Ashutosh Suitings Pvt. Ltd. And Ors vs Punjab National Bank

P.K. Bhasin, J

The appellants had filed a Securitisation Application (S.A.) under Section 17(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('SARFAESI Act') on 8.7.2016 before the Debts Recovery Tribunal (DRT), Jaipur when the respondent-Bank was going to take physical possession of their properties which they had equitably mortgaged in its favour to secure the repayment of the financial assistance extended to them. The respondent at that time had invoked the provisions of SARFAESI Act as a secured creditor since the appellants had failed to clear the outstanding dues despite sendee of demand notice under Section 13(2) of S ARFAESI Act after classifying their account as Non Performing Asset (NPA). The respondent-Bank could take physical possession of two of the four mortgaged properties belonging to appellant No. 1 Company (borrower), which was a factory premises (G-137 & G-138, Industrial Growth Centre, RIICO Area, Hamirgarh, Bhiiwara, Rajasthan) on 6.7.2016 while in respect of other two properties, Shop No. 22, Krishi Upaj Mandi, Bhiiwara and House No. 12, New Malikhera, Ashok Nagar. Bhiiwara, mortgaged by appellant No. 4 herein only symbolic possession was taken on the same date i.e. 6.7.2016. Physical possession of those two properties still remains with the mortgagor. When the S.A. was at the initial stage the respondent-Bank took steps to sell the above-referred secured assets by publishing on 31.7.2016 a sale proclamation for auction to be conducted on 9.9.2016. Immediately thereafter the appellants approached the DRT with an amendment application (I.A. No. 403/2016) seeking permission of the DRT to incorporate in the existing S.A. grounds of challenge to the issuance of sale proclamation. However, before that amendment application could be heard and decided the Bank conducted the auction on 9.9.2016 and one shop and the residential house belonging to respondent No. 4 were sold while the factory premises did not attract any buyer. The same still remains unsold. In the meanwhile, on 8.8.2016 the learned Presiding Officer had adjourned the S.A. to 22.8.2016 for final arguments. On 22.8.2016 the Presiding Officer asked the parties to file written arguments and at the same time had permitted the Bank to go ahead with the auction but confirmation of sale was made subject to further directions of the DRT. The S.A. was then adjourned to 21.9.2016.

In order to challenge the sale also of the two properties the appellants moved another amendment application (I.A. No. 415/2016). One of the pleas sought to be taken in the S.A. by way of amendment was that even though the auction was held on 9.9.2016 the successful auction purchasers did not deposit the 75% of the bid amounts within the prescribed period of 15 days from the date of the auction and in fact the Bank had illegally accepted that payment after many months in order to confer unjust benefit upon the auction purchasers. In the reply to the amendment applications the Bank had sought to justify acceptance of belated payment of 75% amount from the auction purchasers. Since the auction had taken place on 9.9.2016 before the amendment application could be decided the Presiding Officer directed the Bank to place on record the auction records. On 13.10.2016 the learned Presiding Officer noticed filing of reply by the Bank to the first amendment application I.A. No. 403/2016. As before that date second application for amendment also stood moved the Bank had filed reply to that I.A. No. 415/2016 also. On 14.10.2016 the Presiding Officer listed the matter for 5.11.2016 for arguments on the pending I.As. (which included two amendment applications also moved by the security applicants. On that date arguments were not heard as Presiding Officer was not holding the Court. On the adjourned date i.e. 19.11.2016, the Presiding Officer directed the Counsel to file written submissions by the next date which was on 28.11.2016. No oral arguments were however heard on 19.11.2016. On 28.11.2016 the Presiding Officer again directed the parties to file written submissions before next date which was fixed for 'final arguments' on 16.12.2016. On 16.12.2016 no arguments were heard and the matter was simply adjourned to 16.1.2017 on which date also no hearing took place since the Presiding Officer of DRT-II, Delhi holding additional charge of Jaipur DRT was not holding camp Court at Jaipur. On 24.1.2017 part arguments were heard but it is not clear as to whether final arguments were heard or on amendment applications. Finally the arguments were concluded on 6.4.2017 and the matter was reserved for pronouncement of final order with a direction to the parties to file written submissions also within ten days.

On 23.8.2017 the learned Presiding Officer pronounced an order whereby while finally disposing of the S.A. and rejecting the same also dealt with the amendment applications and that is evident from the following para No. 21 of the impugned order:

"21. First of all, since auction of the subject properties took place during the pendency of the SA therefore, to end the conflict I will decide the issue raised in the I.As. as well with the SA, as same has already been replied by the Bank and both sides addressed on these I.As. also."

The relevant portions from the impugned order passed by the DRT now is being re-produced below to see as to how the learned Presiding Officer has disposed of the amendment applications as well as the S.A. itself by one and the same order:

"1. This application (S.A. No. 80/2016) has been filed by the applicant "Ashutosh Suitings Private Ltd. & Ors" against the demand notice issued by the respondent-Bank, under Section 13(4) dated 30.4.2016 as well as possession notice under Section 13(4) dated 6.7.2016 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (For short "the SARFAESI Act, 2002") and prayed for quashing the same and the possession of the subject properties belonging to the applicant Nos. 1 and 4 be restored in their favour.

The Punjab National Bank, Bhopalganj, Bhilwara (for short "the respondent-Bank") has sanctioned the facilities of Term Loan and C/C (Hypothecation) to the applicant No. 1-Company. It is stated that despite the adverse market conditions, the entire outstanding amount has been paid in the said term loan account, and in this regard, the respondent-Bank has issued No Dues Certificate (Annexure-2). However, the respondent-Bank issued Demand Notice dated 30.4.2016 (Annexure 3) against the applicants and demanded Rs. 2,85,29,990.42 and directed to deposit the same within 60 days. It is stated that the respondent-Bank has illegally issued different demand notices to all applicants without mentioning details of all the subject properties.

It is further stated that as per the demand notice, the account of the applicants has been classified as NPA on 31.3.2016, however, the respondent-Bank failed to disclose any specific reason for NPA.

Learned Counsel for the applicants submitted that the respondent-Bank has debited excess amount of penal interest and capitalized the same and further it debited illegal charges and higher rate interest, but in the notice under Section 13(2) the respondent-Bank has failed to give all details of the aforesaid amount. It is submitted that the applicants approached the respondent-Bank and requested to allow the applicants to deposit the overdue amount, if any, so that the account could be regularise. The applicants filed a representation dated 27.4.2015 (Annexure 5) also whereby they requested the respondent-Bank to release the factory property as the applicants have the buyer ready to purchase the same and the amount of sale proceedings would be deposited in the account so as to reduce the alleged outstanding amount in the account. It is further stated that the said representation has been received and accepted by the respondent-Bank, but the property has not been released and ultimately refused to do so, as such, the respondent-Bank failed to comply with the mandatory requirement of Section 13 (3 A) of the SARFAESI Act, 2002. Thus, the entire proceedings and the demand notice as well as possession notices are illegal and liable to be quashed.

.....It is further stated that the respondent-Bank ignoring all the requests made by the applicants, proceeded to take possession of the subject properties on 6.7.2016. It is alleged that the respondent-Bank with the help of 6-7 muscle men and enforcement agents took actual possession of Plot Nos. G-137 and G-138 situated in PJICO Industrial Area, Growth Centre, Hamirgarh, Bhilwara of the applicant No. 1-Company.

Learned Counsel for the applicants further contended that it is well settled position of law that the actual forceful possession of the property can be taken by the Bank only after taking assistance of District Collector under Section 14 of the Act, but the respondent-Bank took possession of the subject property by threatening the employee of the applicant Company and without prior notice to the applicants and also without making any Panchnama and inventory and without publishing in the news papers before taking actual possession. It is submitted that the possession also took symbolic possession of the properties belonging to applicant No. 4 who has already resigned from the directorship of the Company, i.e. Shop No. 22, situated at Krishi Upaj Mandi, Bhilwara and Plot/House No. 12, situated as New Malikhera, Ashok Nagar, Bhilwara, simply affixing the possession notice without complying with the mandatory requirements of law.

It is further contended by the applicant that the possession notice for Shop No. 22 and other properties House No. 12, and Plot No. G-138 in question was not served upon the applicant Nos. 1 to 4, either before or after taking the possession of the same. It is alleged that with the help of 6-7 muscle men and recovery agents of the respondent-Bank forcefully took possession of Plot Nos. G-137 and G-138 and under pressure and duress obtained signature of office boy Shri Mahavir Gurjar.......

During the pendency of the present SA the applicants have filed amendment application being IA No. 403/16 quashing of auction notice published on 31.7.2016 and also order of DM under Section 14. The applicant has filed second IA for amendment vide IA No. 415/16 and thereby bringing on record the auction dated 9.9.2016 and prayed that auction sale of two properties of the applicant No. 4 to be quashed and set aside.

It is contended that the respondent-Bank has not violated any mandatory provision of SARFAESI Act, 2002 and Rules.......

It is contended that the sanction limit was Rs. 275.00 lakh and after debit of interest on 30.9.2015, the balance in the account was Rs. 2,78,12,417 which shows the debit balance was more than sanctioned limit and on the day of classification of the account as NPA i.e. 31.3.2016, the debit balance in the account was out of order since September, 2015............

15.....................The applicant's offer was Rs. 40.00 lakh only whereas the same has been auctioned by the respondent-Bank for Rs. 80.00 lakh and the other property which applicants offered Rs. 70 lakh has been auctioned by the Bank for Rs. 168.00 lakh. Thus, the Bank was justified in not allowing request of applicants for private sale of mortgaged properties.

Learned Counsel for the respondent-Bank vehemently argued that the applications for amendment filed by the applicants are not maintainable as the same relates to the cause of action which arose after filing of the S.A, the same cannot be incorporated in a SA which was filed earlier to the arising of cause of action. It is submitted that in the instant matter, the auction notice was published on 31.7.2016 whereas present SA filed by the applicants was prior to the publication of auction notice, as such, the cause of action arose subsequent to the filing of the present S.A. cannot be incorporated by way of amendment in the existing S.A. and if the applicants are aggrieved by the said measures they can file a separate S.A. in respect of said measures.

It is further submitted that if the applicants wants to pursue its relief for amendment in the S.A, then first they have to withdraw all the pending I. As. and the orders passed thereon be recalled into and only thereafter the applicants can avail remedy or pursue for relief of amendment in the S.A. in which pleadings have already been completed and the matter was ready for final arguments on 21.7.2016, but the applicants deliberately, only with a view to prolong the hearing of the matter and to get continuation of the stay order has filed the I.A. for amendment of S.A, such attitude of the applicants causing unnecessary delay in disposal of the S.A.

I have heard rival contentions of both the parties and carefully gone through the entire record.

Now herein after, I would like to decide the issues raised by the applicants in the present case.

First of all, since auction of the subject properties took place during the pendency of the SA therefore, to end the conflict I will decide the issue raised in the I.As. as well with the SA, as same has already been replied by the Bank and both sides addressed on these I.As. also.

The applicants have an objection that the respondent-Bank has wrongly classified the impugned account as NPA. The learned Counsel for the applicants contended that there was balance of Rs. 2,71,88,247.61 as on 31.12.2015 and even after debit of interest of Rs. 2,74,168/- there was balance of Rs. 2,74,62,415.61 in the account therefore account was within the limit of Rs. 2.75 crores on the date of NPA.

Per contra, in this regard, learned Counsel for the respondent-Bank has contended that the account was irregular and there was no transaction in the account, therefore, the account of the applicant was declared NPA.

I have perused the record and also the statement of account filed by the respondent vide Annexure-R-1, from which, it reveals that account was running irregular since 31.7.2015 and after 29.9.2015, no amount was deposited in the account. Further the credit entry dated 31.12.2015 was returned unpaid and amount debited on 11.1.2016. Thus, in my view, the account was rightly classified as NPA on 31.3.2016 as the debit balance was Rs. 2,85,29,990.41. Further vide Annexures-5, 6 and 7 of the SA, the applicants themselves admitted that due to unfavourable market conditions they outsource the manufacturing process. The applicants have not submitted the stock statement in time, therefore, the respondent-Bank rightly declared the account as NPA. Contention of the applicants that they have already gave proposal for sale of the secured assets to reduce the liability, is not sustainable as the respondent-Bank had right on the secured assets in case of any default, the defaulted debtor cannot claim right on the secured assets of the creditor. In the light of aforesaid discussion, I do not find any merit in this objection, same is hereby rejected.

The second objection raised by the applicant was that the respondent-Bank took the possession illegally and forcible manner. According to the submission of learned Counsel for the applicants, the respondent-Bank with the help of 6-7 muscle men along with enforcement agent took the possession of the properties in question and that too without serving the prior notice and without making any Panchnama and inventory and without publishing the same in news paper. In rebuttal, it is contended by the respondent-Bank that in compliance of the order of learned DM, respondent-Bank took the possession of the property in question in accordance with law. In this regard the record reveals that the possession was taken in pursuance to the order of the learned DM dated 4.8.2016 as provided under Section 14 of the SARFAESI Act, 2002. Further from Annexure R-8 it reveals that the possession notice was duly passed on the properties in question and also the possession notice was signed by Shri Mahaveer Gurjar, representative of applicant Company who was present on the spot which is supporting vide (Annexure-R/2 to Annexure-R/5 and Annexure-R/8). The inventory as well as Panchnama were also prepared. Thus, I do not find any merit in this objection raised by the applicant and the same is also hereby rejected.

The third objection raised by the applicant was that he had offered higher sale price, however, the respondent-Bank refused the same and arbitrarily sold the property in question. The respondent-Bank has strongly objected the said contentions and submitted that the applicant has offered Rs. 40.00 lakh only for one property (provide detail of the property) has been auctioned by Bank for Rs. 168.00 lakh. In the light of the above submission of the respondent-Bank, in my opinion, the offer of the applicant was undoubtedly on very lower vide, therefore the Bank has rightly auctioned the properties in question to recover the dues. Thus, the objection raised by the applicant has no merit and the same is also hereby rejected.

Another objection raised by the learned Counsel for the applicants that the auction can be held only after actual possession, learned Counsel for the respondent-Bank has vehemently opposed the same and submitted that according to principle laid down by the Hon'ble Apex Court in the case of Transcore v. Union of India & Others, VIII (2006) SLT 617 : I (2007) BC 33 (SC) : 135 (2006) DLT (SC) 151 : AIR 2007 SC 712, the respondent-Bank is entitled to hold auction even before taking possession of the secured asset i.e. (a) shop No. 22 situated at Krishi Upaj Mandi, Bhilwara belonging to applicant No. 4, Shri Satya Naraian Somani. (b) Plot/House No. 12 situated at New Malikhera, Ashok Nagar, Bhilwara in the name of Shri Satya Naraian Somani. I have considered the submission of both sides and in my view learned Counsel for the respondent-Bank rightly contended that the secured creditor can take the possession of the secured assets even without any order of learned DM under Section 14 of the SARFAESI Act, 2002. It is only when in case some police assistance is required then after obtaining orders for learned DM secured creditor may take possession of the secured assets. Therefore, objection raised by the applicants is hereby declined.

In the light of above discussions, this securitisation application along with pending I.As. deserves to be dismissed. Accordingly, this S.A is hereby dismissed."

From the said order of the DRT it becomes clear that the learned Presiding Officer had taken cognizance of the filing of two amendment applications moved by the appellants herein seeking to bring on record their challenge against the sale proclamation issued on 31.7.2016 as well as against the auction actually conducted on 9.9.2016, both of which developments had taken place during the pendency of the S.A. by the appellants herein challenging the validity of the demand notice under Section 13(2) of the SARFAESI Act as well as the taking over of actual physical possession of their factory and symbolical possession of other two mortgaged properties of appellant No. 4 herein which eventually came to be sold also on 9.9.2016, and the Bank had opposed the amendment applications on the ground that the developments sought to be brought on record could be agitated by way of fresh S.As. The Bank had taken the stand in reply to the amendment applications that if at all those applications are allowed it will file proper reply to the amended S.A. In the facts of the case it can be safely said that the learned Presiding Officer had considered that the amendment applications could be allowed and the pleas being sought to be raised by way of amendments could be considered in the same very S.A. instead of relegating the security applicants to the remedy of independent S.A. challenging the subsequent developments of issuance of sale proclamation and consequent of sale of two properties of appellant No. 4 herein.

However, in my view and as was rightly submitted by the learned Counsel for the appellants also that after deciding to deal with the challenge to the sale proclamation and auction in the same very S.A. the learned Presiding Officer ought not to have dealt with the pleas sought to be introduced by way of amendments in the S.A. without requiring the security applicants to file amended S.A. and giving an opportunity to the Bank to file its amended reply and giving opportunity to both the parties to adduce fresh evidence. I do not find any merit in the submission made on behalf of the respondent-Bank by its learned Counsel that no prejudice having been shown to have been caused to the appellants herein because of the DRT having not followed the correct approach while dealing with the amendment applications as well as deciding the S.A. itself by a common order the impugned order cannot be set aside for this reason. The appellants had raised an objection that the auction conducted on 9.9.2016 was liable to be set aside inter alia for the reason that 75% of the bid amounts were paid by the auction purchasers much beyond the prescribed period of 15 days. So, that objection had to be dealt with by the DRT after it had got introduced into the amended S.A. and after considering the explanation of the Bank in its amended reply to the S.A. Avoiding to deal with all the pleas, which were not frivolous pleas which could be ignored and which were introduced in the S.A. by way of amendments by the learned Presiding Officer cannot be said to be insignificant error committed by the learned Presiding Officer. The DRT was expected to give opportunity to the parties to adduce fresh evidence in support of their respective pleadings centering around the issuance of the sale proclamation and the auction of two properties of appellant No. 4 herein. In fact, the Presiding Officer did not even deal with all the pleas which the appellants herein wanted to urge before the DRT in opposition to the legality of the sale proclamation as well as the auction. While deciding the S.A. in this way against the appellants herein a material irregularity has thus been committed by the Presiding Officer and on this view alone the impugned order is liable to be set aside. The error committed by the learned Presiding Officer in deciding the S.A. as well as the amendment applications by one common order is so serious that this Tribunal cannot condone that error. Implicit is the prejudice in deprivation of opportunity to the appellants to file amended S.A. and to substantiate its objections against the sale proclamation and the auction sale of two properties. So, the DRT has to be directed to decide the S.A. afresh after having on record the amended pleadings and giving an opportunity to the parties to adduce evidence, if so desired, but confined only to the amended pleadings. Of course, fresh opportunity to address fresh arguments also has to be given to the parties. The appeal is accordingly allowed. The impugned order dated 23.8.2017 is set aside. The matter is remanded back to the DRT for fresh decision keeping in mind the aforesaid observations. The S.A. shall now be taken by the DRT on 9.3.2018 at 10 a.m. for fixing dates for completion of amended pleadings and evidence by the parties. Thereafter the DRT shall make efforts to pass fresh final order within a period of three months considering the fact that at present there is no regular Presiding Officer of DRT at Jaipur and the Presiding Officer of DRT-II, Delhi is having additional charge and is looking after the work of DRT at Jaipur also.