Mr. M.S. Suburaman vs The Authorized Officer & Ors.

The Appeals in R.A (SA): 50/2024 and R.A (SA): 116/2024 are filed to set aside the orders dated 05.01.2023 passed in SA No.572/2022 and SA No.668/2021 respectively, by the Learned Presiding Officer, DRT, Coimbatore.

It is necessary to know the case of the parties, in brief, to understand the lis involved. It is the case of the Appellant in SA 668/2021 that the Appellant started hospitality business in the name and style of M/s. Hotel Sri Saravana Bhavan at Door No.51, Nethaji Apparel Park, Tiruppur. He also started another restaurant in the name and style of M/s. Sri Balaji Bhavan in the year 2006, on the same premises. In 2007, the Appellant started another restaurant in the same location, in the name and style of M/s. Shri Sangeethas. The Appellant was running two restaurants, M/s. Hotel Sri Saravana Bhavan, now branded as M/s. Shri Sangeethas, at NH 544, Main Road, S.F.No.153/4A2, Moongil Palayam, Vijayamangalam, Erode and M/s. Shri Sangeethas near Vijayamangalam Toll Plaza, Perundurai, Erode District.

In the year 2014, the Appellant had approached the Respondent Bank for a loan to build a new building so to house another branch of the Appellant’s restaurant in S.F.No.153/4A2 in Vijayamangalam, Erode. The Bank sanctioned a loan of Rs.60,00,000/- against this property. The Appellant executed loan documents and created mortgage by deposit of title deeds. However, the Bank cheated the Appellant and prepared the MODT dated 11.08.2014 stating that the Appellant had asked this loan for running a restaurant in the name and style of M/s. Hotel Sri Saravana Bhavan at Door No.51, Nethaji Apparel Park, Tiruppur. The Bank issued Sanction Ticket on 11.08.2014 to show that the Appellant had availed a Housing Loan in the name of M/s. Hotel Sri Saravana Bhavan showing address at NH 544 Main Road, S.F.No.153/4A2, Moongil Palayam, Vijayamangalam, Tiruppur. Rs.60 Lakhs was released in 8 instalments from 11.08.2014 to 16.07.2015. After construction was over, the Appellant approached the Bank for loan to purchase utensils and equipments and the Bank sanctioned Rs.40 Lakhs as MSME Loan. The Appellant executed loan documents and created mortgage by deposit of title deeds. The Bank stated that this loan was availed for running a restaurant in the name and style of M/s. Hotel Sri Saravana Bhavan, at Door No. 51, Nethaji Apparel Park, Tiruppur. The Bank forged the current account No. 198150050800289 belonging to M/s. Hotel Sri Saravana Bhavan, at Nethaji Apparel Park and converted the name into M/s. Sri Balaji Bhavan. M/s. Sri Balaji Bhavan has its loan account No.198150050800289 and functioning from Nethaji Apparel Park. The Bank was charging exorbitant interest. On protest, the Bank reversed their exorbitant interest of Rs.4,47,903/-, on 30.03.2019.

The Appellant had to pay Rs.1 Lakh to the then Manager Mr. Manoharan on 05.01.2020. He also lodged a criminal complaint before the Inspector of Police, Perumanallur Police Station. A complaint was given to the Banking Ombudsman in September, 2019. Against the loan of Rs.1 Crores, the Appellant had paid Rs.1.14 Crores. Appellant initiated proceedings against the Bank with regard to charging of exorbitant interest. He also filed a criminal complaint before the Judicial Magistrate, Perundurai in Crl M.P. No. 2587/2020, and it is pending, followed by a complaint dated 01.10.2020 to the Superintendent of Police at Tiruppur with regard to falsification of the account and other offences.

When writ proceedings were pending, the Bank issued Notice dated 16.04.2021 followed by Demand Notice dated 05.05.2021 under Section 13(2) of the SARFAESI Act, 2002. It was followed by the impugned Possession Notice dated 27.07.2021.

In addition to the above pleadings, the Appellant contended in SA 572 /2022 that without following the procedures under the SARFAESI Act, 2002, the Bank issued Sale Notice dated 22.09.2021 fixing e-auction sale on 01.11.2021. In IA 2862/2021 in SA 668/2021, the Tribunal stayed the proposed auction sale subject to payment of Rs.37 Lakhs to the Bank. The reserve price was fixed far below the market value in the Sale Notice. Appellant was ready to deposit the amount with the Registry of the Tribunal, and in order to show bonafide, Appellant obtained a Demand Draft for Rs.18.50 Lakhs in favour of the Registrar, DRT, Coimbatore. Appellant filed a Review Application in RA No. 2/2022 to modify the conditional order seeking permission to deposit the amount before the Tribunal.

While the SA 668/2021 and the Review Application were pending, the Bank issued another Sale Notice dated 03.02.2022 fixing the sale on 23.02.2022. The Tribunal directed the Appellant to pay Rs.40 Lakhs in instalments for continuing the interim protection. Appellant challenged this order in AIR No.50/2022 on the file of DRAT, Chennai. On compliance of pre deposit of Rs.36,16,700/-, the Appeal was numbered as MA (SA) 12/2022. In spite of pending of the Appeal before the DRAT, the Bank proceeded with auction sale on 24.05.2022 without following the procedures. The property was sold for a meagre price much below the market value. The sale was held fraudulently in collusion with Auction Purchasers resulting in wrongful loss to the Appellant. It is further pleaded that order under Section 14 of the SARFAESI Act was obtained in Crl.M.P. No.2945/2022 without following the procedures. Raising these grounds, the Appellant prayed to set aside the Possession Notice dated 27.07.2021 and sale notice dated 22.09.2021 and to award compensation of Rs.10 Lakhs and costs etc., in SA 668/2021. In SA 572/2022, it is prayed to declare the sale notice dated 20.04.2022, and sale held on 24.05.2022 as wrongful, illegal, invalid, fraudulent, collusive and null and void, and to set-aside the sale held on 24.05.2022, and to declare that the order dated 26.04.2022 passed by the Learned CJM, Erode, in Crl.M.P.No.2945/2022 under Section 14 of SARFAESI Act, 2002, as illegal and invalid and award compensation of Rs.5 Lakhs and costs.

The Appellant’s case was refuted by the 1^st Respondent Bank on the ground that the Appellant availed two credit facilities of Rs.60 Lakhs on 11.08.2014 and Rs.40 Lakhs on 10.07.2015. Appellant had executed loan documents and created mortgage over the fixed asset. Appellant defaulted in repaying the loan amount, and therefore, the account was classified as NPA, and the Demand Notice was issued on 05.05.2021 followed by the Possession Notice and Sale Notices. Earlier Sale Notices dated 22.09.2021, 07.12.2021, 03.02.2022 and 09.03.2022 had not successfully entered into sale. The sale was held in pursuance of the impugned Sale Notice dated 20.04.2022. The reserve price fixed at Rs.2,05,14,000/- in the first sale and was gradually reduced to Rs.1,76,00,000/-. Even after the sale of the property, still there is due amount payable by the Appellant. The loan was sanctioned as Term Loan for construction of the building. The loan documents mention about the rate of interest chargeable. In a meeting between the Appellant and officials of the Bank on 11.05.2020, the Appellant agreed to submit various documents as required by the Bank, especially, the audited financial statements in the name of M/s. Hotel Sri Saravana Bhavan or M/s. Hotel Shree Sangeethas. However, the Appellant has not produced the required documents. The SARFAESI proceedings were taken in accordance with law.

On going through the pleadings and recording the submissions of the Learned Counsel for Appellant and Respondents, the Learned Presiding Officer, DRT, Coimbatore, dismissed the SA 668/2021 along with the Review Application in RA 02/2022. This Review Application was filed for reviewing the order passed by the Tribunal in IA 2862/2021 in SA 668/2021. Learned Presiding Officer has given a detailed order giving reasons for the dismissal of SA 668/2021 and RA 02/2022. However, while disposing of SA 572/2022, filed to challenge the Sale Notice, sale and order passed under Section 14 of the SARFAESI Act, 2002, Learned Presiding Officer has not considered the pleadings, grounds raised and documents produced in the SA 572/2022. Learned Presiding Officer dismissed the SA 572/2022, primarily on the reason that the detailed and comprehensive order was passed in SA 668/2021 and that there is no specific challenge in so far as the Sale Notice dated 20.04.2022, on the basis of which the sale was held on 24.05.2022. It was observed that the Appellant has not pointed out any illegality or irregularity in the case. Thus, held no interference is warranted in respect of the Sale Notice dated 20.04.2022 and order passed under Section 14 of the SARFAESI Act, 2002, and dismissed SA 572/2022. It is further ordered that the order passed in SA 668/2021 shall form part of the order passed in SA 572/2022. Aggrieved by said orders, these Appeals have been filed.

The submission of Learned Counsel for the Appellant is centered mainly on the charging of excess interest, wrongful classification of account as NPA, and non-observance of mandatory provisions while initiating measures under SARFAESI Act, 2002. The rate of interest was charged excessive than what was contracted rate at 13.50%. There was absolutely no communication from the Bank with regard to increase of the interest. The loan was availed for the construction of a hotel. However, the Bank mentioned that the loan was availed for the construction of a house building. The Appellant had been paying the instalments regularly. Though, the Bank had charged excess interest, the same was reversed, on protest. Due to charging of excessive interest, the Appellant could not pay certain instalments from February, 2018 to March, 2019. A sum of Rs.4,47,903/- was refunded, having been received from the Appellant towards excessive interest. The Appellant had to approach the Banking Ombudsman. Appellant also filed writ proceedings and given a Police complaint. The Bank had manipulated the hotel name and account number and made wrong entries with regard to payments. So far, the Appellant has paid a sum of Rs.1,84,56,099/-. The Appellant had also made payments in the DRT on the basis of the conditional order and further made pre-deposit in the DRAT.

In the mortgaged document, the description of the property was wrongly given. Mamool road is not mentioned. In the Sale Certificate, non mortgaged property is made landlocked by sale of the property. As per the Ombudsman order, the Appellant submitted the required documents. The Bank had not sent any reply to the objection to the Demand Notice. The Learned Presiding Officer has not given any finding with regard to the valuation of the property. Valuation report obtained two years prior to the sale was used for fixing the reserve price. There was no proper description of the property in the Sale Notice and Sale Certificate. The charge of excessive interest can be elicited if a forensic audit is conducted. Accordingly, an Application is filed for forensic audit. In the absence of details with regard to correct loan amount, the Appellant could not pay the loan amount. Only with a view to sell the property under SARFAESI Act, the SARFAESI proceedings was initiated, without giving an opportunity to the Appellant to settle the loan account. The property was grossly undervalued due to the mis-description of the hotel building as residential. The sale notice was not served properly. Affixture was not done and publication was not effected as required under the Rules. Thus, Learned Counsel for Appellant prayed for setting aside the orders passed by the Tribunal and allowing the Appeals.

In support of his submissions, he pressed into service the following judgements.

In reply, the Learned Counsel for the 1^st Respondent Bank submitted that from the documents filed by the Respondent, it is clear that two loans were availed, one for Rs.60 Lakhs and another for Rs.40 Lakhs. There is specific agreement entered with regard to the payment of interest. In respect of the first loan, interest at the rate of 19% was chargeable and the loan amount was repayable in 84 instalments of Rs.1,29,649/- each. The second loan was repayable with interest at the rate of 13.35% in 84 equated monthly instalments at Rs.86,076/- each. The Appellant was informed that failure to submit the audited financial statements would result in interest being charged at 18%. Interest rate was charged on the basis of prevailing rate of interest. The Appellant wanted to change the liabilities in the name of M/s. Hotel Sri Saravana Bhavan to M/s. Shri Sangeethas Hotel. However, he has not produced the required documents and executed loan documents in the name of M/s. Shri Sangeethas Hotel, for the change.

Due to delayed filing of the audited financial statements, interest was charged at 18%, and once the same was produced, the excess interest was returned to the Appellant. The excess interest was charged because of Appellant’s failure to produce the audited financial statements. Reversal of the excess interest was subject to compliance with certain conditions. Those conditions were not complied with by the Appellant. The credit rating determines the charging of interest.

The reply to the Demand Notice issued under Section 13(2) is produced for the first time before this Tribunal. It was not produced before the DRT or in any other proceedings initiated before the Hon’ble High Court. The letter bears the seal of Tamilnadu Mercantile Bank and it is a forged and fabricated document. There is absolutely no pleading regarding sending of reply in the Securitisation Application.

The Appellant has not challenged the procedure adopted by the Bank in initiating SARFAESI measures for taking possession and for sale of the properties under SARFAESI Act, 2002. The main challenge was only with regard to charging of interest. The interest was charged in accordance with the agreement and at the prevailing rate of interest as per the RBI guidelines. No sale had taken place in pursuance of sale notice dated 22.09.2021. The Respondent Bank produced proof of service of the Possession Notice and the Sale Notice impugned. The Learned Presiding Officer, on going through the materials on record, found that there is no cause for interference and thus dismissed the SAs, and prayed for confirming the order of the Leaned Presiding Officer.

Respondents 2 and 3 adopted the submissions of Learned Counsel for the first Respondent and submitted that the Respondents 2 and 3 are bonafide purchasers, who had invested a huge amount for the purchase of the property. The sale certificate was issued in their favour and it was duly registered. The Appellant had deliberately not challenged the sale notice prior to the sale but challenged only after the sale. The right of redemption is lost once the sale notice is published. Because of these proceedings, they are not able to take possession of the property.

Considered the rival submissions and perused the records.

It is seen that these Appeals relate to the same secured asset. The parties in these Appeals are the same, except for addition of the Auction Purchasers in the SA 572/2022. The Securitisation Application in both the cases have mainly canvassed on the grounds of charging of excessive interest, wrongful classification of the loan account as NPA, refund of excess interest charged, filing of Writ Petitions before the Hon’ble High Court, initiation of proceedings before the Banking Ombudsman, and sending complaints against various authorities etc. In fact, paragraphs 1 to 17 in SA 668/2021 are reproduced in SA 572/2022. Certain additional pleadings were raised in SA 572/2022 with regard to the sale notice issued and the sale of the property.

The prayer in SA 668/2021 is to declare the Possession Notice dated 27.07.2021 and sale notice dated 22.09.2021 as wrongful, illegal and invalid, and to award compensation of Rs.10 Lakhs. The grounds relating to the issuance of Demand Notice dated 05.05.2021, charge of excessive interest, filing of Writ Petitions, sale of property and fixing the reserve price at Rs.2,05,14,000/- in the sale notice dated 22.09.2021 when the market value was more than Rs.4.50 Crores, and non-compliance of procedures under Rules 8(5), 8(6) and 9(1) of the SIE Rules, 2002 are taken. The pleadings in the Securitisatiion Application on the measures taken under Section 13(4) for taking possession and the sale of the property are restricted only to the claim of undervaluation, non-compliance of Rules 8(6) and 9(1) of SIE Rules, 2002. There is absolutely no ground taken with regard to the measures taken under Section 13(4) of the SARFAESI Act, 2002, for taking possession of the property. That is, there is no ground taken as to whether the Possession Notice was served or not, Possession Notice was affixed or not and Possession Notice was published in English and vernacular newspapers or not. In other words, the Appellant has not taken the plea that the Possession Notice was not served, affixed or published in newspapers.

The perusal of the record shows that the first Respondent produced proof of issuance of the Possession Notice dated 27.07.2021 and its service by producing a copy of the Possession Notice and acknowledgement and proof of receipt thereof. Publication of Possession Notice in English and Tamil Daily are also produced to show such publications. The copies of the photographs to prove affixture of Possession Notice is also produced. Admittedly, there has been no sale in pursuance of Sale Notice dated 22.09.2021. Therefore, it is now not required to consider whether there is any defect with regard to the issuance of Sale Notice dated 22.09.2021.

Since the main ground taken is with regard to charge of excess interest, its refund, and related issues, it is required to understand the nature of the loan, the contractual rate of interest, the interest claimed and paid, the excess interest refunded, the classification of the account as NPA, etc.

The 1^st Respondent Bank produced certain additional documents before this Tribunal with regard to sanctioning of the loan and interest charged etc.

The Letter dated 11.08.2014 shows that it was addressed by the Appellant to the Respondent Bank whereby the Appellant undertook to abide by the Bank’s rules and regulations with regard to the interest rate applicable for credit facilities as per the Banks credit rate system. It reads as follows:-

The Articles of Agreement for the Term Loan of Rs.60 Lakhs on 11.08.2014 shows that the loan was availed for the purpose of construction of hotel building. The loan amount of Rs.60 Lakhs was to carry interest at the rate of 19% and at the Bank’s ruling rate prevailing from time to time per annum compounded monthly. The loan amount shall be payable by 84 equated monthly instalments of Rs.1,29,649/-. If the instalment is not paid within the time, the Bank was given liberty to charge penal interest of 2% per annum over and above prevailing interest rate on the overdue amount and balance outstanding. Schedule-A describes the documents executed by the Appellant like i) the Demand Promissory Note, Take Delivery, Letter of waiver, ii) Sanction letter, iii) Negative lien letter, iv)Consent letter, v) Memorandum of title deeds and vi) EMI undertaking. The schedule of EMI payments starts from 11.03.2015. Similar agreement was entered for loan of Rs.40 Lakhs on 11.07.2015. The rate of interest at 13.35% is payable in 84 equated monthly intalments at Rs.86,076/-. The interest chargeable at the Bank’s ruling rate prevailing from time to time per annum compounded monthly. From these agreements, it can be gathered that the loan of Rs.60 Lakhs is payable with interest at 19% per annum and Rs.40 Lakhs is payable with interest at 13.35% per annum subject to the Bank’s ruling rate prevailing from time to time.

On 06.10.2017, the Bank sent a Letter to the Appellant stating that the Appellant had not submitted the audited financial statements for the year 2016 to 2017, therefore, the Bank was unable to review the term loan accounts. The Appellant was to submit the audited financial statements for the year ended 2016-2017 immediately, to review the term loan account on the basis of credit rating and to revise the interest rate as well. There was a warning that if the statement is not submitted in November, 2017, the Bank would be unable to review the Term Loan account and the maximum rate of interest at 18% will be charged from 01.01.2018. It was followed by the Letters dated 02.02.2018, 01.03.2018 and 28.03.2018, reiterating the same contentions.

Then, on 01.02.2018, the 1^st Respondent Bank sent a letter to the Appellant informing that reversal of the interest as requested by the Appellant could not be done due to the following reasons;

The Appellant was asked to regularize the Term Loan accounts by remitting overdue amount of Rs.10,48,087/- for Term Loan No. 198700480100198 and Rs.70,81,96/- for Term Loan No. 198700480100240. It was also informed that failing to do would result in initiation of recovery proceedings under SARFAESI Act, 2002.

It appears that the Appellant requested the Bank to change the existing liability in the name of M/s. Hotel Sri Saravana Bhavan to M/s. Hotel Shri Sangeethas and return of interest amount. In a reply dated 19.07.2019, the Bank informed the Appellant that its regional office had permitted to change the existing liability in the name of M/s. Hotel Sri Saravana Bhavan to M/s. Hotel Shri Sangeethas by effecting interest rate at 13.20% from 10.04.2019 with certain terms and conditions, as follows:-

If these conditions are complied with, it was stated that, the Bank would return the interest amount to the Term Loan accounts.

It was followed by another letter dated 03.08.2019 with identical contents. It appears that, the Appellant has not complied with the requirements made in the Letters dated 19.07.2019 and 03.08.2019.

The Appellant has given a complaint in the Banking Ombudsman, complaining about the charging of excessive interest at 18.65% for 25 months etc. After hearing the Complainant and the Bank, the Ombudsman observed that it could not be established that the Appellant was having two separate businesses in the names of M/s. Hotel Sri Saravana Bhavan and M/s. Hotel Shri Sangeethas. The Audited Financial Statements for Financial Year 2016-17, 2017-18 and 2018-19 were in the name of M/s. Hotel Shri Sangeethas. Similarly, the Commercial Tax Registration Certificate, Udyog Aadhaar and GSTN Registration were in the name of M/s. Hotel Shri Sangeethas. All the Bank's communication were addressed to Shri M.S. Suburaman as proprietor of M/s. Hotel Sri Saravana Bhavan, whereas all the letters addressed to the Bank by Shri M.S. Suburaman were signed by him as proprietor of M/s. Shri Sangeethas. The Income Tax Returns submitted by the Appellant do not depict the income from both the business units. It was not clear which of the two units were maximum revenue/income generated. Therefore, the Complainant was asked to produce all the loan documentation, MODT registration, government/regulatory approvals and Audited Financial Statements within a period of one month from the date of communication from the Bank. If that was done, the Bank was agreed to reverse the excess interest charged on the loan at card rate during the tenure of the loans after the Complainant fully comply with the Bank's requirement.

On 12.06.2020, the Bank informed the Appellant that as per the decision taken in the conciliation meeting dated 05.05.2020, the Appellant submitted certain documents with discrepancies. The discrepancies are noted in this letter. The Appellant was asked to submit clarification on the discrepancies. It appears that, the discrepancies had not been clarified by the Appellant.

From the type set filed by the Appellant in RA (SA) 116/2024, it could be seen that it was informed through Letter dated 11.08.2014 that the Appellant was sanctioned Rs.60 Lakhs as Term Loan for construction of house building. The rate of interest was shown at 13.50% as per rating given. The loan amount is payable in 84 instalments. It was also informed that the interest on the advance is based on BPLR, Credit Rating and DRR. Whenever BPLR, Crediting Rating and DRR change, the rate of interest will also change. The penal interest at 2% will be charged for the delayed payments and 1% for delayed submissions of returns. Non-compliance of sanction conditions will attract 2% of penal interest.

As per the letter dated 10.07.2015, Rs. 40 Lakhs was sanctioned with interest as per credit rating or BRR. The Loan is payable by 84 monthly instalments. This loan was sanctioned as Working Capital.

In the Articles of Agreement dated 11.08.2014, it was clearly stated that the loan was for the purpose of construction of hotel building and in the Articles of Agreement dated 11.07.2015, it was stated that the loan of Rs.40 Lakhs was for the purpose of interior work. Admittedly, there is hotel building constructed in the property offered as security. That is, the land to the extent of 32.75 cents at S.F.No.153/4 (Sub-Division-Re-S.F.No.153/4A), Vijayamangalam Bye-Pass Road, Salem – Kovai NH47, Moongilpalayam Village, Perundurai Taluk, Erode. Probably, it was wrongly mentioned in the Sanction Ticket dated 11.08.2014 as construction of ‘house building’ instead of ‘hotel building’. We cannot read much into this mistake.

It is not in dispute that for a loan of Rs.60 Lakhs, mortgage was created by registered document No.2847/2014 in the Sub-Registrar Office, Uthukuli, on 11.08.2014 and the same property was offered as security for the loan of Rs.40 Lakhs by executing registered document No.2507/2015 in the same Sub-Registrar Office.

The Appellant has also produced the accounts statement of M/s Hotel Sri Saravana Bhavan in account No. 198150050800289 functioning from Nethaji Apparel Park, Truppur. This accounts statement is not connected to the loan concerned in this case. Letter dated 10.05.2018 from the Respondent to Appellant shows that the Bank proposed to sanction Overdraft of Rs.20 Lakhs and Term Loan of Rs.50 Lakhs in the name of M/s. Hotel Shri Sangeethas for full closure of Term Loan in the name of M/s. Hotel Sri Saravana Bhavan. However, the Appellant has not produced the required details for proceeding further. Appellant was asked to remit the overdue amount of Rs.6.05 Lakhs in Term Loan account in the name of M/s. Hotel Sri Saravana Bhavan to avoid classification of account as NPA. Letters dated 28.07.2018, 01.07.2020, 04.02.2021, 17.03.2021 show the details of instalments overdue and interest overdue, for the loan of Rs.60 Lakhs. Similarly, the Letters dated 28.07.2018, 01.07.2020, 04.02.2021, 17.03.2021 show the details of instalments overdue and interest overdue, for the loan of Rs.40 Lakhs. The Appellant has sent Letter dated 02.08.2018 to the Regional Manager of the Respondent Bank for adjusting the excess interest charged. It was replied on 02.08.2018 by informing that the Appellant has not serviced the instalment and interest as per the agreed schedule, and therefore, the accounts turned into NPA on 31.07.2018.

Through Letter dated 30.04.2019, the Appellant was informed that the interest amount of Rs.4,47,903/- was credited to the Current Account with the condition to change the name of the concern as M/s. Hotel Shri Sangeethas by execution of loan documents for creation of MODT. It was also informed that despite repeated reminder the Appellant had not remitted the due amount of Rs.1,76,238/- nor executed the documents as required. It was also informed that only if the documents as required are executed, the charging of higher rate of interest can be avoided. As requested by the Appellant, the Bank furnished the rate of interest charged from 11.08.2014 to 26.06.2019 for the loan of Rs.60 Lakhs and from 11.07.2015 to 26.06.2019 for the loan of Rs.40 Lakhs. On certain occasions, the interest rate was charged at 18.65% and another occasion the interest was charged at 13.35%, 13.50%, 13.55% and 13.65%.

There are other communication between the Appellant and the Respondent with regard to charging of excess interest. This matter was already taken by the Banking Ombudsman. The Banking Ombudsman finally passed an order on 20.01.2021 closing the complaint on the ground that the reversal of the penal interest was not unconditional and was subject to fulfillment of Bank’s requirement of loan documentation in protection of Bank’s interest, Appellant had not complied with the requirement of loan documentation as required by the Bank, therefore, the complaint had been closed. Thus, effectively the charges made against the charging of excess interest was closed by the Banking Ombudsman on the ground that the Appellant had not come forward to produce and execute the documents required by the Bank.

It is not in dispute that once the dispute arose with regard to the charging of excess interest, the Appellant stopped paying the loan amount. Thereafter, the account was classified as NPA and proceedings under SARFAESI Act, 2002, were initiated. Though the Appellant initiated writ proceedings and criminal proceedings, none resulted in favour of the Appellant, except for certain interim reliefs granted from time to time.

From the consideration of the materials produced, especially, with regard to sanction of the loan, the purpose for which the loan was sanctioned and the rate of interest agreed, charged, paid, this Tribunal finds that as per the Articles of Agreement, the rate of interest was at 19% for Rs.60 Lakhs and at 13.35% for Rs.40 Lakhs, subject to the prevailing rate of interest as per the guidelines issued by the RBI from time to time. Most importantly, the rate of interest is variable subject to credit rating exercise done by the Respondent Bank. It is also seen that despite several requests, the Appellant has not produced the required documents for refund of rate of interest from a higher rate to a lower rate. Therefore, this Tribunal is of the view that the Appellant cannot question the rate of interest charged by the Respondent Bank. As already found, no sale had taken place, in pursuance of the Sale Notice dated 22.09.2021, and the Possession Notice dated 27.07.2021 was issued and served as required under SARFAESI Act, 2002 and Rules made there under. Therefore, the dismissal of SA 668/2021, in the considered view of this Tribunal, is right and said decision warrants no interference of this Tribunal.

Coming to RA (SA) 50/2024, wherein the dismissal of SA 572/2022 is under challenge, this Tribunal finds from the prayer in SA 572/2022 that the Appellant sought for declaring the Sale Notice dated 20.04.2022 and the sale held on 24.05.2022 as wrongful, illegal, invalid, fraudulent, collusive and null and void. The Appellant also prayed for setting aside the sale and to declare that the order passed under Section 14 of the SARFAESI Act, 2002, is illegal and not valid. There is also a prayer seeking compensation of Rs.5 Lakhs.

Seventeen paragraphs in SA 668/2021 are reproduced in this SA. The grounds touching upon the sale notice and sale are that, the property worth more than Rs.4.50 Crores was sold for a low price by fixing the reserve price at Rs.1.76 Crores. The Respondent has not followed the procedures under Rules 8(5), 8(6) and 9(1) of SIE Rules, 2002 in valuing the property, issuing the sale notice, affixture, publication and sale of the property. It was a collusive sale between the Bank and the Auction Purchasers. Learned CJM, Erode, had not followed the procedures in passing the order under Section 14 of the SARFAESI Act, 2002. It is submitted that the Bank had not produced the actual outstanding liability before the Learned CJM. Though these grounds touching upon the merits of the order passed under Section 14 of the SARFAESI Act, 2002, alleged non-compliance of Rule 8(5) in the matter of valuation, Rule 8(6) and 9(1) of the SIE Rules, 2002, in issuing the sale notice to the borrower, affixture, publication, and sale of the property were raised, the impugned order of the Learned Presiding Officer in SA 572/2022 shows that these grounds were not considered at all. It was just said that there is no specific challenge to the sale notice dated 20.04.2022, and that the Appellant has not pointed out any illegality or irregularity in the case. SA 572/2022 was dismissed mainly on the ground that connected SA 668/2021 was dismissed. The scope of challenge to the notice under Section 13(4), the sale notice issued and the order passed under Section 14 of the SARFAESI Act are totally different and independent to each other. The grounds raised on these measures have to be independently considered and a decision should be rendered. The decision to dismiss SA 668/2021, filed to challenge Possession Notice issued under Section 13 (4) of the SARFAESI Act and the sale notice, cannot be adopted in SA 572/2022, which was filed to challenge the measures subsequent to the sale notice and the order under Section 14 of the SARFAESI Act, 2002. The sale notice shall conform to the requirements of Rule 8(6) and 9(1) of SIE Rules, 2002. Similarly, the Section 14 order shall conform to Section 14(1) of the SARFAESI Act, 2002. When a prayer is made to set aside the sale notice, sale and the order passed under Section 14 raising the specific grounds, those grounds should have been independently addressed and considered by Learned Presiding Officer. Learned Presiding Officer miserably failed on that account.

This Tribunal found from the valuation report dated 09.01.2020 obtained by the Bank that the land was valued at Rs.1.31 Crores, while the buildings, services and other amenities were valued at Rs.55.68 Lakhs, totaling Rs.1,86,68,000/-. The forced sale value at 80% was fixed at Rs.1,49,34,000/-. In the first sale notice dated 22.09.2021, the reserve price of the property was fixed at Rs.2,05,14,000/-. In the second sale notice dated 07.12.2021, the reserve price was fixed at Rs.1,95,00,000/-. In the impugned sale notice dated 20.04.2022, the reserve price was fixed at Rs.1,76,00,000/-.

On 25.06.2021, the Bank obtained another valuation report. As per this valuation report, the value of the land was fixed at Rs.3,02,94,000/-. The building value was fixed at Rs.69,16,000/-. The value of extra item, amenities, miscellaneous, services, were fixed at Rs.2,15,000/-, Rs.8,23,000/-, Rs.4,50,000/-, Rs. 6,15,000/-respectively, and the total value of the land and building was arrived at Rs.3,93,13,000/-. The distress value was fixed at Rs.2,55,53,450/-. However, the reserve price in the sale notice dated 20.04.2022 was fixed only at Rs.1,76,00,000/-. Obviously, this reserve price was fixed on the basis of the valuation report dated 25.06.2021. The reserve price fixed less than the distress value, is certainly questionable.

The Appellant filed a valuation report dated 02.08.2022 giving the valuation of the property at Rs.4,28,29,000/- and the distress value at Rs.3,21,21,750/-. The Appellant’s valuation report was subsequent to the sale of the property. However, this Tribunal finds from the valuation report dated 25.06.2021 and the reserve price fixed in the impugned sale notice dated 20.04.2022 that the reserved price was fixed below the distress value. We have seen from the decision relied on by the Learned Counsel for the Appellant, especially, with regard to valuation and fixation of reserve price and sale of the secured asset, the Banks are required to obtain proper valuation for fixing appropriate reserve price, with a view to obtain maximum price. The Bank cannot behave like a property dealer or act arbitrarily. This issue should have been addressed by the Learned Presiding Officer, especially, when a specific plea had been taken with regard to the undervaluation of the property. Unfortunately that was not done.

In this view of the matter, this Tribunal has no option except to allow the Appeal in RA (SA) 50/2024 and remit SA 572/2022 to the Learned Presiding Officer, DRT, Coimbatore, for fresh consideration. The Securitisation Application in SA 572/2022 shall be decided on the basis of the grounds raised touching upon the measures taken for the sale of the property through the sale notice dated 20.04.2022 and the order passed under Section 14 of the SARFAESI Act, 2002, in Crl. M.P. No. 2945/2022 on 26.04.2022, on merits and in accordance with law, as expeditiously as possible.

In fine, the order passed by the Learned Presiding Officer, DRT, Coimbatore, in SA 572/2022 is set aside and the matter is remitted to DRT, Coimbatore, to decide the Securitisation Application on the basis of the grounds raised therein.

In the result, the order passed by the Learned Presiding Officer, DRT, Coimbatore, in SA 572/2022 is hereby set aside. Consequently, the Appeal in R.A (SA): 50/2024 is allowed. The order passed in SA 668/2021 is confirmed, and accordingly, the Appeal in R.A (SA): 116/2024 is dismissed. The parties shall bear their own costs. All pending IAs, if any, stand closed