The Supreme Court decried on Wednesday the practise of hearing writ petitions in SARFAESI cases without exhausting the other statutory remedy. The bench, which included Justices Ajay Rastogi and CT Ravikumar, referred to the case of United Bank of India vs. Satyawati Tondon (2010) 8 SCC 110 and made the following observation:

"In the instant case, although the respondent borrowers initially approached the Debts Recovery Tribunal by filing an application under Section 17 of the SARFAESI Act, 2002, but the order of the Tribunal indeed was appealable under Section 18 of the Act subject to the compliance of condition of pre­deposit and without exhausting the statutory remedy of appeal, the respondent borrowers approached the High Court by filing the writ application under Article 226 of the Constitution. We deprecate such practice of entertaining the writ application by the High Court in exercise of jurisdiction under Article 226 of the Constitution without exhausting the alternative statutory remedy available under the law. This circuitous route appears to have been adopted to avoid the condition of pre­deposit contemplated under 2nd proviso to Section 18 of the Act 2002."

Further the bench also observed that "It is true that the secured creditor is under an obligation to undertake  the   exercise  and   cross­check   the  description  of   the mortgaged   property   at   the   stage   when   the   initial   proceedings under Section 13(2) are initiated or in the later consequential proceedings, but at the same time, mere typographical error due to   inadvertence   which   has   not   caused   any   prejudice   to   the borrowers, that in itself could not be considered to be the ground to annul the process held by the secured creditor which, in our view, is in due compliance with the requirement as contemplated under   the   provisions   of   Rules,   2002   and   this   was   extensively considered by the Tribunal and that apart, it is not the case of the respondents   that   participants   in   e­auction   sale   are   misguided because of the error in description of the property put to auction and   when   there   is   no   ambiguity   with   regard   to   the   detailed description   of   the   mortgaged   property   put   to   auction,   mere mentioning of the door number "12­3­393" instead of "12­3­39" is inconsequential and does not vitiate the auction proceedings held on 28th March, 2015"

 In this case, the Telangana High Court set aside the e-auction sale held by the bank (a secured creditor) under the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, on the following grounds:

(1) There was an error in the description of the scheduled property in the e-auction sale notice dated February 25, 2015, which was deemed to be a serious flaw in the process and cannot be sanctified; and

(2) Because the auction purchaser failed to deposit the balance of 75% of the bid amount within the stipulated time of 15 days, which should have been accumulated by him on or before the 10th of April, 2015, what was evidently deposited by him on the 15th of April, 2015, is in clear violation of Rule 9(4) of the Rules, 2002.

The High Court also overturned the decision of the Debt Recovery Tribunal, which had rejected the borrower's application in this respect.

Case details

Varimadugu Obi Reddy vs B. Sreenivasulu

CA 8470 OF 2022 

Link: https://main.sci.gov.in/supremecourt/2019/45355/45355_2019_6_1501_39728_Judgement_16-Nov-2022.pdf