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Judgment
R. S. Kulhari, Chairperson
The present appeal has been preferred under section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "the SARFAESI Act") against the order dated 10.02.2021 passed by the Presiding Officer, DRT, Lucknow, whereby the securitization application filed by the respondents was allowed.
Brief facts leading to this appeal are, that the appellant-FI granted certain credit facilities to the respondent no. 1 (a private limited company) through its directors/guarantors (respondents no. 2 to 4). The loan was secured by the equitable mortgage of the property belonging to the borrower-company. The respondents-borrowers failed to adhere to the repayment plan, therefore, the Bank issued demand notice dated 25.10.2018 under section 13(2) of the SARFAESI Act followed by the possession notice dated 30.01.2019 under section 13(4) of the said Act. Thereafter, the appellant-FI approached before the District Magistrate (DM) under section 14 of the SARFAESI Act. After giving opportunity of hearing to the borrowers, the D.M. had passed the order on 17.07.2019, which was dispatched on 18.07.2019.
The respondents-borrowers challenged the DM's order by filing the S.A. before the DRT with a clear stand that the demand notice and the possession notice were never served to them. The appellant-F.I. filed reply before the DRT. The Tribuanl below vide impugned order allowed the S.A. observing that the demand notice dated 25.10.2018 issued under section 13(2) of the SARFAESI Act was not served to the borrowers. Accordingly, all the proceedings conducted by the F.I. were set aside and the F.I. was directed to handover the possession of the property in question to the borrowers forthwith. Being aggrieved by the said order, the present appeal has been filed.
Learned counsel for the appellant submitted that the S.A. filed by the respondents was barred by limitation. Such objection was raised by the F.I. in its reply, but the Tribunal below has not decided the same. The respondents were duly served the demand notice and the possession notice, whereas the same were challenged beyond 45 days. Thus, the S.A. was liable to be dismissed on the ground of delay.
With regard to service of demand notice, it was contended that the publication of demand notice on 30.10.2018 was an additional mode of service, which was taken as precautionary measure, because the authorized Officer had enough reason to believe that the borrowers were habitual defaulters and creating hurdle in the recovery proceedings. It was further stated that even if, the publication is ignored, the service of notice on the borrowers was complete, as it were returned "unclaimed". One of the borrowers Shri Akash Sharma was duly served the registered notice, hence, all the borrowers were otherwise having knowledge of the demand notice. However, if there was any infirmity in the service, it was of a trivial nature and is liable to be ignored. In support of his contentions, the learned counsel has relied upon the following judgments:-
A. K. Bhaskaran Vs. Shankaran Balan, Cr. Appeal No. 1015/1999, (Hon'ble Supreme Court))
B. K.V.V. Prasad Rao Gupta Vs. State Bank of India, W.P. No. 27831/2019) (Hon'ble Telangana High Court)
C. The South Indian Bank Ltd. Vs. Union of India and Ors., W.P. (C) No. 14971/2010 (V), (Kerala High Court).
D. L & T Housing Finance Ltd. Vs. Trishul Developers and Anr., C.A. No. 3413/2020, (Hon'ble Supreme Court)
On the contrary, the learned counsel for the respondents/borrowers contended that the demand notice is required to be served on all the borrowers/guarantors through registered post or otherwise. The same can only be published, if the authorized officer has reason to believe that the borrowers/guarantors are avoiding the service, as provided under Rule 3(1) of the Security Interest (Enforcement) Rules, 2002 (in short "the Rules, 2002"). The notices sent to the borrowers (except Akash Sharma) were returned unserved on 5.11.2018 with the remark "addressee cannot be located", but the Bank has published the notice much prior to receipt of these notices on 30.10.2018, which is against the provisions of the Rules, 2002. Thus, the notices were not served to the borrowers/guarantors as per requirement of the law. The F.I. is required to follow the procedure in the manner as provided by the statute, otherwise, all the proceedings subsequent thereto are liable to be quashed in view of the judgment passed by the Hon'ble Orissa High Court in Swastik Agency and others Vs. State Bank of India, Bhubaneshwar and others, AIR 2009 Ori 147.
Having heard the learned counsels for the parties and considering the material available on record, the undisputed facts are that the demand notice under section 13(2) of the SARFAESI Act was prepared on 25.10.2018 and was dispatched to all the borrowers/guarantors on 29.10.2018. Two notices with different addresses were sent to each of the borrowers, out of which one notice was served on Akash Sharma on 2.11.2018 and all other notices were returned unserved after 2.11.2018. However, the Authorized Officer has published the said notices on 30.10.2018 before return of the registered notices. Thus the core issue involved in this appeal is, as to whether the Bank has duly served the demand notice as per requirement of the statute along with the issue of limitation?
At the outset, the issue of limitation requires consideration. Although this objection was taken by the F.I. in its reply to the S.A., but it was not argued before the Tribunal below, as no such argument finds place in the impugned order and is also evident from the written submission filed by the counsel for the F.I. before the DRT (page No. 288 to 290 of the memo). Thus, it cannot be said that the issue was contested before the Tribuanl below and it was not decided. Since the Tribunal below has decided the appeal on merits, therefore, it would be deemed that the Tribunal found the S.A. within limitation.
However, the issue has been raised in written submission by the counsel for the F.I., therefore, this aspect is also being dealt with by this Tribunal. It is apparent from the pleadings of the S.A. applicants that they have categorically denied the service of demand notice dated 25.10.2018 and the possession notice dated 30.01.2019 and the main challenge in the S.A. was the DM's order dated 18.07.2019. Certified copy of the same was provided to the S.A. applicants on 26.08.2019. Thereafter, the S.A. was filed on 02.09.2011. Thus, it was within a week from the date of receipt of certified copy and if the limitation is reckoned from the date of order dated 18.07.2019, yet the S.A. was filed on 45 day before the DRT. Thus the limitation in this case, particularly when the service of demand notice and the possession notice was denied, cannot be counted from the date of issuance of possession notice and is to be reckoned from the date of DM's order. Thus, it cannot be observed that the S.A. was filed beyond limitation and was erroneously entertained by the Tribunal below.
Coming to the issue of service of demand notice, the same is required to be served as per Rule 3(1) of the Rules, 2002, which is as under:-
"3(1) The service of demand notice as referred to in sub-section (2) of section 13 of the Act shall be made by delivering [including hand delivery] or transmitting at the place where the borrower or his agent, empowered to accept the notice or documents on behalf of the borrower, actually and voluntarily resides or carries on business or personally works for gain, by registered post with acknowledgment due, addressed to the borrower or his agent empowered to accept the service or by Speed Post or by courier or by any other means of transmission of documents like fax message or electronic mail service.
Provided that where authorized officer has reason to believe that the borrower or his agent is avoiding the service of the notice or that for any other reason, the service cannot be made as aforesaid, the service shall be effected by affixing a copy of the demand notice on the outer door or some other conspicuous part of the house or building in which the borrower or his agent ordinarily resides or carries on business or personally works for gain and also by publishing the contents of the demand notice in two leading newspapers, one in vernacular language, having sufficient circulation in that locality.
A bare perusal of the above provisions reveals that the service is required to be effected through registered post or hand delivery or by any other mode of transmission. However, if the service cannot be made as aforesaid and the authorized officer has reason to believe that the borrower is avoiding service, then the mode of publication and affixation can be adopted. The proviso to Rule 3 is applicable only after invoking the procedure laid down for service by registered post, hand delivery and other mode of transmission etc. By no stretch of imagination, the publication of demand notice can be treated as an additional or ancillary mode or any precautionary measure, but it is a step in succession, as an alternate mode to be exercised after exhausting the primary mode of service. In other words the authorized officer has to first adopt the method of service through registered post etc. and thereafter, if he has reason to believe that the borrowers/guarantors are avoiding the service, then and then only the procedure for publication/affixation can be invoked.
In the instant case, admittedly, the notices were returned after 02.11.2018, whereas the authorized officer has published the demand notice in the newspaper on 30.10.2018, which was against the spirit of the provisions of the rules. The contention that the authorized officer was apprehending that the borrowers may create hurdle in procedure, cannot be countenanced and the procedure as prescribed by law cannot be deviated on the basis of any assumption or apprehension.
Pertinently, it is noted that the demand notice, if published, is also required to be affixed on the conspicuous part of the secured asset, but the Bank has failed to produce any credible evidence about the affixation of the said notice. This is yet another flaw in the said alleged "mode of additional service". Thus, the publication of notice in the newspaper was of no avail so as to constitute the valid service on the borrowers/guarantors.
The argument that the notices as received unserved be treated as served on the borrowers/guarantors, is also having no legs to stand. The F.I. is required to serve the demand notice on each and every borrower/guarantor, so that all or any of them may file representation under section 13(3-A) of the SARFAESI Act or may arrange for deposit of the demanded amount.
In the instant case, two notices were sent to each of the respondents, one at the address of residence and another showing address of the company, out of which only one notice was served to Akash Sharma on 2.11.2018. The track record submitted by the F.I. (page no. 82 to 87) indicates as "the item delivery attempted, addressee cannot be located", which was recorded on 2.11.2018 and the items were delivered back on 5.11.2018 in the office of the F.I. Although there is narration for 1.11.2018 that "the item delivery attempted, door locked, intimation served", but if the door was locked, then how the intimation was served and to whom? so this report cannot be relied upon and the report made on the very next day on 2.11.2018, subsequent to the earlier report that "the addressee cannot be located", is apparently correct. Thus, it is clear that the notices were returned unserved because the addressee could not be located. As such this case is neither covered under the head "refused" nor it is a case of "unclaimed". Therefore, after return of the said notices, the Bank was required either to send the same on the correct address or to serve the notices personally by hand delivery or by other mode of transmission and if that was not possible, then to publish the same in the newspaper and affix on the conspicuous part of the premises, but no such step was taken after 5.11.2018. Therefore, the Bank has failed to prove that the demand notices were duly served on the remaining three respondents.
I respectfully agree with the principle laid down in the judgments referred to by the counsel for the appellant, but these are distinguishable on the facts and do not render any assistance to the appellant-F.I.
In K. Bhaskaran Vs. Shankaran Balan (Supra), the issue of service of notice under section 138 of the Negotiable Instruments Act was there for consideration, in which the notices were returned unserved with the remark "unclaimed". Similarly, in K.V.V. Prasad Rao Gupta Vs. State Bank of India (Supra), the sale notices were returned with the remark "unclaimed", whereas the demand notices sent earlier on the same address were served and even the borrowers have not disputed the claim of the Bank for service by filing any reply, but in the present case, the notices were returned with the remark "addressee not located" and the borrowers are categorically denying the service of the notices.
In The South Indian Bank Ltd. Vs. Union of India also (Supra), the notice was returned with the remark "unclaimed" and thereafter, the authorized officer served the copy of the notice personally to the borrower against proper receipt. In that situation, the service was treated to be complete. Here in this case, the Bank has never attempted to serve personally or to again send the notices on the correct address.
In M/s L&T Housing Finance Limited Vs. M/s Trishul Developers (Supra), the Hon'ble Supreme Court has held that a trivial and technical objection can be ignored, wherein a letterhead of L&T Finance Limited was used in place of L&T Housing Finance Limited. Thus it was treated to be ignorable, but in the case at hand, the irregularity caused by the Bank is not of minor nature, but it is clear violation of the provisions prescribed under the law. The issuance of demand notice is a first trigger point for initiation of the proceedings for recovery of dues and the same is required to be followed strictly.
Since the Bank has failed to serve the demand notice as per prescribed manner, therefore, the demand notice and all subsequent acts are liable to be set aside as held by the Hon'ble Orissa High Court in Swastik Agency Vs. State Bank of India (Supra). The Tribunal below has committed no factual or legal infirmity while passing the impugned order, therefore, no interference is called for and the appeal is liable to be dismissed.
Accordingly, the appeal is dismissed with no order as to costs.
A copy of this judgment be forwarded to the parties as well as to the DRT concerned and be also uploaded on the e-DRT portal.