DRAT Kolkata Overturns DRT Decision for Disregarding Evidence of Proper Service of Statutory Sale Notice under SARFAESI Rules

Case Overview

In the matter of AO Vs Sri Vijaylakshmi Raw & Boiled Rice Mill (DART Kolkata), the Debts Recovery Appellate Tribunal at Kolkata examined an appeal challenging the Debts Recovery Tribunal, Visakhapatnam's order passed on 24 December 2024 in S.A. No. 588 of 2023. The original tribunal had granted relief to the borrower by invalidating the sale notice, nullifying the electronic auction proceedings, and cancelling the executed sale deed. Additionally, the DRT had mandated the lending institution to refund the auction amount to the successful bidder with interest calculated at 9% per annum. Dissatisfied with this ruling, the financial institution approached the appellate forum.

Factual Matrix and Background

The dispute involved M/s Sri Vijaylakshmi Raw & Boiled Rice Mill as the borrower who had obtained financial assistance from Punjab National Bank. The loan account subsequently deteriorated and was designated as a non-performing asset by the lending institution. Following the adverse classification, the bank commenced recovery proceedings under the provisions of the SARFAESI Act, 2002.

Earlier Proceedings and Finality of Issues

The bank issued statutory notices under Section 13(2) and Section 13(4) of the SARFAESI Act, 2002 to the borrower. These notices were contested by the borrower through a securitisation application numbered S.A. No. 155 of 2022. The DRT dismissed this application on 30 August 2022. Since the borrower chose not to challenge this dismissal order through further appeal, several critical determinations achieved finality, including:

  • The validity and legality of notices issued under Section 13(2) of the SARFAESI Act, 2002
  • The validity and legality of notices issued under Section 13(4) of the SARFAESI Act, 2002
  • The correctness of classifying the loan account as a non-performing asset

Additionally, the tribunal had recorded a determination that the reserve price for the secured property had been fixed appropriately in accordance with the applicable rules. This finding also remained unchallenged by the borrower and thus attained finality.

Limited Grounds for Fresh Challenge

The subsequent securitisation application that led to the present appeal was filed on a singular and specific ground: alleged non-compliance with the mandatory requirements prescribed under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002. This narrow scope meant that all other aspects of the recovery proceedings, including NPA classification and reserve price determination, were no longer open for adjudication.

Core Issue for Adjudication

Given the limited scope of the borrower's challenge, the sole question requiring determination before the Debts Recovery Appellate Tribunal was whether the secured creditor had properly complied with the procedural requirements mandated under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002.

The appellate tribunal referred extensively to a landmark judgment delivered by the Supreme Court of India in Rajendran & Ors. Vs. M/s KPK Oils and Proteins India Pvt. Ltd. & Ors. [2025 SCC OnLine SC 2036], decided on 22 September 2025. This authoritative pronouncement clarified the legal position regarding notices under the Security Interest (Enforcement) Rules, 2002.

Key Principles Established by Supreme Court

The Supreme Court held that secured creditors are permitted to issue a composite notice that simultaneously satisfies the requirements under Rule 8(6) and Rule 9(1) of the Security Interest (Enforcement) Rules, 2002. The Court elaborated that the statutory scheme contemplates a single integrated notice rather than multiple separate notices.

The Supreme Court observed:

"(155) All the other provisions pertaining to the notice of sale, namely the Proviso to Rule 8(6), Rule 8(7) and Rule 9(1), only govern the manner in which such notice of sale contemplated under Rule 8(6), has to be given. The said rules only go so far as to stipulate certain additional conditions or requirements in effectuating the notice of sale under Rule 8(6), but do not by any stretch stipulate the requirement for causing a completely separate and distinct notice, in addition to the notice of sale under Rule 8(6) of the SARFAESI Rules."

The apex court further clarified: