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Judgment
R. S. Kulhari, Chairperson
Both the appeals have been preferred under section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "the SARFAESI Act") against the order dated 29.07.2019 passed by the Tribunal below, which are being decided by this common order, as the facts and issues involved in both the cases are similar.
The facts of the matter as taken from the Regular Appeal No. 18/2020 filed by the Bank are, that the respondent no. 1-company was granted certain credit facilities by the appellant-Bank through its directors. In order to secure the loan, the respondents No. 1 to 3-borrowers mortgaged the land and building and other assets of the company. The respondents No. 2 and 3 stood as guarantors in their personal capacity. The borrowers did not repay the loan in terms of the agreement, hence the Bank issued the demand notice dated 22.01.2009 under section 13(2) of the SARFAESI Act for a sum of Rs. 1,36,31,105/-. In response to the said notice, the borrowers submitted the objection/representation before the Bank under section 13 (3-A) of the SARFAESI Act on 23.03.2009, but without deciding the representation, the Bank issued possession notice dated 18.03.2009 under section 13 (4) of the SARFAESI Act within 60 days from the date of demand notice.
The borrowers challenged the possession notice issued by the Bank before the Hon'ble High Court by filing writ petition No. 11894 of 2009, which was dismissed vide order dated 22.12.2009 on the ground of alternative remedy directing the Bank to decide the objection of the borrowers in accordance with law expeditiously. Thereafter, the Bank decided the representation of the borrowers vide order dated 22.01.2010, whereas the fresh possession notice under section 13 (4) of the SARFAESI Act was issued on 05.01.2010 and published in two Newspapers in English language. The borrowers challenged the possession notice dated 05.01.2010 issued by the Bank by filing the present S.A. on 05.03.2010 before the Tribunal below seeking quashing of the same.
During the pendency of the S.A., the Bank issued/published the sale notice on 29.12.2010 scheduling the auction on 04.02.2011 and the property was sold for Rs. 1.42 crores. After deposit of sale price, the sale certificate dated 10.02.2011 has been issued and the sale deed has also been executed in favour of the auction purchaser 10.02.2011.
The borrowers filed an application for impleadment/amendment in the pending S.A., which was allowed and accordingly, the amended S.A. was filed on 30.09.2013. The objection/reply to it was also filed by the Bank.
The Tribunal below vide impugned order allowed the S.A. setting aside the possession notices dated 18.03.2009 and 05.01.2010 as well as the subsequent proceedings conducted by the Bank on the ground that the Bank has not complied with the provisions of statute and directed the Bank to return the sale price to the auction purchaser along with interest @ 8% simple from the date of deposit till the payment. Further, the Bank was advised to proceed afresh against the borrowers by issuing fresh demand notice in accordance with law. Being aggrieved by the said order, the Regular Appeal No.18/2020 has been filed by the Bank and the Appeal Dy. No. 262/2019 by the auction purchaser.
Learned counsel for the Bank submitted that no prejudice was caused to the borrowers by issuing the possession notice on 5.1.2010. The same was published in Hindi Newspaper as well as in English Newspaper, so it does not make any difference, if the English language was used in both the publications.
Learned counsel for the auction purchaser submitted that after the order of the Hon'ble High Court, the Tribuanl below was not supposed to record any finding on the issue of deciding the representation. Earlier possession notice dated 18.03.2009 was not withdrawn, hence the same remained survived. It was not challenged by the borrowers in the S.A., therefore, the sale be treated to have been conducted in furtherance of the earlier possession notice, which was set aside by the Tribunal below without pleading. Now the sale deed has been executed in favour of the auction purchaser, therefore, the sale has become absolute. As such the Tribuanl below has erred in setting aside the sale.
On the contrary, the learned counsel for the borrowers contended that the possession notice dated 18.03.2009 was issued within 60 days from the date of the demand notice dated 22.01.2009, therefore, it was bad in law. The second possession notice was issued on 5.1.2010 before decision on the representation in compliance of the order passed by the Hon'ble High Court, which was decided on 22.01.2010. Hence, the possession notice was issued in utter disregard to the provisions of the statute. The same was not published in vernacular language, therefore, it was rightly set aside and because of these defects, all the subsequent proceedings were liable to be set aside in view of the judgment passed by the Hon'ble Orissa High Court in Swastik Agency and others Vs. State Bank of India, Bhubaneswar and others, AIR 2009 Orissa 147.
Having heard the learned counsels for the parties and on perusal of record, it is evident that the demand notice was issued on 22.01.2009, whereas the earlier possession notice was issued on 18.03.2009, which was within the period of 60 days, whereas the Bank was required to issue the possession notice after 60 days and that too, after deciding the representation filed under section 13(3-A) of the SARFAESI Act. If any step was taken without such compliance, that is liable to be set aside, because it is not a mere irregularity, but a substantial procedural defect, which goes to the root cause of the matter and adversely affects the rights of the borrowers/guarantors. Since the possession notice dated 18.03.2009 was issued within 60 days and without deciding the representation of the borrowers, therefore, the possession notice was issued in violation of the provisions of the Act.
The Hon'ble Court, while deciding the writ petition vide order dated 22.12.2009, had given the liberty to the borrowers to file S.A. before the DRT and simultaneously directed the Bank to decide the representation. Admittedly, the representation was decided and communicated on 22.01.2010, whereas the fresh possession notice was issued on 5.1.2010 i.e. apparently before deciding the representation. The Bank was required to issue the fresh possession notice after deciding the representation on 22.01.2010. Thus again the possession notice dated 5.1.2010 was also issued in utter disregard to the provisions of the Rules, hence the same was liable to be set aside on this ground alone.
It is also a matter of record that the said possession notice dated 5.1.2010 was published in two newspapers, but only in English language in both the papers. Thus, the publication was not made in vernacular language, which is hindi in the area, where the property is situated. As such the publication was not made in accordance with the Rule 8(2) of the Rules, 2002.
The argument that the earlier possession notice dated 18.03.2009 still survives, is not tenable. It is not necessary that earlier possession notice requires to be cancelled by any specific order, but it may loss its significance by implication. Firstly, the said possession notice was issued within 60 days, therefore, it was not deserved to be acted upon further. Secondly, considering this defect and the order of the Hon'ble High Court for deciding the representation, the Bank has opted to issue fresh possession notice on 5.1.2010, hence the earlier possession notice is otherwise deemed to have been withdrawn. As such no pleading and specific relief qua possession notice dated 18.03.2009 was required to be sought.
Although the Tribunal below has recorded the finding about the decision on the representation after 60 days, which was not required to be recorded after decision of the Hon'ble High Court, but the proceedings have not been quashed on that ground, the sale was set aside because of irregularity caused in issuance of the possession notice dated 5.1.2010.
The Hon'ble Orissa High Court in Swastik Agency Vs. State Bank of India(Supra) has held that if the foundation of the proceedings is bad, then all the subsequent steps are liable to be set aside. Therefore, the Tribunal below has rightly set aside the proceedings of the Bank. The auction purchaser has been allowed the interest @ 8% per annum simple, therefore, he has also been adequately compensated.
In view of the above, no interference is called for in the impugned order and both the appeals are liable to be dismissed. Accordingly, the same are dismissed with no order as to costs.
A copy of this judgment be forwarded to the parties as well as to the DRT concerned and be also uploaded on the e-DRT portal.