Bank Of Baroda vs Abhinav Mishra And Ors

Bank of Baroda is aggrieved by an order passed by the learned Presiding Officer of Debt Recovery Tribunal, Lucknow (DRT) on 18.1.2016 whereby all its actions taken under the SARFAESI Act for the recovery of public money to the tune of almost half a crore of rupees have been quashed and it was also directed to return the auction money which the auction purchaser had paid to purchase the mortgaged property put to auction by the Bank for recovery of its unpaid loan amount from its defaulter borrower, respondent No. 1 herein. The DRT has also directed the appellant Bank to return back the physical possession of the mortgaged property to the mortgagor, which direction according to the Bank's Counsel was given in ignorance of the fact that the Bank never took physical possession of the mortgaged property and only symbolic possession was taken and also ignoring the fact that the Security Applicants themselves had not even claimed any relief of return of physical possession of the mortgaged property.

Neither the proprietor of borrower Firm, respondent No. 1 herein, nor the guarantor/mortgagor, respondent No. 2 herein who is the wife of respondent No. 1 and not even the auction purchaser, respondent No. 3 herein, have filed any appeal against the impugned order of the DRT and, in fact, the borrower/guarantor/mortgagor, have not even participated in the present appeal hearings despite having been duly served with the notices of the appeal filed by the lender Bank/secured creditor. The auction purchaser, respondent No. 3, however, participated in the appeal proceedings and his only submission was that rate of interest of 5% p.a. allowed by the DRT to be paid to him on the auction money which had been ordered to be returned to him by the appellant Bank was deserved to be increased to 6% p.a.

The undisputed facts are that the appellant Bank had extended financial facilities to the proprietorship Firm of respondent No. 1 and repayment whereof was secured by way of creation of equitable mortgage of one residential property in Lucknow by the husband-wife duo, respondents 1 and 2 herein. Due to default in the repayment of the loan money as per the terms of sanction by the borrower/guarantor the borrower Firm's account was declared as a Non-Performing Account (NPA) by the appellant Bank in March, 2008. The appellant Bank then served statutory demand notice dated 14.8.2013 under Section 13(2) of SARFAESI Act upon the borrower/guarantor to which no representation was made by the borrower/guarantor. The appellant Bank then took symbolical possession of its secured asset in exercise of its power under Section 13(4) of SARFAESI Act on 14.11.2013 and subsequently sold that property by way of e-auction conducted on 3.3.2015 to respondent No. 3 herein who was the highest bidder. Sale was confirmed and sale certificate was also issued in his favour by the Bank. Before the auction was held the respondents 1 and 2 herein had filed a joint application before the DRT under Section 17(1) of the SARFAESI Act challenging the validity of notices under Section 13(2) and (4) of SARFAESI Act issued by the appellant Bank. The same was contested by the appellant Bank on many grounds. The DRT vide its final order dated 18.1.2016 allowed the Securitisation Application (S.A.) of respondents 1 and 2 and quashed the entire recovery proceedings/measures under the SARFAESI Act for the recovery of huge amount of public money and directed the Bank to return the physical possession of the mortgaged property to the mortgagors, respondent Nos. 1 and 2 herein, and also to return the auction money with interest @ 5% p.a. to the auction purchaser, respondent No. 3 herein Shri Harbinder Singh. Feeling aggrieved by this order of the DRT the Bank has come up in appeal.

The relevant part of the impugned order passed by the DRT is re-produced below:

"The applicants have brought out that possession notice was never served as per Rule 8(1), sale notice as per Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 to them. They have also brought out that before auction sale, the valuation of property was not obtained. It is observed from the record that demand notice dated 14.8.2013 is addressed to M/s. Sap Media Factory, proprietor, Shri Abhinav Mishra and according to the postal receipt it was dispatched to the addressee Shri Abhinav Mishra on 16.8.2013. According to the averments made in the Securitization Application, the applicant No. 2 Smt. Priyanka Mishra is also the mortgagor and Guarantor along with applicant No. 1. The demand notice is neither addressed to Smt. Priyanka Mishra nor copy was endorsed to her. It amounts to non-compliance of issuance of demand notice under Section 13(2) of the SARFAESI Act, 2002 to all the borrowers. It is also observed that possession notice is addressed to Shri Abhinav Mishra. It is not addressed to Smt. Priyanka Mishra. Meaning thereby that possession notice was not sent to all the borrowers. It amounts to non-compliance of Rule 8(1) of the Security Interest (Enforcement) Rules, 2002. The sale notice is issued to firm M/s. Sap Media Factory, borrower as well as to applicant Nos. 1 and No. 2. According to the record of Bank of Baroda, the sale notice dated 31.1.2015 was sent to all the addressees, but the postal receipts have not been enclosed suggesting that in compliance of Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 the sale notice was sent to borrower as well as to guarantors. Non-production of postal receipt and absence of signature of addressees on the sale notice creates suspicion about the dispatch of the sale notice to all the applicants.

The applicants have stated that prior to sale of property, the valuation of secured asset was not carried out under Rule 8(5) of the Security Interest (Enforcement) Rules, 2002. In reply to the above averments, the respondent-Bank has submitted valuation report dated 24.1.2015. It indicates that prior to publication of sale notice and publication of e-auction notice, the valuation of property was carried out by the respondent Bank. Thus it appears that Rule 8(5) of the Security Interest (Enforcement) Rules, 2002 was complied with. From the analysis of above facts, it is evident that respondent-Bank failed to comply the Rules 8(1) and 8(6) of the Security Interest (Enforcement) Rules, 2002, hence, sale conducted by the respondent-Bank on 3.3.15 deserves to be quashed.

ORDER

The Securitization Application No. 88/2015 instituted by the applicants is allowed. The entire recovery proceedings initiated by the respondent-Bank under the provisions of SARFAESI Act, 2002 and the Rules made thereunder and all the consequential actions are set aside. The respondent-Bank is directed to restore the physical possession of the secured asset to the applicants within two months from the date of pronouncement of judgment. The respondent-Bank is also directed to return the amount taken from the respondent No. 2/auction purchaser along with interest @ 5% p.a. from the date of taking money till the date of payment."

A perusal of the record of the DRT which was requisitioned for the disposal appeal shows that the Security Applicants themselves had placed on record copies of demand notice under Section 13(2) of them. Therefore, the learned Presiding Officer was not right in observing in his impugned order that these notices were not served upon the borrower (husband) as well as the guarantor (wife). As far as the finding of the learned Presiding Officer that sale notice for sale of mortgaged property was not given to the mortgagors is concerned the same also cannot be sustained. A perusal of the proceedings of 1.3.2015 in the S.A. shows that at that time it had been stated by the Counsel for the respondents herein that the Respondent Bank had issued sale notice on 31.1.2015. Thereafter, within 45 days applicants have instituted and Securitization Application, which is consequent to the earlier action i.e. issue of Demand Notice dated 14.8.2013 and Possession Notice dated 14.11.2013". Thus it had been claimed before the DRT by the Security Applicants themselves that sale notice had been issued on 31.1.2015 and not that they had not received any such notice. In a latter order passed by the DRT on 10.6.2015 while disposing of interim relief application of the S.A. applicants he had noticed the submission made on behalf of the S.A. applicants that "....According to the applicants the sale notice was published prior to service of thirty days notice them". Therefore, the DRT was not justified in giving the finding that no sale notice was given to them and there was violation of Rule 8(6). It is also significant to notice that the appellant Bank had in its reply to S.A. categorically pleaded that sale notices were sent to borrower/mortgagor on 31.1.2015 besides having been published in two newspapers. The S.A. applicants had filed rejoinder in which in Para No. 20 they simply claimed that there was no proof given by the Bank to show that sale notice had been affixed at the mortgaged property and not that did not receive the sale notice. In these circumstances the learned Presiding Officer was not at all justified in setting aside the sale of the mortgaged property in favour of the respondent No. 3 auction purchaser on the ground that the Bank had not placed on record postal receipts suggesting that in compliance of Rule 8(6) the sale notice was sent to borrower as well as to guarantor and non-production of postal receipts created suspicion about dispatch of the sale notice to all the borrowers.

I am, therefore, of the view that the impugned order of DRT cannot be sustained. This appeal is accordingly allowed and the order dated 18.1.2016 passed by the DRT, Lucknow is set aside. The Bank shall now take necessary step to have the possession of the property in question delivered to the auction purchaser.

Record of DRT be returned back along with a copy of this order.