Arvind Kumar Choudhary vs Punjab National Bank & Ors.

JUSTICE R. D. KHARE, CHAIRPERSON

The present appeal has been preferred by the appellant under section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short "The SARFAESI Act") against the judgment and order dated 11.11.2020, whereby the S.A. No. 94/2018 filed by the appellant has been dismissed by the Tribunal below.

Brief facts of the matter are that the appellant was granted a housing loan of Rs.40.00 lacs by the respondent-Bank along with overdraft facility of Rs.5.00 lacs for construction of house over the property in question. In order to secure the said facilities, the appellant created an equitable mortgage over his double storied building including the land being plot no. P/2, Sector-P of part plan of the Kankarbagh Development Scheme having area of 3 Kathas (45' X 90'), type-A, P.S. Kankarbagh, Distt. Kankarbagh. Thereafter, the appellant also got constructed two more stories in the said House No. P/2. Since the appellant-borrower did not maintain the financial discipline, therefore, the accounts were classified as NPA on 30.09.2016 and a demand notice dated 05.06.2017 u/s 13(2) of the SARFAESI act was issued for a sum of Rs.48,49,670/-. Since the borrower did not pay any heed to the said demand, therefore, the symbolic possession of the property in question was taken by the Bank by issuing possession notice dated 17.11.2017 u/s 13(4) of the SARFAESI Act, which was sent, affixed and published in the newspapers. Thereafter, the e-auction sale notice was published in the newspapers on 10.03.2018 scheduling the auction of the property in question on 16.04.2018 and the property in question was sold in favour of the respondent no. 6-auction purchaser.

The appellant challenged the entire proceedings of the respondent-Bank by filing S.A. No. 94/2018 along with application for condonation of delay before the Tribunal below. The delay was condoned by the Tribunal below vide order dated 21.12.2018 and after hearing of the learned counsels for the parties, the Tribunal below vide order impugned has dismissed the S.A. of the appellants, holding that the appellant is not entitled to get the relief of quashing the e-auction sale notice issued in pursuance to the demand notice dated 05.06.2017. Being aggrieved by the said order, the present appeal has been filed by the appellant.

Learned counsel for the appellant submitted that the respondents no. 5 & 6 are husband and wife, who are doctors by profession and they are running their clinic in the premises in question under a lease agreement dated 14.06.2013. It was further contended that the appellant was not residing in the premises in question and only his old age mother was residing therein at first floor. It was also contended that the respondent-Bank without serving any demand notice or possession notice auctioned the residential house of the appellant, whereas the auction sale notice of the property in question came into the knowledge on 04.05.2018, when the borrower visited the respondent-Bank to verify the status of the loan account and it also came to know that the property in question has been sold/auctioned on 16.04.2018.

Learned counsel further submitted that the respondent-Bank has never filed any computerized postal receipts, through which the demand notice and possession notice were sent to the appellant, whereas it has only filed a manual receipt of the Franchise of the post office, which is a collection receipt, therefore, the same cannot be taken into consideration, as the same does not authenticate the service of demand notice upon the appellant. It was also contended that the appellant had obtained an information under the RTI from the Postal Department, which were received through letters dated 08.08.2019 and 16.08.2019. Copies of the said letters are placed at page no. 156 & 157 of the memo of appeal. It was further contended that the report dated 08.08.2019 clearly mentions that the address for delivery/destination is not readily available for the postal consignment sent through the Franchise. It was further contended that the another report given by the Postal Department dated 16.08.2019 also mentions that the manual receipt, which has been filed by the respondent-Bank along with its reply before the Tribunal below as well as before this Tribunal, pertains to the collection of article from the sender(respondent-Bank) and against these receipts, computerized receipts are generated by the concerned Franchise and not by Lohia Nagar Post Office, Patna. It was also contended that as per the said report, two computerized receipts are generated, one is pasted on the article while the other receipt is handed over to the sender of the article, as such the custodian of computerized receipt is sender, but in the present case, the respondent-Bank has not filed any such receipt, which may show/authenticate the service/delivery of article upon the appellant. It was further contended that the receipt, which has been filed by the respondent-bank along with possession notice and demand notice, is only a proof that the Franchise collected the consignment from the respondent-Bank, but no computerized receipt has been mentioned in the information given by the Senior Superintendent of Post Office at Patna nor the respondent-Bank has brought on record through its reply either before the Tribunal below or before this Tribunal in order to prove and show the delivery or service of demand notice/possession notice upon the appellant. It was thus contended that in absence of service of demand notice and possession notice; all the subsequent proceedings as well as the proceeding related to symbolic possession of the mortgaged asset is liable to be quashed.

Learned counsel has referred to pages no. 42 to 45 of the paper book, which are copies of letter dated 06.06.2019 issued by Post Master Gr-II, Lohia Nagar Dakghar, Patna and letter of Franchise as well as the list of dispatch of consignments and stated that one consignment has been shown to be sent at some place at Patna and another at Ram Krishna Nagar, which itself shows that the possession notice was delivered at some wrong address at Ram Krishna Nagar. It was further contended that the Tribunal below vide order dated 18.01.2020 had directed the respondent-Bank to submit the proof with regard to the delivery of demand notice to the appellant, but the Bank has not filed the same and despite it also, the Tribunal below, while passing the order impugned, has presumed the service of demand notice upon the appellant, which is not sustainable.

Learned counsel further submitted that the respondent-Bank has sold the property at undervalued price and in support thereof, the appellant has referred to page no. 27-48 of the rejoinder affidavit.

Learned counsel further submitted that the Tribunal below upon the manual receipt issued by Franchisee has illegally held the service of demand and possession notice as proper. Hence, it was contended that due to non-compliance of Rule 3 & Rules 8(1) and 8(2), the entire proceeding of the Bank was illegal and ought to have been quashed by the Tribunal below, but instead of the same, the S.A. filed by the present appellant was dismissed vide order impugned, hence the same is not sustainable.

Learned counsel also submitted that the Tribunal below has failed to appreciate an important fact that the property was sold in auction for a sum of Rs.3,60,27,500/- and the auction purchaser failed to deposit the required bid amount within stipulated period of 15 days, as the time extension letter filed by the bank at page no. 39 of the rejoinder affidavit appears to be a fake document, as there is no time extension mentioned in the said letter. It was further contended that just for a dues of Rs.48,49,000/-, the property has been sold for a sum of Rs.3,60,27,500/-, which is very less value of the property in question, as the dues of the bank could have been satisfied by selling a part of the property in question, but the respondent Bank has sold the entire residential house of the appellant, which is illegal and not sustainable in any manner. It was, therefore, prayed that the entire proceedings of the respondent-Bank are liable to be quashed and the present appeal may be allowed.

Learned counsel for the respondent-Bank submitted that the respondent-Bank sold the property in question by complying each and every provisions of the SARFAESI Act and its Rules. It was further contended that the demand notice was issued on 05.06.2017, which was served upon the appellant through speed post, postal receipt of which along with affidavit is filed as Annexure No. 1 to the reply of the Bank. It was further contended that the possession notice was issued on 17.11.2017, which was affixed, served and published in the newspapers in accordance with Rules 8(1) and 8(2) of the Rules, 2002. Photocopies of postal receipt, photographs of affixation and publications are filed as Annexure No. 2 to 4 to the reply of the respondent-Bank. It was thus contended that the contention of the appellant that the demand notice and possession notice were not served is not sustainable.

Learned counsel further submitted that before effecting the sale, the respondent-Bank got the property valued from its approved valuer, copy of the valuation report is filed as Annexure No. 5 to the reply of the respondent-Bank. It was thus contended that the contention of the appellant that the property has been sold at under-valued price is incorrect.

It was canvassed on behalf of the respondent-Bank that the sale notice was issued on 10.03.2016 scheduling the auction of the property in question on 16.04.2018. It was further contended that the said sale notice was sent to the appellant on 14.03.2018 and the same was published in the newspapers on 10.03.2018, copy of the postal receipt as well as publications are filed as Annexure No. 6, 7 & 8 to the reply of the respondent-Bank. It was thus contended that the respondent-Bank has complied with the Rules 8(6), 8(7) & 9(1) of the Rules, 2002.

Learned counsel also submitted that the property was sold on 16.04.2018 in favour of the respondent no. 6, who has deposited the entire sale consideration in view of the provisions of the Rules 9(3) & 9(4) of the Rules, 2002, but the balance amount was deposited on 02.05.2018 much before the time granted by the respondent-Bank and thereafter, the sale certificate was issued on 07.05.2018. It was thus contended that there is no violation of any provisions of the Rules, 2002.

Learned counsel further submitted that the demand notice was sent by the Bank on the known address as per record of the Bank provided by the appellant and the appellant had never provided any other address to the respondent- Bank, so the respondent-Bank sent the same on the available address, which was never returned back and as such there was no lapses on part of the Bank in sending the demand notice to the appellant. It was further contended that the appellant never challenged the possession notice before 19.05.2018, as the property was sold on 16.04.2018 in favour of the respondent no. 6. It was further contended that the appellant himself has stated in para 5.XV of the memo of appeal that her mother was residing permanently on the said address, then the appellant cannot say that he had no knowledge of the proceedings initiated by the respondent-Bank. It was further contended that the surplus sale proceed was sent to the appellant on the same address through demand draft, which was received by the appellant, therefore, it is clear that the appellant is making false statement on affidavit before the Tribunal below and also before this Tribunal. It was further contended that the article posted through franchisee is deemed to be sent by the Department of Post and Telegram, as it is departmental arrangement and there is nothing wrong.

Learned counsel further submitted that the respondent- Bank sent the sale notice dated 10.03.2018 to the appellant and the same was published in two leading newspapers, one in Vernacular language and auction was held on 16.04.2018 and respondent no. 6 also participated in said auction and she was declared successful and higher bidder and after deposit of sale proceed in accordance with the provisions of Rule 9(3) & 9(4) of Rules, 2002, the sale certificate was issued in favour of respondent no. 6 on 07.05.2018, which is annexed as Annexure No. 10 to the reply of the respondent-Bank.

It was lastly contended that the contention of the appellant that selling of a part of the property in question could have satisfied the dues of the Bank is not acceptable because the said property could not be sold in part as he had mortgaged the entire property with the Bank. It was thus contended that after considering the entire material available on record, the Tribunal below has dismissed the S.A. of the appellant on merit, hence the order impugned does not require any interference by this Tribunal. It was, therefore, prayed that the appeal filed by the appellant may be dismissed with heavy costs.

It appears that despite giving several opportunities, no reply has been filed by the respondent no. 5 & 6. However, the learned counsel for the said respondents has contended that they are bonafide purchasers of the property in question, who have deposited the entire sale consideration in accordance with Act and Rules made thereunder with the Bank. It was, therefore, prayed that the appeal filed by the appellant may be dismissed with heavy costs.

I have considered the rival contentions of the learned counsels for the parties and perused the material available on record.

The main controversy involved in the present case is, as to whether the demand notice, possession notice and the sale notice were served upon the appellant or not?

It is to be seen that the demand notice was issued on 05.06.2017, which is stated by the Bank to have been sent to the appellant. Copy of the demand notice containing postal receipt no. 30 is placed at page no. 13 to 14 of the reply of the Bank. While going through the said receipt, it is found that the same is a manual receipt, whereas the postal receipt of speed post is generated through computer. The content of the said receipt clearly shows that it is issued to the customer at the time of receiving the consignment because the said receipt appears to be used for the purpose of money order also, as the last line of the said receipt contains the sentence "Commission on M.O. (in figures), meaning thereby, the said receipt is used by the Post Office for different purpose and not for only the speed post. As such it can be said that it is a collection receipt. In this regard, the order dated 18.01.2020 passed by the Tribunal below is relevant. Copy of the said order is placed at page no. 25 of the rejoinder affidavit of the appellant. Vide said order, the respondent-Bank was directed by the Tribunal below to submit proof with regard to delivery of demand notice to the appellant, but the respondent-Bank has never filed the same, instead the Bank filed an affidavit dated 13.02.2020 before the Tribunal below stating as under:-

From the above affidavit filed by the Bank, it is clear that the respondent-Bank was not having any postal receipts, which could authenticate the service of demand notice upon the appellant before the Tribunal below. On the basis of the affidavit filed by any party, the service of notice cannot be presumed. In this regard, Rule 3 of the Rules, 2002 says as under:-

The above provision clearly says that the demand notice has to be served upon the borrower. In the present case, the respondent-Bank has filed a manual receipt of the Postal Department containing the handwritten consignment number, but the said receipt does not contain the destination of the appellant, whereas each and every postal receipt contains the name of the consignee and its destination. The information received from the Postal Department by the appellant is at page no. 156 and 157 of the paper book. The letter dated 08.08.2019, which is at page no. 156 of the paper book, issued by Sr. Superintendent of Post Offices, Patna says "the delivery/destination address is not readily available". Further, "two computerized receipts are generated, one pasted on article while other receipt is handed over to the sender of the article, so it is clear that custodian of computerized receipt is sender". In the present case, the sender is the respondent-Bank, which had sent the demand notice to the borrower, but the Bank has not produced any computerized postal receipt, through which the same is stated to have been sent, either before the Tribunal below or before this Tribunal. The another information dated 16.08.2019 received by the appellant, copy of which is at page no. 157 of the paper book, from the same officer of the Postal Department also says "the enclosed copy of manual receipt pertain to the collection of article from the sender, against these receipts the computerized receipts are generated by the concerned franchisee not by Lohia Nagar S.O., Patna." From this, it is clear that the consignment was booked by the Franchisee, but non-availability of any computerized receipt with the Bank shows that the demand notice was admittedly booked, but not dispatched to the appellant-borrower. If the same had been dispatched to the borrower through speed post, there would definitely have been the postal receipt with the respondent-Bank and the same should have been produced before the Tribunal below at the time, when the Tribunal had asked the Bank to prove the delivery of demand notice, but instead of doing it, the Bank had filed an affidavit of its officer in this regard, which is mentioned in the preceding paragraph of this judgment. In nutshell, it can be said that no demand notice has ever been served by the Bank upon the appellant-borrower. As such there is clear violation of Rule 3 of the Rules, 2002. Hence, on this count alone, the whole proceedings initiated by the Bank under the SARFAESI Act are liable to be set aside, as it is settled principle of law ^that if initial action of the ^Bank is found to ^be defective, the subsequent ^actions would automatically fall ^on the ground.

With regard ^to the service ^{of possession} notice dated 17.11.2017, ^{it is} stated that the ^same facts and circumstances ^are with the said notice ^as that of demand notice, therefore, the ^same is also liable ^to be quashed.

It has been contended ^on behalf of the appellant-borrower that ^no sale notice ^was served ^upon the borrower, therefore, the auction sale: dated 16.04.2018 is not sustainable. In ^this regard, the-page ^{no. 33 to 37 of the} reply of the respondent-Bank ^are relevant. Page ^no. 35 & 36 ^are the publications of sale notice and page ^no. 37 is its affixation ^on the property in question, but there is no document, which may show ^{that any sale notice} under ^Rule 8(6) of ^the Rules, ²⁰⁰² had ^{ever been} issued by the ^{Bank to the} appellant-borrower. ^In this regard, ^Rule 8(6) ^{of the} Rules, 2002 ^{says as under:-}

Perusal of the above provision reveals that the authorized officer ^of the Bank has ^{to serve a clear 30} days notice to the borrower ^so that he ^{may save} his property by liquidating ^{the dues of the} Bank. ^{In the present} case, there ^is nothing ^on record, ^which may ^{show that} the respondent-Bank has ^ever issued the sale notice under Rule 8(6) ^{of the Rules, 2002 to} the appellant. ^{In this} regard, ^the respondent-Bank ^{in para 23 of its} reply has ^stated that "the respondent-Bank sent the ^{sale notice on} 10.03.2018, published ^{in two} leading newspapers, ^one of vernacular", but the ^{page no.} 33, which is ^copy of publication ^{of sale} notice, ^{shows that the} said ^{copy of the} publication ^{was sent to} the appellant through the ^same Franchisee vide manual receipt dated 14.03.2018 and no ^notice under ^Rule 8(6) and its dispatch ^dated 10.03.2018 ^{are on} record. Thus the contention of ^the respondent-Bank that the sale notice ^was sent ^on 10.03.2018 ^is without any basis and document, hence the ^{same is not} tenable. As such there ^is violation ^of Rule 8(6) of the Rules, ^{2002 on} part ^{of the Bank.} Thus ^{on this count} alone, the auction. ^sale dated 16.04.2018 ^is liable ^to be quashed.

The contention of the appellant that the respondent-Bank has made ^excess sale, ^{as the sale of a} part ^of the property ⁱⁿ question could have satisfied the dues of the Bank is tenable. As per the registration of sale certificate at page ^no. 45 ^{of the paper} book, the property in question is having ^area of 4050 ^sq. ft. ^{and on the said} land ^G+3 storied building is constructed and ^the said land and building has been sold by. the Bank for ^{a sum} of Rs.3,60,27,500/- ^on 16.04.2018 against ^its dues of Rs.48,49,670/- ^{as on 30.09.2016 as} demanded ^{in the} demand notice dated 05.06.2017, ^{which. is more} than 7th times ^{of the} said dues. The said dues along ^with interest ^from 30.09.2016 ^to 16.04.2018 could have been satisfied by ^the sale ^of only ^one floor ^of the said property, because the value of the total constructed ^area is shown to be Rs.2,21,10,000/- in the said sale certificate registration. In ^my opinion, the respondent-Bank ought ^{not to have} sold ^{the entire} property ^{for its} recovery of ^a such dues. Thus ^{it can} be said that the Bank has made the excess sale, ^as the surplus amount of auction sale of ^{more than} Rs.3.00 ^{crores is} lying ^{with the} Bank ^after adjustment of ^the dues of^the appellant. ^On this ^count also; the ^{auction sale} dated ^{16.04.2018 is liable to be} quashed.

^{27. Since the entire} proceedings of the. Bank ^have been found ^to be defective, therefore, the ^{other issues raised} by ^the appellant ^{are not} required ^{to be} dealt with.

In ^view of the discussions ^as recorded above, the demand notice, ^possession notice, auction ^sale dated 16.04.2018 ^{and its all subsequent actions are set} aside. Consequently, the impugned order passed by the Tribunal below ^is also quashed.

The respondent-Bank ^is directed ^to return the sale amount ^to the ^auction purchaser within ¹⁵ days from today along with interest ^{@ 8% p.a.} simple ^from the date ^of deposit till the date of payment.

The respondent-Bank is further directed to provide the calculation of ^amount payable to ^the appellant within 15 days ^from today,..who ^{shall pay} the ^{same within} 30 days thereafter. It ^is made clear that the respondent-Bank shall charge ^the contractual ^{rate of} interest only from the date of NPA till the date of closure of the ^{loan account} by appropriating the auction amount and thereafter, the Bank shall only charge the rate of interest, ^as awarded above to the auction purchaser, ^on the amount, which was appropriated in the loan: ^account from the sale consideration. In ^{case of} non-compliance of this order, ^the respondent-Bank_would ^{be free to} proceed ^for its recovery from the stage of issuance of fresh demand notice.

^Since the ^entire proceedings ^have been quashed due to the ^{fault of the} respondent-Bank, therefore, ^all the ^expenses incurred ^over the proceedings ^of auction sale as well ^as the execution of sale deed in favour of the auction purchaser shall ^{be borne} by ^{the Bank. If the Bank} intends, the ^{same may} be ^recovered by ^it from its erring officer, who has conducted all these proceedings.

A copy ^of this judgment be forwarded ^to the parties ^{as well as} the DRT.concerned and ^be also uploaded ^on the ^e-DRT portal.