Bank of India vs Keshavlal Khemchand & Sons Pvt. Ltd & Ors

Ashok Menon, Chairperson

The Appellant Bank of India impugns the judgment dated 22/01/2016 in Securitisation Application (SA) No. 4 of 2016 on the files of Debts Recovery Tribunal-I, Ahmedabad (‘DRT’ for short) under section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’ for short).

The facts and brief are thus:

The 1st Respondent is a company engaged in the jewellery business in Ahmedabad, and the rest of the Respondents are its directors. The Respondents approached the Bank for credit facilities from time to time. To secure the facilities, they executed and delivered necessary security documents, including creating an equitable mortgage with regard to the secured assets in favour of the Appellant. The repayment of the loan was defaulted, as a result of which the debt was classified as non-performing assets as per the RBI norms. A demand notice was issued to the Respondent under section 13 (2) of the SARFAESI Act demanding payment of the amount within 60 days. The Respondents failed to pay, and in consequence, possession of the property was taken invoking the provisions under section 13 (4) of the SARFAESI Act.

The Respondents approach the DRT for relief under section 17 of the SARFAESI Act. It was contended that the classification of debt as NPA was not in accordance with the guidelines of the RBI. Notices under sections 13 (2) and (4) are required to be issued to all borrowers including mortgagors and guarantors. However, no notice was issued to the Respondents and thus violating the provisions of the SARFAESI Act. Moreover, the description of the secured assets is required to be given in the notice but in the instant case, no such descriptions were given which again disqualifies the notice. The Sarfaesi measures initiated by the Bank are therefore flawed. It is also the Respondents' contention that no security interest was created in favour of the Bank. Although the 1st Respondent company had made a representation/raised an objection to the demand notice, the Bank did not respond to it as is required under section 13 (3 A) of the SARFAESI Act. Under the circumstances, the Respondents would contend that the entire Sarfaesi measures initiated by the Bank are faulty and unsustainable and therefore, requires to be quashed and set aside.

Per contra, the Appellant bank contested the SA by stating that none of the provisions of the SARFAESI Act has been violated by the Bank. Notices were served on all the borrowers/guarantors and in response to that, a reply was also sent by the 1st Respondent which was responded to by the Bank under section 13 (3A) of the SARFAESI Act. The Appellant bank, therefore, sought a dismissal of the SA. The Ld. Presiding Officer, in the absence of specific particulars, refused to accept the contention that the classification of the debt as NPA was not in accordance with the RBI guidelines. Regarding the service of notice under section 13 (2) of the SARFAESI Act, the Ld. PO found that the acknowledgment card produced by the Bank evidencing the service of notice on the first Respondent is seen accepted by one Mr. Salim and not by the 2nd Respondent. The argument of the Ld. counsel for the Applicants that no person named Salim was ever authorized to receive notice on behalf of the first Respondent, and therefore, there was no valid service of the demand notice on the Respondents was accepted. The Ld. PO observed that the demand notice under section 13 (2) of the SARFAESI Act was not served on the proper person and therefore, the service of notice was flawed. The other objection taken to the Sarfaesi measures by the Respondents was that the 1st Respondent company had raised an objection to the demand notice under section 13 (2) which was never responded to by the Bank as was required under section 13 (3A) of the SARFAESI Act. The contention of the bank that a reply was sent to the Respondents on 12/09/2014 was not accepted because there was no evidence that the said reply was communicated to the Respondents. Consequent to that finding, the Ld. PO allowed the SA to hold that the Sarfaesi measures initiated by the Appellant bank were vitiated and needed to be quashed.

None of the Respondents appeared despite being served with notice and hence they were set ex parte. The learned counsel for the Appellant was heard and records were perused.

The learned counsel for the Appellant draws the attention of this Tribunal to the fact that the very same Respondents had earlier filed SA No. 240/2015 before the Debts Recovery Tribunal-III Mumbai challenging the Sarfaesi measures initiated against them by the Appellant bank. The secured assets consisted of two flats located in Delhi, 7 plots in the state of Gujarat, and a flat and office located at Goregaon, Mumbai. The physical possession of the properties in Delhi was handed over voluntarily. The Respondents had sought interim relief to halt the proceedings against the property situated in Mumbai but the DRT refused to grant any relief in the aforesaid SA filed in Mumbai. It is submitted that more than ₹ 21.59 crores are due to the Bank and that the collateral security provided is hardly worth ₹ 8 crores. It is submitted that notice was served on the 1st Respondent company which was accepted by one of the employees of the company and the other Respondents were also served at the addresses provided. Publication, as required under rule 8 of the Security Interest (Enforcement) Rules, was also made in English as well as in vernacular newspapers. Hence it is prayed that the impugned judgment may be set aside and the appeal allowed.

The Respondents had filed SA No. 240/2015 before the DRT at Mumbai based on the very same demand notice dated 14/07/2014. There was no objection raised regarding the nonreceipt of the demand notice and the DRT at Mumbai had even refused to grant any relief. Notice has been sent to the Respondents at their correct address by registered post. Section 27 of the General Clauses Act gives rise to a presumption that the service of notice has been affected when it is sent to the correct address by registered post. In view of the said presumption, when stating that the notice has been sent by registered post to the address of the drawer, it is unnecessary to further aver in the complaint that in spite of the return of the notice unserved, it is deemed to have been served or that the addressee is deemed to have knowledge of the notice. In the instant case, there is no averment that the address in which the notice was sent to the Respondents is not correct. After having received a notice, the Respondents did admittedly respond to that, which would suggest that they were aware of the notice. The Respondents did not thereafter take any action under the SARFAESI Act questioning the Sarfaesi measures but instead even surrendered the Delhi property for being sold. Possession of the properties was taken consequent to the orders passed by the District Magistrate. The Respondents had offered to settle the dues. Under the circumstances, it has to be held that even if the Respondents had any statutory right to question the notice and the right to receive a reply to the response they had made to the notice, the statutory right can be waived by implied conduct (ARCE Polymers Private Ltd. vs. Alphine Pharmaceuticals (P) Ltd. (2022) 2 SCC 221 relied upon)

Under the circumstances, I find that the Ld. PO was not justified in allowing the Securitisation Application bringing the security measures to halt. The appeal is allowed in the impugned judgment in SA No. 4/2016 dated 22/01/2016 on the files of DRT-1, Ahmedabad is set aside and the SA stands dismissed.

The appeal is allowed as above.