The Debt Recovery Tribunal (DRT) in Chennai has set aside an auction held in 2018 for recovery of loans, as it was not in compliance with the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, also known as the SARFAESI Act.

The proprietors of Shanmugadurai and Firm moved a petition contending that said they had availed a loan of ₹31.35 crore from Karnataka Bank in 2013 and the account was declared as an NPA on March 31, 2016. Later, the bank assigned the loan to ASREC (India) Ltd. to initiate recovery proceedings.

ASREC had initiated recovery proceedings for a sum of ₹41.8 crore, which was now reserved for passing final orders. Meanwhile, it proceeded under the SARFAESI Act and sold the secured asset situated at Madhavaram for a sum of ₹21.01 crore through a public auction held on October 26, 2018.

The proprietors challenged the sale stating that the authorized officer relied upon the valuation report dated July 9, 2018, which was obtained in respect to an earlier sale, dated August 2, 2018, which failed to take place. They noted that the reserve price was cut to ₹21 crore in the second auction, where the sale did take place, from the initial ₹25 crore. The authorised officer had also granted the successful bidder nearly two months to pay 75% of the remaining proceeds against the norm of within 15 days, the proprietors said. The tribunal ruled that the reserve price was not in conformity with the rules. It noted neither the SARFAESI Act nor the rules made thereunder empower the authorised officer to extend the time for deposit and the purchaser to enter into an agreement for a payment deadline extension.

On the contrary, the law and rules mandated that deadline extensions for payment of 75% of the balance sale consideration should be authorised by entering into a written agreement between the secured creditor and the purchaser, the tribunal said.

It told ASREC to return the ₹21.01 crore along with interest of 12% per annum from the date of deposit of the money till the date of payment.

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