Canara Bank vs M/s Shrimati Devi Ice & Cold Storage Pvt. Ltd. & Anr.

JUSTICE R. D. KHARE, CHAIRPERSON

The abovementioned appeals have been filed 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 08.12.2021, whereby the S.A. No. 655/2019 filed by the respondent no. 1-borrower has been allowed.

Brief facts of the matter are that the respondent no. 1-borrower was granted certain credit facilities by the appellant-Bank in the year 2011 and 2014. Besides it, two separate companies in the name of M/s Munni Lal Ice and Cold Storage Pvt. Ltd. (Unit No. 1) and M/s Munni Lal Ice and Cold Storage Pvt. Ltd. (Unit No. 2) were also granted credit facilities by the appellant-Bank in the year 2011 and 2014. The credit facilities granted to respondent no.1-borrower was secured by equitable mortgage of land bearing Khasra No. 33, 34, 34M, 35M, 37, 38-Village Saharanpur Iglas Road, Aligarh. Since the respondent no.1 as well as the other two companies as mentioned above did not maintain the financial discipline, therefore, account was classified as NPA on 30.06.2016 and a demand notice dated 28.09.2016 u/s 13(2) of the SARFAESI Act was issued for a sum of Rs.2,27,04,801/-. Since the respondent-borrower did not pay any heed to the said demand, therefore, the possession notice dated 03.12.2016 u/s 13(4) of the said Act was issued and symbolic possession of the property in question was taken by the Bank. Thereafter, the auction sale notice was issued on 23.02.2017, but the same could not materialize for want of bidders. The auction sale notice was again issued on 23.06.2017, against which bid was received towards two properties and 25% of the auction amount was deposited by the successful bidder.

It appears that in the meantime, the respondent no.1-borrower as well as two other companies namely M/s Munni Lal Ice and Cold Storage Pvt. Ltd. (Unit 1 and Unit 2) had filed the S.A. No. 370/2017 and S.A. No. 371/2017 to challenge the proceedings of the Bank initiated under the SARFAESI Act. The respondent no. 1 as well as the said companies-borrowers approached the Bank for settlement of account with request to cancel the aforesaid auction sale, which was considered by the Bank and after deposit of Rs.2.10 crore by the borrowers and assurance to get the accounts regularized, the auction sale notice dated 23.06.2017 was cancelled and the bid amount received from the auction purchaser was returned and the respondent no. 1 as well as the said companies withdrew their aforesaid S.As. on 07.10.2017. Since the respondent-borrower could not honor its offer, therefore, the appellant-Bank again issued sale notice dated 11.06.2019 pertaining to the account of M/s Munni Lal Ice and Cold Storage Pvt. Ltd. for auction sale of the common mortgaged properties on 17.07.2019.

It transpires that the unit no. 1 and unit no. 2 of M/s Munni Lal Ice and Cold Storage Pvt. Ltd. as well as the respondent no. 1 of the present case had challenged the aforesaid auction sale notice as well as the order dated 28.03.2019 passed by the District Magistrate u/s 14 of the SARFAESI Act by filing Writ-C No. 20962/2019 before the Hon'ble High Court, which was disposed off vide order dated 28.06.2019 with certain directions by granting interim relief that initially for the period of one month, the auction sale notice dated 11.06.2019 and the order dated 28.03.2019 passed by the District Magistrate shall remain in abeyance. Pursuant to the said order, the appellant-Bank vide letter dated 01.07.2019 informed the borrowers about the amount payable, but instead of depositing the same, the respondent no. 1 as well as the other two companies wrote a letter dated 23.07.2019 stating therein that since the auction sale notice dated 11.06.2019, which was challenged in the aforesaid writ petition, was in respect of the account of M/s Munni Lal Ice and Cold Storage Unit No. 1, therefore, an amount of Rs.84.00 lacs being 1/3^rd of the loan amount is being deposited in compliance of the order passed by the Hon'ble High Court. The appellant-Bank vide its letter dated 02.08.2019 replied the letter dated 23.07.2019 and informed that since all the three companies had filed the aforesaid writ petition, therefore, they have to deposit entire outstanding amount with interest in three installments of Rs.1,83,47,395/- and the order passed by the Hon'ble High Court is binding on all these three companies and in case of failure, the Bank will be constrained to proceed for its recovery. Since the companies including the respondent no.1 did not comply its undertaking given before the Hon'ble High Court, therefore, the appellant bank issued sale notice dated 09.08.2019 pertaining to the account of the respondent no.1-borrower and date for auction was fixed on 18.09.2019. The property was sold for Rs.7.66 crores and after deposition of sale consideration, the sale certificate was issued in favour of respondent no.2 on 04.12.2020

The respondent no.1-borrower challenged the aforesaid auction sale by filing S.A. No. 655/2019 before the Tribunal below. The Tribunal below vide order impugned has allowed the said S.A. and quashed the auction sale dated 18.09.2019 as well as sale certificate issued in favour of the auction purchaser. Being aggrieved by the said order, the Appeal Dy. No. 110/2022 has been filed by the Bank and the Appeal Dy. No. 148/2022 by the auction purchaser.

Learned counsel for the appellant-Bank submitted that the auction sale conducted by the respondent-Bank along with sale certificate has been set aside on two grounds, firstly that the respondent has deposited an amount of Rs. 1,98,30,400/- against the dues of Rs. 2,27,04,801/-, thus the dues of the Bank in respect of the account of the respondent-borrower were less than 25% of the total amount, secondly, the respondent-Bank has not mentioned the description of the movable and immovable properties in the sale notice dated 09.08.2019. It was further contended that there were three accounts, one in the name of M/s Munni Lal Ice and Cold Storage Pvt. Ltd. (Unit I) and second in the name of M/s Munni Lal Ice and Cold Storage Pvt. Ltd. (Unit II) and third in the name of the respondent No. 1. It was further contended that the SARFAESI proceedings were initiated against all the said three accounts, in which there was common mortgage.

Learned counsel further submitted that the S.A. No. 371 of 2017 was filed by the respondent No. 1 and S.A. No. 370/2017 by its two sister concerns before the Tribunal below, in which no interim relief was granted and even they could not get any interim relief from this Appellate Tribunal. It was further contended that against the auction sale notice dated 09.08.2019, the respondent No. 1 filed the present S.A. before the DRT, Lucknow, wherein impugned order has been passed setting aside the auction sale on two grounds as stated above.

Learned counsel has referred to page No. 68 of the paper book, which is order dated 28.06.2019 of the Hon'ble High Court passed in Writ C No. 20962 of 2019. The said Writ Petition was filed by all the three units as mentioned above before the Hon'ble High Court, in which the said order was passed. It was contended that the Hon'ble High Court has granted the relief as prayed by the petitioners that the entire outstanding along with interest shall be deposited in three equal monthly installments. In pursuance of the said order, the Bank has intimated the borrowers about the entire outstanding vide letter dated 01.07.2019, which is filed an annexure No. 5 at page No. 69 of the paper book and the total outstanding amount against the aforesaid three accounts was shown to be Rs. 5,50,42,185/-. It was further contended that in pursuance of the aforesaid letter and order of the Hon'ble High Court, the borrowers have deposited a meager amount stating that the amount was to be deposited only for one unit, which is also recorded in para 27 of the order impugned at page No. 66 of the paper book. It was thus contended that the perusal of the said paragraph shows that liability of only one unit is taken into consideration by the Tribunal below and the mortgage was with regard to all the three accounts of the borrowers' firm. It was further contended that in the said paragraph, the total recovery is Rs. 2.27 crores and odd + interest thereon, when the fact is that as per the statement provided by the Bank to the borrower (at page No. 70) of the paper book, the total outstanding was more than Rs. 5.50 crores. It was also contended that the finding of the Tribunal below that there was only one loan account, in which the amount has been deposited, whereas the three accounts were mentioned in the proceedings of the Bank. It was thus contended that the contention of the respondent-borrower that the OTS proposal was given along with upfront amount and the dues of the Bank in respect of the present account were less than 25% of the total amount and no proceedings could be initiated under the SARFAESI Act, is not tenable because the auction was held on 18.09.2019 and the amount deposited by the respondent No. 1-borrower was received on 04.12.2019, as such on the date of sale i.e. 18.09.2019, the embargo as provided under section 31(j) was not applicable on the date of auction, thus the finding of the Tribunal below in this regard cannot be sustained in the eye of law.

Learned counsel further submitted that the OTS proposal was given after the property was auctioned and sold. It was further contended that the plant and machinery has never been auctioned by the Bank, as the same was not mentioned anywhere in the sale notice, which was issued by the Bank. It was also contended that the possession is still with the borrower and he can take away the plant and machinery, against which the Bank has not proceeded.

It was further contended that the respondent-borrower has not complied with the order of the Hon'ble High Court nor he has deposited any amount, which was required to be deposited by him, although the Writ Petition was filed by the respondent no. 1 as well as its two sisters concerns. It was also contended that the Tribunal below has been mislead by the borrower that only the recovery was initiated against one unit instead of three units. It was, therefore, prayed that the order impugned may be set aside and the appeal may be allowed.

Learned counsel for the auction purchaser submitted that he has filed Appeal Dy. No. 148/2022 against the same order impugned, therefore, he has adopted the arguments as advanced by the learned counsel for the appellant-Bank. Learned counsel has referred to page No. 196 of his appeal, which is letter dated 06.12.2019 issued by the appellant-Bank, whereby the OTS of the respondent-borrower has already been rejected and the borrower was asked to collect the upfront amount from the branch and the same was given. It was, therefore, prayed that the order impugned may be set aside and the appeal filed by the auction purchaser may be allowed.

Learned counsel for the respondent-borrower submitted that the appellant has misled this Tribunal, as the order of the Hon'ble High Court was passed much before the auction in question. The order of the Hon'ble High Court is dated 28.06.2019 and the auction took place on 18.09.2019. It was contended that the borrower was required to deposit first installment on or before 30.07.2019 as per judgment of the Hon'ble High Court, which was deposited accordingly.

Learned counsel has referred to page No.75 of memo of appeal, which is sale notice dated 08.09.2019 and has relied upon the column of property address and has stated that at serial no. 1 of the said column, there is three properties, out of which, one property having area of 1.805 hectare is an agricultural land, which is addressed to M/s Shrimati Devi Ice and Cold Storage Pvt. Ltd. and in the said account, the outstanding amount is shown to be Rs. 2,27,04,801/-.

Learned counsel has further referred to Annexure No. R-11 at page No.70 of the reply of the respondent No.1-borrower, which is order dated 16.10.2023 of the SDM, Koel, Aligarh, wherein two properties were declared as commercial, but there is nothing on record with regard to the third property.

Learned counsel has next referred to page No.104 of the reply of the respondent-borrower, which is photographs and has stated that the said photographs authenticate that the land is being used for agriculture purpose.

Learned counsel has also referred to Annexure No. 13 at page No. 103 of the reply of the respondent-borrower, which is copy of Khasra, which also shows that the said property is an agriculture property.

Learned counsel has further drawn attention of this Tribunal to page No.26 of the reply of the respondent No.1-borrower to the memo of appeal and has stated that as per the said document, the total outstanding dues of the appellant-Bank was Rs. 5,50,42,185/- as on 30.06.2019 and the same was deposited and recorded by the Tribunal below. In this regard, a reference has been made by the respondent no. 1 to Annexure No.15 at page no. 113 of the reply of the respondent-borrower, which is copy of the order passed by the Tribunal below in S.A. No. 655/2019. It was, therefore, prayed that the appeals filed by the bank and the auction purchaser may be set aside with heavy costs.

Having heard the learned counsels for the parties and considering the material available on record, the respondent no. 1 is a private limited company and it was granted certain credit facilities through its directors namely Smt. Anita Agrawal, Smt. Meera Agrawal and Smt. Rashmi Agrawal, to which the property in question was mortgaged. It is also not disputed that in the loan accounts of M/s Munni Lal Ice and Cold Storage Pvt. Ltd. (Unit No. 1) and M/s Munni Lal Ice and Cold Storage Pvt. Ltd. (Unit No. 2), the same property was mortgaged, but the entity of these firms is separate and distinct, which is evident from the conduct of the Bank itself, as the Bank itself has proceeded against these firms by issuing demand notice separately.

In the present case, the appellant-Bank issued demand notice dated 28.09.2016 for a sum of Rs. 2,27,04,801/- and thereafter, the respondent-company paid Rs.1,19,95,340/- during the period from 27.03.2017 to 30.04.2019. The sale notice dated 11.06.2019, copy of which has been placed at page no. 21 to 24 of the reply of the Bank, reveals that the said notice was issued in respect of the account of M/s Munni Lal Ice and Cold Storage Pvt. Ltd.-I and not against the account of the present respondent-borrower, but the said notice was admittedly challenged by the said firm as well as the other two companies including the respondent no.1 before the Hon'ble High Court by filing Writ-C No. 20962/2019, which was disposed off vide order dated 28.06.2019, copy of which is placed at page no. 24 of the reply of the respondent no.1-borrower, with certain directions along with interim relief, which are as under:-

From the above, it is clear that the direction was for these three firms to deposit the entire amount and accordingly vide letter dated 01.07.2019 the appellant bank had given the details of amount payable by the respective firms, but it cannot be denied that there was cause of action against M/s Munni Lal Ice and Cold Storage Pvt. Ltd. (Unit No. 1) and not against the respondent no.1-firm, because the aforesaid sale notice was issued in respect of the account of M/s Munni Lal Ice and Cold Storage Pvt. Ltd. However, the said order was complied with by M/s Munni Lal Ice and Cold Storage Pvt. Ltd. by depositing 1/3rd amount of the demand raised by the Bank within the time as stipulated by the Hon'ble High Court.

As per the order of the Hon'ble High Court, the appellant-Bank was at liberty to proceed for its recovery in case of non-compliance of the said order and the appellant-Bank accordingly issued auction sale notice dated 09.08.2019 for auction of the property in question on 18.09.2019 against the account of the respondent no.1-borrower. As per the said sale notice, the total liability against the respondent no.1-borrower was Rs.2,27,04,801.00 plus interest w.e.f 01.04.2016 and minus the amount paid earlier by the respondent-borrower.

The contention of the appellant-Bank that the SARFAESI proceedings were initiated against all the three accounts, in which there was common mortgage is not tenable, because these three companies are having separate entity and they were granted the loan facility on different dates. If the entity of these firms were same, the Bank ought to have not proceeded against the said firms by issuing separate notices under the SARFAESI Act, as the earlier sale notice was issued against the account of M/s Munni Lal Ice and Cold Storage Pvt. Ltd. and the present sale notice has been issued against the account of respondent no.1-borrower. Thus it is evident that the appellant-Bank was also of the opinion that the accounts of the said firms are separate and distinct and recovery can be made separately, but later on, in my opinion, the Bank came to this conclusion when the earlier notice was challenged by these firms together before the Hon'ble High Court, whereas the same was not needed, as the said notice was issued in respect of the account pertaining to M/s Munni Lal Ice and Cold Storage Pvt. Ltd., but on this ground, the Bank cannot be permitted to club the recovery of three accounts, which were being maintained by three different companies.

While going through the order passed by the Hon'ble High Court dated 28.06.2019 in Writ-C No. 26962/2019, it is found that the said order does not restrict the respondent-borrower to challenge the subsequent proceedings of the Bank in accordance with law, as the present auction sale notice was issued on 09.08.2019, which is much after the said order. The said order only says that in case of non compliance, the Bank would be free to proceed for its recovery in accordance with law.

Admittedly, the Tribunal below vide order dated 18.11.2019 directed the appellant-Bank that if the respondent no.1-borrower submits a fresh OTS proposal along with demand draft of Rs.1.98 crores, the appellant-Bank shall consider the same and not proceed with the sale, which was complied with by the respondent no. -1-Bank by depositing a demand draft of Rs.1.98 crore and odd on 04.12.2019 vide letter dated 03.12.2019 with the Bank. As such against the demand of Rs.1.98 crores and odd as raised by the Bank vide letter dated 01.07.2019 pursuant to the order of the Hon'ble High Court, the respondent no.1-borrower has liquidated its total liability. If the said amount is considered against the amount claimed in the present sale notice, then there remains less than 25% of the same. Thus the Tribunal below has rightly held that the dues of the Bank in respect of the account of the respondent no. 1-borrower were less than 25% of the total amount recoverable by the bank.

So far as the auction sale is concerned, it is to be seen that the Tribunal below in para 22 of the order impugned has specifically mentioned "there is no valuation with regard to movable plant and machinery. Applicant in para 10 of his memo of objection/reply against supplementary affidavit dated 23.08.2021 filed by Bank had specifically contended that Bank had sold plant and machinery without obtaining valuation report in respect of the same and without serving any notice as required under Rule 6(2) of S.I.(E) Rules, 2002. No reply has been filed by the Bank with regard to these contentions made by applicant." The Tribunal below in para 23 of the said order impugned has further held "there is nothing on record to show that valuation of movable assets was done and whether any notice of sale for movable asset was issued by the Bank" and further in para 24 of the same, it is mentioned "it is evident that there were movable assets available on this subject land and building of Ice and Cold Storage, for which no valuation has been obtained by the Bank and no notice for sale of the same was served on the applicant."

From the above, it is clear that the question of sale of movables was raised by the respondent-borrower before the Tribunal below, but the same was not rebutted by the appellant-Bank. However, in the present appeal, the appellant has stated that the Bank has not sold the movables of the company pursuant to the present sale notice, which appears to be made a ground for saving the sale in question an afterthought. If the Bank had not sold the same along with the immovable property, it ought to have stated before the Tribunal below while the said points were being raised by the respondent-borrower, but before the Tribunal below the Bank kept mum in this regard. Thus appellant cannot be permitted to take any new plea before this Tribunal directly, which was not taken before the Tribunal below, therefore, the contention of the appellant-Bank that the movable properties have not been sold along with the immovable property pursuant to the present sale notice is not tenable.

Admittedly, the respondent no. 1-borrower had deposited substantial amount of Rs.1,98,30,400/-, which was demanded by the Bank vide its letter dated 01.07.2019 pursuant to the order dated 28.06.2019 passed by the Hon'ble High Court in Writ-C No. 20962/2019 against an amount of Rs. 2,27,04,801/- plus interest as is mentioned in the present sale notice. Further, the Bank had sold the property worth Rs.7.66 crores and odd for recovery of an amount of Rs. 2.27 crores approx plus interest, which was not required, as the Bank could recover the said amount by selling a part of the property in question, as the mortgaged property is a big property, which is having total area of 4.27 hectare. Thus it is held that the amount recovered by the Bank through present sale was much more excessive in the present case. Hence, the Tribunal below has rightly set aside the auction sale and its subsequent actions of the Bank vide order impugned. As such the present appeals filed by the Bank as well as auction purchasers are liable to be set aside.

In view of the discussions as recorded above, there is no infirmity or illegality in the order impugned, hence the same does not call for any interference by this Tribunal. Hence, 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 also be uploaded on the e-DRT portal.