Indian Bank vs Shaila Motors Private Limited Others

Anil Kumar Srivastava, Chairperson

THE APPELLATE TRIBUNAL :

Both these appeals have arisen against one common order, hence they are being disposed of by a single judgment, dated 15th November, 2021, passed by Learned DRT-II, Kolkata in SARFAESI Application No. 171 of 2020 (M/s. Shaila Motors Private Limited -vs- Indian Bank) whereby the SARFAESI Application, filed by SARFAESI Applicant, was allowed.

Feeling aggrieved, Respondent Bank preferred Appeal No. 17 of 2022 while the Auction Purchaser, namely Defendant No. 3, Mrs. Sangita Maity, preferred Appeal No. 83 of 2022.

According to the pleadings of the parties, Respondents No. 1 and 2 are engaged in the business of Automobile Dealership; while Respondents No. 3 and 4 are Directors of Applicants No. 1 and 2. On the application of Respondent No. 1, Appellant Bank granted separate Credit Facilities in the nature of Cash Credit Facilities. Accordingly, payments were made as per the terms and conditions. Major portion of the debt was repaid. However, it is alleged that due to non-cooperation of the Bank, loan became N.P.A.

On 30th September, 2015 a notice under Section 13 (2) of the SARFAESI Act, 2002 was issued stating that the loan account was classified as N.P.A. on 26th September, 2015 and an amount of Rs.3,48,83,166.00 is due and payable. Possession Notice was also issued. Respondent No. 1 filed a SARFAESI Application, being S.A. 97 of 2016, before the Learned DRT-II, Kolkata under Section 17 (1) of the SARFAESI Act challenging the actions of the Bank. Subsequently, multiple sale notices were issued which was also challenged before the Learned DRT. However, for want of bidders all the sale notices became infructuous. SARFAESI Application was finally dismissed on 10th January, 2020.

On 21st October, 2020 Respondents No. 1 and 2 submitted a proposal for One Time Settlement to the Bank for Rs.2.00 crore which was rejected by the Bank on the same date, i.e. 21st October, 2020.

Appellant Bank issued sale notice on 6th November, 2020 contemplating sale of property of Respondent No. 1 which was served upon Respondent No. 3 on 13th November, 2020 and Respondent No. 4 on 16th November, 2020. Sale notice was bad as no valuation report was annexed with the sale notice; a very low valuation report was annexed with the sale notice; a very low reserve price of Rs.63.53 lac was fixed. There was violation of Rules 8 (5) and 8 (7) of The Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as Rules). Notice was issued against the provisions of 8 (6) of the SARFAESI Rules. Compliance of Rule 9 (1) was also not made. Compliance of Rule 6(2) was also not made. There is a violation of Rule 8 (7) of the Rules.

Appellant Bank stated before the Learned DRT that the SARFAESI Proceedings against the Respondents were initiated and undertaken in accordance with the SARFAESI Act, 2002 and Rules. Learned DRT in the judgment and order dated 10th January, 2020 held that the Applicant Bank has complied with all the provisions of the Act and Rules and there is no illegality or infirmity in the proceedings. It is further submitted that the proposal for One Time Settlement was rightly refused as S.A. proposal of Rs.2.00 crore was given against an aggregate outstanding of Rs.6,51,62,392.00. Auction was not made for an under value; rather valuation report was obtained which was for Rs.83,86,000.00 and Rs.84,41,000.00. Earlier auction was fixed on 13th September, 2019, 30th  November, 2019, 26th November, 2019, 20th January, 2020 and 11th  March, 2020 but the sale could not be materialized for want of bidders. Hence, the Authorised Officer, in consultation with the Secured Creditor, fixed the reserve price of the mortgaged property at Rs.67,53,000.00.

Sale notice was published in the newspaper in accordance with law. Sale notice was issued in compliance of the Appendix IV-A of the Rules which was also affixed in a conspicuous part of the property in compliance of Rule 8 (7) of the Rules. The Auction Purchaser, Respondent No. 3, Mrs. Sangita Maity, was declared as successful bidder; Sale Certificate was issued on 11th December, 2020 and Deed of Conveyance was also registered in favour Mrs. Sangita Maity.

It is further submitted that the loan account was classified as N.P.A. on 26th September, 2015. But even after lapse of more than six years, Respondents failed to deposit any amount.

Upon hearing the Learned Counsel for the parties, Learned DRT recorded a finding that SARFAESI Application No. 97 of 2016 was dismissed on merits on 10th January, 2020. There is violation of Rules 8 (6) and 9 (1) of the Rules. Accordingly, SARFAESI Application 171 of 2020 was allowed by the Learned Tribunal.

I have heard the Learned Counsel for the parties and perused the record.

It is an admitted fact that SARFAESI Application No. 97 of 2016, filed by the Respondents, was dismissed by the Learned DRT-II, Kolkata on 10th January, 2020 wherein it was held that the account was rightly classified as N.P.A. on 26th September, 2015 and all the Rules were followed by the Bank in the SARFAESI proceedings.

In the present SARFAESI Application, main challenge is regarding compliance of Rules 8 (6) and 9 (1) of the Rules. Learned Senior Advocate of the Appellant submitted that effective compliance of Rules 8 (6) and 9 (1) was made by the Appellant. It is further submitted that the provisions of Rules 8 (6) and 9 (1) of the Rules are not mandatory but directory in nature. Wide publicity was made by publishing sale notices in two newspapers. Earlier five attempts were made to auction the property but failed. Learned Senior Counsel placing reliance on the judgment of the Hon’ble Supreme Court in S. Karthik & Others -vs- N. Subhash Chand Jain & Others (AIR 2021 SCC Online Hon’ble Supreme Court 787), submitted that the judgment of the The Hon’ble Apex Court in the case of Mathew Varghese -vs-M. Amrita Kumar & Others, (2014) 5 SCC 610 is watered down in this case. It is submitted that notices were published in newspapers on 7th November, 2020, sale notice was issued on 6th November, 2020 while auction was conducted on 25th November, 2020. Notices were served on Respondent No. 3 on 13th November, 2020 and Respondent No. 4 on 16th November, 2020.

Learned Counsel further submitted that Learned Tribunal has erred in recording the findings without assigning any reasoning to arrive at the particular finding. Even the issue of maintainability of the SARFAESI Application was not considered by the Learned DRT.

Learned Counsel for the Auction Purchaser submits that the purpose of notice is to put the borrower to notice regarding auction of the property. Borrower was never interested to redeem the property. He never came forward with any proposal for showing his intention to redeem the property while the SARFAESI Application was filed after the issuance of the sale certificate. Conduct of the borrower itself shows that he is interested in delaying the proceedings. In paragraph 6.9 of the SARFAESI Application, it is stated that multiple sale notices were issued by the Bank which were challenged by the Respondents by moving interim applications but the sale notices could not attract any bidders; rather, the same were rendered infructuous and the interim applications were disposed of having no merits. Surprisingly, in the written opposition, filed by the Bank, paragraph 6.9 of the petition, was neither admitted nor denied which shows that impliedly Bank has admitted the assertions made in paragraph 6.9.

Learned Counsel for Respondents No. 1 to 4 submits that Learned DRT has rightly arrived at the conclusion that due compliance of Rules 8 (6) and 9 (1) of the Rules were not made. It is further submitted that the judgment of S. Karthik (supra) would not be applicable in this case as it relates to the sale of 2012 whereas the amendment in Rule 8 (6) is incorporated in 2016. It is further submitted that the earlier auctions were not frustrated due to the conduct or efforts of the Respondents No. 1 to 4 rather they could not materialize for want of bidders. Hence, this liability cannot be fixed upon the Respondents that due to their conduct earlier auctions could not materalise.

At the very outset, without entering into the merits of the case if we go through the impugned order and judgment passed by the Learned DRT, we find that in the operative portion of the order in paragraph No. 1, Learned DRT ha recorded a finding to the effect that the previous SARFAESI Application No. 97 of 2016 filed by the Appellant was dismissed on merits on 10th January, 2020. Thereafter, Learned DRT has just narrated the facts in paragraphs 2, 3 and 4 of the order. No finding or reasoning is recorded to arrive at the finding that he sale notice dated 6th November, 2020 is bad in law and is liable to be set aside and accordingly, sale conducted on 25th November, 2020 is also set aside. I am constrained to observe that the Learned DRT has not exercised its judicial mind to arrive at the conclusion recorded in the order.

At this stage, I would like to observe that a Court or Tribunal is expected to record its finding on all the issues raised by the parties before it. It may be that the judgment is based upon a single issue only but it is imperative that all the issues, raised by the parties, should be dealt with by the Tribunal. Judgment writing shall be governed by the provisions under Order XX Rules 4 and 5 C.P.C., which reads as under:

“Rule 4 - Judgments of Small Cause Courts

(1) Judgments of a Court of Small Causes need not contain more than the points for determination and the decision theron.

(2) Judgments of other Courts - Judgments of other Courts shall contain a concise statement of the case, the points for determination, the decision thereon and the reasons for such decision.

Rule 5 - Court to state its decision on each issue –

In suits in which issues have been framed, the Court shall state its finding or decision, with the reasons therefor, upon each separate issue, unless the finding upon any one or more of the issues is sufficient for the decision of the suit.”

The above provisions are specifically applicable in the present case wherein the Learned DRT was required to record its finding on all the issues raised by the parties; which was not done. A plea which is taken by a party and is not decided by the trial Court/Tribunal, requires reconsideration by the trial Court/Tribunal itself.

Further in Brijmani Devi -vs- Pappu Kumar and Another, reported in (2022) 4 SCC 497, The Hon’ble Apex Court held as under:

“32. On the aspect of the duty to accord reasons for a decision arrived at by a court, or for that matter, even a quasi-judicial authority, it would be useful to refer to a judgment of this Court in Kranti Associates (P) Ltd., v. Masood Ahmed Khan, (2010) 9 SCC 496 wherein after referring to a number of judgments this Court summarised at para 47 the law on the point. The relevant principles for the purpose of this case are extracted as under:

32.1. Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well.

32.2. Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power.

32.3 Reasons reassure that discretion has been exercised by the decision-maker on relevant grounds and by disregarding extraneous considerations.

32.4. Reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies.

32.5. The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the lifeblood of judicial decision-making justifying the principle that reason is the soul of justice.

32.6. Judicial or even quasi-judicial opinions these days can be as different as the Judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants’ faith in the justice delivery system.

32.7. Insistence on reason is a requirement for both judicial accountability and transparency.

32.8. If a Judge or a quasi-judicial authority is not candid enough about his/her decision-making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism.

32.9. Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or "rubber-stamp reasons" is not to be equated with a valid decision-making process.

32.10. It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision-making not only makes the Judges and decision-makers less prone to errors but also makes them subject to broader scrutiny.

32.11. In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of "due process".

“34. The Latin maxim “cessante ratione legiscessat lex” meaning “reason is the soul of the law, and when the reason of any particular law ceases, so does the law itself, is also apposite.”

Further in Industrial Credit and Investment Corporation of India Limited -vs- Grapco Industries Limited & Others, reported in AIR 1999 SC 1975, The Hon’ble Apex Court held as under:

“13. An ex parte order is only of short duration and it is granted to safeguard the interest of the applicant, but, at the same time, such an order cannot be granted as a matter of course. A Court or Tribunal has also to consider the consequences of such an order if ultimately the order evoked after hearing the defendant. In such circumstances, the Tribunal must put the applicant on terms while granting an ex parte order and compensate the defendant in case the ex parte order was obtained without any justification and harm has been caused to the defendant. It must be remembered that an ex parte order can also affect the reputation of the person against whom it is issued and sometimes it may be difficult to undo the damage caused by an interim order. A Tribunal while granting ex parte order of stay or injunction must record reasons, may be brief one, and cannot pass a stereo-typed order in terms of the prayer made. Then an ex parte order cannot be allowed to continue indefinitely and the continuance of interim order has to be decided without undue delay when the defendant puts in his appearance. It is not necessary to hear long drawn arguments. Principles on which an interim order can be granted are well settled. Sub-section (a) of Section 19 requires that application for recovery of debt itself is to be disposed of finally within a period of six months from the date of receipt of the application. That also shows the urgency to decide is an interim order of injunction or stay granted ex parte is to be continued or not. In our view, the High Court was not correct in holding that a Tribunal under the Act has no power to grant an ex parte order of injunction or stay.”

Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it but must also appear to be done as well. Insistence of reasons is a requirement for both judicial accountability and transparency. Transparency in decision making not only makes the Judges and decision makers less prone to errors but also makes them subject to broader scrutiny.

Learned DRT is performing its judicial function, principles of natural justice has to be followed by the DRTs, as provided under the SARFAESI Act 2002 as well as Recovery of Debts Due to Banks and Financial Institutions Act, 1993. One of the basic cardinal principles of natural justice that an opportunity of hearing should be given to the parties. Further, the findings recorded by the Tribunal must be supported with the reasoning to arrive at a particular finding. Merely recording the submission of the Learned Counsel of the parties and thereafter not recording its own view is nothing but arbitrary exercise of powers which could not be permissible under the law. It is more important when we consider this with a different perspective.

On the basis of the discussion made above, I am of the considered opinion that the Learned DRT has passed an erroneous order without recording any reasons to arrive at the finding recorded by it. Hence, the matter requires to be remanded to the Learned DRT with a direction to decide the matter afresh by recording a reasoned order after giving an opportunity of hearing to the parties.

Accordingly, appeal is liable to be allowed and the impugned order is liable to be set aside.

ORDER

Both the appeals are allowed. The matters are remanded to DRT-II, Kolkata for deciding the SARFAESI Applications afresh, in the light of the observation made in the body of the judgment. It is needless to say that the Learned DRT should give an opportunity of hearing to the parties and record a reasoned order.

No order as to costs.

File be consigned to Record room.

Copy of the order be supplied to Appellant and the Respondents and a copy be also forwarded to the concerned DRT.

Let a copy of this judgment be retained in the file of Appeal No. 83 of 2022.

Let a copy of this judgment be sent to all the DRTs under the jurisdiction of DRAT, Kolkata for their future guidance.

Copy of the Judgment/Final Order be uploaded in the Tribunal’s Website.

Order signed and pronounced by me in the open Court on this the 30th day of September, 2022.