Can a borrower challenge a low reserve price before DRT? Learn SARFAESI auction rules, valuation issues, documents, remedies and practical legal steps.
Bank auctions are scary proposition when a house worth hundred times the putative reserve price touted at auction is thrust up for sale in the market. Understandably so, because if bank sells your house cheap, you lose both money (loan won’t be recovered) and asset (without proper value being realised).
The good news is that all is not lost for borrowers. If a secured creditor has exercised its rights under SARFAESI Act, then borrower can go to Debts Recovery Tribunal (DRT) to defend the action taken by bank based on facts, documents and stage of auction process.
Simply because low reserve price is set, it does not automatically mean auction will be set aside. Fair question to ask is whether procedure adopted for valuation and sale was proper and whether there are facts to demonstrate that Reserve price was not set properly, valuation was erroneous, documents were ignored or statutory procedure was violated.
BK Singh will review sale notice, valuation report, possession order, loan documents and entire procedural history of borrowers in Delhi NCR and other parts of India to find out if defending sale before DRT is feasible.
The reserve price is not just some random figure printed in the sale notice. When the immovable secured asset is to be sold, Rule 8(5) of the Security Interest (Enforcement) Rules, 2002 mandates the authorised officer to get a valuation done by an approved valuer and shall, after consultation with the secured creditor, fix the reserve price for sale.
The reason that matters is that a secured property could be someone’s home or factory, shop or plot – often significant assets. Borrowers are entitled to ask questions about the process if the reserve price in the sale notice bears no relation to believable valuation data.
But market value and the reserve price are not necessarily the same thing. So if a borrower believes the property “is worth more,” they must have evidence to support that belief, rather than simply making that assertion.
People looking for low DRT lawyers in delhi ncr must understand that the real practical issue for them is to determine whether there is a valid objection to the recovery action or auction process that can be sustained in law.
The reserve price means minimum sale price bid required to be fixed in relation to the secured asset for relevant auction process.
For example, under the Security Interest (Enforcement) Rules, notice of sale of immovable property specifies the reserve price as being below which the property should not be sold under normal circumstances.
That figure is distinct from an independent open-market valuation.
Imagine if you will that a commercial property being sold in Noida had a bona fide valuation well in excess of the reserve price advertised in a bank auction. The borrower can’t simply go to the DRT and say oh the bank is selling this property for less than its worth, cancel the auction. The borrower would normally have to lead evidence before the Tribunal as to why the valuation or sale process is questionable and merits scrutiny by the court.
You have to draw that distinction.
Advocate BK Singh would normally look past the number in the advertisement and look at what documents led to that number being formulated.
Yes. A borrower can approach DRT against a SARFAESI measure when the statutory conditions for invocation of the remedy are fulfilled. The statutory remedy available for an aggrieved person for approaching the DRT against measures taken under Section 13(4) is enshrined under Section 17.
Such a challenge gains traction when the borrower is able to point to a legal or procedural infirmity. This could take various forms. Some examples would include issues relating to valuation, compliance with the Rules, adequacy of sale notice, incorrect particulars of the property, procedural irregularities or any other facts that indicate malafide or sale process not being conducted in accordance with law.
The DRT will not substitute its commercial wisdom for that of the bank/borrower as to the desired value of property. The applicant has to build up facts and legal angles through the record.
That’s why Advocate BK Singh suggests that auctions should be challenged like a document-driven matter and not an emotional plea that you are selling too cheap.
The primary law is the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) and the Security Interest (Enforcement) Rules, 2002 (“Rules”). In particular, the Act deals with enforcement of security interest and applications challenging recovery measures.
As far as an immovable secured asset is concerned, Rule 8 sets out requirements related to possession and sale. Rule 8(5) specifically speaks to valuation and reserve price as it mandates the authorised officer to obtain valuation from an approved valuer and set the reserve price after consulting with the secured creditor.
Rule 9 then governs the timing of sale and confirmation. An initial sale of immovable property can usually not be held until after the prescribed 30-day period from publication/service of the sale notice has lapsed, per the Rule’s exact language and subject to the facts. Rules also contemplate bids falling below the reserve price.
Borrowers should therefore scrutinise the entire auction process, not just the reserve price.
The problem discussed above may concern the following:
Sometimes, the problem becomes even serious when the property is the single biggest asset of the borrower.
Businessman in Gurugram may want to avoid the forced sale of the industrial/commercial property more than the concerned loan amount. Family residing in Ghaziabad or Noida will want to save their home most of the time.
BK Singh can evaluate your problem considering all the documents of the borrower and the stage of SARFAESI process you are in.
You should not think that once you file a suit the bank will be prohibited from taking any recovery action. A borrower has to move the court for proper interim relief if it is available and suits your situation.
You never know how useful document trail can be…
Retain copies of :-
Photographs or any other evidence which would show the physical state of the property may also be required, depending upon the issues involved in the valuation aspect.
Advocate BK Singh can go through the evidence/documents and segregate the evidence which might be of use from what is ordinarily may not have any legal worth.
Seek legal counsel at the earliest if:
Approach a SARFAESI Lawyer for borrowers located in Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad, Meerut and other cities of India at the earliest as the forum and remedy would vary depending on the proceedings initiated and facts of the case.
Legal services are offered by BK Singh Advocate for DRT & Bank Recovery matters including SARFAESI disputes, auction issues, valuation & recovery process etc. As visible on the website, review of notices, valuation report, reserve price and auction terms is what is mentioned under BK Singh Advocate takes up for such cases.
Starting with reviewing relevant documents methodically would help assess if a borrower has an issue with low reserve price. BK Singh can review the loan record, SARFAESI notices sent, valuation report, auction terms, and the timeline of events before advising on possible legal recourse.
First and foremost clarity about the issue would be helpful. If there is a valid legal objection, it needs to be documented correctly and presented to the right forum. Else if it can be resolved by a settlement or any other legal means, that needs to be explored as well.
For borrowers dealing with a residential property auction, a related discussion on Bank Auction of Residential Property Defence Strategy may also be relevant when reviewing the broader auction situation.
Ans. Yes. If the statutory requirements are satisfied, a borrower can challenge a measure adopted under SARFAESI Act before the Debt Recovery Tribunal (“DRT”). An objection to low reserve price must be based on specific factual and legal grounds rather than a mere assertion that the property has a higher market value.
Ans. No. A low reserve price does not by itself make an auction illegal. The circumstances under which the property was valued, the applicable Rules under SARFAESI, the particulars of the property and the overall sale process should be looked into.
Ans. Rule 8(5) mandates that for an immovable secured asset, the authorised officer shall obtain a valuation report from an approved valuer and, in consultation with the secured creditor, fix the reserve price for the property.
Ans. Depending on the facts and the nature of relief legally available, DRT may grant appropriate interim and/or final relief. The ability to stop an auction depends on the grounds available, evidence available, stage of the proceedings and orders passed by the Tribunal in the relevant case.
Ans. Depends on the facts. Some useful documents could be valuation reports, bona fide comparable transactions for similar properties, property card/record, physical-condition proof and evidence of characteristics that have been ignored. The usefulness of each will depend on facts.
Ans. The borrower should analyze statutory remedy and limitation requirements without delay. Delaying too long can result in practical difficulties.
Ans. DRT does not necessarily decide the market value of the property afresh. Remember that a DRT proceeding under SARFAESI Act in regard to measures taken by secured creditors is not an ordinary property valuation proceeding. The Tribunal assesses the legality of the measure complained of in light of the statutory scheme and the facts before it.
Ans. The reserve price is not equivalent to outstanding loan amount. Do not automatically assume that the reserve price will be equal to or higher than the amount due to the bank.
Ans. Yes. Settlement can always be attempted, if commercially and legally viable. Any settlement attempts should be well documented including amount to be paid, payment terms, treatment of security and closing out of liabilities.
Ans. There can be strict procedural stages and critical dates in an auction proceeding. The earlier a borrower has the loan and sale recorded reviewed by a DRT lawyer, the better opportunity he will have to understand what is in the record, preserve evidence and consider legal remedies.
If you are challenging low reserve price before DRT, it is possible but cases have seldom been fought and won mainly on the basis of low numbers. It’s important to prove whether the valuation and auction process was carried out in compliance with SARFAESI Act and Security Interest (Enforcement) Rules and if the borrower has a legally sustainable complaint.
If your property has already been scheduled for auction, waiting until after the auction to review the documents is too late. Get hold of the notices, valuation report, property register & payment record and get yourself a case-specific opinion.
BK Singh Advocates deals with paper based DRT matters and banking recovery related issues. Services published on website include SARFAESI proceedings, DRT cases and auction related issues.
Speak directly with Advocate BK Singh at LEGAL365.
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