DRAT Allahabad Upholds Bank’s SARFAESI Action: Date Error in Possession Notice Treated as Typographical

The Debts Recovery Appellate Tribunal, Allahabad (DRAT Allahabad), in Punjab National Bank Vs Neelam Enterprises, reversed the order of the Debts Recovery Tribunal, Kanpur, and restored the measures taken by the secured creditor under the SARFAESI framework.

The core dispute revolved around:

  • an apparent inconsistency in dates mentioned in the possession notice under Section 13(4) of the SARFAESI Act,
  • the timing of the valuation report in relation to the possession notice and sale notice, and
  • the legality of subsequent physical possession taken under Section 14.

The Tribunal concluded that:

  1. A mismatch between the date of issuance of the possession notice and the date of possession mentioned in its body was a typographical error, not a substantive illegality.
  2. Valuation obtained before issuance of the possession notice, but used within six months for auction, complied with Rule 8(5) of the Security Interest (Enforcement) Rules, 2002.
  3. The order of the DRT setting aside the bank’s measures was unsustainable in law.

Factual Background

Sanction of Credit Facilities and Creation of Security

The dispute concerns a borrowing arrangement involving a proprietorship concern:

  • Respondent No. 1, a firm, availed:

    • a cash credit facility, and
    • a term loan aggregating to Rs. 15.00 lacs,
      through its sole proprietor (Respondent No. 2).

  • Respondent Nos. 2 and 3 stood as personal guarantors.

  • An equitable mortgage was created over the secured property to secure the credit facilities.

Upon persistent default, the loan account was classified as Non-Performing Asset (NPA) on 02.10.2019. Following this classification, the secured creditor invoked the provisions of the SARFAESI Act.

Initiation of SARFAESI Measures

  1. Demand Notice under Section 13(2)

    • Date of notice: 05.11.2019
    • Amount demanded: Rs. 15,10,318.97 along with future interest.
    • The assessee-borrower did not make payment in response to the demand notice.

  2. Symbolic Possession under Section 13(4)

    • The bank proceeded to take symbolic possession by issuing a possession notice dated 12.02.2020.
    • This notice was published in newspapers on 16.02.2020.

  3. First Sale Notice and Failed Auction

    • A sale notice was issued in March 2020, scheduling auction on 16.04.2020.
    • The auction did not take place due to absence of bidders.

  4. Second Sale Notice and Successful Auction

    • A subsequent sale notice dated 22.07.2020 fixed the auction date as 10.08.2020.
    • The sale was confirmed on 14.08.2020.
    • A sale certificate was issued on 26.08.2020 in favour of Respondent No. 4, the auction purchaser.

Proceedings Before the DRT

The assessee-borrowers filed S.A. No. 296 of 2021 on 31.07.2021 challenging:

  • the demand notice under Section 13(2),
  • the possession notice under Section 13(4),
  • the valuation process,
  • the sale proceedings, and
  • the subsequent physical possession obtained through the Magistrate under Section 14.

While the securitisation application (S.A.) was pending, the bank:

  • obtained an order dated 03.09.2021 from the District Magistrate under Section 14 of the SARFAESI Act, and
  • took physical possession of the secured asset with police assistance.

The Debts Recovery Tribunal (DRT) allowed the S.A. on 25.07.2022, holding that the bank had not complied with mandatory procedural requirements, primarily on three grounds:

  1. Alleged defect in the symbolic possession notice dated 12.02.2020.
  2. Valuation report dated 23.01.2020 obtained prior to the possession notice.
  3. Physical possession taken pursuant to the order under Section 14.

Aggrieved, the bank preferred an appeal under Section 18 of the SARFAESI Act before DRAT Allahabad.

Grounds of Appeal by the Bank

1. Alleged Defect in the Possession Notice

The main plank of the bank’s challenge related to the DRT’s interpretation of the date mismatch in the possession notice.