LI Network
Published on: January 16, 2024 at 12:10 IST
The Allahabad High Court ruled that the right of redemption under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) is a crucial right that cannot be compromised or denied due to insufficient notice.
The Court stressed the significance of adhering to proper procedures when initiating auction proceedings under the Act.
The Division Bench, comprising Justice Ashwani Kumar Mishra and Justice Syed Qamar Hasan Rizvi, observed that the service of notice upon the borrower is mandatory under Rule 8 of the Security Interest (Enforcement) Rules, 2002.
The Court emphasized that the right of redemption is fundamental for a borrower in default and cannot be disregarded.
The case involved a borrower who defaulted on a loan from the Bank of Maharashtra, leading to the initiation of proceedings under Section 13 of the SARFAESI Act.
Despite attempts to auction the property, the proceedings were set aside by the Competent Tribunal. Subsequently, fresh notices were issued to the borrower, but the service of these notices was disputed.
The Debt Recovery Appellate Tribunal (DRAT) later quashed the order of the Debt Recovery Tribunal, directing the bank to refund the auction money and restore possession to the borrower. However, the single judge set aside the DRAT’s order, arguing that the borrower was aware of the auction date.
The High Court disagreed with the single judge’s reasoning, emphasizing that non-service of notice under Rule 8(6) of the Rules of 2002 would constitute a material irregularity.
The Court cited the mandatory nature of Rule 8(6) and the borrower’s right of redemption as key considerations. It rejected the argument that the borrower’s knowledge of the auction date nullifies the requirement of proper notice.
Consequently, the Court granted the appellant (borrower) an opportunity to exercise the right of redemption by paying the dues along with interest as of the date of notice under Rule 8(6). The case is scheduled for further proceedings on February 5, 2024.
Case Title: Sharp Industries v. Bank Of Maharashtra And 3 Others [SPECIAL APPEAL No. – 220 of 2023]
