Featured image for Supreme Court Judgment dated 08-11-2016 in case of petitioner name M/s Oasis Dealcom Pvt. Ltd. vs Khazana Dealcomm Pvt. Ltd. & O
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Irregularities in Bank Auctions: Supreme Court Ruling on Oasis Dealcom vs. Khazana Dealcomm

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The Supreme Court of India, in the case of M/s Oasis Dealcom Pvt. Ltd. vs. Khazana Dealcomm Pvt. Ltd. & Others, addressed a significant issue concerning irregularities in auction sales conducted by banks under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The central issue was whether the bank’s auction process complied with legal requirements and whether the auction sale could be set aside due to procedural lapses.

The case arose after ING Vysya Bank auctioned a property in Kolkata belonging to borrowers who had defaulted on a cash credit facility. The borrowers challenged the sale, alleging procedural violations, and the High Court of Calcutta ruled in their favor. The auction purchaser, Oasis Dealcom Pvt. Ltd., appealed the decision before the Supreme Court.

Background of the Case

The dispute originated when ING Vysya Bank sanctioned a cash credit loan to Khazana Dealcomm Pvt. Ltd. and its directors. To secure the loan, the borrowers provided multiple forms of security, including:

  • Hypothecation of book debts.
  • Equitable mortgage of a residential flat at 7/1, Queens Park, Kolkata.
  • Pledge of a life insurance policy worth Rs. 8 lakh.

The borrowers defaulted, and their account was classified as a Non-Performing Asset (NPA) on December 1, 2008. As of December 31, 2008, the outstanding loan amount was Rs. 37,01,758.49, with applicable interest and penalties. Consequently, the bank issued a demand notice under Section 13(2) of the SARFAESI Act on January 17, 2009, asking the borrowers to clear their dues within 60 days.

Key Legal Issues

The Supreme Court examined the following issues:

  1. Whether ING Vysya Bank followed the due process under the SARFAESI Act in auctioning the secured asset.
  2. Whether the Debt Recovery Tribunal (DRT) and the Debt Recovery Appellate Tribunal (DRAT) correctly found procedural irregularities in the auction process.
  3. Whether the auction purchaser had acquired valid legal rights over the property.

Petitioner’s Arguments

The auction purchaser, Oasis Dealcom Pvt. Ltd., contended:

  • The auction process complied with all legal requirements under the SARFAESI Act and Security Interest (Enforcement) Rules, 2002.
  • The borrowers had ample opportunity to repay their dues but failed to do so.
  • The auction notice was published in leading newspapers, ensuring transparency.
  • The sale was confirmed, and a sale certificate was issued in favor of the auction purchaser.
  • The High Court erred in setting aside the sale despite the borrowers’ failure to comply with prior payment directions.

Respondent’s Arguments

The borrowers, Khazana Dealcomm Pvt. Ltd. and others, argued:

  • The bank did not follow proper notice procedures as required under Rule 8 of the Security Interest (Enforcement) Rules, 2002.
  • The possession notice was not adequately publicized before the auction.
  • The bank hastily conducted the auction without giving the borrowers a fair chance to settle the dues.
  • The High Court rightly set aside the sale due to procedural lapses.

Supreme Court’s Observations

The Supreme Court carefully analyzed the procedural requirements under the SARFAESI Act and found multiple irregularities in the auction process.

1. Procedural Violations in the Auction Process

The Court observed that ING Vysya Bank failed to comply with Rule 8 of the Security Interest (Enforcement) Rules, which mandates:

  • Proper publication of possession notices.
  • Providing adequate time for the borrower to redeem the property.
  • Following due process in issuing sale notices.

2. Borrowers’ Right to Redeem the Property

The Court noted that the borrowers had made attempts to settle the dues but were not given sufficient time before the auction was finalized.

3. High Court and DRT Findings

The Supreme Court agreed with the High Court’s conclusion that the bank acted in undue haste, failing to follow essential safeguards under the SARFAESI Act.

Final Judgment

The Supreme Court upheld the High Court’s decision, ruling that:

  • The auction sale was irregular and must be set aside.
  • The borrowers must be allowed to clear their dues within a specified period.
  • The auction purchaser must be refunded the purchase amount with 10% interest per annum.

Judgment Outcome: Appeal dismissed, auction sale set aside, refund to the auction purchaser.

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Download Judgment: Ms Oasis Dealcom Pv vs Khazana Dealcomm Pvt Supreme Court of India Judgment Dated 08-11-2016.pdf

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