Bank Of Baroda vs M/s Vidushi Stone Crusher & Ors.

JUSTICE R. D. KHARE, CHAIRPERSON

The present appeal has been filed under section 18 of the Securitization and Reconstruction of Financial Asset and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "the SARFAESI Act") against the judgment dated 12.09.2024, whereby the Securitization Application No. 373/2023 filed by the respondents-borrowers has been allowed.

Brief facts of the matter are that respondent no. 1-firm was granted certain credit facilities through its partners respondent no. 2 & 3. In addition to it, a housing loan of Rs.16.00 lacs was granted by the Bank to the respondents no. 2 & 3. In order to secure the said facilities, an equitable mortgage was created by the respondents-borrowers over their properties in question by depositing original title deeds with the appellant-Bank and also hypothecation over the plant and machinery of Stone Crusher as well as other movable assets were created in favour of the Bank. Since the respondents-borrowers did not maintain the financial discipline, therefore, accounts were classified as NPA on 31.03.2019 and a demand notice dated 16.12.2022 was issued u/s 13(2) of the SARFAESI Act in respect of three loan accounts pertaining to the respondent no. 1 for a sum of Rs.1,08,43,079.81 and in respect of the housing loan, the demand notice was issued under the said provision on 19.12.2022 for a sum of Rs.12,49,324.10. Against the said demand notices, the respondents-borrowers filed their objections dated 14.02.2023 u/s 13(3-A) of the said Act, which were rejected by the Bank vide its letter dated 28.02.2023. Since the respondents-borrowers did not pay any heed to the said demand, therefore, the possession notice dated 02.03.2023 u/s 13(4) of the said Act was issued and the same was published in the newspapers. Thereafter, the appellant-Bank issued sale notice dated 13.03.2023 scheduling the auction of the property in question on 27.04.2023.

The respondents-borrowers challenged the entire proceedings of the appellant-bank before the Tribunal below by filing S.A. No. 373 of 2023. Since the said auction could not materialize for want of bidders, therefore, the appellant-Bank issued fresh auction sale notice on 31.07.2023 scheduling the auction of the property in question 23.08.2023, which was challenged by the borrowers by filing amendment application in the said pending S.A.

It appears that during the pendency of the aforesaid S.A., the respondent-Bank obtained an order dated 27.04.2023 from the Additional Collector, Bhopal u/s 14 of the SARFAESI Act, which was also challenged by the borrowers in the aforesaid S.A. by filing amendment application dated 03.05.2023.

It is averred that the appellant-Bank issued another fresh auction notice on 20.05.2024 scheduling the auction on 25.06.2024, which was challenged by the borrowers by filing Appeal Dy. No. 896/2024 before this Tribunal, which was disposed off vide order dated 13.06.2024 with certain directions.

The Tribunal below vide order impugned has set aside the demand notice, possession notice and also the order passed by the Additional Collector, Bhopal dated 27.04.2023 and the appellant-Bank was directed to restore back the physical possession of the house in question with the borrowers and further directed the Bank to adjust Rs.2.50 lacs towards legal expenses in the principal outstanding of the respondents-borrowers and also directed not to charge penal interest on the outstanding dues w.e.f. 18.04.2023 onwards. Being aggrieved by the said order, the present appeal has been filed by the appellant-Bank.

Learned counsel for the appellant-Bank submitted that there was no occasion for the appellant-Bank to prove the service of alleged notices, as no dispute with regard to the same has ever been pleaded in the S.A. filed by the respondents-borrowers. It was further contended that for the housing loan granted in favour of the respondents no. 2 & 3, one Sandeep Baweja stood as guarantor and executed and signed guarantee agreement to secure the same, who was served with the demand notice dated 19.12.2022 and in support of the same, the learned counsel has referred to Annexure No. 8 at page no. 297 and 298 of the paper book. It was also contended that the demand notices were duly served upon the respondents-borrowers, against which they have submitted their representations under Section 13(3-A) of the SARFAESI Act, which was disposed off by the appellant-Bank.

Learned counsel further submitted that the possession notice dated 02.03.2023 was duly served upon the respondents-borrowers, which is admitted in the pleadings of their S.A. and there is no denial of service of the same by the borrowers. It was thus contended that the Tribunal below has wrongly held that the appellant-Bank was required to authenticate the compliance of mandatory provisions of the SARFAESI Act and Rules made thereunder.

Learned counsel also submitted that the appellant-Bank had specifically pleaded in the application u/s 14 of the SARFAESI Act filed before the concerned district authority that the representations made by the borrowers against the demand notices of the Bank were duly disposed off by the Bank, but the Tribunal below has erred in setting aside the order passed by the district authority on the ground that the Bank has wrongly pleaded that no representation was ever made by the respondents-borrowers against the demand notice u/s 13(2) of the SARFAESI Act and it was thus contended that as such, the order impugned to that extent is not sustainable.

Learned counsel further submitted that the physical possession of the secured assets was handed over to the Bank pursuant to the order passed by the Hon'ble High Court. It was thus contended that the Tribunal below has erred in directing the Bank to restore back the same with the respondents-borrowers, hence it was contended that the order impugned to that extent also may be quashed.

It was further contended that at no point of time, the respondents-borrowers had ever disputed the service of notice upon the guarantor Sandeep Baveja, hence it was contended that there was no occasion for the Bank to prove the same upon the said guarantor. It was thus contended that the Tribunal below had erred in setting aside the entire proceedings of the Bank initiated under the SARFAESI Act. It was also contended that Sandeep Baveja was neither party in the S.A. nor service of notices upon him was ever questioned either in the pleadings or during course of the argument. It was thus contended that as such, the Tribunal below on its own motion has questioned the service of mandatory notices upon the said guarantor.

Learned counsel has referred to the order dated 13.06.2024 passed by this Tribunal in Appeal Dy. No. 896/2024, by which the respondents-borrowers had admitted and agreed to repay the entire outstanding dues within three months, failing which the appellant-Bank was left free to proceed with the matter for recovery of its dues, but the Tribunal below did not consider it while passing the order impugned. It was further contended that the Tribunal below vide its earlier orders dated 02.09.2023 and 31.10.2023 had upheld the validity of notices issued u/s 13(2) and 13(4) and directed the borrowers to deposit a sum of Rs.35.00 lacs within two months vide order dated 02.09.2023 and a sum of Rs. 50.00 lacs within 7 days vide order dated 31.10.2023, but without considering these facts, the Tribunal below has allowed the S.A. of the respondents-borrowers and quashed the entire proceedings of the Bank vide order impugned, which is not sustainable in the eye of law. It was, therefore, prayed that the order impugned may be set aside and the appeal filed by the appellant may be allowed.

Learned counsel for the respondents-borrowers submitted that after declaration of the accounts as NPA on 31.03.2019, the respondent-Bank restructured the same vide sanction letter dated 16.11.2019, which was extended up to 31.03.2021 and also granted a credit facility of Rs.14.25 lacs under GECL Scheme of the Govt. of India, which was declared due to COVID-19 pandemic and as such the account had become standard. It was further contended that two demand notices, one against the loan granted in favour of the respondent no. 1 and the another against the housing loan granted in favour of the respondents no. 2 & 3, were issued on 16.12.2022 and 19.12.2022 respectively, but the demand notice dated 19.12.2022 was not served to one of the guarantors namely Sandeep Kumar Baveja, S/o Shri Yogendra Lal Baveja, who had given his guarantee in the housing loan account of the respondents-borrowers.

Learned counsel further submitted that two separate possession notices dated 02.03.2023 was issued, but the same was not served to one guarantor namely Sandeep Kumar Baveja, S/o Shri Yogendra Lal Baveja and as such there is violation of Rule 8(1) of the Rules, 2002. It was also contended that without service of any notice under Rule 8(6) of the Rules, 2002, the appellant-Bank published the auction sale notice on 14.03.2023, which is against the provisions of the Act and Rules made thereunder. It was further contended that after taking symbolic possession of the properties in question, an application dated 31.03.2023 was filed by the appellant- Bank before the District Magistrate, Bhopal u/s 14 of the SARFAESI Act against the respondents as well as Sandeep Kumar Baweja, who was the guarantor in the housing loan and not in the other loan, but without considering this fact, the Addl. District Magistrate, Bhopal allowed the said application vide order dated 27.04.2023 and directed the Tehsildar for taking physical possession of the properties in question, while the Tehsildar is not subordinate to the ADM(F&R), Bhopal.

Learned counsel further submitted that the appellant- Bank could not produce the proof of compliance of Rules 8(1) & 8(2) of the Rules, 2002 while filing the reply dated 19.08.2023 to the S.A. of the respondents-borrowers and even failed to prove the service of possession notice to Sandeep Kumar Baweja.

Learned counsel also submitted that against the auction sale notice dated 20.05.2024 and its publication dated 21.05.2024, the respondents-borrowers filed an amendment application along with stay application on 28.05.2024 in the pending S.A., but without considering the amendment application, the Tribunal below rejected the interim application of the respondents-borrowers on the ground that the orders dated 02.09.2023 and 31.10.2023 passed by the Tribunal below have not been complied with by the borrowers, but the same was challenged by the borrowers by filing an Appeal Dy. No. 896/2024 before this Tribunal, which was disposed off vide order dated 13.06.2024 with direction to deposit Rs.10.00 lacs today and Rs. 10.00 lacs prior to the date of auction and the remaining amount of auction notice within three months by granting status quo and further directed the Tribunal below to dispose off the S.A. within four months.

Learned counsel has referred to page no. 299 of the memo of appeal, which is copy of tracking report and has stated that the demand notice sent to Sandeep Kumar Baweja was returned back to the Bank and as such, the respondent-Bank has failed to comply the provisions of proviso to Rule 3(1), 3(3) & 3(4) of the Rules, 2002. It was thus contended that the Tribunal below has rightly quashed the demand notices issued by the Bank vide order impugned.

It was lastly canvassed on behalf of the respondents-borrowers that the borrowers have complied with the order passed by this Tribunal, which was subsequently affirmed by the Hon'ble Madhya Pradesh High Court and deposited Rs.40.00 lacs against the remaining dues of Rs.43,28,382.70 as calculated by the appellant-Bank before the Hon'ble High Court pursuant to the order impugned passed by the Tribunal below. It was, therefore, prayed that the appeal filed by the appellant may be dismissed and the Bank may be directed to release the original title documents of the secured assets in favour of the respondents-borrowers.

Having heard the learned counsels for the parties and considering the material available on record, undisputedly, various credit facilities were granted by the Bank, which were availed by the respondents-borrowers.

It is to be seen that after declaration of the accounts on 31.03.2019, two demand notices were issued by the Bank to the borrowers on 16.12.2022 and 19.12.2022 respectively. Copies of the said notices are at page no. 82 to 87 of the memo of appeal. The said notices are addressed to the respondents, but the same have been quashed by the Tribunal below vide order impugned on the ground that the same were not sent to the guarantor namely Sandeep Kumar Baweja. In this regard, the contention of the learned counsel for the appellant-Bank is that since Baweja was not party in the S.A. before the Tribunal below, therefore, there was no occasion for the Bank to produce the said notice and proof of its service, but the Bank has produced the demand notice before this Tribunal along with the tracking report pertaining to Sandeep Kumar Baweja, copies of which are at page no. 297 to 299 of the paper book. There is a tracking report at page no. 299 of the paper book, which shows that the said notice was sent to Mr. Baweja, but it was returned back with the remark "addressee left without instruction". As such, the contention of the appellant that the demand notice was served upon Mr. Baweja is incorrect. It is also to be noted that these demand notices were issued in the year 2022 showing that the loan accounts had become NPA in the year 2019, but the accounts were restructured by the Bank vide sanction letter dated 16.11.2019, which was extended up to 31.03.2021 and in the year 2022, a GECL loan of Rs.14,25,000/- was also granted to the borrowers by the Bank. As per the said scheme, the loan was to be granted by the Bank to the borrowers, whose accounts were going to become NPA during the period of COVID-19 pandemic, therefore, in my opinion, the said loan was granted by the Bank for survival and saving his account from becoming NPA, but the present demand notice was issued taking the earlier date of NPA as 31.03.2019, which is prior to restructuring of the said accounts and sanctioning of the GECL loan, meaning thereby, the demand notices were issued against the standard account. On the other hand, the appellant-Bank has also not controverted the finding of the Tribunal below that the issue raised by the borrowers in their representation u/s 13(3-A) of the SARFAESI Act with regard to the excess charging of interest was not properly decided by the Bank. Hence the Tribunal below has rightly quashed the demand notice of the respondent-Bank vide order impugned.

So far as the compliance of Rule 8(1) and 8(2) of the Rules, 2002 is concerned, two possession notices were issued on 02.03.2023, copies of which are at page no. 119 & 120 of the paper book. The said notice was affixed and published in two newspapers, copies of which are placed from page no. 192 to 199. The page no. 192, 193, 194 & 195 are the affixation of the said notices. The said affixations only contain the photograph of some persons, but from these affixations it is not clear, on which date and place the same was affixed, thus the affixation of the possession notices at the properties in question does not appear to be proper. The possession notice was published in the newspapers on 07.03.2023 and 08.03.2023, copies of which are at page no. 196 to 198, but the appellant has not filed any postal receipts or documents, which may show that the said possession notice was ever served upon the respondents-borrowers. Thus there is clear violation of Rule 8(1) of the Rules, 2002. Since Rule 8(1) has not been found to have been complied with on the part of the appellant-Bank, therefore, compliance of Rule 8(2) of the said Rules does not matter. Hence, the Tribunal below has rightly quashed the possession notice dated 02.03.2023.

Since the demand notice as well as possession notice is held to be defective, therefore, the order dated 27.04.2023 passed by the Addl. Collector (Uttar), Distt. Bhopal u/s 14 of the SARFAESI Act has become redundant on this ground alone. However, the Tribunal below has dealt with the said order in detail and quashed the same vide order impugned, which requires no interference by this Tribunal.

The contention of the appellant that the Tribunal below vide its earlier interim orders dated 02.09.2023 and 31.10.2023 had held the process of the Bank to be valid with regard to the demand notice, possession notice and even the order passed by the District Magistrate u/s 14 of the SARFAESI Act, but by passing the order impugned has set aside the entire proceedings of the Bank is not tenable, because any observations made during considering the interim application are of the prima facie appearance of the facts, which cannot be taken into consideration while deciding the case finally on merits.

So far as the quantum of the amount payable by the respondent-borrower to the appellant-Bank is concerned, it is to be seen that this Tribunal vide order dated 13.05.2025, the relevant portion of the same is as under:-

It appears that the aforesaid order of this Appellate Tribunal was challenged by the appellant-Bank before the Hon'ble High Court by filing Miscellaneous Petition No. 2621 of 2025, which was disposed off vide order dated 20.05.2025. In para 3 of the said order, the appellant-Bank has stated "in terms of the direction issued by this Court, the Petitioner has calculated the amount that would be payable as per the Debts Recovery Tribunal's Order and the same is Rs.43,28,382.70 against which the respondents-borrowers had undertaken to deposit Rs.40.00 lacs within a maximum period of three months, accordingly the same was deposited by the borrowers with the appellant-Bank". The Tribunal below vide order impugned had directed the appellant that the Bank shall not charge the interest after 18.04.2023. As per the calculation submitted by the appellant-bank before the Hon'ble High Court, as on 27.04.2023, the total dues as per DRT order was Rs.43,28,382.70 against which the appellant has already deposited Rs.40.00 lacs on the dates as scheduled by the Hon'ble High Court vide its order dated 20.05.2025. Thus the amount remains to be paid as Rs.3,28,382.70 as per the order impugned.

So far as the contention of the appellant-Bank that as on date the total outstanding as per Bank's calculation is Rs.1,48,59,301/-, is concerned, it is stated that the Tribunal below vide order impugned has allowed the interest payable to the Bank up to 18.04.2023 by giving cogent and justifiable reasons, which require no interference by this Tribunal. No doubt, bank can claim the interest, which is settled at the time of advancing the loan till the closure of the same. But in case of the account being NPA, the contract executed between the bank and the borrower comes to an end and no terms and conditions of the said agreement can prevail in future, when recovery suit is filed before any Court of law or the recovery proceedings are initiated by the Bank in accordance with law. Further, once the demand notice has been issued by the Bank u/s 13(2) of the SARFAESI Act claiming the amount including the contractual rate of interest, then it is the discretion of the court to award the compensation by way of interest in addition to the principal amount. In the present case, the demand notice was issued along with the amount of interest and the fact that after issuance of demand notice, the appellant-Bank has been allowed by the Tribunal below vide order impugned to charge the contractual rate of interest upto 27.04.2023, which was accordingly calculated and the same was submitted before the Hon'ble High Court and against the said calculated amount of Rs.43,28,382.70, an amount of Rs.40.00 lacs has already been deposited by the respondents-borrowers with the Bank on the dates as scheduled by the Hon'ble High Court vide order dated 20.05.2025, which in my opinion is just and proper. In this regard, the Hon'ble Supreme Court has held in its judgment passed in Central Bank of India Vs. Ravindra and Ors., (2002) Supreme Court cases 367 as under:-

Thus the contention of the appellant-Bank that as on date the total outstanding as per Bank's calculation is Rs.1,48,59,301/- is not tenable in view of the judgment passed by the Hon'ble Apex Court as referred to above, as the interest allowed by the Tribunal below vide order impugned up to 18.04.2023 is just and proper.

In view of the discussions as recorded above, the order impugned does not call for any interference by this Tribunal and the appeal filed by the appellant is dismissed with no order as to costs. However, the respondents-borrowers are directed to pay the remaining amount of Rs. 3,28,382.70 with the Bank within 15 days from today. In case the respondents-borrowers deposit the said amount with the Bank within the stipulated period, the appellant-Bank shall release all the documents including the title deeds in respect of the properties mortgaged in favour of the respondents-borrowers within 15 days thereafter, if there is no other legal impediment in doing so. In case of non-compliance of this order, the appellant-bank would be free to proceed further for its recovery in accordance with law from the stage of issuance of fresh demand notice after adjusting the amount already deposited by the respondents-borrowers.

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.