Kanti Lal Sadh vs Indian Overseas Bank

Ranjit Singh, J

Alleging that the appellants have been forcibly dispossessed of the property in violation of the procedure prescribed under law, they have approached this Tribunal by way of present appeal seeking the possession of the property back of which they have been dispossessed.

The appellants had filed a miscellaneous application in the S.A. filed by them before the Tribunal below, which had been dismissed, pointing out that they have been forcibly dispossessed from the property in question which is their sole residential property and so they should be given back the possession, as the same was taken violating the provisions contained in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act).

The appellants, in fact, had obtained certain credit facilities from respondent Indian Overseas Bank in the year 2010. The property in question was mortgaged with the respondent bank by the appellants to secure these facilities, Since the appellants failed to maintain the financial discipline, their loan account was declared as Non Performing Asset (NPA) by the respondent bank. The bank, thereafter, initiated action under the SARFAESI Act for the sale of the property. Notices under sections 13(2) and 13(4) of the SARFAESI Act were issued. Aggrieved against the same, the appellants filed S.A. No. 3/2013 before the Tribunal below. The Tribunal, vide its order dated 26.12.2013, rejected the S.A. and gave liberty to the respondent bank to proceed in accordance with law.

Upon rejection of S.A. filed by the appellants, the respondent bank has taken the possession of the secured asset on 2.1.2014 by sealing the same. Aggrieved against this action taken by the respondent bank, the appellants had filed an application before the Tribunal below making a prayer to de-seal the property in question, as the bank had not followed the due process of law while taking possession of the secured asset, which were the directions of the Tribunal in its order dated 26.12.2013.

The facts disclosed in the miscellaneous application to substantiate their plea of forcible dispossession, as disclosed by the appellants, are that the respondent bank without deciding the objection filed qua notice under section 13(2) of the Act proceeded under section 13(4) of the Act. The bank had approached the ACMM who, vide his order dated 9.11.2012, appointed Ms. Beauty Singh as Court Receiver. The order contained a specific direction that it was valid only for 90 days. The Receiver issued a possession notice dated 22.12.2013 against which the appellants filed S.A. No. 3/2013 which, ultimately, was rejected on 26.12.2013. In this order, the bank was given liberty to proceed in accordance with law. It is alleged that to their utter surprise the appellants found a notice affixed on their door on 1.1.2014 for taking physical possession of the property on the following day, i.e., 2.1.2014 at 10 a.m. Prior to this notice, the appellants were not served with any notice for taking possession of the property.

The appellants would urge that appellant No. 1 is 75 years old senior citizen Iiving with his aged wife who is around 73 years old. Appellant No. 1 stated that he was living in this property with his married sons and their family members. Allegation was that the bank officials came to the property in question accompanied by some goons and forcibly dispossessed the appellants from the property in question. Appellants state that they are now on the road. Accordingly they have prayed that the property be de-sealed, as they were dispossessed in violation of the provisions prescribed under law and the possession thereof be handed over to the appellants.

The respondent bank contested the prayer made in the application. The bank would term the filing of this application to be a gross abuse of the process of law. The respondent bank pointed out that the S.A. filed by the appellants, where they had taken all possible objections against the efforts of the bank to take the physical possession of the mortgaged property, had already been dismissed by the Tribunal. The Tribunal had permitted the bank to proceed in accordance with law, As per the bank, it strictly proceeded in accordance with the provisions of law. The bank has denied that it had taken any forcible possession of the property.

In its reply, the bank has stated that the authorized officer had written a letter dated 22.12.2013 informing the appellants that he will be taking physical possession of the mortgaged property on 2.1.2014. The authorized officer along with Mr. S.N. Jha, Senior Manager of the bank, went personally to the mortgaged property at 4 p.m. on 27.12.2013 for delivery of this letter, but none came forward to accept the letter. Consequently, the authorized officer pasted the letter on the outer wall of the property in dispute. Bank has disclosed that it had taken assistance of Luminary Professional Services Pvt. Ltd. which had gone to the police station, Amar Colony seeking police assistance when the concerned officer there had deputed a junior officer along with 10 policemen to accompany the bank officials to the premises. The team of Lumnary Professional Services Pvt. Ltd. had two advocates and accordingly it is pleaded that the bank did not do anything which was contrary to the legal provisions.

Explaining the scene at the time of taking physical possession, it is stated that on 2.1.2014 between 12 p.m. and 2 p.m. the authorized officer on reaching the place saw Mr. Kanti Lal Sadh (appellant No. 1) standing outside the gate of his above mentioned premises. The main gate of the property had been locked from outside. The appellant Mr. Kanti Lal Sadh himself admitted that he had put this lock on the property. The authorized officer requested him to open the lock so that he can take physical possession of the property. On this, the appellant Mr. Kanti Lal Sadh felt annoyed and told the authorized officer that he reached the place directly from Bombay and so it was not possible for him to open the lock to deliver the physical possession. As per the stand of the bank, hearing this the authorized officer put his lock on the outer door which was in addition to the lock already put by the appellant Mr. Kanti Lal Sadh. In this manner, the bank claims to have taken physical possession of the property without even entering inside the premises. Panchnama of the inventory of the property was also annexed with the reply. The bank would also refuse the contention raised by the appellants that they had no other place than the property in question. This stand is termed as false as the documents on record, like Chartered Accountant's report submitted with the bank would show that the address of the appellants being B-93, Sector -63, Noida (U.P.) and also A-21, Sector - 67, Noida (U.P.). The bank thus would contend that it had duly complied with the requirement of rule 8(2) of the SARFAESI Act and the possession notice was published on 8.1.2013 in two daily newspapers within a week of taking physical possession of the property.

The bank has also raised objection regarding the maintainability of the miscellaneous application which was filed under section 19(25) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, Since the S.A. was filed under the SARFAESI Act, according to the bank, the provisions of section 19(25) of the RDDBFI Act would have no applicability in the present case. On this ground, the bank would plead that the miscellaneous application was liable to be dismissed.

The Tribunal, after hearing the parties at length and after considering the judgment relied upon by the counsel for the appellants, has dismissed this miscellaneous application. Aggrieved against this order passed by the Tribunal below, the present appeal has been filed.

Mr. Muneesh Malhotra, counsel for the appellants was rather emphatic in his submission and would submit that rule of law must prevail and the banks could not be permitted to take law into their own hands and dispossess a person like this. As per the counsel, the provisions under the SARFAESI Act makes a provision for taking possession of the property and the bank was expected to take action in accordance with law as were the directions issued in the S.A. which though was dismissed. In support of his submission that the bank had dispossessed the appellant in violation of the legal provision, the counsel would highlight the manner in which the bank had taken help of a private agency and also of the police without making any approach to ACMM as envisaged under section 14 of the SARFAESI Act. The counsel would also submit that the earlier approach made by the bank, when a Court Receiver was appointed, was only for a period of 90 days and as such for taking physical possession of the property on the basis of objection and resistance by the appellant, the bank was expected to move appropriate application under section 14 of the Act and then take possession of the property in accordance with law. As per the counsel, once the appellants have been dispossessed in violation of the legal provisions, possession taken from the appellants illegally needs to be restored to him/them.

In support of his submission, the counsel has placed reliance on a number of precedents, main being a judgment by the Bombay High Court in the case of M/s Clarity Gold Pvt. Ltd. & Anr. vs. State Bank of India & Ors., AIR 2011 BOMBAY 42. This was a case where the petitioner company had obtained some credit "facilities where one of the petitioners was a guarantor and a mortgagor of residential flat. The bank had issued notice under section 13(2) of the SARFAESI Act, which was accepted by the Director of the company. This was followed by notice under section 13(4) of the Act. The possession of the property was taken by the bank. The petitioner/guarantor then filed an application before Debts Recovery Tribunal, which allowed the same and set aside the action of the bank in taking the possession besides directing that the possession be delivered back to the petitioner. This was on the ground that the measure which had been adopted by the bank under section 13(4) was unlawful for want of service of notice of possession on the petitioner guarantor. The High Court of Bombay in this case set aside the order passed by the Tribunal. The grounds in regard to the service of notice and deciding the objection etc. on which basis the Tribunal had passed the order did not appeal to the High Court. However, one of the issues which arose before the High Court was that the possession was taken unlawfully by the bank in a forcible manner without seeking recourse to the remedy provided under section 14. This plea was on the ground that the bank had addressed a letter to the Commissioner of Police, Mumbai stating that its authorized officer was taking necessary action in an area falling under the jurisdiction of the Malabar Hill Police Station. A request was made in the letter to direct the Police Station to provide constables for the protection of the authorized officer of the bank in discharging his official duties under the Act. This was followed by a letter to the officer incharge of Malabar Police Station. On this basis, police bandobast was asked for and the possession was taken. Thereafter, a police complaint was filed by the petitioner (guarantor etc.), but the police inspector on duty refused to take the complaint of physical assault and allegation of forcefully taking of possession of flat without the due process of law. The Tribunal came to the conclusion that the bank had taken forcible possession of the property without seeking recourse to an order of the Chief Metropolitan Magistrate or the District Magistrate for the purpose of taking possession. Dealing with this issue, the Bombay High Court has observed that though section 14 is an enabling provision, yet it will be wholly impermissible for secured creditor to take law into his own hands and forcibly evict the borrower from the secured asset despite the provisions of section 14. The High Court has observed that our legal system is governed by rule of law. If the borrower hands over the possession voluntarily to the secured creditor in pursuance of the notice under section 13(4), it would be open to the secured creditor to take possession. But, if possession is not voluntarily handed over, the secured creditor cannot take the law into his own hands and secure vacant possession by taking recourse to the police machinery. As is observed by the High Court, in such an event, the only remedy available is to seek an appropriate order from the Chief Metropolitan Magistrate, or as the case may be, from the District Magistrate. Authorization of use of force for taking possession is, therefore, a matter which lies in the jurisdiction and power of the authorities prescribed by section 14 and no secured creditor can by seeking assistance of police machinery unilaterally carry out the eviction of the borrower and take over forcible possession of the secured asset.

No doubt that the above position of the law has been enunciated by the High Court, but still the Court went on to observe that the DRT as a matter of fact entered a finding of fact that the possession was forcibly taken over by a secured creditor in the case. The Debts Recovery Tribunal had clarified that it would not be resting its decision on that finding, since quite independently it had come to the conclusion that the notice of possession and the sale notice were invalid. When the appeal was carried by the secured creditor, the Appellate Tribunal reversed the finding of fact of the Tribunal on the issue pertaining to the service and delivery of the possession notice under Rule 8(1) and the publication of the possession notice in the newspaper under Rule 8(2). The Appellate Tribunal, however, did not go into or consider the correctness of the finding which was arrived at by the Tribunal that secured creditor had forcibly dispossessed the debtor. In this background, the High Court was of the view that having regard to the parameters of the jurisdiction under Article 226 of the Constitution, it would only be appropriate and proper if that question is left to be decided by the Appellate Tribunal which has a fact finding jurisdiction. The High Court disposed of the proceedings by observing that there was a valid delivery and service of the possession notice under Rule 8(1) and that there was a valid publication of the possession notice etc. and as such the finding returned by the Tribunal below was accordingly interfered with.

What would emerge from this judgment is that unless a finding of fact is recorded that a person, in this case the appellants, were dispossessed forcibly, the observation made in this judgment may not come to the help of the appellants.

Counsel has then relied upon a judgment of the Hon'ble Supreme Court in the case of Authorized Officer, Indian Overseas Bank & Anr. vs. Ashok Saw Mill, AIR 2009 SC 2420. The Apex Court in this case was primarily considering the issue whether the action by a secured creditor in terms of section 13(4) of the SARFAESI Act is open to the scrutiny or not, or/whether such action can be set aside or not. The Court ultimately has expressed the view that the action of the secured creditor in terms of section 13(4) is open to scrutiny and cannot only be set aside and even the status quo ante can be restored by the DRT. The counsel has referred to some other observations made by the Hon'ble Supreme Court in this case where it is noted that in order to prevent the misuse of such wide powers under the SARFAESI Act and to prevent prejudice being caused to a borrower on account of an error on the part of the banks or financial institutions, certain checks and balances have been introduced in section 17 which allow any person, including the borrower, aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor, to make an application to the DRT. As per the Court, the intention of the legislature is clear that while banks and financial institutions have been vested with stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee.

These observations appear to have been made in the background that the authority vested in the DRT under sub-section (3) of section 17 necessarily implies that the DRT is entitled to question the action taken by the secured creditor and the transactions entered into by virtue of section 13(4) of the Act. The Hon'ble Supreme Court thus did not agree with the submission made before it on behalf of the appellants before it that the DRT had no jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated under section 13(4) of the Act. As held in this case, the law is otherwise and it contemplates that the action taken by the secured creditor in terms of section 13(4) is open to scrutiny and cannot only be set aside but even the status quo ante can be restored by the DRT. The counsel would thus rely on these observations to urge that this Tribunal and for that matter the DRT would have power to restore the possession back to the appellant in case it is found that the he has been dispossessed in violation of the law.

Reference is made to the case of Standard Chartered Bank vs. V. Noble Kumar & Ors, (2013) 9 SCC 620. The Hon'ble Supreme Court in this case has considered the provisions of sections 13 and 14 of the SARFAESI Act. The facts in this case were that there was a default in the repayment of the loan transaction. Notice under section 13(2) of the SARFAESI Act was issued demanding repayment. No repayment was made ever thereafter. The appellant therein moved an application under section 14(3) of the SARFAESI Act before the Chief Judicial Magistrate for taking and handing over the possession of the secured assets. Legality of such proceedings was challenged. The respondent submitted that the secured creditor before invoking the authority of the Magistrate under section 14 must necessarily make an attempt to take possession of the secured asset and only when the creditor faces resistance to such an attempt that he (creditor) could resort to procedure under section 14 of the Act. The plea was that permitting the creditor to invoke section 14 of the Act without first resorting to the procedure under section 13(4) would deprive the owner of the secured asset an opportunity to prefer an appeal to have his grievances adjudicated.

The Hon'ble Court has held that there are three methods for the secured creditor to take possession of the secured assets and these are:

(i) Where the secured creditor gives the requisite notice under rule 8(1) and where he does not meet with any resistance, the authorized officer will proceed to take steps as stipulated under rule 8(2) onward to take possession thereafter for sale of the secured assets to realize the amount that are claimed by the secured creditor,

(ii) Where the secured creditor meets with resistance from the borrower after the notice under rule 8(1) is given he will take recourse to the mechanism provide under section 14 of the Act viz. making application to the Magistrate who will scrutinize the application as provided in section 14, and then if satisfied, appoint an officer subordinate to him as provide under section 14(1)(A) to take possession of the assets and documents and after the possession is taken, the assets and documents will be forwarded to the secured creditor,

(iii) Where the secured creditor approaches the Magistrate concerned directly under section 14 of the Act, where the Magistrate will thereafter scrutinize the application as provided in section 14, and then if satisfied, authorize a subordinate officer to take possession of the secured assets and documents and forwards them to the secured creditor as under clause (ii).

Hon'ble Supreme Court did not accept the contention that such a construction would deprive the borrower of a remedy under section 17. The Court found that this submission to be rooted in mis-conception of the scope of section 17. As per the Court, the provision of appeal under section 17(4) is available to the borrower against any measure taken under section 13(4) of the Act. As is observed by the Court, taking possession of the secured asset is only one of the measures that can be taken by the secured creditor and in any of the three situations noticed above, after the possession is handed over to the secured creditor, the subsequent specified provisions of rule 8 concerning the preservation, valuation and sale of the secured assets and other subsequent rules from the Security Interest (Enforcement) Rules would apply. It is also observed that where the objections raised by the borrower are rejected by the secured creditor, the secured creditor is entitled to take possession of the secured assets. Such action, having regard to the object and scheme of the Act, could be taken directly by the secured creditor. However, visualizing the possibility of resistance for such action, Parliament under section 14 has also provided for seeking the assistance of the judicial power of State for obtaining possession of the secured asset, in those cases where the secured creditor seeks it.

As per the view expressed by the Hon'ble Supreme Court, the secured creditor could take possession of the property through all the three modes as noted above. The secured creditor could directly take possession of the property if it does not face any resistance. If any resistance is offered by the borrower, then option before secured creditor is to take recourse to the provisions of section 14 of the SARFAESI Act.

Reference is also made to a full Bench decision of the Hon'ble Madras High Court in the case of K. Arockiyaraj vs. Chief Judicial Magistrate, Srivilliputhur & Anr., AIR 2013 MADRAS 206. The issue arising in this case may not directly apply to the facts of this case.

On the other hand, counsel for the respondent has made reference to the case of Aboobacker Vs. Punjab National Bank, III (2005) BC 390, where the Kerala High Court has observed that there is no inexorable rule that in all cases bank shall be compelled to take recourse to section 14 of the Act. Section 14 is enacted to ensure financial institution does not forcibly dispossess person in question. The relevant observation of the Court in this regard is:

2.... As far as Section 14 is concerned, a perusal of the same will make it clear that in my view the said provision is meant to assist the Bank in getting possession of the property. It is contended by the learned Counsel for the Bank that it is not obligatory for the Bank in all cases to get possession only by resorting to Section 14 of the Act. It may happen in a given case that there is resistance to the taking of possession. Then it is no doubt open to the Bank to seek assistance as provided in Section 14 of the Act. It cannot be accepted as an inexorable rule that in all cases the Bank shall be compelled to take recourse to Section 14 of the Act. No doubt it enables the Bank to seek assistance as provided in Section 14 of the Act if the facts of the given case so warrant. Apparently Section 14 is enacted to ensure that the financial institution does not forcibly dispossess the person in question. I find no merit in the contention raised by the petitioner.

In the background of law as noticed, the action of the bank is required to be examined in the light of the facts which are pleaded in this case. The case set up by the appellants is that they were forcibly dispossessed which mode could not have been adopted by the bank once the appellants offered resistance. The bank in its response has denied the allegation and has given in detail what all happened on 2.1.2014 when the authorized officer went to take physical possession of the property. The facts may indicate that the appellants had shown unwillingness through appellant No. 1. Except for pleading that the appellants were forcibly dispossessed, nothing is pleaded or urged as to the manner of their forcible dispossession. On the other hand, the bank has pleaded what all transpired at the time their authorized officer went to take possession. As per this material, the appellant No. 1 alone was present and he felt annoyed when he was informed that the bank officials had come to take possession of the property. The appellant No. 1 also stated that he has put his lock whereafter the bank officials put their lock over the one already put by the appellant. There was no evidence shown or pleaded that appellant No. 1 resisted the bank officials. The facts showing that the appellants were forcibly dispossessed are not found pleaded except for so stating badly. There is no material to disclose that the authorized officer in any manner forcibly dispossessed the appellant. Except for putting lock, he did not do anything. What all he did was to place a lock over the lock put on the outer gate of the property. No doubt, it led to taking over the physical possession of the property in question once the bank had put its lock, but it was apparently not done by using force. There is no evidence of use of any force while doing so.

I have deeply considered the material and pleadings to examine if having regards to the facts in this case, it can be said that bank had taken forcible possession of the secured assets. From the pleaded facts, I have not been able to persuade myself to accept that any force was used while putting the lock over the already locked outer gage of the property. However, it appears that the appellant No. 1 was not a willing participant for handing over the possession. He may not have offered physical or other resistance, but he did show his annoyance. Whether under such circumstances, the Bank official were expected to retreat and seek recourse to section 14 of the Act would be a question. Since no resistance is noticed to have been offered when the bank officials put their lock, they may not be expected to retreat and take recourse to section 14 of the Act. It may need a notice here that earlier the bank had taken action under section 14 of the Act when a Court Receiver was appointed. The validity period of the Receiver to act may have been over, but it will reflect that the intention of the secured creditor was to act in accordance with law. It appears that the bank (secured creditor) went by the impression that it need not approach the ACMM again. This can be so made out from the line of submission pursued on behalf of the bank before the Tribunal below. Even now the bank did take this action after informing and taking the police along. No doubt, seeking of police help directly may not be an appropriate approved method as held in some of the precedents, but in this case the bank had earlier approached the Magistrate under section 14 of the Act and this action in approaching the police seems to have taken in continuance of the approach earlier made. Bombay High Court in M/s. Clarity Gold Pvt. Ltd's case (supra) has disapproved eviction by taking forcible possession by unilaterally taking police help. Whether there was forcible eviction in this case has to be established as fact. What, however, cannot be approved, being against the legally laid down procedure, is the action of the bank in taking help of private agency. Taking assistance of some agency is not provided under any provisions of law. Even the direct approach for the police assistance to take possession has also not been approved by the Courts being not in consonance with law. Taking help from private agency thus was certainly inappropriate. This action of the bank is highly undesirable and is disapproved with repulsion. How can bank be expected to take this help of private agency which is nothing but another mode of taking private person to take possession by show of force. Since there is no allegation that any such person from the agency had taken any active part may be a saving grace. It appears that the bank being under the impression that it had already taken recourse to section 14 had sought police help directly and the presence of the police may act as assurance that no illegal help was taken from this agency to take possession of the property in question. Of course, the appropriate course would have been to take help through Court Receiver. May be that the Court Receiver was not willing to interfere in the matter because of the expiry of 90 days' period. Due to confusion arising in this situation, the bank seems to have acted which appear to be bona-fide move to seek police help in taking the physical possession of the property. In such a situation, the more appropriate course could have been to approach the ACMM for clarification rather than acting on its own.

The bank had initially acted in accordance with law and the aim was to take possession of the secured asset where the borrowers had not taken any action to discharge their liability. The conduct of the appellant is also not legally proper. There was no lis pending as the S.A. filed by them had already been rejected. Could the appellants have competently filed this miscellaneous application in an S.A. which had already been dismissed? After the dismissal of the S.A., the Tribunal below had become functus officio. The jurisdiction of the Tribunal would not get revived to deal with the miscellaneous application. Apparently, it was beyond the jurisdiction of the Tribunal. This issue ought to have been considered by the Tribunal. It had gone ahead to pass the impugned order rejecting the prayer of the appellants without considering its jurisdiction to deal with the application. The Tribunal ought to have considered the maintainability of the miscellaneous application. No such objection has been pressed before me so it may not call for any further comment. Law seems to be clear on this aspect.

While disapproving the manner and method adopted by the bank in seeking assistance of a private agency, I find that no case for handing the possession back to the appellants is made out as is prayed. The Tribunals have been bestowed with wide powers to check the compliance of the stringent provisions made under the SARFAESI and the RDDBFI Acts. Undoubtedly, the Tribunals can, where any provisions as prescribed under these Acts is/are violated, give the possession back to the borrowers. Such powers, in my view, need to be exercised when it is noticed that there has been a violation of procedure prescribed under the Act while taking action to proceed under the Act against the defaulting borrowers. The Act has made an enabling provision for the secured creditor to take the possession of the secured asset directly. The action of the bank in going to the place thus cannot be termed illegal or in violation of law or statute. Such an action which is legal may become unauthorized if the secured creditor act to take possession despite resistance. The initial permissible action then may have to stop but it may not become illegal as such as it is still available to the bank, though, in a different way by using section 14 of the Act. If there is violation of procedure given in section 13(2) or 13(4) of the Act, then the whole action may be rendered bad requiring to restore the position ante. Such a situation may not strictly arise where there is no violation of the law seen in taking possession of the secured assets directly. It is a permissible mode. Action taken as authorized by law may have to stop and retaken by approaching the Magistrate which may not render the whole action to be illegal. At best it may be termed as something done in excess of authority. The method is authorized. Besides, there is serious doubt about the maintainability of such application not only it being filed under the RDDBFI Act though in S.A., but it being so filed in S.A which had been dismissed.

The appellants have not made out a case calling for interference in the impugned order. The appeal is accordingly dismissed.

Copy of this order be furnished to the parties as per law.