The Allahabad High Court (Lucknow Bench) rejected challenge to auction sale of mortgaged property, holding that agricultural-land claim, alleged non-service of notices, NPA challenge, and post-auction payment offer failed to establish any illegality in the DRAT order. The Court held that merely offering Rs. 34 lakhs after the auction, when the successful bid was Rs. 33 lakh, did not create a legal right to reopen the auction or compel the Bank to accept the payment.
Whether land is agricultural for SARFAESI purposes must be determined from the overall evidence regarding the nature and use of the property, and not solely from revenue records or absence of a conversion order. A borrower challenging enforcement action must demonstrate a material defect in service or procedure; a bare assertion of non-receipt cannot invalidate recovery proceedings, added the Court.
The Court clarified that legality of declaring an account as a Non-Performing Asset depends on repayment obligations, overdue amounts and applicable RBI norms, not merely on the existence of later entries in the account. The Court also reiterated that where a valid mortgage exists, the Bank can proceed against the secured asset in accordance with law even if the property owner is not the principal borrower.
Also read Wrong Currency Denomination Claim Alone Cannot Defeat Cheque Bounce Presumption: Karnataka HC
Briefly, Rama Chaurasia and Kiran Chaurasia jointly owned a piece of land in Lucknow which they had mortgaged to in 2003 as security for a loan granted to M/s Chaurasia Traders. After the loan account allegedly became irregular, the Bank initiated recovery proceedings under the SARFAESI Act and auctioned the mortgaged property. The highest bidder, Dr. Ajay Gupta, purchased the property for Rs. 33 lakh and was later issued a sale certificate.
The petitioner challenged the auction proceedings, contending that the land was agricultural land exempt from SARFAESI proceedings under Section 31(i), that mandatory notices under Sections 13(2) and 13(4) were not properly served upon her, and that she had offered to pay about Rs. 34 lakhs before issuance of the sale certificate, but the Bank wrongly refused to accept the amount. She also alleged that the property was sold at a grossly undervalued price.
The Debts Recovery Tribunal accepted her challenge and set aside the Bank’s action. However, the Debts Recovery Appellate Tribunal reversed that decision.
Also read Confiscation Law Does Not Bar Interim Release of Vehicle Seized in Liquor Case: Gujarat HC
A Single Judge Bench of Justice Irshad Ali observed that although agricultural land is excluded from the operation of the SARFAESI Act under Section 31(i), such exclusion cannot be claimed merely based on revenue entries or absence of a conversion order. The actual nature and use of the land must be examined based on the entire evidence. The Appellate Tribunal had recorded a finding that agricultural operations on the land were not proved, and the petitioner failed to show that this finding was perverse or legally unsustainable.
On the issue of service of statutory notices, the Court held that a mere allegation of non-receipt is not enough to invalidate recovery proceedings. The petitioner could not establish any material defect in the enforcement process that would justify interference with the Appellate Tribunal’s order.
Regarding classification of the loan account as a Non-Performing Asset (NPA), the Court observed that the existence of some transactions in the account does not automatically mean that the account could not have been classified as an NPA. Such classification depends upon repayment defaults, overdue amounts and applicable banking norms. The petitioner failed to establish that the NPA declaration was illegal.
The Court further noted that the petitioner’s offer of Rs. 34 lakh was made after publication of auction notices and after the sale had already been confirmed in favour of the auction purchaser. Merely offering an amount higher than the auction bid did not create a legal right to reopen the auction. The petitioner also failed to show that the amount offered represented the entire dues, costs and expenses payable to the Bank as required under Section 13(8) of the SARFAESI Act.
On the allegation of undervaluation, the Court held that merely asserting that the property’s market value was about Rs. 1.5 crore was insufficient. In the absence of credible valuation material or proof of any violation of statutory auction procedures, the sale could not be invalidated on that basis. The Court also rejected the contention that the Bank was required to first proceed against the principal borrowers before enforcing the mortgaged property. Once a valid security interest exists, the secured creditor can proceed against the secured asset in accordance with law.
