DRAT Allahabad Rules on Mandatory Service of SARFAESI Notices to Corporate Guarantors: Analysis of Canara Bank Vs Antriksh Builders
In the realm of secured credit recovery, the procedural sanctity of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) is paramount. A recent significant verdict delivered by the Debts Recovery Appellate Tribunal (DRAT), Allahabad, in the matter of Canara Bank Vs Antriksh Builders & Developers Pvt. Ltd, has reinforced the stringent requirement of serving statutory notices to all stakeholders, including corporate guarantors. The Tribunal categorically held that the failure to serve possession and sale notices upon a corporate guarantor vitiates the entire enforcement process, including the subsequent auction sale.
This article provides an in-depth legal analysis of the judgment, examining the factual matrix, the procedural lapses regarding Rule 8 and Rule 9 of the Security Interest (Enforcement) Rules, 2002, and the judicial reasoning that led to the dismissal of the Bank's appeal.
Factual Matrix of the Case
The dispute originated from credit facilities extended by the Appellant, Canara Bank, to the Borrower, a private limited company identified as Antriksh Builders & Developers Pvt. Ltd. To secure these credit limits, guarantees were executed by individual guarantors and a corporate entity, M/s Rishabh Heights Pvt. Ltd (Corporate Guarantor). Additionally, an equitable mortgage was created over immovable property to collateralize the debt.
Classification as NPA and Demand Notice
Following financial indiscipline and default in repayment obligations, the loan account was classified as a Non-Performing Asset (NPA) on 31.03.2016. Consequently, the Bank initiated recovery measures by issuing a demand notice under Section 13(2) of the SARFAESI Act on 22.04.2016, claiming an outstanding liability of Rs. 2,22,30,055.94.
Enforcement Actions and Auction
Upon the failure of the borrowers to liquidate the dues within the statutory period of 60 days, the Bank proceeded to issue a possession notice under Section 13(4) of the Act, ostensibly taking symbolic possession of the secured asset. Subsequently, a valuation was obtained, and an auction sale notice was issued on 30.06.2022, scheduling the auction for 05.08.2022. The property was eventually auctioned to a third-party purchaser.
The Borrower challenged these proceedings before the Debts Recovery Tribunal (DRT), Lucknow, via a Securitisation Application (S.A.). The DRT, vide its order dated 14.09.2023, allowed the application, quashed the possession notice and the auction sale, and directed the restoration of possession to the Borrower along with a refund to the auction purchaser. Aggrieved by this decision, Canara Bank preferred an appeal under Section 18 of the SARFAESI Act before the DRAT, Allahabad.