M/s Gupta Trading Co. & Anr. vs Bank Of India & Ors.

JUSTICE R. D. KHARE, CHAIRPERSON

The abovementioned both the 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 judgment and order dated 29.09.2022 passed by DRT, Jabalpur, whereby the S.A No. 286/2020 filed by the borrowers has party been dismissed and partly allowed.

The brief facts gathered from the Appeal Dy. No.771/2022 are that the appellant no. 1 is a proprietorship firm, which was granted a cash credit facility to the tune of Rs. 3.00 crores by the respondent no. 1-Bank. In order to secure the said facility, the respondent no. 2 stood as guarantor and created an equitable mortgage over her property being Old Khasra No. 69/2, 96/1, New Khasra No. 119, Sheet Nos. 2, 3, 4 & 5, Plot Nos. 4 & 1, Village, Sujapur Kalan, Old Indore Railway Line Road, Near Nimar Textiles, Khandwa (M.P.), having area of 174240 Sq. ft. or 4.00 acres of total land of 42.89 acres, by depositing original title deed with the Bank. Since the borrowers did not maintain the financial discipline, therefore, the account was classified as NPA on 31.03.2019 and a demand notice dated 07.05.2019 was issued under section 13(2) of the SARFAESI Act for a sum of Rs. 3,05,29,737.61. Since the borrowers did not pay any heed to the said demand, therefore, the possession notice dated 03.10.2019 under Section 13(4) of the said Act was issued and the same was published in the newspapers on 07.10.2019. It appears that thereafter an application dated 23.06.2020 under Section 14 of the SARFAESI Act was filed before the District Magistrate, Khandwa, which was allowed vide order dated 13.07.2020.

The appellants challenged the entire actions of the respondent-Bank including the order dated 13.07.2020 passed under Section 14 of the said Act before the Tribunal below by filing S.A. No. 286/2020.

It transpires that after filing of the S.A., the appellants submitted OTS proposals on several times before the Bank, but the same could not materialize due to the amount offered by the appellants was on lower side. Thereafter, the respondent-Bank issued the sale notice scheduling the auction of the property in question to be held on 25.11.2021. Prior to the said auction, the appellants had given a letter dated 24.11.2021 (at page no. 182 of the paper book), wherein it is mentioned “we would like to closure of our regular account in your Bank regarding which we are paying an amount of Rs. 220.00 lacs as of today. We will settle the rest of the amount within 60 days”. In response to it, the respondent-Bank vide letter dated 22.12.2021 informed the appellant as under:-

Since the aforesaid offer of the Bank was not responded by the appellants, therefore, the sale notice dated 03.02.2022 was issued scheduling the auction of the property in question for 15.03.2022 and the same was published in the newspapers 07.02.2022. The said sale was challenged by the appellants by filing I.A. No. 248/2022 and the same was allowed vide order dated 29.03.2022 with certain condition as mentioned in the said order and accordingly, the amended S.A. was filed.

The Tribunal below vide order impugned has dismissed the S.A. of the borrowers against the actions of the respondent-Bank and allowed the same against the order passed under Section 14 of the SARFAESI Act. Being aggrieved by a part of the said order, the Appeal Dy. No. 771/2022 has been filed by the borrowers and the Appeal Dy. No. 25/2023 by the Bank.

Learned counsel for the appellants submitted that there are four issues involved in the present case, firstly the description of the property in question as mentioned in the demand notice is different to the description of the same as mentioned in the possession notice, secondly, the date of NPA as mentioned in the demand notice, possession notice and in the affidavit filed under section 14 before the DM are also different, but on this point, the Tribunal below has stated that it is a typographical error, which is incorrect and not admissible in the eye of law. Learned counsel further submitted that the demand notice was never served upon the appellant no. 2 and with regard to it, the respondent-Bank has not filed any proof of service either before the Tribunal below or before this Appellate Tribunal, but the Tribunal below has not considered the said aspect of the matter in the right perspective manner. Learned counsel also submitted that without service of possession notice upon the borrowers under Rule 8(1) of the Rules, 2002, the respondent-Bank has complied with the Rule 8(2) of the said Rules by publishing the possession notice in the newspapers directly, which is not permissible in the eye of law.

Learned counsel for the appellants has referred to page no. 176 of the paper book, which is a copy of letter dated 09.08.2021 issued by the respondent-Bank to the appellant no. 1-Firm and has stated that the respondent-Bank vide said letter rejected the offer of the appellant for Rs. 180.00 lacs and offered Rs. 257.41 lacs under OTS Scheme, pursuant to which, the appellant deposited Rs. 220.00 lacs by giving undertaking for the rest of the amount within 60 days vide letter dated 24.11.2021, but the respondent no. 1-Bank after accepting the said amount vide letter dated 22.12.2021 has demanded further Rs. 220.00 lacs and in case of failure, the auction process will be reinitiated and it is contended that the same is against the principle of natural justice and the settled principle of law.

Learned counsel further submitted that the appellants vide letter dated 24.01.2022 further deposited Rs. 37.41 lacs towards balance amount of OTS and sought time to pay the interest for the delayed period and requested to issue no dues certificate as well as to release the original documents, but the Bank instead of responding the same issued sale notice dated 03.02.2022 scheduling the auction for 15.03.2022 and the same was published on 07.02.2022 without giving 30 days' time for redeeming the property in question, which violates Section 13(8) of the SARFAESI Act. It was also contended that prior to issuance of said sale notice, the appellant had already deposited Rs. 2.57 crores against the demanded amount of Rs. 3,05,29,737.61, but the Bank without adjusting the deposited amount issued the sale notice showing the demanded amount, which is not just and proper. It was also contended that the sale notice was not issued in consonance of appendix IV-A of the Security Interest (Enforcement) Rules, 2002, which indicates the amount, which remains to be deposited by the appellant. It was further contended that despite deposit of huge amount by the appellant, the notice was issued for auction of the property in question for the demanded amount, which is bad in law and the same could not have been issued for the total amount. Learned counsel further submitted that if the Bank accepts, appellant is ready to deposit the remaining amount, if an opportunity is given to him including the expenses of the auction purchaser.

Learned counsel further submitted that the property in question is having area of 174240 Sq. ft. or 4.00 acres, therefore, there was no need to sell the whole mortgaged property as the remaining dues of the Bank could have been satisfied by selling a part of the said property, thus the respondent-Bank had made the excess sale, which was not required to recover its dues, but the Tribunal below has not dealt with the said issue and passed the order impugned affirming the sale of the Bank. It was, therefore, prayed that the order impugned may be set aside and the appeal may be allowed.

Learned counsel for the respondent-Bank submitted that the demand notice was personally received by the appellants on 07.05.2019 and had endorsed the receiving on the demand notice itself, copy of which is filed as Annexure No. -CA-1 to the counter affidavit filed by the Bank. It was further contended that the possession notice u/s 13(4) was issued on 03.10.2019, which was affixed, delivered and published in the newspapers on 08.10.2019, copies of which are annexed as Annexure No. -CA-2 respectively to the counter affidavit filed by the Bank. It was also contended that the contention of the borrowers that the possession of the property in question sought u/s 14 of the SARFAESI Act before the District Magistrate was not part of the properties enforced through demand notice, is erroneous, as the wrong number of the property in question typed in the demand notice was done due to clerical mistake, which caused no prejudice to the borrowers and the borrowers has also not pleaded any prejudice caused to them.

Learned counsel further submitted that the work of the District Magistrate u/s 14 of the SARFAESI Act is ministerial in nature and the District Magistrate is not required to adjudicate the dispute between the parties with respect to secured assets. It was further contended that the notice dated 18.11.2021 issued by Tehsildar, Khandwa was in pursuance of the ministerial act for providing assistance to authorized officer of the Bank to take physical possession of the property in question. It was thus contended that the Tehsildar vide letter dated 18.11.2021 has rightly directed the Revenue Inspector to get the property in question handed over to the respondent-Bank, as such the order impugned setting aside the physical possession dated 25.11.2021 pursuant to letter/notice dated 18.11.2021 issued by Tehsildar is not sustainable.

Learned counsel further submitted that the borrowers vide letter dated 26.08.2021 had given an OTS proposal for Rs.2.00 crore along with upfront amount of Rs.60.00 lacs, which was rejected by the Bank vide letter dated 16.09.2021 and returned the said amount to the borrowers, copies of which are placed at page no. 177 to 181 of the memo of appeal. It was also contended that when the auction sale was fixed for 25.11.2021, the borrower came to the branch on 24.11.2021 and submitted a letter dated 24.11.2021 with the respondent-Bank with regard to closing of account and deposited an amount of Rs.2.20 lacs and promised to pay the remaining amount within 60 days and the borrowers further prayed for stopping the e-auction dated 25.11.2021. It was further contended that pursuant to the said offer, the respondent-Bank stopped the proceedings of the said auction and copy of the said letter is placed at page no. 182 & 183 of the memo of appeal. It was further contended that an amount of Rs. 37,41,000/- was deposited by the borrowers on 24.01.2022 on its own whims, as the borrowers wrongly interpreted the letter dated 24.11.2021 as OTS Proposal and made their own assumptions of the fact of the sanction of OTS, as such the Tribunal below has rightly directed the Bank to return the amount to the borrowers along with interest payable on the loan account.

Learned counsel also submitted that since the borrowers did not honour their letter dated 24.11.2021, by which they promised to pay the remaining amount within 60 days, the respondent-Bank issued afresh sale notice dated 03.02.2022, which was published in the newspapers on 07.02.2022, scheduling the auction of the property in question on 15.03.2022. It was further contended that the said sale notice was sent to the borrowers through registered post/speed post on 04.02.2022, but on denial to take the delivery of the same by the borrowers, the sale notice was pasted on conspicuous part of the property in question and a copy of sale notice, its postal receipt along with tracking report and its pasting are placed at page no. 199 to 208 of the memo of appeal. It was thus contended that the Tribunal below vide order impugned has rightly dismissed the S.A. of the borrowers to the extent of the actions initiated by the Bank under the SARFAESI Act, but has wrongly allowed the S.A. of the borrowers to the extent of challenging the physical possession dated 25.11.2021. It was, therefore, prayed that the appeal filed by the borrowers may be dismissed and the appeal filed by the Bank may be allowed.

Learned counsel for the respondent-auction purchaser submitted that no argument has been advanced with regard to the finding recorded in the order impugned, therefore, he contended that there is no legal infirmity in the order impugned passed by the Tribunal below and OTS has been discussed in paragraph no. 36 of the order impugned at page no. 447 of the paper book, as such the order impugned to the extent of upholding the process of the Bank to be valid does not call for any interference by this Appellate Tribunal, but the same to the extent of setting aside the possession dated 25.11.2021 is liable to be set aside. It was, therefore, prayed that the appeal filed by the borrowers may be dismissed with heavy costs.

I have considered the rival contentions of the learned counsels for the parties and perused the material available on record.

As regards mentioning of wrong date of NPA in the demand notice, admittedly, wrong date of NPA was not mentioned in the demand notice. In this regard, Section 13(3) of the SARFAESI Act says as under:-

Thus it is clear that the date of NPA is not necessary to be mentioned in the demand notice and non-mentioning of the same or mentioning of wrong date does not cause any prejudice to the borrower, therefore, the Tribunal below has rightly held that it is a typographical error.

With regard to mentioning of wrong description of the property in question in the demand notice, it is to be seen that the demand notice issued by the Bank, copy of which is at page no. 14 of the reply of the respondent- Bank, contains the description of the property in question as "Property belongs to Mrs. Ruchita, W/o Mr. Sandeep Gupta at Old Kh. No. 96/2,96/1, New Kh. No. 119, Sheet No. 2,3,4,5, Plot No. 4 & 1, Vill. Sujapur Kalan, Old Indore Railway Line Road, Near Nimar Textiles, Khandwa (M.P.) total admeasuring area 174240 sq. fts or 4 Acre Mortgage against Cash Credit Limit", whereas the possession notice dated 03.10.2019, copy of which is at page no. 16 of the said counter, contains the description of the property as "All that part and parcel of the property belonging to Mrs. Ruchita, W/o Mr. Sandeep Kumar Gupta at Old Kh. No. 69/2, 96/1, New Kh. No. 119, Sheet No. 2,3,4,5, P4 & 1, Vill: Sujapur Kalan, Old Indore Railway Line Road, Near Nimar Textiles, Khandwa (M.P.) total admeasuring area 174240 Sq. Ft or 4 Acre Mortgaged against Cash Credit Limit".

From the above, it is clear that there is only difference in Khasra Number and rest numbers of the property are the same in both the notices. The correct Khasra Number is 69/2, but the Khasra Number mentioned in the demand notice is 96/2. Thus from it, it is clear that 6 and 9 was typed hither and thither, but the numbers are the same, which can be said to be a clerical or typographical mistake, and the same did not cause any prejudice to the borrowers. As such the Tribunal below has rightly ignored such mistake holding that the same is a typographical mistake.

As regards the service of possession notice, it is to be seen that the demand notice was issued by the respondent-Bank on 07.05.2019 and the same was personally served upon the borrowers. Copy of the said notice is placed at page no. 14 of the reply of the Bank, which contains the signatures of the appellants, thus it cannot be said that the demand notice was not served upon the appellants.

It has been contended on behalf of the appellants that without service of possession notice upon the borrowers under Rule 8(1) of the Rules,2002 the respondent-Bank has directly published the notice in the newspapers, which is not sustainable in the eye of law. In this regard, the page no. 320 to 322 is relevant, which are copies of possession notice dated 03.10.2019 and its postal receipts, by which the said notice was sent to the borrowers on 03.10.2019. Thus the contention of the borrowers that the possession notice was not served upon the borrowers is not tenable.

Admittedly, the OTS proposal given by the borrowers vide letter dated 02.08.2021, 26.08.2021 was rejected by the Bank vide letter dated 16.09.2021 stating therein that the contractual dues is approximately Rs.4.03 crores, but vide letter dated 09.08.2021 the respondent-Bank had intimated the borrowers that the minimum offer of Rs.257.41 lacs as per Bank scheme for one time settlement of account, which is minimum acceptable. Copy of the said letter is at page no. 176 of the paper book.

It is also to be noted that when the respondent-Bank had scheduled the property in question to be auctioned on 25.11.2021, then the borrowers had given a letter dated 24.11.2021 to the respondent-Bank by depositing an amount of Rs. 2.20 lacks and further assured that the borrowers will settle the rest of the amount within 60 days and requested to stop the auction dated 25.11.2021. The copy of the letter dated 24.11.2021 given by the borrowers, placed at page no. 182 of the paper book, contains the acceptance of the Bank as under:-

However, as per contents of para 14 of the counter of the Bank, Rs.37.41 lacs was deposited by the borrowers on 24.01.2022 in view of the letter dated 09.08.2021 issued by the Bank because in the said letter, the Bank itself had offered that Rs.257.41 lacs is minimum acceptable, meaning thereby the Bank was ready to accept the said amount. The said offer was given by the Bank on 09.08.2021 and the borrowers had given offer on 24.11.2021 by depositing Rs.2.20 crore, as such the gap between both the offers is of more than three months. If it is seen that Bank has accepted Rs.2.20 crore deposited by the borrowers on 24.11.2021 and further Rs.37.41 lacs deposited on 24.01.2022, but after accepting the Bank has issued a letter dated 22.12.2021 demanding a further amount of Rs.2.20 crore, which appears to be unreasonable, because before three months from it, the Bank was ready to settle the matter at Rs.257.41 lacs, but after receiving the entire amount, which was offered by the Bank itself, the Bank has changed its action, which is not acceptable considering the conduct of the borrowers, as the property in question till the said date was not sold.

So far as the contention of the appellant/borrowers that no clear 30 days time for redeeming the property in question was given by the respondent-bank before auction of the property in question on 15.03.2022, which violates section 13(8) of the SARFAESI Act is concerned, it is to be seen that the sale notice was issued on 03.02.2022, which was sent to the borrowers on 04.02.2022 and the same was published in newspapers on 07.02.2022. While going through the contents of the sale notice dated 03.02.2022, which itself says "Please note that this communication is also to be treated as 30 days sale notice to you". The said notice further says "Please take note that as per Section 13(8) of the SARFAESI Act, the right of redemption of secured assets is available to you only till the date of the publication of notice for public auction or inviting quotations...". In this regard, Rule 8(6) of the Rules, 2002 is relevant to be quoted herein below :-

From the above, it is clear that 30 days sale notice is to be given by the Bank to the borrower for redemption of the property before selling the property. If the Bank publishes the sale notice before expiry of 30 days, the right of redemption of the borrower goes away in view of Section 13(8) of the SARFAESI Act, which says as under:-

In the present case, the sale notice was issued on 03.02.2022 and the same was dispatched on 04.02.2022 and was published on 07.02.2022. Thus the respondent-Bank has not given 30 days time before the auction of the property in question to the borrower for redeeming the property, which clearly violates Rule 8(6) of the Rules, 2002 read with Section 13(8) of the SARFAESI Act. However, the respondent-bank in its sale notice dated 03.10.2022, copy of which is placed at page no. 199 and 200 of the paper book has itself stated that this communication is also to be treated as 30 days sale notice to you and right of redemption is only available to you only till the date of publication in view of Section 13(8) of the SARFAESI Act, but the Bank itself has not complied with the said averment by publishing the sale notice on 07.02.2022. Thus it is held that the respondent-Bank has not complied with the Rule 8(6) of the Rules, 2002 read with Section 13(8) of the SARFAESI Act. On this count alone, the auction sale dated 15.03.2022 is liable to be set aside.

So far as the appeal filed by the respondent-Bank is concerned, the said appeal is filed only against a part of the order impugned, whereby the physical possession of the property in question has been directed to be restored with the borrower on the ground that the Tehsildar, Khandwa in his own capacity could not have ordered the Revenue Inspector to get the property handed over to the Bank. In this regard, Section 14 of the SARFAESI Act is relevant, which is quoted herein below:-

Perusal of the above Section reveals that the Chief Metropolitan Magistrate or District Magistrate is only empowered to take possession of the secured asset or it may direct by passing order in writing to its subordinate authorities for taking physical possession of the property. In the present case, the District Magistrate has passed the order dated 13.07.2020, by which the Tehsildar and Karyapalika Dandadhikari, Khandwa was directed for taking necessary action with regard to the physical possession of the property in question, but the Tehsildar, Khandwa without taking reference of the said order, a letter dated 18.11.2021 was issued to the Revenue Inspector, Khandwa on the basis of letter dated 10.11.2021 of the respondent-Bank for getting the property in question handed over to the respondent-Bank under intimation to the Tehsildar. While going through the contents of the letter dated 18.11.2021 issued by the Tehsildar, Khandwa, it is found that the said letter was issued by the Tehsildar, in which personal capacity ignoring the order passed by the District Magistrate dated 13.07.2021. In view of the provisions of Section 14 of the SARFAESI Act, the Tehsildar has no power to proceed for taking the possession of the property in its own capacity, as he can only proceed for the same under the order/direction passed by the District Magistrate. Thus the Tribunal below has rightly set aside the possession dated 25.11.2021 taken by the Revenue Inspector, Khandwa, pursuant to the order dated 18.11.2021 passed by the Tehsildar. As such the order impugned to this extent is not required to be interfered with.

In view of the discussions as held above, the order impugned to the extent of upholding the auction sale dated 15.03.2022 pursuant to the sale notice dated 03.02.2022 is set aside and rest part of the same shall remain intact. Accordingly, the appeal filed by the borrowers is allowed and the appeal filed by the Bank is dismissed with no order as to costs.

The respondent-bank is directed to return the auction amount to the auction purchaser along with interest @ 8% p.a. simple within 15 days from today.

The respondent-Bank is further directed to provide the calculation of amount payable after adjusting the amount already deposited by the borrower within 15 days from today and the borrower shall pay the same within 30 days thereafter. In case of failure, the respondent-Bank would be free to proceed for its recovery in accordance with law from the stage of issuing afresh auction sale notice.

A copy of this judgment be sent to the parties as well as to the DRT concerned and be also uploaded on e-DRT portal.