Bank Of India vs Punjab Milkchem Ltd.

S.N.H. Zaidi, J

These appeals have been directed against the order dated 16.9.2011 of DRT-I, Chandigarh whereby S.A. No. 6/2008 filed by M/s. Punjab Milkchem Ltd. and its Directors Mr. H.S. Thapar and Ms. Anita Thapar has been allowed and the sale certificate issued in favour of M/s. Spinoff Technopark Pvt. Ltd. has been set aside and Bank of India has been directed to refund the sale price with interest @ 8% p.a. to the said auction purchaser, which has also been directed to restore the possession of the property in question to the S.A. applicants. Both these appeals are being disposed of by a common judgment. The factual matrix of the case, in brief, is that Bank of India had granted various credit facilities in 1998 to the tune of Rs. 3,06,00,000/- to M/s. Punjab Milkchem Ltd. on execution of loan documents, personal guarantee of its Directors H.S. Thapar and Ms. Anita Thapar and creation of equitable mortgage of the properties of the borrower company as well as of the guarantors in its favour. On continuous default in repayment of the loan, the Bank recalled the facilities and filed O.A. No. 668/2002 for the recovery of Rs. 4,97,84,325/-. During its pendency, the Bank issued a demand notice dated 3.12.2003 under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act) claiming an amount of Rs. 5,76,79,192/-. The guarantor H.S. Thapar sent letter/representation dated 25.5.2004 to the Bank qua the demand notice which was rejected by the Bank, vide intimation dated 2.12.2004.

The Bank took physical possession of the mortgaged property on 25.9.2007 and issued possession notice to the borrower/mortgagors besides publishing in the newspapers and affixing on the property. It also proceeded to sell that property and issued notice for its sale and published it in the newspapers. The borrower company and its Directors challenged the actions of the Bank taken qua the property in question by filing the S.A. before the DRT mainly on the ground that the said property is an agricultural land to which the provisions of the SARFAESI Act do not apply. The DRT declined to grant any interim relief qua which an appeal was preferred and this Tribunal restrained the Bank from issuing the sale certificate on deposit of Rs. 20 lacs. However, since the auction could not succeed as no bid was received, the amount was not deposited and the appeal was ultimately dismissed.

The Bank issued another notice for the auction sale of the property on 29.9.2008, which was published in the newspapers on 26.8.2008. The auction was accordingly conducted on 29.9.2008 and the highest bid of M/s. Spinoff Technopark Pvt. Ltd. for Rs. 252.11 lacs was accepted. On deposit of the bid amount, the sale was confirmed and sale certificate was issued to the auction purchaser. The possession of the property was also handed over to it.

An application for impleadment of the auction purchaser and for amendment to bring the post-sale facts on record was moved by the S.A. applicants. The DRT allowed the impleadment but declined the amendment, which was assailed in appeal and this Tribunal, vide order dated 4.2.2011 passed in Inward No. 45/2011, allowed the amendment subject to deposit of cost with the Bank. A Local Commissioner was appointed by the DRT to ascertain the factual nature of the property in question as to whether or not it was an agricultural land. The Commissioner, vide report dated 6.4.2011, said that the property was not used for the purposes of agriculture. The Tribunal below has, however, allowed the S.A. by the order impugned, on the grounds that (i) the Bank had failed to discharge its statutory obligation under Section 13(3-A) of the SARFAESI Act in communicating the reasons for not accepting the representation/objection of the borrower within the given period of seven days; (ii) the Bank had failed to comply with the requirement of Rule 8(1) of the Security Interest Enforcement Rules, 2002 (for short, the Enforcement Rules); and (iii) the mortgaged property of S.A. applicant No. 3 (Ms. Anita Thapar) was an agricultural land to which the provisions of the SARFAESI Act do not apply as per Section 31(i) of the SARFAESI Act and set aside the sale certificate issued in favour of the auction purchaser with certain directions as have been stated above. Feeling aggrieved with the above findings and the directions, both the secured creditor Bank as well as the auction purchaser have filed the instant appeals against it.

I have heard the arguments of Mr. R.K. Dhawan for the Bank as well as of Mr. Sanjiv Kakra for M/s. Spinoff Technopark Pvt. Ltd., the auction purchaser and despite opportunity the respondents or their Counsel did not turn up for the same. The respondents were also given the liberty to file the written submissions, but they did not choose to avail the same as well.

I have given my considered thoughts to the submissions of the learned Counsel for the appellants and perused the record. The learned Tribunal below while considering the rival contentions of the parties had framed the following points for determination:

(i) Whether the demand notice under Section 13(2) of the SARFAESI Act was not served upon the applicant No. 1 company as alleged due to which the applicant company has been deprived of from making representation under Section 13(3A) of the SARFAESI Act?

(ii) Whether representation dated 25.5.2004 (Ann. F) sent by the applicants Nos. 2 and 3 was not disposed of as required under Section 13(3A) of SARFAESI Act?

(iii) Whether possession taken by the respondent Bank and completion of sale thereafter is in compliance of the Rules, 2002, more particularly (a) service of valuation report on the applicants before putting the property in question to sale, (b) service of possession notice as provided in Rule 8(1) of the Rules, 2002 and publication thereof in two leading newspapers, one in vernacular language, having sufficient circulation in that locality as provided in Rule 8(2) of the Rules, 2002?

(iv) Whether bid amount has not been paid by the respondent No. 2/auction purchaser in terms of Rule 9 of the Rules, 2002?

(v) Whether the properties belonging to applicants, is agricultural land and exempt under Section 31(i) of SARFAESI Act?

It has decided point II fully and points III and V in part in favour of the S.A. applicants whereas points I and IV have been decided against them. No appeal qua the findings on point I and IV has been filed by any party.

So far as finding qua point II is concerned, it is pertinent to note that the SARFAESI Act was amended by Act No. 30 of 2004 and Sub-section (3-A) was inserted in Section 13 by the said Act. which came into force from 11.11.2004. The new Sub-section (3-A) had provided that, "If on receipt of the notice under Sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower." It had made the communication of reason of non-acceptance of the representation/objection mandatory on the part of the secured creditor within one week of the receipt of such representation/objection to the borrower. The period of "one week" has now been substituted by "fifteen days" by Act No. 1 of 2013 with effect from 15.1.2013. Thus, prior to the insertion of the said Sub-section (3-A), the secured creditor was under no legal obligation to communicate the reasons of non-acceptance of the representation to the borrower, what to say of communicating such reasons within any specified period. It is, therefore, clear that when on 25.5.2004 the guarantor H.S. Thapar had sent a letter/representation to the secured creditor Bank qua the demand notice dated 3.12.2003, the Bank was not legally bound to communicate the reasons for its non-acceptance to him within seven days. The Bank had, however, replied to that representation, vide its letter dated 2.12.2004, detailing the reasons of non-acceptance. The finding of the learned Tribunal below that since the reply letter was sent after about six months whereas in Section 13(3-A) the use of word 'shall' indicates that it was mandatory to communicate the reasons within seven days from the date of receipt of representation, as such the Bank had failed to discharge its statutory obligation under the said provision, is not in conformity of the then prevailing law. I am in agreement with the contention of Mr. Kakra that the learned Tribunal below while taking the above view has completely lost sight of the fact that the provision of Section 13(3-A) was not in existence on 25.5.2004 when the borrower/mortgagor Mr. H.S. Thapar had sent the letter/representation to the Bank, as such the Bank was not obliged to send any reply to him. The application of the provisions of Section 13(3-A) was not retrospective and it became effective only from 11.11.2004. The finding of the learned Tribunal below on this point is, therefore, erroneous and cannot be sustained.

Point III, as stated above, relates to two issues, viz., (a) whether the possession of the mortgaged property was taken by the Bank in accordance with Rule 8 of the Enforcement Rules, and (b) whether the sale was conducted in compliance of those Rules. The contention in respect of issue (b) was that the valuation report of the property in question was not sent to the borrowers before it was put to sale and no opportunity was given to them to object or rebut that report and the reserve price of the property. The learned Tribunal below has rightly not accepted this contention as, according to it, the Enforcement Rules do not provide for sending or tendering the valuation report by the authorised officer to the borrower or for consulting him before fixing the reserve price, as such there was no violation of any rule with regard to the fixation of the reserve price or conducting the sale of the property. This finding has not been assailed by any party.

The learned Tribunal below has, however, observed in respect of issue (a) that as per the Bank's case, possession notice was sent through Registered Post but since no postal receipts or undelivered envelopes with any remark of the postal authorities had been placed on record and there was nothing on record to show that the possession notice was affixed on any conspicuous part of the mortgaged property, therefore, the possession notice was not served upon the borrower in accordance with Rule 8(1) of the Enforcement Rules. Relying upon the judgment of the Orissa High Court in Gobinda Chandra Patnaik v. Presiding Officer, DRT, Cutttack, passed in W.P. (C) No. 1468/2009, it has also observed that the compliance of the Rule 8 was mandatory. The contention of both Mr. Dhawan and Mr. Kakra in this regard is that the requirements of the said Rule 8(1) was fully complied with by the authorised officer of the Bank before proceeding with the sale of the property and the possession notice was affixed upon the property stating that the property was mortgaged in the account of M/s. Punjab Milkchem Ltd., and it was under the possession of the Bank. Mr. Kakra has pointed out to a photograph of the notice affixed on the property (page 80) in support of this contention. The learned Tribunal below has found that the possession notice was duly published in the newspapers as per the requirement of Rule 8(2) of the Enforcement Rules but observing that the compliance of Rule 8(2) would not outshine the requirement of Rule 8(1), has held that the Bank has failed to comply with Rule 8(1) thereof. The main purpose of delivering the possession notice to the borrower and affixing it on the outer door or at the conspicuous place of the property as well as to publish in two newspapers, including one in vernacular language, is to notify to the borrower in particular and the public in general that the possession of the property has been taken and to caution them to desist from dealing with that property and any dealing qua that property would be subject to the charge of the creditor. The notice affixed at the property, as shown in the photograph, in my opinion, was giving the said message in very clear terms. As such, the finding of the Tribunal below that the Bank had failed to comply with the Rule 8(1) of the Enforcement Rules is contrary to the facts and not tenable.

The physical possession of the property in question was taken by the Bank on 26.9.2007 and the possession notice was duly published in the newspapers under Rule 8(2) of the Enforcement Rules as has been held by the Tribunal below. The borrower/guarantors had filed the S.A. on 7.1.2008, i.e., much after the expiration of the limitation period of 45 days from the date of notice dated 17.10.2007. In my opinion, since taking of possession, whether symbolic or physical, is one of the measures envisaged under Section 13(4) of the SARFAESI Act, therefore, if the borrower/guarantors were aggrieved with that measure then the application under Section 17(1) of the SARFAESI Act should have been filed within 45 days from the date on which the measure of possession was taken, whereas in the instant case, it has been filed much beyond that period, as such the borrower's challenge qua the measure of possession is barred by limitation. It cannot be believed that the S.A. applicants were not aware as to when the physical possession of the property in question was taken from them by the authorised officer of the Bank. The Tribunal below has not considered this aspect of the matter while taking the view that the Bank had acted in contravention of the provisions of the rules. The said finding, therefore, cannot be accepted.

The DRT, while deciding point V above against applicant No. 2 (Mr. H.S. Thapar), has held that the mortgaged properties of applicant No. 3 (Ms. Anita Thapar) were agricultural land to which provisions of the SARFAESI Act did not apply in view of Clause (i) of Section 31 of the said Act. Mr. Kakra has pointed out that against the total mortgaged land measuring 24 bighas 1 biswa of both Mr. H.S. Thapar and Ms. Anita Thapar, only 6 bighas of land bearing Khasra Nos. 32/1 (1 bigha 10 biswa). 435/29 (1 bigha 15 biswa), 437/31 (2 bighas) and 32 (15 biswa) situate in village Ramnagar alias Saunti, Tehsil Rajpura, District Patiala was in the name of Ms. Anita Thapar who besides being the Director of the borrower company was also the wife of the other Director and had stood as a guarantor for the repayment of the loan amount. He has further submitted that a huge plant for producing milk products was set up with the permission of the Punjab Urban Planning and Development Authority (PUDA), vide NOC dated 11.12.1996, on that land which was surrounded on all the four sides by a boundary wall with a gate on one side. It was contended by him that the application for setting up the milk plant was given qua the entire 24 bigha 1 biswa land and after the setting up of the plant on that land its character had been changed and it ceased to be an agricultural land. He also pointed out that the borrower/guarantor in his representation/letter dated 25.5.2004 sent qua the demand notice had not taken the plea that the land in question, including that of Ms. Anita Thapar, was an agricultural land or was used as such.

Mr. Kakra also pointed out that the Local Commissioner (Ms. Harpreet Kaur) appointed by the DRT, vide order dated 29.3.2011, on the request of the S.A. applicants for preparing the map of the properties in question showing the boundaries of each Khasra number and location of the constructions and also for demarcating the land used for agriculture purposes, had said in her report dated 6.4.2011, Annexure-K, (pages 281-302) that land Khasra No. 435/29 (1 bigha, 15 biswa) was being used as factory since 13.10.2002, whereas lands Khasra No. 437/31 (2 bigha) and 32/1 were earlier used as agricultural land but after 3.3.2008 were used as factory. He further pointed out that she had reported that two security rooms were constructed on each side of the gate and there was a proper tarred road connecting the buildings constructed on both sides of the road and while factory was on the right side of the road and the rest of the land on the right side was covered with bushes, there was a godown on the left side and rest of the land on the left side was covered with bushes. Mr. Kakra also pointed out that she had taken the photographs of the land and factory which did not show any agricultural use of the land and her ultimate conclusion was that the land in question was not an agricultural land and it was not used for the said purpose. According to him, the Tribunal below has grossly erred in not taking account the Commissioner's report while deciding the nature of the land of applicant No. 3. The perusal of the order impugned shows that the DRT, merely on the basis of the alleged entries in the land record, viz., Jamabandi for the years 2002-03 and 2006-07 and Khasra Girdawri and observing that Khasra No. 435/29 was recorded as 'gair mumkin' and other Khasra numbers as 'chahi' and there were entries of crops on them, has held that the Khasra numbers belonging to applicant No. 3 were used for agricultural purposes till its possession was taken over by the respondent Bank. The copy of Jamabandi for the year 2006-07 as well as Khasra Girdawri (pages 288-291), annexed with the Commissioner's report, however, do not show any agricultural use of the land. There is also no entry of any crop in Khasra Girdawri on any Khasra numbers of Smt. Anita Thapar and it shows the entry of Milk Factory on all the numbers of both Ms. Anita Thapar and H.S. Thapar. These documents contradict the above finding of the DRT. I am in full agreement with the contentions of the appellants' Counsel that the Tribunal below has committed error in ignoring the Commissioner's report while forming the view about the nature of the land of applicant No. 3. The said report, which was not disputed by any party, was duly supported by the photographs showing the nature of the property in question. In my opinion, it is sufficiently established from the evidence on record that the land of the applicant No. 3 was also not an agricultural land. The finding of the Tribunal below in respect of point V being contrary to the evidence on record is, therefore, not sustainable. In view of the foregoing discussion, both the appeals are allowed and the order impugned allowing S.A. No. 6/2008 and setting aside the sale certificate of the property in question and the consequent directions are set aside and the said S.A. is dismissed. Parties to bear their own cost of the S.A. and appeals.

Copy of this order be furnished to the parties as per law.