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Judgment
R. D. Khare, Chairperson
Both the abovementioned appeals have been preferred by the appellant-Bank under section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short “the SARFAESI Act”) against the judgment dated 01.08.2019 passed by the DRT, Patna, whereby the S.As. filed by the borrowers and the auction purchaser were allowed, therefore, these appeals are being decided by this common order.
The brief facts of the matter taken from the Appeal Dy. No. 283/2019 are that the respondent No. 2 was granted a cash credit limit of Rs. 70.00 lacs by the appellant-Bank on 04.12.2012. In order to secure the said loan, the respondent No. 2 & 3 stood as guarantor in their personal capacity and respondent no. 3 also created an equitable mortgage over his property by depositing the title deed with the Bank. The borrowers did not adhere to the terms of the loan agreement, therefore, the account was classified as NPA on 28.11.2017 and a demand notice dated 29.11.2017 was issued under section 13(2) of the SARFAESI Act for a sum of Rs. 1,01,54,053/-. Since the borrowers did not pay any heed to the said demand, therefore, the appellant-bank took the symbolic possession of the property in question on 07.02.2018 by issuing possession notice dated 07.02.2018 under section 13(4) of the said Act and the same was published in two newspapers on 13.02.2018. Thereafter, the sale notice dated 11.05.2018 was issued, but the auction sale could not be materialized for want of bidder. Subsequently, the appellant-Bank issued sale notice dated 20.07.2018 scheduling the auction of the property in question on 27.08.2018 and the property was sold and sale was confirmed in favour of the respondent-No. 1 by the Bank vide letter dated 28.08.2018, which is at page No. 39 of the memo of the appeal.
The respondents borrowers challenged the auction sale notice dated 20.07.2018 including entire proceedings of the Bank by filing S.A. No. 221/2018 before the Tribunal below.
It appears that pursuant to the auction sale dated 28.08.2018, the respondent No. 1-auction purchaser deposited 25% of the bid amount within stipulated time, but for the deposit of remaining 75% of the sale amount, the auction purchaser vide letter dated 10.09.2018 requested the Bank for grant of time i.e. upto 29.09.2018, which was granted vide letter dated 12.09.2018. The auction purchaser again requested the Bank vide letter dated 28.09.2018 for further extension of time i.e. upto 29.10.2018, which was also granted by the Bank vide letter dated 29.09.2018. Again on 29.10.2018, a letter was sent by the respondent No. 1 seeking another one month’s time i.e. upto 29.11.2018 for deposit of remaining 75% of the bid amount on the ground of ill health condition, which was also granted by the Bank vide letter dated 29.10.2018 directing the respondent no. 1 to deposit the same upto 29.11.2018. The respondent No. 1-auction purchaser once again issued a similar letter dated 28.11.2018 (at Page No.53) requesting therein that two months’ further time may be granted considering his health problem, but the appellant-Bank had not granted any further time, instead directed to deposit the balance bid amount within the extended time i.e. 29.11.2018 and also informed that if the said amount is not deposited, 25% amount deposited by the auction purchaser shall be forfeited without any further notice.
Thereafter, the respondent No. 1 auction purchaser filed the S.A. No. 1/2019 before the Tribunal below praying that the S.A. may be accepted by setting aside the entire action of the Bank taken under SARFAESI Act and return 25% of the auction amount to the auction purchaser.
The Tribunal below has allowed both the Securitization applications filed by the applicant/borrower (S.A. No. 221/2018) and the auction purchaser (S.A. No. 01.2021) vide order impugned setting-aside the e-auction sale notice dated 20.07.2018 and the sale conducted on 27.08.2018 and directed the Bank to return the deposited amount of the auction purchaser within 15 days from the date of receipt of the order. Being aggrieved by the said order impugned, the appellant Bank filed both the appeals, i.e. Appeal Dy. No. 283/2019 against the auction purchaser and Appeal Dy. No. 284/2019 against the borrower.
Learned counsel for the appellant-Bank contended that pursuant to the sale notice dated 20.07.2018, which is appended at page no. 33 of the paper book, the auction of the property in question was held on 28.08.2018, in which the respondent no. 1 was highest bidder. In the said notice, it is clearly mentioned that the property is being auctioned/sold on “as is where is, as is what is basis” and the respondent no. 1 being fully aware that it is being sold on “as is where is, as is what is basis”, participated in the auction and being highest bidder he has deposited 25% of the bid amount.
Learned counsel for the appellant further contended that after mortgage the borrower had entered into an exchange deed with adjacent landlords with regard to a common passage, in which Bank was not party and the property mortgaged by the borrowers was put to auction, therefore, it is contended that the borrowers or the auction purchaser has no right to file the S.A. under section 17 of the SARFAESI Act stating that the common passage, which was exchanged by way of registered deed of exchange between the parties, cannot be sold.
It was further contended that the respondents-borrowers have not filed any reply in the connected Appeal Dy. No. 284/2019 filed by the Bank nor any reply has been filed in the present Appeal Dy. No. 283/2019, thus the contention raised by the Bank in the appeals stands un-rebutted.
It was further contended that the auction purchaser being respondent no. 1 in this appeal after deposit of 25% of the auction amount sought time repeatedly for extension of time to deposit the balance auction amount, which were granted by the Bank vide several letters, which are on record and when the final notice was given by the Bank vide letter dated 28.11.2018, even then nothing was done by the auction purchaser, therefore, amount of 25% was forfeited. The said letter was challenged by the respondent no. 1-auction purchaser by filing SA No. 1/19. In that SA, it was challenged that exchange deed of the passage which was executed between the parties were not part of the mortgage, therefore, same cannot be considered for sale.
Learned counsel for the appellant has argued that this plea cannot be taken by the auction purchaser at this stage as he did not raise the same on the earlier occasion, for which he had opportunity to do so as per the judgment of the Apex Court passed in U.T. Chandigarh administration and another Vs. Amarjeet Singh and Ors., 2009 AIR SCW 2552 and the judgment passed by the Hon’ble Allahabad High Court in Palika Towns LLP Vs. State of U.P. and Ors. 2022(7) ADJ 331 (DB). It was also contended that now the respondent No. 1 is estoppled from raising this issue. The auction notice was given for auctioning the property on “as is where is, as is what is basis”. The respondent No. 2 and 3 in appeal No. 283/2019 and respondent No. 1 in appeal No. 284/2019 have not filed any reply in spite of repeated opportunities, meaning thereby he has nothing to say in the matter.
Learned counsel for the respondent No. 1-auction purchaser submitted that he had availed ninety days’ time, which is statutory right given to him in the Act and Rules made there under. It was further argued that the Bank itself had no knowledge whether the property mortgaged, which was sought to be auctioned, was measuring 3.5 kattha or 5 kattha. The Bank had to give all known facts in the auction sale notice and the fact that the borrower has challenged the proceedings on the ground that the common passage could not be sold by the Bank. In this regard, learned counsel for the auction purchaser relied upon a judgment passed by the Hon’ble Madras High Court in W.P No. 39199/2016-S. Shanmuganathan Vs. Authorized officer, Indian Overseas Bank, decided on 28.04.2017 (reported in AIR (Mad) (2017) 228), paragraph No. 12 of the said judgment is relevant. It was also contended that when the auction purchaser came to know about the pendency of the S.A. filed by the borrower, he has requested the Bank to refund his amount deposited against the auction sale held on 28.08.2018.
Learned counsel for the respondent-auction purchaser further submitted that if all the information had been given by the appellant-Bank in the sale notice, it was possible that the respondent no. 1 would not have participated in the auction at all, but the appellant-Bank kept the respondent no. 1 in dark by not disclosing the complete facts, for which the auction purchaser cannot be penalized. Hence, the appeals filed by the Bank may be dismissed with heavy costs.
In rejoinder, the learned counsel for the appellant contended that both the securitization applications filed by the respondent no. 1 as well as respondent no. 2 & 3 have been decided simultaneously and he has not raised such objection before the Tribunal below in the securitization applications.
Learned counsel for the appellant further submitted that the area shown in the auction sale notice as well as possession notice were the same, therefore, the contention raised by the auction purchaser is not tenable in the eye of law. It was further contended that in the S.A. filed by the borrower before the Tribunal below, such objection was never raised.
Learned counsel for the respondent-auction purchaser stated that the proceedings are between the borrower and the bank and he does not want to contest the same on merits.
It appears that despite repeated opportunities, no reply has been filed on behalf of the respondents-borrowers, whereas Shri N. K. Singh, Advocate had initially appeared, but not filed any reply and not argued the case.
Having heard the learned counsels for the parties, who are present and considering the material available on record, there is no dispute with regard to the finding given by the Tribunal below with respect to the process/actions undertaken by the appellant-bank in issuing the demand notice and the possession notice.
The main question in the present case is, as to whether the common passage could have been sold by the Bank along with the mortgaged property or not and another question is, as to whether the Bank was bound to disclose the encumbrances of the property in question in the sale notice despite mentioning therein the phraseology “as is where is and as is what is” or not?
It appears that the loan was sanctioned on 04.12.2012 and the property mortgaged by the borrower to secure the same, which is mentioned in para 5 of the supplementary affidavit filed by the S.A applicant (at page 56 of the paper book) was 3.00 Kattha, but the sale notice dated 20.07.2018 (at page no 29 of the paper book) shows that the publication for auction of the property was made for 5 kattha, which is more than that of mortgage property. As such the common passage, which was acquired vide deed of exchange dated 13.09.2011, was not mortgaged with the Bank, but the Bank has issued/published the sale notice for auction of 5 Kattha land. Thus the sale notice dated 20.07.2018 is found to be defective and as such liable to be quashed. Besides it, the common passage cannot be sold out because it is for the purpose of common use by the people, who are dwelling along the passage, hence the Tribunal below has rightly held that the sale of common passage is against the provision of the SARFAESI Act and the rules made thereunder.
With regard to forfeiture of 25% of the auction amount for non deposit of remaining 75%, the learned counsel for the appellant-Bank has stated that the property was auctioned on the basis of “as is where is and as is what is” condition, therefore, the plea taken by the auction purchaser that the Bank has not disclosed the encumbrances of the property in sale notice is not sustainable. In this regard, clause (a) of sub rule 6 of Rule 8 of the Rules, 2002 says that “the secured creditor shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include, the description of the movable property to be sold including the details of the encumbrances known to the secured creditor” meaning thereby, the Bank was required to disclose the encumbrances while issuing the sale notice for auctioning the property in question, but the Bank did not do so. It is admitted that the property in question was having the encumbrances as discussed above. As such the auction purchaser has not erred in not depositing the remaining 75% of the auction money after knowing that the Bank has sold 5 Kattha land, whereas only 3.5 Kattha land was mortgaged by the borrower with the Bank. Moreover, prior to issuance of sale notice, the borrower had already filed the S.A. before the Tribunal below challenging the actions of the Bank. As per the Act & rules made thereunder, the authorized officer of the Bank has to mention the encumbrances in the sale notice as per clause (a) of Rule 8(6) of the Rules, 2002, but the Bank has not complied with the same. As such the Tribunal below has rightly set aside the auction sale notice and directed the Bank to return the deposited auction amount to the auction purchaser.
In view of the above, the Tribunal below has rightly recorded the finding that the sale of the common passage is not in consonance with the provision of the SARFAESI Act and the rules made thereunder as well as the finding that the authorized officer of the Bank failed to mention the encumbrances on the mortgaged property in the sale notice as per clause (a) of Rule 8(6) of the Rules, 2002 and thus the action of the Tribunal below by setting aside the auction sale notice and the direction to return the deposited auction amount to the auction purchaser cannot be said to be faulty. As such the order impugned does not warrant any interference by this Tribunal and the appeals filed by the Bank are liable to be dismissed.
Accordingly, both the appeals filed by the Bank are dismissed with no order as to costs.
A copy of this judgment be forwarded to the parties as well as the DRT concerned and be also uploaded on the e-drt portal.