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Sarfaesi Auction Disputes

Auction by Bank under SARFAESI Act is considered a week sale

Under Section 13(4)of the SARFAESI Act mortgaged properties are often auctioned by the Bank for recovery of its dues in NPA accounts.

The Authorized Officer of the Auctioneer Bank uses statutory provisions of the SARFAESI Act and Rules to  step into the shoes of the owner/mortgagor of the property without consent of such owner

Most of the times, the borrowers/mortgagors are opposing the act of the Bank on various grounds.  Sometimes, they succeed to obtain stay against auction, from the DRT / Court under the SARFAESI Act, while at other times the borrowers/mortgagors don't get the stay or they keep their action to approach the court in abeyance due to some compulsion or strategic reason.

Some of the types of disputes often noticed in the Sale through SARFAESI Auction:

1.  Some times, the title of the property mortgaged is defective ab initio and the defect is omitted to be recorded by the Bank's lawyer while conducting search report on title of the property is not noted in the Search Report (TIR - Title Investigation Report).

2. At other times, the  Bank's documentation for mortgaging the property is found defective on various legal / technical counts.

3. Also, the cases of duplicate title deeds have been noticed, where the borrower has fraudulently availed loans from two Banks.  Now, if auction is conducted by a Bank claiming equitable mortgage on the basis of duplicate title deed fraudulently mortgaged by the borrower, the auction-sale is bound to be disputed by the other mortgagor Bank, claiming original title deed, when it comes to the notice of the Bank in cutody of original title deed.

4. Further, the SARFAESI Act is a procedural law.  The procedure laid down under the Act or SARFAESI Rules is not followed meticulously, and at any moment if the Court orders a stay or sets aside the sale, then the money paid by the auction bidder may be freezed till final decision of the court.

5. Another instance is when the physical possession is not with the Bank and even with not the owner / mortgagor of the property.

6. Often, it has been noted that the Bank auctions the SARFAESI properties with the stipulation 'On as is, where is' basis and even does not declare the known defects in the auction property.  Sometimes, the defects, disputes or court cases and stays taken by the third parties are not in the notice of the Bank and these are revealed afterwards.

7. In all of these cases, the auction bidder may have to face the litigation and to prove his rights.  Some times, after selling the properties and getting the loan recovered, the Bank starts standing by the auction bidders.

But, the lower auction price often attracts the prospecting bidders to participate in the auction and to purchase the property, which later on becomes a costlier affair for the auction bidder.

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