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Judgment
Ashok Menon, Chairperson
Canara Bank impugns the judgment dated 19.02.2021 of the Debts Recovery Tribunal-II, Ahmedabad (DRT) allowing Securitisation Application (S.A.) No. 392/2020 filed under section 17 (1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (‘SARFAESI Act’, for short) by the respondents who are the borrowers/guarantors/mortgagors. Demand notice u/s 13 (2), the auction sale notice and all consequential proceedings initiated in furtherance of the auction sale notice were quashed, and the bank was directed to restore possession of the secured asset to the borrowers.
The facts essential for the disposal of this appeal are encapsulated thus:
The first respondent is the borrower company. Respondents Nos. 2 to 9 are the guarantors/mortgagors for the credit facilities availed by the company and created security interest by depositing title deeds concerning the subject properties situated in Vadodara and Madhya Pradesh. Repayment of the debt was defaulted and on 29.05.2017, the bank classified the company's account as a non-performing asset (NPA). After that, the bank initiated the recovery proceedings by issuing a demand notice dated 01.09.2017 u/s 13 (2) of the SARFAESI Act. Possession of all the secured assets was taken. The borrowers preferred an S.A. No. 355/2018. During the proceedings before the Tribunal, the bank withdrew the demand notice dated 01.09.2017. Subsequently, the aforesaid S.A. was disposed of vide order dated 05.02.2019.
The borrowers allege that after the disposal of S.A. No.355/2018, the bank did not issue any fresh demand notice u/s 13 (2) to them. The bank issued an E-Auction sale notice on 20.10.2020 for the sale of immovable assets of the borrowers for recovery of the alleged dues of ₹10,86,18,666.63. The bank has failed to comply with Rule 8 (6) of the Security Interest (Enforcement) Rules, 2002 concerning properties situated in Madhya Pradesh. The bank has affixed the notice only at the properties situated in Vadodara. The borrowers filed S.A. No. 392/2020 on 05.11.2020 seeking to quash the Sarfaesi measures. It is alleged that the demand notice does not comply with the requirement of Sec 13 (3) of the SARFAESI Act as it does not give a break-up of the principal amount and interest claimed. Even the rate of interest is not mentioned in the demand notice.
The respondent bank filed an affidavit-in-reply at Exh. R/7 refuting the allegations in the S.A. It is contended that the SA is not maintainable. It was further contended that the borrowers’ account was classified as NPA on 29.05.2017 according to the RBI guidelines. Moreover, after the withdrawal notice dated 01.09.2017, the bank issued a fresh demand notice on 02.03.2019 u/s 13 (2) of the SARFAESI Act and the same was also published in various newspapers on 19.03.2019 as required under Rule 3. Steps u/s 13 (4) ensued and the symbolic possession of six items of secured properties situated at Vadodara was taken on 27.05.2019 and the symbolic possession of four items of properties situated in Madhya Pradesh was taken on 29.05.2019 in compliance with Rule 8(1) of the Rules. Physical possession of one item of immovable mortgaged property situated in Madhya Pradesh was taken on 29.05.2019. Thereafter, possession of the properties situated in Vadodara was also taken and notices were published in newspapers in Vadodara and Indore on 02.06.2019. The alleged violation of Sec. 13 (3) of the SARFAESI Act is also disputed. The bank also contended that the E-auction sale notice dated 20.10.2020 was also in compliance with Rule 8 (6) and (7). The bank also obtained a fresh valuation of the immovable properties situated in Madhya Pradesh on 28.08.2020 and immovable properties situated at Vadodara on 31.08.2020.
The Ld. Presiding Officer found that the Sarfaesi measures against the guarantors would still be maintainable despite a Resolution Professional taking over charge of the first respondent company under the provisions of the Insolvency and Bankruptcy Code (IBC).
Regarding the classification of accounts as NPA on 25.09.2017 the DRT found that the action was hasty and therefore not legally sustainable. On the question of the validity of the demand notice u/s 13 (2) also the DRT found that notice had not been served on all the borrowers/guarantors’ mortgagors which was essential. That apart it was also observed that the demand notice demands a consolidated amount inclusive of interest and is therefore in violation of section 13(3). The DRT has also relied upon the decision of the Hon’ble Gujarat High Court in Punjab National Bank V/s. Mithilanchal Industries(P) Ltd. 2020 SCC OnLine Guj 3441
The DRT also found a violation of Rule 8(6) as the auction sale notice dated 20.10.2020 was not published in any newspaper having circulation in Madhya Pradesh. Hence, the entire Sarfaesi action was quashed and possession of the secured assets was directed to be restored. The bank is aggrieved by the quashing of the Sarfasei actions and hence, in appeal.
Ms Vaishali Bhilarehe, the Ld Counsel appearing for the bank and Mr. D R Talankar for respondent Nos. 3 to 9 were heard. records perused.
The Sarfaesi measures are initiated by the classification of the account as NPA. In the instant case, the loan was agreed to be taken over by the South Indian Bank and thereafter, it was classified as NPA. The classification comes within six days of the letter of sanction being issued by the South Indian Bank. The haste shown in the classification of NPA was not justifiable. The Ld. Counsel appearing from the appellant submits that the classification of the account as NPA is system generated, and no manual intervention was possible. However, no bank would take over a loan classified as an NPA. Hence, despite the deduction of the charges required for taking over a loan, the South Indian Bank withdrew from taking over the loan. I find no error in the findings of the DRT on this point.
The next point raised against the inadequacy of the demand notice u/s 13 (2). A perusal of the 13 (2) notice indicates that it does not give a breakup of the principal and interest and other charges as required u/s 13(3). The Ld. Presiding Officer has appropriately relied upon the decision in Mithilanchal Industries (supra) to conclude that the demand notice is not in accordance with the requirement of the statute. The demand notice is also defective for the reason that the notice was not served up on all the borrowers and nor was it affixed as required under the proviso to Rule 3(1).
The Hon’ble Supreme Court has in Chairman-cum-managing director, Coal India Limited and Ors. Vs. Ananta Saha and others (2011) 5 SCC 142 held that if initial action is not in consonance with the law, subsequent proceedings would not sanctify the same. In such a fact situation, the legal maxim sublato fundamento cadit opus is applicable, meaning thereby, in case a foundation is removed, the superstructure falls.
Hence, I do not find any merits in the appeal. The appeal is dismissed.