Axis Bank Limited vs Vivek Sehgal

Anil Kumar Srivastava, Chairperson

THE APPELLATE TRIBUNAL :

Instant appeal is filed against the judgement and order dated 14.05.2018 passed by learned DRT-II, Hyderabad in S.A. 1045 of 2017 (old S.A. No 223 of 2011-DRT-I, Hyderabad) [Vivek Sehgal Vs. Axis Bank Ltd. & Ors.] whereby S.A. was allowed by the learned DRT.

As per pleadings of the parties, facts of the matter are that SARFAESI applicant was a guarantor to the loan availed by M/s. Sehgal Motors Pvt. Ltd., respondent no.2, from respondent no.1 bank. Loan amount was not regularly paid. Accordingly, it was classified as NPA. Appellant bank proceeded under the SARFAESI Act.

SARFAESI applicant filed application u/s 17 of the Act against the respondents seeking setting aside of tender-cum-auction sale notice dated 14.07.2011, set aside the auction sale dated 17.08.2011 and all consequential actions. It is stated that no sale notice was served upon the SARFAESI applicant. Demand notice and possession notice were also not served. Notice of sale published on the same day. Compliance of Rule 8(6) and 9(1) of the Security Interest (Enforcement) Rules, 2002 was not made. Notice under Rule 8(6) issued on 01.07.2011 and auction was concluded on 17.08.2011. Credit to the deposit made by the SARFAESI applicant was also not given.

Appellant bank submitted written statement stating that demand notice as well as possession notice was duly served upon the borrower and guarantor. Outstanding dues were never cleared by the borrower. Notice of sale was issued on 01.07.2011 and auction was conducted on 17.08.2011. Due procedures were followed. No illegality was committed.

Learned DRT recorded a finding that notice u/s 13(2) of the SARFAESI Act, 2002 was duly issued in accordance with law which was duly served. Representation made by the SARFAESI applicant on 04.01.2011 was duly replied on 11.01.2011. It is further held that in the notice issued under Rule 8(6) of the Rules date, time and place of the auction sale was not indicated. There is violation of Rule 8(6) and 9(1) of the Rules. Accordingly, learned DRT held that auction sale conducted on 17.08.2011 was not in accordance with law. Accordingly, allowed the S.A. Auction sale as well as sale certificate issued by the bank was set aside. Bank was directed to take back possession from the auction purchaser with liberty to the bank to proceed to auction of the secured asset in accordance with law.

Feeling aggrieved appellant has preferred the appeal.

I have heard the learned counsel for the parties and perused the records.

Learned DRT has recorded finding that notice u/s 13(2) of the Act was duly served upon the respondents, SARFAESI applicant. Further, learned DRT placed reliance upon the judgement of the Hon’ble Apex Court in Mathew Varghese Vs. M. Amritha Kumar & Ors. [(2014) 5 SCC 610] wherein it was held that there is violation of Rule 8(6) and 9(1) of the Rules. Further, the date, time and place of the auction sale was not indicated in the notice. Hence, auction was bad in law. Accordingly, while allowing the S.A., auction sale was set aside by the learned DRT.

Learned counsel for the appellant would submit that all the details as required under Rule 9(1) of the Rules were mentioned in the notice. It was a subsequent sale notice which was issued on 14.07.2011 fixing the date of auction sale on 17.08.2011. Compliance of Rule 8(6) and 9(1) of the Rules were made.

Sale notice was issued on 01.07.2011. Date of auction sale was 17.08.2011. Published in the newspapers on 14.07.2011. Auction was conducted on 17.08.2011.

Now it is to be seen whether compliance of mandatory provisions of Rule 8(6) and 9(1) of the Rules are made by the secured creditor. Since auction was conducted on 17.08.2011 provision of unamended Rule 8(6) and 9(1) of the Rules would be applicable, which are as under :

“8. Sale of immoveable secured assets :-

(6) The authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5):”

“9. Time of sale, issue of sale certificate and delivery of possession, etc.

(1) No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) of rule 8 or notice of sale has been served to the borrower:”

Issue of notice, under Rule 8 (6) and 9 (1) of the Rules, is not res integra which has been settled by the Hon’ble Apex Court in the case of Bafna Motors (supra). The Hon’ble Apex Court in paragraph 26 of the judgment has framed the following issues apart from other issues :

(a) Whether the High Court was justified in exercising its writ jurisdiction under Article 226 of the constitution more particularly when the alternative remedy available to the Borrowers had already been availed of?

(b) Whether the confirmation of sale by the Bank under Rule 9 (2)  of the Rules of 2002  invests the successful auction purchaser with a vested right?

(c)   What is the impact of the amended Section 13 (8) of the SARFAESI Act on the Borrowers' right of redemption in an auction conducted under the SARFAESI Act? Or in other words, what is the effect of amendment to Section  13 (8) of the (d) Whether a Bank after having confirmed the  sale under Rule 9 (2), can withhold the sale certificate under Rule 9(6) of the Rules of 2002 and enter into a private arrangement with a borrower?

(e) Whether the High Court under Article 226, could have applied equitable considerations to override the outcome contemplated by the statutory auction process prescribed by the SARFAESI Act?

(f) Whether the right of redemption of mortgage stood extinguished upon publication of notice of auction?

Or in other words till what point of time the right of redemption of mortgage can be exercised in respect of secured asset under the SARFAESI Act?

(g) Whether the decisions of Telangana High Court in the case of Concern Readymix (supra) and Amme Srisailam (supra) lay down the correct position of law?

Dealing with the right to redemption, as provided under Section 13 (8) of the Act, The Hon’ble Apex Court has placed reliance upon Narandas Karsondas -vs- S.A. Kamtam & Another (1977 (3) SCC 247 wherein in paragraph 37 it was held :

“37. In view of the fact that only on execution of conveyance, ownership passes from one party to another it cannot be held that the mortgagor lost the right of redemption just because the property was put to auction. The mortgagor has a right to redeem unless the sale of the property was complete by registration in accordance with the provisions of the Registration Act."

In view of the fact that only on execution of conveyance ownership passes from one party to another, it could not be held that the mortgagor lost the right of redemption just because property was put to auction. The mortgagor has a right to redemption unless the sale of the property was complete by registration in accordance with the provisions of the Registration Act. This was the situation when Section 13 (8) of the SARFAESI Act was not amended. It was held by the The Hon’ble Apex Court in paragraph 49 of Bafna Motors (supra) that :

“49. Thus, prior to the amendment of Section 13 (8) of the SARFAESI Act, this Court consistently held, that the borrower shall continue to have a right of redemption of mortgage until the execution of the conveyance of the secured asset by way of a registered instrument. Furthermore, this Court in Mathew Varghese (supra) found no inconsistency between the unamended Section 13 (8) of SARFAESI Act and the general right of redemption under Section 60 of the Act 1882.”

Subsequent thereto, Section 13 sub section 8 of the Act got amended on 1st September, 2016 and the words “any time before the date fixed for sale or transfer” of the original provision was replaced with “at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets.”

Scope of amended Section 13 (8) of the Act was considered by the Division Bench of the Hon’ble Andhra Pradesh High Court in Sri Sai Annadhatha Polymers & Another -vs- Canara Bank (2018 SCC OnLine Hyderabad 178) wherein it was held that the right of the borrower to redeem the secured asset was available till the sale or transfer of such secured asset. The Hon’ble Court went on to say that the amended provisions of Section 13 (8) of the SARFAESI Act brought in a radical change inasmuch as the right of the borrower to redeem the secured asset would stand extinguished thereunder on the very date of publication of the notice for public auction under Rule 9(1) of the Rules. Hon’ble Apex Court has placed reliance upon its own decision in Mathew Varghese -vs- M. Amritha Kumar & Others [(2014) 5 SCC 610].

Subsequently, in the case of K.V.V. Prasad Rao Gupta -vs- State Bank of India (2021 SCC OnLine TS 328) the law laid down in Sri Sai Annadhatha Polymers (supra) was reiterated.

The Hon’ble Apex Court in Bafna Motors (supra) has also placed reliance upon its own judgment in the case of Shakeena & Another -vs- Bank of India & Others [(2021) 12 SCC 761]  wherein it was held in paragraph 55 that:

"15. Be it noted that on 1-9-2016 amendment to Section 13 (8) of the 2002 Act came into force as a result of which the dues of the secured creditor together with all costs, charges and expenses incurred by him are required to be tendered to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets.”

Hence,  in  paragraph  59  of  the  Bafna  Motors  (supra) Hon’ble Apex Court has held that :

“59. Thus, from the aforesaid, it is evident that the Telangana High Court in the Amme Srisailam (supra) has not referred to or looked into its earlier decision in the case of K.V.V. Prasad Rao Gupta (supra). The decision of the Andhra Pradesh High Court in Sri Sai Annadhatha Polymers (supra) was also not been looked into by the Telangana High Court in the case of Amme Srisailam (supra). It appears that the Telangana High Court in Concern Readymix (supra) and Amme Srisailam (supra) as well as the Punjab and Haryana High Court in the case of Pal Alloys (supra) have taken the view that the amended Section 13 (8) of the SARFAESI Act does not exclude the application of Section 60 of the Act 1882 in view of Sections 35 and 37 respectively of the SARFAESI Act.”

Hon’ble Apex Court specifically deals with the amendment of Section 13 (8) of the SARFAESI Act in Bafna Motors (supra). It was held in paragraph 68 that the right of redemption of mortgage is available to the Borrower under the SARFAESI Act only till the publication of auction notice and not thereafter, in the light of the amended Section 13 (8) of the Act. It was further held that the provisions of Transfer of Property Act would not be applicable in addition to the SARFAESI Act as statutory right of redemption in the Act of 1882 will not be applicable to the SARFAESI Act at least in view of the amended Section 13 (8) of the Act and any right of redemption of the Borrower must be found in terms of Section 13 (8). It was further held in paragraphs 80 and 81 that :

“80. To read it otherwise in a strict manner as to only stipulating a restriction upon the secured creditor and not on the borrower's right of redemption would lead to a very chilling effect, where no auction conducted under the SARFAESI Act  would have any  form of sanctity, and in such a situation no person would be willing  to come forward and participate in any auction due to the fear and apprehension that despite being declared a successful bidder, the borrower could still at any time come and redeem the mortgage and thereby thwart the very auction process.

Such a scenario is all the more worrisome, because the general public who participate in such auctions are often neither aware nor informed by the secured creditors conducting the auctions, that as long as the sale certificate is not issued, they  will not have  a right in the said asset and that the borrower whose asset is being auctioned could sweep-in and redeem the mortgage any time, and thereby thwart their rights and the very auction process.”

It was further held in paragraph 88 that :

“88. In view of the aforesaid discussion, we hold that as per the amended Section 13 (8) of the SARFAESI Act, once the borrower fails to tender the entire amount of dues with all cost & charges to the secured creditor before the publication of auction notice, his right of redemption of mortgage shall stand extinguished / waived on the date of publication of the auction notice in the newspaper in accordance with Rule 8 of the Rules of 2002.”

Ultimately, Hon’ble Apex Court in paragraph 104 held that :

“x x x x However, the amended provisions of Section 13 (8) of the SARFAESI Act, make it clear that the right of the borrower to redeem the secured asset stands extinguished thereunder on the very date of publication of the notice for public auction under Rule 9 (1) of the Rules of 2002. In effect, the right of redemption available to the borrower under the present statutory regime is drastically curtailed and would be available only till the date of publication of the notice under Rule 9 (1) of the Rules of 2002 and not till the completion of the sale or transfer of the secured asset in favour of the auction purchaser.”

It was further specifically held that the decision of the Telangana High Court in the case of Concern Readymix -vs- Authorised Officer, Corporation Bank (2018 SCC OnLine Hyderabad 783, Amme Srisailam -vs- Union Bank of India, (2022 SCC OnLine AP 3484) and the judgment of The Hon’ble Punjab & Haryana High Court in the case of M/s. Pal Alloys & Metal India Private Limited (2021 SCC OnLine P&H 2733) has not laid down the correct position of law. However, the decisions of the Hon’ble Andhra Pradesh High Court in Sri Sai Annadhatha Polymers (supra) and Hon’ble Telangana High Court in K.V.V. Prasad Rao Gupta (supra) have laid down the correct position of law while interpreting the amended Section of 13 (8) of the SARFAESI Act. At this stage it would be apposite to refer to the judgment of the Hon’ble Andhra Pradesh High Court in Sri Sai Annadhatha Polymers (supra) wherein considering the amendment of Section 13 (8) of the Act, it was held that post amendment scenario inevitably requires a clear thirty days notice period to be maintained between issuance of the sale notice under Rule 8 (6) of the Rules and the publication of the sale notice under Rule 9 (1) of the Rules thereof as the right of redemption available to the Borrower, in terms of Rule 8 (6) of the Rules, as pointed out in Mathew Varghese (supra), stands extinguished upon publication of the sale notice under Rule 9 (1) of the Rules. (emphasis supplied) In the case of Sri Sai Annadhatha Polymers (supra) notice under Rule 8 (6) was issued on 1.3.2018 and publication of the sale notice in newspaper under Rule 9 (1) was on 3.3.2018. Hence it was held that there is a clear violation of statutory mandate which vitiates the exercise undertaken by the Bank. These findings have been confirmed and affirmed by the Hon’ble Apex Court in the case of Bafna Motors (supra). Hence it is crystal clear that there should be a clear thirty days’ notice period being maintained between the issuance of the sale notice under Rule 8 (6) of the Rules and the publication of the sale notice under Rule 9 (1) of the Rules as right of redemption available to the Borrower in terms of Rule 8 (6) of the Rules stands extinguished on publication of the sale notice under Rule 9(1) of the Rules.

Now, we have examined the facts of the present case wherein the sale notice was issued on 01.07.2011 and date of auction sale was fixed on 17.08.2011.

Hon’ble  Apex  Court,  in  the  case  of  Bafna  Motors (supra), has reiterated the laws laid down in National Spot Exchange Limited -vs- Anil Kohli, Resolution Professional for Dunar Foods Limited [(2022) 11 SCC 761] that :

“102. x x x x where  the law is clear the consequence thereof must follow. The High Court has no option but implement the law. The relevant observations made   in it are being reproduced below: -

"15.1.  In Mishri Lal [BSNL -vs- Mishri Lal, (2011) 14 SCC 739: (2014) 1 SCC (L&S) 387], it is observed that the law prevails over equity if there is a conflict. It is observed further that equity can only supplement the law and not supplant it.

15.2. In Raghunath Rai Bareja [Raghunath Rai Bareja -vs- Punjab National Bank, (2007) 2 SCC 230], in paras 30 to 37, this Court observed and held as under: (SCC pp. 242- 43)

"30. Thus, in  Madamanchi Ramappa -vs- Muthaluru Bojjappa [AIR 1963 SC 1633] (vide para 12) thisCourt observed:

12.... [What is administered in Courts is justice according to law, and considerations of fair play and equity however important they may be, must yield to clear and express provisions of the law."

In Council for Indian School Certificate Examination v. Isha Mittal [(2000) 7 SCC 521] (vide para 4) this Court observed: (SCC p. 522)

‘4.... Considerations  of  equity cannot prevail and donot permit a High Court to pass an order contrary to the law.’

Similarly, in P.M. Latha v. State of Kerala [(2003) 3 SCC 541: 2003 SCC (L&S) 339] (vide para 13) this Court observed: (SCC p. 546)

'13. Equity and law are twin brothers and law should be applied and interpreted equitably but equity cannot override written or settled law.

In Laxminarayan R. Bhattad -vs- State of Maharashtra [(2003) 5 SCC 413] (vide para 73) this Court observed: (SCC p. 436)

‘73. It is now well settled that when there is a conflict between law and equity the former shall prevail.'

Similarly, in Nasiruddin -vs- Sita Ram Agarwal [(2003) 2 SCC 577] (vide para 35) this Court observed: (SCC p. 588)

'35. In a case where the statutory provision is plain and unambiguous, the court shall not interpret the same in a different manner, only because of harsh consequences arising therefrom.'

Similarly, in E. Palanisamy -vs- Palanisamy [(2003) 1 SCC 123] (vide para 5) this Court observed: (SCC p. 127) '5. Equitable considerations have no place where the statute contained express provisions.

In India House -vs- Kishan N. Lalwani [(2003) 9 SCC 393] (vide para 7) this Court held that: (SCC p. 398)

'7. ... The period of limitation statutorily prescribed has to be strictly adhered to and cannot be relaxed or departed from for equitable considerations.’ …

It was held in the case Nasiruddin -vs-  Sita Ram Agarwal [(2003) 2 SCC 577] that when statutory provision is plain and unambiguous, the court shall not interpret the same in a different manner, only because of harsh consequences arising therefrom. Accordingly, provision of Rule 8(6) and 9(1) of the Rules are unambiguous and clear in nature. Interpretation can be made that clear 30 days’ notice under Rule 8(6) of the Rules and thereafter, Rule 9(1) of the Rules should have been issued, which was not done. Accordingly, I am of the considered opinion that there is violation of the mandatory provision of Rule 8(6) and 9(1) of the Rules.

Learned counsel for the appellant submits that learned DRT has erred in interpreting the provision of Rule 9(1) of the Rules. It is submitted that interpretation of the provision of Rule 8(6) of the Rules should be read in a manner that the notice of 30 days for auction sale have to be issued wherein no specific provision is made for mentioning the date, time and place of the auction sale, rather all the details of public auction should be there. It is further submitted that proviso attached to Rule 8(6) of the Rules provides that public notice to be published in two leading newspapers. This is necessary ingredients as provided in the proviso. Learned counsel submits that in view of the provision of General Clauses Act there is no requirement of mentioning the specific date, time and place in the notice.

Rule 8(6) of the Rules in the old Rule is as under :

8(6) the authorized officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5):

Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in the Form given in Appendix IV-A to be published in two leading newspapers including one in vernacular language having wide circulation in the locality by setting out the terms of sale wich shall include –

(a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor;

(b)the secured debt for recovery of which the property is to be sold;

(c)reserve price, below which the property may not be sold; (d)time and place of public auction or the time after which sale by any other mode shall be completed;

(e)deposit of earnest money as may be stipulated by the secured creditor;

(f)any other terms and conditions, which the authorized officer considers it necessary for a purchaser to know the nature and value of the property.

Bare  perusal  of  the  provisions  would  show  that contents of Rules 8(6) and 9(1) of the Rules make it clear that date, time and place of the auction sale should have been mentioned in the notice so that the borrower should know the exact date, time and place of the auction sale. It was held by the Hon’ble Supreme Court in Mathew Varghese (supra) that

The other prescriptions content in the proviso of sub-rule (6) of Rule 8 relates to the details to be set out in the newspaper publication, one of which should be in “vernacular language” with sufficient circulation in the locality by setting out the term of the sale. While setting out the term of the sale, it should content the description of the immovable property to be sold, the known incumbrance of the secured creditor, the secured debt for which the property is to be sold, the reserve price below which the sale cannot be effected, the time and place of public auction or the time after which sale by any other mode would be completed the deposit of earnest money to be made and any other details which the authorised officer considers material for a purchaser to know in order to judge the natural and value of the property.

such a detail procedure while restoring to a sale of an immovable secured asset is prescribed under Rule 8 and 9(1). In our considered opinion, it has got a twin objective to be achieved :

33.1. in the first place, as already stated by us, by virtue of the stipulation contained in sec. 13(8) read along with rules 8(6) and 9(1), the owner/borrower should have clear notice of 30 days before the date and time when the sale or transfer of the secured asset would be made, as that alone would enable the owner/ borrower to take all efforts to retain his or her ownership by tendering the dues of the secured creditor before that date and time.

33.2 Secondly, when such a secured asset of an immovable property is bought for sale, the intending purchasers should know the nature of the property, the extent of liability pertaining to the said property any other encumbrances pertaining to the said property, the maximum price below which one cannot make a bid and the total liability of the borrower to the secured creditor. Since, the proviso of sub-rule (6) also mention any other material aspect should be made known when effecting the publication, it would only mean that the intending purchaser should have entire details about the property bought for sale in order to rule out any possibility of the bidders later on to express ignorance about the factors connected with the asset in question.

33.3 Be that as it may, the paramount object is to provide sufficient time and opportunity to the borrower to take all efforts to safeguard his rights of ownership either by tendering the dues to the creditors before date and time of the sale of transfer, or ensure that the secured asset derives the maximum price and no one is allowed to exploit the vulnerable situation in which the borrower is placed.

In Vasu P Shetty Vs. Hotel Vandana Palace & Ors. [(2014) 5 SCC 660] reliance was placed in the case of Mathu Varghese (supra) wherein it was held that when there was breach of the mandatory provision, the sale should be treated as null and void. Accordingly, I am of the considered view that there was violation of the Rule 8(6) and 9(1) of the Rules. I do not find any irregularity or illegality in the impugned judgement passed by the learned  DRT. Appeal  lacks  merit  and  is  liable  to  be dismissed.

ORDER

Appeal is dismissed. No order as to costs.

File be consigned to record room.

Copy of the order be supplied to the appellant and the respondents and a copy be also forwarded to the concerned DRT.

Copy of the judgement/Final Order be uploaded in the Tribunal’s website.

Order dictated, signed and pronounced by me in the open Court on this the 15 day of May, 2024.