Setting Aside of Auction Sale under the RDB Act: A Dictate Steered by Prudence

Summary/Abstract

Significantly, though, the Tribunals/DRTs in the exercise of their jurisdiction under section 30 of the RDB Act are well within their right to confirm, modify or set aside the order made by the Recovery Officer in the exercise of his powers under sections 25 to 28 of the said enactment, however, it is trite law that the rights accrued upon a bona fide third party auction sale purchaser cannot be trampled in the process. In fact, there are ample precedents that accentuate the responsibility of Tribunals to maintain equilibrium between the rights of such bona fide purchasers with that of a delinquent. Ergo, it is incumbent on Tribunals, while delving into any such prayers to ensure that their dictates not only conform with the settled judicial commandments, rather, are steered with extreme circumspection.

Introduction

The Recovery of Debts and Bankruptcy Act, 1993 (“RDB Act”) is, conceivably, one of the most crucial pieces of legislation in India, aimed at providing respite to Banks and Financial Institutions. The said enactment is intended not only to facilitate the loan recovery procedure of these institutions, rather, designed to impede the conversion of their resources into Non-Performing Assets. Notably, as per the Statement of Objects and Reasons appended to the RDB Act, “existing procedure for recovery of debts due to the Banks and Financial Institutions has blocked a significant portion of their funds in unproductive assets, the value of which deteriorates with the passage of time.” Ergo, in order to facilitate the creation of special machinery for the speedy recovery of the dues of Banks and Financial Institutions, RDB Act was brought into force to provide for1, “establishment of the Tribunals and the Appellate Tribunals with the jurisdiction, powers, and authority to make summary adjudication of applications made by banks or financial institutions.” In this regard, the Hon’ble Supreme Court in United Bank of India v. Debts Recovery Tribunal2, while dealing with the provisions under the RDB Act, inter alia, remarked, “[t]he prime object of the enactment appears to be to provide for the establishment of tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto.” Similarly, the Hon’ble High Court of Orissa in Ch. Ranganath Raju v. Bank of India3, observed, “[t]he avowed purpose RDB Act is to ensure expeditious adjudication for the speedy recovery of debts due to banks and financial institutions. This enactment was aimed at boosting financial reforms and was therefore to achieve a major public purpose…Such purpose is obviously to minimize and overcome the well-known procedural wrangles of a civil proceeding pending before a Civil Court.” Consequently, appreciating the hallowed objective of the RDB Act it is quite fathomable that the said enactment not only provides for expeditious dispute resolution through special agencies/Tribunals, rather, also vouchsafes swift recovery, inter alia, by means of attachment and sale of property of a levanter. Concomitantly, it is quite discernible that RDB Act guarantees protection of rights of a bona fide auction sale purchaser from the consequences of wangles between the banks/financial institutions on one hand and a delinquent, on the other. Undoubtedly, this aspect has been repeated accentuated by Court by holding that auction sales, conducted under the RDB Act may not be set aside in a casual or impulsive manner.

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