terms and conditions, thus not being entitled to a refund. Dissatisfied with the DRT's decision, the appellant decided to appeal.
Contentions of the Appellant:
During the hearing, the appellant's counsel argued that the respondent had not disclosed the actual possession status of the property and that the auction's terms and conditions could not supersede statutory rules. The counsel contended that the appellant was only obligated to pay the remaining amount after the sale had been confirmed, and since the sale had not been confirmed, the forfeiture violated the rules.
The main point of contention was the timing of the payment of the remaining amount. According to the rules, the balance amount should be paid within 15 days of the sale's confirmation. However, the auction's terms and conditions specified payment within 15 days of the auction. The appellant argued that the rules should take precedence over the auction's conditions. Nonetheless, the DRT favored the respondent and rejected the appellant's claim.
Contentions of the Respondent:
The respondent's counsel supported the DRT's order and argued that the appellant had failed to pay the required remaining amount. It was revealed during the proceedings that the property had been subsequently sold for a lower amount than the appellant's bid. The respondent provided a document that purported to be a confirmation letter, but the appellant's advocate argued that it did not comply with the rules and lacked the necessary details.
Observations by the Tribunal:
The Debts Recovery Appellate Tribunal (DRAT) observed that the respondent had disregarded the rules regarding confirmation and payment of the remaining amount. The appellant's counsel emphasized that the auction's terms and conditions could not override statutory rules. It was also argued that the respondent should have disclosed the encumbrance of the property pertaining to the tenant's occupation. The appellant referred to a Supreme Court judgment that supported their argument that tenancy should be considered an encumbrance. The DRAT noted that the DRT had erred in disallowing the appellant's claim as the forfeiture violated the rules. Consequently, the DRT's order was set aside, and the appellant was entitled to a refund of the advance amount along with interest.
The decision of the Tribunal:
In conclusion, the appeal was allowed, and the respondent was directed to refund the appellant Rs. 2,94,250/- along with interest at 9% per annum from the date of the initial deposit.
Case Name: Mrs. R. Rani vs The Authorised Officer, M/s. LIC Housing Finance Limited
Coram: Justice S. Ravi Kumar
Case No: RA (SA) 72/2019
Advocate of the Appellant: Mr. R. Parthasarathy
Advocate of the Respondent: Mr. S. Kumarswamy
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