Mr Rajan vs State Bank Of India

S. Ravi Kumar, Chairperson

These two Appeals are preferred against a Common Order dated 08.12.2020 of DRT, Coimbatore, in SA 376/2019 and SA (SR) 11409/2019.

RA (SA) 22 /2021 is filed against dismissal of SA 376/2019 which is filed to set aside Sale Notice dated 24.06.2019 and to declare all other actions in pursuance of Sale Notice, as illegal and invalid.

RA (SA) 23/2021 is filed against dismissal of SA (SR) 11409/2019, which is filed to set aside E-auction Sale dated 30.07.2019  conducted  in  pursuance  of  Sale  Notice  dated 24.06.2019, which is filed with delay condonation Application.

Brief fats leading to these Appeals are as follows:-

Appellant, who is carrying on business of Hosiery Manufacturing, availed loan facilities, and when he failed to discharge the same, Bank issued Demand Notices, initially in the year 2014 and again in 2017, and on representation of Appellant, loan was again reclassified, and finally, issued Demand Notice dated 01.03.2019, for Rs.3,34,04,303/-, and when Appellant failed to repay said amount within stipulated time, Bank issued Possession Notice, and thereafter, issued Sale Notice. Appellant filed Securitisation Application challenging Sale Notice, contending that, Bank has not followed the procedure contemplated under Rule 8(1) and 8(6) of Security Interest (Enforcement) Rules, 2002 [hereinafter called the Rules, 2002] and said Notice is not in compliance of said provisions. Appellant also contended that Bank has not followed 30 days’ time in serving Notice as contemplated under Rules, 2002. Appellant also contended reserve price fixed by Bank is very low. Appellant also contended that when properties offered as security are divisible, and selling one property can settle the loan amount, issuance of Sale Notice for all the properties, is illegal and invalid. It is also the contention of Appellant that 2nd Respondent is a tenant in an extent of 19.87 cents in item No.2 property of 44 cents, which is offered as security, which is shown as item No.1 in Sale Notice. It is also the contention of Appellant that when Bank insisted for repayment of loan, Appellant approached 2nd Respondent and borrowed a sum of Rs.10 Lakhs, and paid said amount to 1st Respondent Bank, and executed an agreement in favour of 2nd Respondent on the assurance that said agreement is only for security purpose. It is also the contention of Appellant that after receiving Demand Notice under Section 13(2) of SARFAESI Act, 2002, he again approached 2nd Respondent for loan of Rs.1 Crore, and 2nd Respondent transferred Rs.1 Crore, on 30.03.2017 to the loan account of Appellant, and 2nd Respondent again obtained mortgage agreement on 30.03.2017 for a total sale consideration of Rs.235 Lakhs. It is also the contention of Appellant that he gave a letter in writing to 1st Respondent Bank to issue NOC to property in occupation of tenant. It is also contended by Appellant, he could not repay the loan amount, though 1st Respondent Bank issued NOC for tenanted property and transactions could not be finalized, and 2nd Respondent with an ulterior motive, with intention to illegally grab Appellant’s tenancy property, and got issued legal notice and also approached DRT by filing Securitisation Application.

Both Bank and 2nd Respondent filed objections to Securitisation Applications. According to Bank, the allegations made in the Application are not legal and tenable, and they are baseless and frivolous. Bank further contended that it issued Demand Notice dated 01.03.2019 demanding an amount of Rs.3,34,04,303/- due as on 28.02.2019, and the same was served on Appellant on 02.03.2019. It is contended that Appellant sent objection to said Notice through Letter dated 30.04.2019, and Bank, thereafter initiated measures against secured asset, and Bank took possession of secured assets on 09.05.2019, and Possession Notice was served on borrower on 11.05.2019. It is also contended that Notice was affixed on the conspicuous part of immovable properties, and Possession Notice was published in English and Tamil Dailies in ‘The Hindu’ and ‘Dinamalar’, on 14.05.2019. Bank contended that borrower did not raise their little finger to liquidate their liability, therefore, Bank issued Sale Notice dated 24.06.2019, informing Appellant that the properties shall be brought for sale after 30 days from the date of Sale Notice, and said Notice was received by Appellant on 25.06.2019. Bank also contended that E-auction Sale Notice for the auction fixed on 30.07.2019, is also enclosed with Sale Notice. Bank also contended that Sale Notice was published in English and Tamil Dailies in ‘The Hindu’ and ‘Dinamalar’ on 25.06.2019. Bank contended that three properties were brought to sale through Sale Notice dated 24.06.2019; first property, which is land and factory to an extent of 44 cents with a reserve price of Rs.6.70 Crores. It is stated in auction Sale Notice that, first item shall be brought for sale between 10 a.m. to 11 a.m.; second property shall be brought for sale between 11.30 a.m. to 12.30 p.m. and third property shall be brought for sale between 1 p.m. to 2 p.m. It is contended that 2nd Respondent submitted E-auction bid form for item No.1 and item No.2 of properties and it became a successful bidder for item No.1 for a sum of Rs.6.18 Crores. Bank contended, it followed all the provisions of the Act, and Application is devoid of merits and liable to be dismissed.

Second Respondent Firm filed Statement in answer to Application of Appellant that, it filed SA (SR) 5377/2019 challenging Possession Notice against the property covered under Sale Agreement dated 30.03.2017, but the same is rejected on the ground that 2nd Respondent is not an aggrieved person. It is contended that 2nd Respondent filed Writ Petition before Hon’ble High Court against said Order and same is dismissed on 24.07.2019 holding that it has got efficacious remedy by way of an Appeal to DRAT. It is contended, in the meantime, 2nd Respondent has come across Auction Sale Notice in ‘Dinamalar’ Tamil Daily dated 25.06.2019, for three items of properties, which includes 44 cents of land and building. It is contended that, 2nd Respondent submitted online E-auction bid form, on 24.07.2019 by quoting a bid amount of Rs.6.17 Crores, and remitted EMD of Rs.61.70 Lakhs. 2nd Respondent also contended, it submitted online E-auction bid form for item No.2 property for bid amount of Rs.2.11 Crores, and remitted Rs.21.10 Lakhs as EMD. Second Respondent contended that it became a successful bidder for an amount of Rs.6.18 Crores for item No.1 property and paid entire sale consideration for which Bank issued Sale Certificate on 07.11.2019, which is duly registered as document No.5706 of 2019, before Joint II, Sub-Registrar, Tirupur. It also contended that mutation of property Tax Assessment and Electricity Service Connection in respect of item No.1 property has already been effected and prayed for dismissal of Application.

After filing of SA 376/2019, as sale is concluded, Appellant filed SA (SR) 11409/2019 to set aside Sale dated 30.07.2019, contending that Bank failed to obtain valuation report from an approved Valuer as per Rule 8(5) of Rules, 2002 before issuance of Sale Notice. Appellant also contended that Auction Purchaser failed to deposit entire sale consideration as per Rules, i.e., 25% immediately, and 75% balance within 15 days, and on that ground, Sale is liable to be set aside. Appellant also contended that Bank violated Section 26(D) of SARFAESI Act, 2002, and on that ground also, auction conducted by Bank against mortgaged properties is to be declared as illegal. Appellant also contended reserve price is fixed at Rs.6.17 Crores and same was sold to a single bidder for Rs.6.18 Crores, whereas the market value of said property is more than Rs.9.50 Crores. Appellant also contended that Registration Department namely Sub-Registrar of Tirupur, fixed the valuation of property at Rs.7,90,21,686/- and selling property at Rs.6,18 Crores is nothing but collusion between Bank and Auction Purchaser.

This Application is filed with delay Application, and Tribunal below decided both Applications through a Common Order and dismissed both the Applications. Aggrieved by the same, these two Appeals are filed.

Appellant and Bank filed separate Written Arguments and Auction Purchaser adopted the Written Arguments of Bank. Arguments are advanced on behalf of Borrower, Bank and Auction Purchaser at length, mainly touching the grounds of valuation, reserve price, alleged collusion etc., and after hearing both sides, the matter is posted for orders to 18.04.2023. But, after verification of records, it is noticed that all these grounds, mainly valuation, reserve price and alleged collusion etc., would become relevant if the Sale Notice challenged in SA 376/2019 is legal and in accordance with the provisions of Securitisation Act and Rules. As both parties have not focused on Sale Notice dated 24.06.2019, the matter is reopened and posted for further hearing. Thereafter, Advocates of all the parties again argued the matter touching Sale Notice and while reiterating earlier submissions.

First Respondent filed Written Arguments on 12.10.2023 with reference to Sale Notice dated 24.06.2019, while reiterating earlier submissions.

As seen from impugned Order, even Tribunal below carried away with the submissions of both sides only on the point of valuation, reserve price, alleged collusion, etc., but not really examined the legality of Sale Notice dated 24.06.2019,  which  is  mainly  challenged  in  Securitisation Application SA 376/2019. Therefore, first, it has to be seen whether Sale Notice dated 24.06.2019 is in accordance with the provisions of Securitisation Act and Rules made there under, and if it is found to be legal, other aspects of valuation, reserve price, alleged collusion, etc., have to be examined.

In SA 376/2019, Borrower raised various grounds, but the relevant grounds for the purpose of Sale Notice dated 24.06.2019 are grounds No.5, 6 and 7, which are as follows:-

“ 5. The applicant submit that the 1st defendant have not followed the procedure contemplated under Rule 8(1), (6) of the Security Interest (Enforcement) Rules, 2002 in issuing the possession notice and sale notice.

The Applicant submits that the 1st defendant have issued notice for sale dated 24.06.2019 stating that the entire liability amount of Rs.3,34,04,303/- as on 28.02.2019 has to be paid within 30 days from the date of the notice for sale, failing which the 1st defendant will proceed under SARFAESI Act for selling the schedule mentioned properties. The Ist defendant before the expiry of 30 days from the Notice for Sale issue to the applicant, on 25.06.2019 have published the sale notice in the Dinamalar and The Hindu newspaper stating that the applicant schedule mentioned properties will be going to be sold on 30.07.2019 at 10.00 am to 02.00 pm. The very publication of the sale notice in the newspaper by the Ist defendant is against the content stated by the Ist defendant in the notice for sale and the sale notice dated 24/06/2019 issued by the Ist defendant with respect to the schedule mentioned properties are illegal and invalid.

The applicant submits that the Ist defendant have not followed the procedure contemplated under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 in serving a notice of 30 days for sale of the immovable properties and thereby allowing the applicant to redeem the schedule mentioned properties as per Sec. 13(8) of the SARFAESI Act. The Ist defendant on 24.06.2019 have issued a notice under 8(6) of the Security Interest (Enforcement) Rules, 2002 and on 25.06.2019 have published the sale notice in the Newspaper thereby curtailing the applicant right in the redeeming the property as per Sec. 13 (8) of SARFAESI Act. Hence, the sale notice dated 24.06.2019 published in the Newspaper by the Ist defendant before the expiry of 30 days for redeeming the properties by the applicant is illegal and invalid.”

The other grounds are in respect of valuation of property, reserve price of property etc.

In reply to above grounds (the grounds on which Notice dated 24.06.2019 is challenged), first Respondent Bank contended that it issued Sale Notice dated 24.06.2019 informing Borrowers that properties shall be brought for Sale after 30 days from the date of Sale Notice, which is accompanied by E-auction Sale Notice fixing the auction on 30.07.2019. Bank also contended that Sale Notice dated 24.06.2019 is received by Borrowers on 25.06.2019 and Sale Notice was published in English and Tamil Dailies, ‘the Hindu’ and ‘Dinamalar’ dated 25.06.2019.

Procedure for Sale of immovable secured asset is governed by Rules 8 and 9 of Enforcement Rules, 2002. Secured Creditor, after taking possession of immovable property, has to obtain Valuation Report before effecting Sale of immovable property. Secured Creditor can also sell the property in whole or in part, under any of the methods indicated in Rule 8(5) of Rules, 2002. As per Rule 8(6) of Rules, 2002, the Authorised Officer has to serve to the Borrower a Notice of 30 days for Sale of immovable secured assets. As per proviso to this Rule, where the Sale is either through inviting Tenders or by holding public auction, the Secured Creditor shall cause a public Notice in the Form given in Appendix IV-A, which is to be published in two leading newspapers, one must be in vernacular language having got wide circulation in that locality. According to Advocate for Appellant, this Notice dated 24.06.2019, cannot be termed as Sale Notice, at best, it can be called as a pre Sale Notice, and Authorised Officer has to issue a separate Sale Notice if the language employed in Notice dated 24.06.2019 is carefully examined. He submitted, as said Notice is not in conformity with Rules 8 and 9 of Rules, 2002, it has to be set aside, and consequentially, the Sale held on 30.07.2019 and issue of Sale Certificate, etc., have to be set aside.

In answer to above submissions, Advocate for Bank tried to interpret Rule 8(6) of the Rules, 2002, to impress upon the Tribunal that Notice dated 24.06.2019, is completely in conformity with Enforcement Rules, 2002. He submitted, no prescribed Form is given in Appendix attached to the Rules, 2002, and Appendix IV-A is only for the sake of publication, and therefore, every Bank is adopting their own procedure and methods in giving Sale Notice. In that way, Notice dated 24.06.2019 is absolutely valid. In fact, Bank filed Written Arguments dated 12.10.2023 clarifying this aspect.

Now, it may be relevant to examine Notice dated 24.06.2019 to appreciate the arguments and counter arguments of both parties. Said Notice is as follows:-

“SALE NOTICE

Ref: Misc/Adv//2019-20. 59/A To 59/E                                                                                          24/06/2019

TO

M/s MRP Garments No.2/11,

Palayakkadu, Uthukuli Main Road, B.S.Sundaram Road, Mannarai, Tirupur-641601.

A

Mr.M.Rajan

S/o Muthusamy(Partner) Door No.1/4, Palayakkadu, Uthukuli Main Road, B.S.Sundaram Road, Mannarai

Tirupur-641607.

B

Mrs.R.Manonmani

W/o  Mr.M.Rajan (Partner)

Door No.1/4,

Palaya kkadu, Uthukul i Main Road, B.S.Sun

daram Road, Mannarai

Tirupur- 641607

C

Mr.M.Rajan

S/o  Muthusamy (Guarantor)

Door No.1/4, Palayakkadu, UthukuliMain Road, B.S.

Sun dara m Roa d, Man nara i

Tirupur-641607.

D

Mrs.R.Manonmani

W/o Mr.M.Rajan (Guarantor) DoorNo.1/4, Palayakkadu, Uthukuli Main Road,

B.S.Sundara m Road, Mannarai

Tirupur-641607 E

Dear Sir,

NOTICE UNDER RULE 6(2) & 8(6) OF THE SECURITY INTEREST (E NFORCEMENT) RULES.

Whereas the Authorised Officer of State Bank of India issued demand notice dated 01/03/2019 determining an amount of Rs. 3,34,04,303 (Rupees Three Crores Thirty Four Lakhs Four Thousand Three Hundred and Three Only as on 28/02/2019 with .subsequent interest, cost and included charges thereon and has taken possession of the following properties u/s sec 13(4) of the SARFAESI Act on 09/05/2019.

Whereas you have failed to satisfy your / borrower liabilities to the Bank even after the receipt of notices under section 13(2) & 13(4) of the Act. Therefore the Bank in exercise of its rights granted under the Act and Rules, issues this notice under Rule 6(2) and 8(6) of the Security Interest (Enforcement) Rules, 2002 calling upon you to discharge in full liabilities amounting Rs. 3,34,04,303 (Rupees Three Crores Thirty Four Lakhs Four Thousand Three Hundred and Three Only) as on 28/02/2019 with further interest, cost and incidental charges thereon for the Bank within 30 days from the date of this notice, failing which the Bank shall proceed under the Act for the sale of the secured assets hypothecated/ mortgaged/ charged to the Bank, more fully described in the schedule hereunder, either obtaining the quotations or inviting tenders or by holding public auction or by private treaty without any further notice to realize the above stated out- standing, with interest and costs. This is without prejudice to any other rights available to the Bank under the Subject Act or any other law in force.

Yours faithfully

Authorised Officer

Enc1: As above”

From a reading of above Notice, it is very clear that Authorised Officer called upon the Borrower to pay outstanding of Rs.3,34,04,303/- within 30 days from the date of said Notice. It is clarified in Notice, if the Borrower failed to discharge said amount, Bank shall proceed under the Act for Sale of secured assets. In the Written Arguments, Advocate for Respondent Bank contended that it prepared a Format stating it as Standard Operating Procedure (SOP) to be issued under Rule 8(6) of Rules, 2002, and said SOP is enclosed to Written Arguments. It may be relevant to examine said SOP also, which is as follows:-

“[ Format of sale notice (immovable assets)]

To

Shri…………………………(Borrower/Guarantor)

………………………………………

………………………………………….

Dear Sir,

NOTICE UNDER RULE 8(6) OF THE SECURITY INTEREST (ENFORCEMENT) RULES.

Please take notice that the secured assets mortgaged/changed to the Bank more fully described in the Schedule hereunder shall be sold by public e-Auction to be held on ………………….(date) through………………………… (website) at…………………… a.m . (time). For further details, please refer to the notice to be published in the newspapers and at websites………………….

Yours faithfully

(Authorised Officer)

Schedule

(Details of the property/ies)”

According to Bank, the Format under Standard Operating Procedure and Sale Notice dated 24.06.2019, addressed to Borrowers, are in conformity with Rule 8(6) of Rules, 2002. I am not in agreement with arguments of Advocate for Bank for the simple reason that Notice dated 24.06.2019 indicates that Borrower has to pay a certain sum within 30 days from said Notice, and failure to do so, Secured Creditor will sell the property in accordance with Act. Whereas, SOP of the Bank indicates that the property shall be sold by way of auction to be held on certain date through website/ place of auction and clarifies for further details, they have to refer to notice to be published in the newspapers and at websites.

In Notice dated 24.06.2019, there is no whisper about the date of Sale, place of Sale, time of Sale etc. Rule 8(6) of Rules, 2002, is very clear that Borrower has to be served with Sale Notice, which means, about method of Sale, date of Sale, place of Sale, time of Sale, etc., and proviso to that Rule contemplates a general Notice to public by publishing it in newspapers so that there will be participation in the auction. But here, argument of Advocate for Bank is that, since the date and time etc., are indicated in the Notice published in the newspaper, that would satisfy the requirements of Rule 8(6) of Rules, 2002. But, I am not in agreement with said submission. When Rule contemplates a separate Notice to Borrower, Bank cannot contend as general notice is given and same is sufficient and compliance of Rules. As rightly pointed out by Advocate for Appellant, Bank has to wait till expiry of 30 days i.e. upto 25.07.2019, and thereafter, it has to fix the date for Sale if Borrower failed to discharge the amount indicated in Notice dated 24.06.2019. This aspect is not at all examined by Tribunal below. It only examined about the valuation of property and irregularities of Sale, but, SA 376/2019 is filed only challenging Sale Notice with consequential relief to set aside the subsequent steps that followed Notice dated 24.06.2019. In the Securitisation Application, Appellant specifically taken this ground. Bank replied that properties will be brought to Sale after 30 days from Sale Notice. But, there is no such whisper in the Notice dated 24.06.2019. On the contrary, it indicates if demanded money is not paid within 30 days, Bank will proceed under the Act for Sale of secured assets. Both sides referred to some decisions on the point of 30 days clear notice in between Sale Notice and date of auction. But, those decisions have no relevancy when Notice dated 24.06.2019 cannot be termed as Sale Notice. Therefore, those decisions are not referred to in this Order

Appellant specifically raised a ground, in the Appeal under ground No.(g) that Tribunal below has not taken serious view of irregularities committed by Authorised Officer while invoking provisions of SARFAESI Act, with reference to Sale Notice dated 24.06.2019, which is illegal and without following mandatory provision. It is contended that, on this ground alone, the impugned Order is liable to be set aside. As already referred to above, Advocate for Bank supported the action of Authorised Officer with reference to Notice dated 24.06.2019, though it is contrary to the SOP of the same Bank. It is a common sense point, if place of Sale, date of Sale, mode of Sale, is not informed to Borrower, how the Borrower could know about the Sale, because public Sale has to be transparent and facilitating the Borrower also, to bring his own bidder. Here, unfortunately, Tribunal completely lost site of this important aspect, and did not examine at all, and proceeded with other contentions and confirmed the Sale.

As already observed, if Sale Notice dated 24.06.2019 is legal and in conformity with Rules, 2002, then, other aspects like Valuation, Sale etc., have to be examined, and when the foundation for Sale, which is the Sale Notice, is not in conformity with the provisions of the Act, there is no need to examine the other aspects.

As already referred to above, as Notice dated 24.06.2019, cannot be treated as Sale Notice, at best, it may be a pre Sale Notice, where Authorised Officer has given another opportunity to Borrower for discharging the outstanding. As rightly pointed out by Advocate for Appellant, this Notice cannot be treated as Sale Notice to set the law into motion for Sale of immovable property, and on that ground alone, the measures adopted by Authorised Officer are to be held as illegal.

Advocate for Auction Purchaser while supporting the action of Bank and the arguments of Bank’s Advocate, submitted that, Auction Purchaser, being bonafide purchaser, should not suffer for small irregularities. He submitted, Sale in favour of Auction Purchaser is to be confirmed, and if for any reasons, if this Tribunal holds that Notice dated 24.06.2019 is not in conformity with Rules, then, interests of Auction Purchaser has to be protected.

To support his arguments, Advocate for Auction Purchaser relied on the judgement of Hon’ble Supreme Court in Vasu P. Shetty Vs. M/s. Hotel Vandana Palace and Ors., reported in 2014 AIR SCW 2488. Referring to the above judgement, Advocate for Auction Purchaser submitted that the bid amount has to be refunded with interest.

Considering the submissions of Auction Purchaser and the decision of Hon’ble Supreme Court referred to above, as the Sale Notice is defective, Sale process on such defective Notice, cannot sustain, therefore, Bank shall refund the bid amount of Rs.6.18 Crores to Auction Purchaser with interest applicable to FDRs from the date of deposit till payment.

Advocate for Auction Purchaser also cited several citations on the point of redemption, conduct of Borrower and other aspects, which are no way relevant to the issue on hand, because none of those decisions are on the point of defective Sale Notice.

In view of my above discussions and observations, it is held that Notice dated 24.06.2019 is not in conformity with mandatory provisions and rules made there under. Therefore, the same cannot be treated as legal and valid, and Authorised Officer proceeded on a Notice which is not in conformity with the Rules, and all consequential steps on account of such Notice, cannot stand, and they are to be set aside.

Other Securitisation Application is filed challenging Sale held on 30.07.2019, but, Office raised an objection with regard to limitation, and Tribunal below, without deciding the issue whether the Application is within time or not, it has decided the grounds urged in that Application by clubbing said unnumbered Securitisation Application with SA 376/2019.

On an overall consideration of entire material, the impugned common Order dated 08.12.2020 passed in SA 376/2019 is liable to be set aside. Consequentially SA 376/2019 is to be allowed. As the Sale is set aside as a consequence of findings that Notice dated 24.06.2019 is not legal Notice, the relief claimed in unnumbered SA (SR) 11409/2019 namely to set aside Sale dated 30.07.2019 becomes infructuous.

In the result, the following Orders are passed:

i) The Appeal RA (SA) 22/2021 is allowed. Impugned Common Order dated 08.12.2020 is set aside. Consequently, SA 376/2019 on the file of DRT, Coimbatore, stands allowed.

ii) The Appeal RA (SA) 23/2021 is dismissed as infructuous. As the Sale is set aside, the relief claimed in unnumbered SA (SR) 11409/2019 has become infructuous.

iii) Both parties shall bear their own costs. All pending IAs, if any, stand closed.