"The Tribunal Ought to Have First Decided the Maintainability Issue": Calcutta High Court Dismisses Revision Against DRAT’s Remand Order in SARFAESI Dispute

Kiran Raj

The Calcutta High Court has dismissed a revision application challenging the remand order passed by the Debts Recovery Appellate Tribunal (DRAT), Kolkata. Justice Bibhas Ranjan De, while adjudicating the matter, held that the Debt Recovery Tribunal-II (DRT-II), Kolkata, had not examined the preliminary issue of maintainability before deciding on the merits of an application under Section 17 of the SARFAESI Act, 2002. The Court stated, "The tribunal ought to have first decided the maintainability issue and then should have proceeded with the merit of the main application preferred under Section 17 of the SARFAESI Act."

The matter arose from an application filed by M/s. Shaila Motors Private Limited and others before the DRT-II, Kolkata, designated as S.A. 171 of 2020, challenging the sale notice dated November 6, 2020, issued by Indian Bank. The petitioners contended that the sale was conducted in violation of procedural requirements and sought to nullify the sale process. The DRT-II allowed the application on November 15, 2021, directing Indian Bank to refund the sale consideration to the auction purchaser and resume possession of the auctioned property.

Also Read: Supreme Court Upholds Delay Condonation but Sets Aside High Court’s Order Restoring Suit, Directs Trial Court to Decide Ex-Parte Decree Independently

Indian Bank and the auction purchaser subsequently filed separate appeals before the DRAT, Kolkata, registered as Appeal No. 17 of 2022 and Appeal No. 83 of 2022. The bank contended that the DRT had not determined whether the Section 17 application was maintainable before proceeding with the merits of the case. The auction purchaser also challenged the order, asserting that they had legally acquired the property. The DRAT, by its order dated September 30, 2022, allowed both appeals and remanded the matter to DRT-II for fresh adjudication.

The petitioners then approached the Calcutta High Court under Article 227 of the Constitution, arguing that the remand order was improper and that the DRAT should have decided the appeals on merits instead of sending the matter back for reconsideration.

The petitioners challenged the sale notice issued by Indian Bank, asserting that it was not issued in compliance with Rule 8(6) read with Rule 9(1), as well as Rule 8(5) and Rule 8(7) of the SARFAESI Act, 2002. The DRT-II accepted the petitioners’ contentions and invalidated the sale conducted on November 25, 2020, directing Indian Bank to refund the sale amount to the auction purchaser. The auction purchaser was to return possession of the property to Indian Bank upon receiving the refund.

Indian Bank and the auction purchaser appealed before the DRAT, arguing that the DRT had not addressed the question of maintainability and had proceeded directly to the merits. The DRAT found that the DRT’s order lacked proper reasoning and remanded the case for reconsideration. The petitioners then sought intervention from the High Court, contending that the DRAT’s decision was unjustified.

The High Court examined the proceedings before the DRT and DRAT and found that the DRT had not recorded its findings on the issue of maintainability raised by Indian Bank and the auction purchaser. The Court observed, "If a preliminary issue like maintainability is not properly addressed by DRT then the DRAT is generally expected to remand the case back for fresh adjudication."

The Court noted that appellate authorities are justified in remanding cases where lower tribunals fail to adjudicate key issues or provide sufficient reasoning. It stated, "DRAT is not positioned to act as the first forum for determining issues involving disputed facts or when there are unresolved preliminary issues that require examination of evidence."

The auction purchaser submitted that they had invested Rs. 5.87 crores in developing the property post-auction and had taken possession in good faith. The Court recorded this submission but did not issue any findings on the validity of the sale, stating that the matter required adjudication by the DRT in accordance with legal requirements.

The petitioners argued that the DRAT should have framed specific issues for remand rather than sending the entire case back to the DRT. The High Court observed that the DRT had not determined whether the Section 17 application was maintainable, and therefore, the DRAT was justified in remanding the matter.

Also Read: "Kerala High Court: ‘When Evidence is Strong, Absence of Weapon Analysis or Assailant’s Name in Medical Report is Not Fatal’"

The Court stated, "Based on the legal principles outlined hereinabove, if I keep both the orders passed by the DRT as well as the DRAT in juxta position, in my opinion, it would be clear that DRT has not performed its due obligation in resolving the preliminary issue relating to maintainability as well as the issue of limitation."

The High Court dismissed the revision application, holding that the DRAT had correctly remanded the matter to the DRT for fresh adjudication. The Court directed the DRT to determine the maintainability of the Section 17 application before proceeding to the merits of the case. It stated, "Ld. Tribunal is requested to dispose of the matter as expeditiously as possible after giving opportunity of hearing and without affording unnecessary adjournment to either of the parties."

Advocates Representing the Parties

For the Petitioners: