Indian Overseas Bank vs Arjun Gases Ltd. And Ors.

Arjun Gases Ltd. and others had filed S.A. No. 3/2008 to challenge the measures initiated by Indian Overseas Bank against the said company on account of a default on their part to repay the loan advanced by the Bank. The S.A. was filed on 31st December, 2007 when a sale notice dated 23rd November, 2007 was issued. Subsequent thereto, another sale notice came to be issued on 14th December, 2009 which was also made subject-matter of challenge by filing I.A. No. 52/2010 without making any amendment to the S.A. earlier filed against the sale notice dated 23rd November, 2007 or by filing any fresh S.A. The Tribunal below has considered the challenge to the sale notice dated 14th December, 2009 as well where even the sale of the properties which had taken place was also challenged.

The record would show that sale of one property i.e. industrial plot No. M. 14, Industrial Area, Yamunanagar held pursuant to sale notice 23rd November, 2007 was challenged by Unique Timber Works in S.A. No. 72/2009 which was withdrawn after the purchase of the said property by Oberoi Wood Products Pvt. Ltd. pursuant to the second sale notice dated 14th December, 2009. The sale of second property Residential House No. 108-A, Model Town, Yamunanagar in favour of Mrs. Shalini Goel also came to be challenged through I.A. 52/2010 which has also been set aside by the Tribunal below. Aggrieved against the order passed by the Tribunal, Indian Overseas Bank, Oberoi Wood Products Pvt. Ltd. Mrs. Shalini Goel have filed three separate Appeal Nos. 79/2013, 90/2013, 108/2013 respectively applicant Arjun Gas Ltd. has also filed one Appeal (Inward No. 171/2013) to impugn some part of the finding returned by the Tribunal below. Since challenge in all the Appeals is to the same order passed by the Tribunal below, may be on different counts, all the Appeals are being heard together and are being disposed by this common order.

The Tribunal below without making any mention to the facts as pleaded in the application, straightaway commenced the impugned order by noticing the issues requiring adjudication in the S.A. filed by Arjun Gases Ltd. by observing that these would arise on the basis of hearing and of perusal of record. It is always appropriate to notice the facts pleaded which also helps the appellate and other authorities to understand the case properly and to examine the issue and so also to appreciate the reasoning in the decision rendered by the Tribunal.

It is, therefore, considered appropriate to notice the facts, in brief, as were pleaded in the S.A. filed by the borrower, Since these Appeals have been filed by all the parties concerned, it would be appropriate to refer to parties as Bank, borrower, purchaser so as to avoid confusion.

The Bank has sanctioned Cash Credit facility of Rs. 20 lacs. Term Loan facility of Rs.2,74,500/-, Cheque Purchase Limit of Rs. 2 lac and deferred payment Guarantee for Rs. 25.50 lacs on 2nd May, 1994. The borrower had created an equitable, mortgage of land and building on plot No. M-14, Industrial Area, Yamunanagar and also another equitable mortgage of one House built on Plot No. 108-A. Model Town, Yamunanagar. Besides, the borrower had also hypothecated truck, gas cylinders and stocks of other goods. Facilities were changed from time-to-time depending upon the business requirement. These facilities were further secured by equitable mortgage of plot at Hanuman Gate, Jagadhari. Total sanctioned facilities till 31st July, 2002 were to the extent of Rs.2 crores. These facilities were restructured and reduced to Rs. 80 lacs during 2003-04.

Another concern by the name of Kalkin Enterprises Pvt. Ltd. was also granted Term Loan of Rs. 85 lacs and cheque purchase facility of Rs. 5 lacs, which we secured by creation of equitable mortgage of house No. 150, Shastri Colony, Yamunanagar, House No. 27, Brijpuri, Yamunanagar and House No. 108-A. Model Town, Yamunanagar and so, also M-14, Industrial Area, Yamunanagar. The accounts of both the borrowers were declared NPA on 31st May, 2005. The Bank issued a notice under Section 13(2) of the SARFAESI Act on 7th September, 2005. Notices were issued to guarantee and mortgagors individually.

The borrowers approached the Bank for one-time settlement which was accepted. The borrower did not fulfil the commitments and the OTS was withdrawn on 25th September, 2006.

The borrower did not file any response to the notice under Section 13(2) of the SARFAESI Act. The Bank ultimately was constrained to issue possession notice on 20th December, 2006 in respect of property No. M-14 Industrial Areas, Yamunanagar, Residential House No. 150, Shastri Colony, Yamunanagar, House No. 27, Brijpuri, Yamunanagar and property at Hanuman Gate. Possession of these properties was taken on 20th December, 2006. Subsequently, the Bank took possession of property Residential House No. 108, Model Town, Yamunanagar on 31st August, 2006. It is stated that Bank took symbolic possession of all these properties. The notices regarding taking of possession was published in the news-papers as well and accordingly the Bank issued sale notice on 19th November, 2007 in respect of the six mortgaged properties. Copies of these notices were served on the borrower, guarantors/mortgagors. As per the Bank, the sale notice contained the time, dale and place of sale of the mortgaged properties which is one of the reasons which has weighed with the Tribunal to interfere while passing the impugned order.

Instead of taking any appropriate action under the SARFAESI Act, the borrower chose to file Writ Petition No. 18809/2007. The High Court passed an order restraining the Bank from confirming the sale of the properties. This writ petition was, however, dismissed on 25th September, 2008 with the observation that the proper remedy was before Debts Recovery Tribunal. The borrower then filed the present S.A.

During this period, the properties 108-A, Model Town, Yamunanagar, House No. 27, Brijpuri, Yamunanagar, and House No. 150, Shastri Colony, Yamunanagar was sold on 26th December, 2007. These properties were sold subject to the order being passed by the High Court. Obviously, once the High Court dismissed the writ petition, the Bank was competent to confirm the sale which had taken place.

The Bank auctioned the property, i.e. 27 Brijpuri Colony in favour of Mr. Sunil Tyagi for Rs. 50 lacs against the reserve price of Rs. 42.55 lacs. House No. 150, Shastri Nagar, Yamunanagar was auctioned at the reserve price of Rs. 30.90 lacs. The reserve price of the property, namely, M-14, Industrial Area, Yamunanagar was fixed at Rs. 34.70 lacs but the highest bid was for Rs. 115 lac given by Mrs. Priya Bhaskar. This bid was sent through special messenger who was the principal borrower Mr. Harishchander Alag. This fact ultimately revealed as it was later confirmed by Bank of Rajasthan that the Banker's cheque dated 17th January, 2008 was purchased by Mr. Harishchander Alag from his account and the bid amount was also paid from the account of relation of Mr. Harishchander Alag.

Mrs. Priya Bhaskar, however, did not deposit the balance amount, but instead approached the High Court for first ending over the possession of the property before she was asked to deposit the amount. This prayer was rejected by the High Court whereafter she did not deposit any amount even after taking various dates.

The Counsel for the borrower in the meantime had made a statement before the Tribunal that the borrower would pay the remaining amount on or before 21st July, 2009, failing which the property mortgaged could be sold by the Bank without any hindrance. Mrs. Priya Bhaskar ultimately withdrew her writ petition after making various false promise before the Court, which permission was granted by imposing Rs. 25,000/- as cost to be deposited with the Legal Aid Services Committee.

Similarly, other properties were also sold but the Bank has not been able to deliver the possession primarily because of hurdles created by the borrowers. In the background of these facts, the Tribunal below has considered the S.A. and has allowed the same only on one count, i.e., the sale was not conducted in terms of the Security Interest (Enforcement) Rules, 2002 (hereafter referred to as the 'the Rules'). Since the sale in favour of two of the auction purchasers has been set aside, they have also filed separate Appeals.

I have heard the Counsel for the parties. The Tribunal below has considered various issues which was noted at the very commencement of the impugned order. First plea considered was regarding the application being barred by limitation. As per the Bank, the symbolic possession of the property was taken on 31st August., 2006 and possession of five mortgaged properties were taken on 20th December, 2006. The plea by the Bank, therefore, was that the S.A. filed on 31st December, 2007 was beyond the period of limitation. In this regard, the Bank had relied on the case of UCO Bank v. Kanji Manji Kothari & Company, 1 (2007) BC 91 = 2008 (1) I.S.J. (Banking) 343 : 2008 (110) Bom. L.R. 744.

The response of the borrower was that the S.A. was failed to challenge the sale notice dated 23rd November, 2007 inviting tender and, therefore, the S.A. filed on 31st December, 2007 was well within 45 days. Counsel for the borrower sought support from the case of Indian Overseas Bank v. Ashok Saw Mill, III (2009) BC 640 (SC) = VI (2009) SLT 10 = AIR 2009 SC 2420. The Tribunal below, in my view, has simply brushed aside this objection on the ground that the sale notice was dated 23rd November, 2007. The Tribunal, in my, view has callously glossed over the plea that the cause of auction arose when the possession of the property was taken. The Tribunal below was required to consider if in this background the S.A. to challenge the notices under Sections 13(2) and 13(4) were still open and whether in such circumstance the borrower is entitled to challenge only the sale notice dated 23rd November, 2007. The Tribunal has simply ignored this challenge by recording that decision in Kanji Manji's case (supra) was not applicable to the facts without elaborating as to how this will not be applicable, and without even noticing the ratio which would emerge from this decision. Whether the ratio laid down in Ashok Saw Mills case (supra) would be attracted to consider the plea of limitation was also required to be considered.

No doubt, the Court in this case has held that the Tribunal had jurisdiction to interfere even after the stage contemplated under Section 13(4) of the Act, but that was not in the context whether the challenge to the sale notice would also entitle the appellant to challenge the notice under Section 13(2) as well as notice for possession. In view of the perfunctory nature of this issue having been considered and decided by the Tribunal, this part of the finding that the S.A. was within the period of limitation would call for re-consideration.

This issue could have been considered by this Tribunal but since the case is being remanded to the Tribunal below, this issue can again be considered by the Tribunal below. When there is a need to remand the case is a glaring infirmity in the impugned order where the challenge was to the sale notice dated 23rd November, 2007. This S.A. was filed in the year 2008, but the Tribunal below has permitted the borrower to challenge the subsequent sale notice which was issued on 14th December, 2009. The Tribunal considered the said challenge only on the basis of I.A. filed by the borrower, Any action which was taken nearly 2 years after filing of the S.A., could have been considered only if the borrower had taken action either to amend the S.A. to plead that challenge or to challenge the same by filing a fresh S.A.

I.A. No. 52/2010 was filed in January 2010. Whether this subsequent cause of action so could be combined in the S.A. filed by the borrower earlier was required to be considered. The method adopted by the borrower and permitted by the Tribunal was required to be examined to see if it was in accordance with law. The Tribunal below ought to have realized that either the borrower needed to amend the S.A. or to file a fresh S.A. to challenge the subsequent notice. This was more so when the Tribunal itself has culled out the points which required adjudication in the S.A. and these are as under:

(i) Whether present application is barred by limitation?

(ii) Whether notice under Section 13(2) of the SARFAESI Act dated 7th September, 2005 (Annexure A.5) was issued upon all the Applicants?

(iii) Whether presentation dated 15th September, 2005 (Annexure A.6) has been disposed off by the respondent Bank in compliance of Section 13(3A) of SARFAESI Act?

(iv) Whether possession dated 31st August, 2006 and has been served upon the Applicants in compliance of Rules 8(1) and 8(2) of Security Interest (Enforcement) Rules, 2002 (for short the Rules, 2002)?

(v) Whether secured assets have been sold in compliance of the Rules, 2002?"

From the above it is clear that the Tribunal has not in any manner considered the challenge raised in regard to the sale notice dated 23rd January, 2007 or 14th December, 2009. The plea of limitation has been rejected only on the ground that challenge was to the sale notice, whereas, the Tribunal has only considered what all happened pursuant to the notice under Section 13(2) of the Act and the possession notice.

In this context only it may call for a notice here that one I.A. No. 998/2012 was tiled on behalf of third party (Mrs. Priya Bhaskar) who was the highest bidder in respect of Plot M-14, Industrial Area, Yamunanagar, pleading that the Bank be directed to deliver the actual vacant possession of the said property. The said third party filed another I.A. seeking disposal of the I.A. 998/2012, but the Tribunal declined the prayer. The prayer in this I.A. was that Mrs. Priya Bhaskar had flouted all the orders passed by the High Court and the Tribunal despite getting all the opportunities and failed to deposit 75% of the amount. As already noticed that she had also filed Writ Petition No. 16174/2010 before the Hon'ble Punjab and Haryana High Court where order was passed on 25th October, 2010 restraining the Bank from issuing sale certificates. It was pointed out before the Tribunal that the Applicant in this I.A. was seeking the same relief for which she had filed writ petition which was got dismissed as withdrawn on 11th November, 2011.

Even after having noticed this fact, the Tribunal failed to pass any order. The Tribunal could not ignore the aspect that all this was being done in connivance with borrower. Result is for everyone to see but the Tribunal remained ignorant. It has gone on to consider the plea of limitation.

After rejecting the objection in regard to limitation, the Tribunal has considered the points requiring adjudication. The Tribunal has rejected the challenge that the notice under Section 13(2) of the Act was not served upon the borrower Applicants. The Tribunal has also not accepted the plea that the Bank had not considered the representation filed against demand notice. All these objections, however, were dismissed on the ground that these had no basis. Thus, notices under Sections 13(2) and 13(4) of the SARFAESI Act were held to be validly issued.

The Tribunal also did not accept the plea that the Bank had not responded to the objections filed by the borrower as it has found that the borrower failed to produce any proof of delivery of such representation. The Tribunal has even rejected the plea of the borrower that the possession notice was not served upon them or was not affixed at the properties concerned. This objection was also rejected by the Tribunal. The findings and reasons given by the Tribunal on these grounds are supported by evidence and material on record and thus would not call for any interference.

The Tribunal, however, in a misconceived manner has gone ahead to accept the challenge raised by the borrower that the sale was not conducted in terms of the Rules. What has weighed with the Tribunal is that the sale notices dated 23rd November, 2007 and 14th December, 2009 did not contain date, time and place of sale and the valuation of the property was not properly got done in terms of Rules 8.5 of the Rules. In response, the Bank had clearly pointed out that both the sale notices did contain date, time and place of the opening of tender and was fully in consonance with the rule position.

This objection basically flows from Rule 8(6)(d) of the Rules. Rules 8(5) of the Rules provides for four different methods of sale of the immovable secured assets. Thus, the sale can be inviting tenders from public and so also by holding public auction. Rule 8(6) of the Rules provides that when sale of the secured asset is to be effected either by inviting tender or by holding public auction that the secured creditor shall cause publication of notice in two newspapers. This public notice., as per the Rules, shall include various requirement one of which is that it should contain time and place of public auction or the time after which sale by any other mode shall be completed. The property through public notice was not being put to sale by way of auction. It was by inviting tender from public. Time and place is required to be mentioned in the notice when the sale is by way of public auction. In the event of sale by any other mode, the time after which such sale shall be completed is required to be disclosed. I fail to understood as to from where the Tribunal below has held that the time and place of opening of a tender was required to be mentioned. The requirement of time and place as per Rule 8(6)(d) would arise when the property is put to sale by way of public auction. In the case of tender, time and last date of receipt of the tender is only required to be mentioned. The rule does not require anything else.

The second ground to assail the sale was that valuation of the property was not done in a proper manner. The Tribunal itself has taken note of two valuation report of the industrial plot and it is stated that no valuation report regarding five other properties have been placed on record. The Tribunal has also observed that the reserve price which was fixed after a gap of two years was slightly higher than the reserve price fixed in the year 2007 which was done with mala fide intention. The response by the Bank was that the valuation of the property was obtained from the authorised valuer. As per the Bank, the highest bidder had given unrealistic bid who even failed to make deposit of balance 75% amount after giving the bid. The bid given by Mrs. Priya Bhaskar has already been considered by me which would indicate that all, these have been done at the instance of borrower and was aimed at interfering in the process of sale. I am, thus, of the view that the Tribunal below has whimsically brushed aside the view point of the Bank and without giving it due weightage and without considering the relevant material on record has interfered with the sale. The view expressed by the Tribunal is a stretched one and certainly did not see any violation of Rule 8(6)(d) of the Rules.

There is another serious issue in regard to the action of the Tribunal in considering the said notice issued pending S.A. by only entertaining the I.A. in this regard. The Tribunal quashed the sale pursuant to both the sale notices. Not only that the Bank has been directed to return the amount of the sale consideration of the auction purchaser within 15 days with interest 8% p.a. simple, but, strangely, the borrowers were given opportunity to pay the outstanding dues along with the contractual rate of interest for which the Bank was required to provide a statement of accounts. The finding returned by the Tribunal, therefore, cannot be sustained in view of infirmities pointed out. The plea by the Bank that S.A. was barred by time require fresh adjudication so also the challenge raised by the borrower to the sale notices. The Tribunal would first consider the plea of limitation afresh and also the question whether the plea of the borrower to make a challenge to the subsequent sale notice dated 14th December, 2009 can be validly entertained on the basis of an I.A. filed or there is any other requirement in accordance with law.

The finding by the Tribunal in setting aside the sale in favour of the auction purchaser on account of violation of the rule cannot be sustained and is set aside. If the amount deposited by the auction purchaser is not refunded, then auction purchaser would be at liberty to wait for the outcome of the fresh adjudication and can appear before the Tribunal below to make their submissions. If the amount has been refunded, the Tribunal below would consider the challenge to the sale notices and the Bank would be at liberty to go ahead with the sale of the properties in accordance with law. The finding returned by the Tribunal below on the other issues, like notice under Section 13(2) and possession notice under Section 13(4) of the Act and the challenge in regard to disposal of representation shall not be re-opened. The Appeals filed by the Bank and the auction purchasers are accordingly disposed of in the above terms. In view of the order passed in the appeals filed by the Bank and the auction purchasers, the relief claimed by the borrower in its Appeal for declaring the notice under Section 13(4) of the Act to be void ab initio is dismissed. Strangely, the borrower has also prayed for direction for quashing the order dated 6th March, 2013 (Annexure A-1). This prayer shall stand disposed of in the light of the order passed in the Appeal filed by the Bank and the auction purchaser.