DRAT Kolkata: Reserve Price Below Distress Value Not Illegal if Proper Valuation Done Under SARFAESI Rules

March 13, 2026 : The Debts Recovery Appellate Tribunal (DRAT), Kolkata has held that fixation of a reserve price below the distress value does not, by itself, invalidate an auction conducted under the SARFAESI framework, provided the valuation is carried out by an approved valuer and the reserve price is fixed in accordance with Rule 8(5) of the Security Interest (Enforcement) Rules, 2002.

The ruling was delivered by Justice Anil Kumar Srivastava (Chairperson) in Authorised Officer, State Bank of India v. M/s Sree Lakshmi Silks & Ors., where the Tribunal allowed an appeal filed by the Authorised Officer of State Bank of India and set aside the order of the DRT Visakhapatnam.

The dispute arose from a securitisation application filed by the borrower firm and its guarantors under Section 17 of the SARFAESI Act, challenging the possession notice and e-auction notice. While the DRT had rejected most of the borrowers’ contentions and held the application to be time-barred on key issues, it nevertheless set aside the auction solely on the ground that the reserve price was fixed below the distress value.

Before the Appellate Tribunal, the bank demonstrated that a valuation report dated 13 October 2021 had assessed the market value at ₹1.22 crore and distress value at ₹97.92 lakh. It further showed that, in light of multiple failed auction attempts, an internal committee had recommended a reduced reserve price of ₹86 lakh, which ultimately resulted in a successful sale at ₹86.10 lakh.

The Tribunal emphasised that Rule 8(5) mandates two core requirements: obtaining valuation from an approved valuer prior to sale and fixing the reserve price in consultation with the secured creditor. It clarified that the objective is to ensure that the secured asset fetches the best possible price through a fair and informed process.

Importantly, the Tribunal observed that while improper valuation could deter bidders and undermine the auction process, a reasoned decision to reduce the reserve price—especially after failed auctions—does not violate the law. It noted that the bank’s committee had provided cogent reasons for fixing the reserve price below the distress value and had acted within the legal framework.

Finding that the DRT had overlooked both the statutory scheme and the committee’s rationale, the Appellate Tribunal held that the auction could not be invalidated solely on the basis of reserve price being lower than the distress value. Accordingly, it allowed the appeal, set aside the DRT’s order dated 27 July 2023, and dismissed the securitisation application.