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Judgment
This SA is filed by the applicant with a prayer (a) to set aside pre-sale notice dt. 13.05.2019 got issued by respondent bank in respect of schedule properties, (b) to set aside sale notice dt. 10.05.2019 published on 12.05.2019 and to set aside sale dt. 20.06.2019 in respect of item No.1 of schedule properties (c) to set aside all measures under the SARFAESI Act, (d) to award fee etc and to set aside and cancel Sale Certificate dt. 27.06.2019 issued by 1st Respondent Bank in favour of 2nd respondent. respondent representing that processing of such limits will take time from Hyderabad Office, have not even provided half of the limits requested by the applicant. Therefore, the applicant started its business under compelling circumstances with limited working capital limits, which eventually lead the applicant to several financial difficulties. It has been further stated that the Applicant had been regular in the matter of repayment of credit facilities availed by the applicant from the respondent bank. However, the respondent bank incorrectly classified the loan account of the Applicant as NPA and initiated recovery measures under law. The applicant submits that the recovery measures initiated by the respondent bank herein against the applicant herein are not in accordance with law. The applicant submits that very classification of accounts of the applicant as non performing asset and subsequent action under the Act are also not in accordance with law.
In the grounds of Appeal, it has been stated that the respondent bank had no authority to issue the very demand notice u/s. 13(2) of the Act. Therefore, the action of the respondent bank in having recourse to the provisions of S.A.R.F.A.E.S.I Act, 2002 is not maintainable under law and the same is liable to be set aside. As such all subsequent actions are also void abinitio and the same are also liable to be set aside. The applicant had not been served with demand notice properly and in accordance with law by the respondent bank herein. The applicant believes that the guarantors to the loan transaction have also not been served with the said demand notice stated to have been got issued by the respondent herein. Therefore, all subsequent actions are liable to be set aside. The applicant submits that very classification of loan account of the applicant as non-performing assets is not in accordance with guidelines of Reserve Bank of India and as a necessary consequence subsequent actions of the respondent bank are liable to be set aside. The respondent bank ought to have taken note of revised and correct guidelines of Reserve Bank of India as to the time limits for classification of loan account as non-performing asset. The demand notice dt.29.06.2016 reveals that the said guidelines of RBI have not been applied correctly while classifying loan accounts of applicant as non-performing assets. It is further submitted that the applicant is a medium scale unit and therefore is entitled for all benefits under MSME act, 2006, before the respondent bank can initiate recovery measures under the act. It has been stated that the respondent bank did not comply with provisions of Sec. 13(4) of Act. The respondent bank had no authority to issue possession notice or to take steps under Sec.13(4) of the Act. The possession notice had not been published in news papers as required under the Act. As such the action of the respondent bank is liable to be set aside. The possession notice was neither affixed on the schedule properties nor published in news papers as contemplated under the rule 8(1) & (2) of Security Interest (Enforcement) Rules, 2002. As such, the action of the respondent bank herein in proceeding for recovery is not sustainable under law. Further, the respondent bank is also under an obligation to serve possession notice on the remaining guarantor. This was not complied with. The respondent bank claimed to have issued two different possession notices in respect of two properties mentioned in the schedule. However, provisions regarding affixture of notices and publication of such notices in the news papers, as contemplated under SARFAES1 Act, 2002 have not been followed and complied by the respondent bank. Therefore, the possession notices are not in accordance with law and are liable to be set aside. The endeavour of the respondent bank seems to be sale of property instead of recovery of the amount. The respondent bank is therefore not entitled to proceed against the schedule property. The action of the respondent bank is therefore illegal and requires to be set aside. The statutory requirements of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, as contained in Rules of the said enactment, have been given a go bye. As such, all subsequent proceedings at the instance of the respondent bank are void ab initio. The applicant submits that the respondent bank charged exorbitant interest on the outstanding amounts without following proper BPLR interest rate. The calculation of interest component is incorrect and consequently, the respondent bank cannot proceed further under the Act. It is submitted that interest was not calculated as per the terms of sanction/contract. The outstanding amount claimed by the respondent bank is therefore incorrect and the applicant is not bound to pay the amount claimed by the respondent bank in its proceedings under the Act. It is submitted that the pre-sale notice dt.13.05.2019 stated to been have issued by the respondent bank is also not accordance with law and not in compliance with law Rule 8(6) of Security Interest (Enforcement) rules, 2002. The sale notice was neither affixed on the property nor published in two news papers as mandated in Rules 8(6) & (7). Income Tax Department claiming an amount ofRs.1,46,00,000/-, approximately, got issued notices to the applicant as well as respondent bank around 3 years ago. The applicant challenged the said notices before the appropriate Tribunal at Hyderabad and the said proceedings are pending adjudication. This claim of Income Tax Department constitutes an encumbrance within the meaning of Rule 8(6)(a) of Security Interest Rules, 2002. Such a claim requires specific mention in the sale notices got issued and published by the respondent bank. Apparently publication dt:10.05.2019 in Eenadu Local daily does not contain any mention of such encumbrance. Therefore, the sale notices dt:10.05.2019 published in Eenadu Local daily on 12.05.2019 are not in accordance with law and liable to be set aside. The schedule properties have been thoroughly undervalued. It is submitted that the value of the item No.1 of the schedule properties, which is now offered for sale will be at least Rs.9,00,00,000/- by any conservative estimate. Strangely, the respondent bank valued the same at Rs.3,54,00,000/-, as upset price. The Applicant understands that the intention of the respondent bank is to sell the property somehow or the other. All other measures under the Act are also not in accordance with law and are liable to be set aside. It is also pertinent to mention here that at the time of sanction in the year 2015 itself, the respondent bank obtained two valuation reports, which reveal that the value of item no.1 of the schedule properties was Rs.6,56,60,000/- by April, 2015 itself. By that yardstick, the item No.1 of the schedule properties is thoroughly undervalued. Even on the ground of undervaluation, the sale notice dt: 13.05.2019 is liable to be set aside. The applicant sought for one time settlement from the respondent bank as the applicant incurred huge losses in the business on account of lack of demand for finished product of the applicant. Even before the Applicant availed credit facilities from the respondent bank, the applicant availed a term loan from APSFC. It is further submitted that claiming default, APSFC closed unit of the applicant. Therefore the applicant sought for OTS and the same was granted by the respondent bank vide its letter dt.12.09.2018. Simultaneously, the applicant also paid an amount of Rs.26,92,005/- to the respondent bank towards upfront amount for considering the proposal of the applicant to the respondent bank. Thereafter, claiming that there was default in payment of subsequent installment, the respondent bank claimed to have withdrawn the said OTS. Subsequently, the applicant addressed another letter dt.25.01.2019 seeking renewal of OTS. However, there has been no response from the respondent bank to the said proposal of the applicant. Copies of the said letters have also been filed herewith and the contents thereof may kindly be considered as integral part of this application also. The applicant concern is registered as medium enterprise with district industries center, falling within the ambit and jurisdiction of the Micro, Small & Medium Enterprises Development Act, 2006. Under the said Act, a specific frame work known as 'the frame work for revival and rehabilitation of Micro, Small & Medium Enterprises' was passed on 29.05.2015, wherein, in rule no.2, every bank was directed to constitute a committee for suggesting a corrective action plan for revival of the unit before proceeding for recovery measures under available laws. This condition is mandatory in nature and the respondent bank is bound to follow this rule before initiating recovery measures. The respondent bank should have forwarded a proposal to committee constituted by it in accordance with frame work mentioned hereinabove, notified by the Government of India under Sec. 9 of the Micro, Small & Medium Enterprises Development Act, 2006. As an essential consequence, all subsequent actions of the respondent bank under the Act including demand notice are liable to be set aside. It has been consistently maintained by the Honourable Apex Court that revival of the unit should be priority rather than recovery measures for survival of industries. While, striving to achieve balance, priority should be given to revival/restructuring instead of aggressive recovery measures. The demand notice dt: 29.06.2016 was not served on the guarantors to the transaction. The 1st respondent bank failed to produce any proof in support of compliance of service of demand notice dt: 29.6.2016 on the guarantors to the loan transaction. The possession notice dt: 31.10.2016 was also not served on the guarantors. There is no possession notice dt: 31.10.2016, as claimed by the 1st respondent bank. Such a document is not at all in existence. Such possession notice was not published in two news papers as required under the Act. Rule 8(6) notice was also not served on the guarantors. No proof evidencing service of Rule 8(6) notice has been filed by the 1st respondent bank before this Honourable Tribunal. Rule 8(5) of Security Interest (Enforcement) Rules, 2002 stipulates that the authorized officer shall obtain valuation of the property before affecting the sale of immovable property. The documents filed by the 1st respondent bank disclose that valuation was done only in the year 2016. Therefore, in the absence of fresh valuation prior to sale of the property, sale in favour of the 2nd respondent by the 1st respondent bank constitutes serious illegality and as a necessary consequence, sale said to have been conducted on 20.06.2019 requires to be set aside. Values of the properties increase day by day usually and ordinarily. The fact that the Item No.1 of the schedule properties, offered at upset price of Rs.3,54,00,000/- vide sale notice dt:13.05.2019 was sold at Rs.5,03,00,000/- reveals that the property has more value and that it was apparently sold at very lesser price than prevailing market value. The schedule properties have been located at very prime areas with huge commercial value. In fact, my elder brother has been doing business of stones and tiles in the Item No.1 of the schedule properties. Therefore, the price at which Item No.1 of the schedule properties was sold is definitely much lesser than prevailing market value and therefore sale said to have been conducted on 20.06.2019 is liable to be set aside. The valuation report dt: 12.07.2019 relied upon by the applicant reveals that the value of the Item No.1 of the schedule properties is Rs.10,31,80,000/-. By this yard stick, it is clear that Item No.1 of the schedule properties was sold at a throw away price by the 1st respondent bank. Had the property been sold at its prevailing market value, entire debt of the 1st respondent bank would have been liquidated.
Reply on behalf of respondent No.1 bank has been filed denying the averments made in the SA and further stated that earlier the Applicant filed S.A. 79/2017 challenging the SARFAESI measures initiated by the Bank including e-Auction Notice published in newspapers dated 22.01.2017 under which auction was proposed to be conducted on 28.02.2017. Subsequently in that S.A. itself the Applicant filed a number of Amendment Petitions including the subsequent Auction Notices. The Respondent Bank contested the said S.A. and filed detailed Counters in all the I.A.s. Ultimately S.A. 79/2017 was dismissed for non prosecution and no steps are taken by the Applicant in that regard and consequently the said Order for dismissal has become final. Under these circumstances it is submitted that the present S.A. is absolutely barred under law as the previous S.A. is filed challenging all the SARFAESI measures. It is submitted that as the present S.A. is filed challenging Presale Notice dated 13.05.2019 and auction dated 20.06.2019 which are continuation of the SARFAESI proceedings already challenged in the previous S.A., the present Appeal is not maintainable under law and more particularly the doctrine of "Res-judicata". It is also submitted that the Respondent Bank filed O.A. 12 of 2017 before this Tribunal against the Applicant and other and the same was also allowed by this Tribunal on contest and without prejudice to the above it is submitted that as can be seen from the Appeal, factum of borrowing, creation of mortgage and not payment of the amount due are not being denied by the Appellant. However for the sake of record and information the history of the case is that, at the request of the Appellant the bank sanctioned a loan of Rs.8 Crores i.e., Cash Credit Limit Rs.2,50,00,000/- EPC Rs.5,00,00,000/- (FBD Sub limit of EPC) and NFBWCLC Rs.50,00,000/-. It is submitted that the Appellant availed the limits under the following account numbers: C.C.facility- 32567279150 and Cash Credit (EPC)-32702318236. The Appellant and others have been acknowledging their liability from time to time but failed adhere to the repayment schedule and was only making irregular payments. They failed to regularize the accounts inspite of repeated demands and the encouragement given to them on their promise to pay the amounts due properly. Ultimately the account turned NPA w.e.f. 28.06.2016. The Respondent Bank has initiated proceedings under the SARFAESI Act by issuing notice Dt.29.06.2016 under Sec.13(2) of the SARFAESI Act demanding payment of Rs.8,15,20,531.27/- due as on 29.06.2016. The amount due is Rs.3,15,66,053.99/- under Account No. 32567279150 as on 31.12.2016 and Rs.5,40,18,977.17/- under Account No. 32702318236 as on 31.12.2016 in total Rs.8,55,85,031.16/-. It is submitted that as the amount due is not paid inspite of demands and the Respondent Bank issued Demand Notice Dt. 29.06.2016 under Section 13(2) of the SARFAESI Act and the same was duly served on the Appellant and all others concern. lnspite of the Demand Notice the amount demanded was not paid therefore the Authorized Officer has issued Possession Notice Dt.31.10.2016 which was duly published in newspapers i.e., New Indian Express Ongole and Nirmal area Editions Dt.05.11.2016 and Telugu Possession Notice was published in Navatelangana and PrajaShakthi all Dt.05.11.2016. The Possession Notice was duly affixed at the secured properties and was also sent to the Appellant and others. As the amount due was not paid inspite of these proceedings the Authorized Officer proceeded further and issued Pre Sale Notice dated 08.12.2016 under Rule 8(6) of the act which was duly served on the Appellant and others. Later Authorized Officer issued Auction Notice dated 21.01.2017 fixing the date of auction as 28.02.2017. The same was published in Eenadu and New Indian Express and was also sent to the Appellant and others. However due non participation of bidders the auction did not fructify. Under those circumstances subsequently fresh notices of auction were issued and as already submitted above the Applicant filed Amendment Petitions in S.A. 79/2017 challenging those Auction Notices also and ultimately the S.A. itself was dismissed for non prosecution. It is submitted that at no point of time the Demand Notice, or Receipt thereof, Possession Notice or Receipt thereof and Publication, Affixture etc., were challenged and consequently they remain undisputed. That is to submit the steps under SARFAESI upto the Presale Notice dated 13.05.2019 as mentioned in this Appeal are undisputed. It has been further stated that Notice dated 13.05.2019 is not a Presale Notice under Rule 8 (6) but the same is in compliance of 9 (1). It is submitted that in this process Notice under Rule 8(6) was issued vide Notice dated 16.02.2019 and the same was duly served. Subsequently in due compliance of Rule 9(1) Auction Notices were published and served vide letter dated 13.05.2019. In this Appeal the Applicant has mischievously described Notice dated 13.05.2019 as Presale Notice which is not correct. It is submitted that Auction Notices as already submitted above were duly published as per procedure and Auction was held on 20.06.2019. In the said Auction one Sri. Dhanpal Rishi S/o. Dhanpal Srinivas resident of D. No. 6-12-4/3, Namdewada, Nizamabad, Telangana has become the highest bidder by bidding an amount of Rs.5,03,00,000/-for the schedule property covered under letter dated 13.05.2019 referred above. It is submitted that the highest bidder has paid the 25% amount (including EMD) within the time stipulated and Sale Confirmation was issued on 20.06.2019 and later he paid the total amount within the time so Sale Certificate dated 27.06.2019 was issued to him and the possession of the property was also handed over. The allegation in Para 5 (a) of the Appeal shows that the Applicant has admitted about the factum of borrowing and mortgaging etc. The allegation that the Applicant is an MSME is to be proved. The allegations in Para 5 (b) that Officials of Respondent Bank requested the Applicant to avail financial facilities is incorrect. It is submitted that loans will be granted only on the request of the borrowers but not the other way round. The allegations that the Applicant expressed requirement of Rs.15 crores and that the Officials of the Respondent representing that processing of such limits will take time from Hyderabad Office, have not even provided half of the limits requested by Applicant and that therefore the Applicant started its business under compelling circumstances with limited Working Capital limits which led to severe financial difficulties are all absolutely incorrect. It is submitted that at no point of time this stand was taken by the Applicant either in the O.A. referred above or in the S.A. 79/2019 referred above. It is therefore clear that this stand is invented without basis purely for the purpose of this Appeal. The further allegations in Para 3 (c) that the Applicant has been regular in payment of the amount and inspite of the same the Respondent Bank incorrectly classified the loan account as NPA is absolutely false and baseless and again this is a stand taken without basis for the first time. It is submitted that in view of the previous proceedings referred above the Applicant is estopped from questioning the classification or the earlier proceedings under the SARFAESI Act. However it is clarified that the loan account was classified as NPA duly following the procedure. The further allegations in the Grounds of Appeal that the Respondent Bank has no authority to issue Demand Notice and that the Applicant has not been served with Demand Notice properly and that the Applicant believes that the Guarantors have also not been served with Demand Notice and that the very classification of loan account as NPA is not as per RBI guidelines and that the Demand Notice dated 29.06.2016 shows that RBI guidelines are not followed are all absolutely baseless and incorrect. As already submitted above the Applicant is estopped from taking this stand and even otherwise Respondent Bank submits that classification is done properly and all the Notices are served duly. The further allegations that Possession Notice was also not served properly and not published, affixed etc., are also baseless and incorrect. It is submitted that Possession Notice was issued properly and the entire procedure was followed correctly. It is submitted that all the documents, photographs etc., are already filed in S.A. 79/2017 and the Applicant has full knowledge about all those documents and inspite of the same and concealing the same the present S.A. is filed. It is therefore submitted that the Applicant is estopped from taking this stand and it is also clear that the Applicant approached this Hon'ble Tribunal with unclean hands concealing the real facts. The further allegations that the endeavor of the Respondent Bank seems to be sale of property instead of recovery of amount and that therefore the Respondent Bank is not entitled to proceed against the schedule property and that the acts of the Respondent Bank is illegal, liability to be set aside and that statutory provisions are not followed etc., are all absolutely baseless and incorrect. The allegation, that the Respondent Bank has to recover the amount but without selling the property itself is comical and it is baseless. Any person with commonsense will not be able to surmise as to how, when the borrower fails to pay the amount inspite of demand and time granted, the amount can be recovered without selling the property. The further allegations that the Respondent Bank charged exorbitant interest and the same was not calculated as per the terms of sanction and that the amount claimed is incorrect etc., is absolutely baseless except making these bald allegations the Applicant did not even mention what exactly is the interest payable and as to how the calculation is incorrect. The absence of this information itself will show that this allegation is made without any basis and it is a bald allegation. The further allegations that presale Notice dated 13.05.2019 is not in accordance with law i.e., Rule 8 (6) and that Sale Notice was neither affixed not published and that Income Tax Department claimed some amount and that the Applicant challenged the same and that the said claim is encumbrance on the property and that the same requires specific mention in the Sale Notice are all incorrect. As already submitted above letter dated 13.05.2019 is issued to inform the borrower and others about the publication of Auction Notices in compliance of Rule 9 and Presale Notice under Rule 8 (6) is dated 16.02.2019 and the same is duly served on the Applicant and others. With regard to statutory dues is concerned in view of Sec. 26 (e) the same assuming for a moment such dues are there will not come under the definition of encumbrance. Consequently the allegations that the sale has to be set aside are all baseless and incorrect. The further allegations in Para 6 that the properties are undervalued and that Item 1 of the property will be atleast Rs. 9 crores by conservative estimate and that strangely the Respondent Bank valued the same at Rs.3,54,00,000/- and that the Applicant understands that the intention of the Respondent Bank is to sell the property somehow or the other and that all the measures are not in accordance with law and that in 2015 itself the value of the property was more and that as such the property is undervalued are all incorrect. It is submitted that except alleging that the property is undervalued the Petitioner had not placed any proof before this Hon'ble Court for the allegation that the property is worth more than the price fixed by the Respondent Bank. It is submitted that the Respondent Bank obtained update valuation in the month of January, 2019 and basing on the same only the reserve price was fixed. The further allegations with regard to the OTS settlement in Para 7 of the Grounds of Appeal are concerned it may kindly be appreciated that the Respondent Bank itself informed the Applicant about the newly introduced OTS schemes so that the Applicant can avail the same. It may be noted that as against the outstanding amount of Rs.7,81,34,581/- OTS is offered at Rs.5138,40,109/- by virtue of which the Applicant is benefited for more than Rs.2 crores. The Applicant accepted the same and on his acceptance letter dated 29.09.2018 was issued but surprisingly again the Applicant failed to adhere the OTS terms and consequently the Bank was constrained to cancel the same. The allegation that Applicant addressed letter dated 25.01.2019 and the same was not considered etc., are not correct. In any view of the matter OTS means One Time Settlement and the question of renewing the same will not arise as it is a scheme introduced to settle the accounts and under that pretext the borrowers cannot prolong the issue. The further allegations that the Applicant is an MSME and that the Respondent Bank failed to follow up the mandatory conditions applicable in that regard as per Government and RBI are not followed etc., are absolutely baseless and incorrect. It is submitted that the amount due is Rs.11,24,001000/- as on 31.03.2019. There is heavy pressure on the banks from the government and Reserve Bank to take immediate and necessary steps to recover the amounts in the NPA accounts. The Respondent Bank is constrained to take all these steps and is also proceeding to take further steps as contemplated and permissible under law which cannot be faulted with. It is submitted that the Respondent Bank has filed OA 12/2017 before this Tribunal. It is submitted as the factum of mortgage and execution of the loan documents is not denied by the Appellant. Likewise the proceedings pertaining to Possession Notice, Presale Notice are all properly issued as per the provisions of the act and there are no latches on the part of the Respondent Bank in this regard. It is submitted that the Respondent Bank has followed all the rules and regulations by initiating the proceedings under the SARFAESI ACT. The account was maintained during the regular course of business of the bank and interest and other amounts were charged as per the contract between the parties. It is submitted that huge amounts are due to the bank in these loan accounts. The applicant has filed this S.A. only to drag on the proceedings and the actions of the applicant are not at all bonafide. It is submitted that in view of the fact that Possession Notice is not challenged and Applicant failed to avail the right of redemption before the publication of Auction Notice the present Appeal is not maintainable under law. Under these circumstances, it is prayed that the S.A. may be dismissed with costs.
Additional reply on behalf of respondent bank has been filed denying the averments made in the SA and further stated that the Applicant after filing the Appeal sought for amendment of Appeal whereby he sought to introduce some grounds with regard to service of Demand Notice and Possession Notice etc., and also made an amendment to set aside and cancel the Sale Certificate issued in favour of the Second Respondent. It is prayed that the Reply already filed and the documents already submitted may kindly be read as part of this Additional Reply. All the allegations in this amended S.A. are repetition of the allegations in the main S.A. and the previous S.A. 79/2017. It is submitted that the Applicant Bank followed the procedure under the SARFAESI Act perfectly and without any latches. lnspite of receipt of the copies of the documents in the previous S.A. the Applicant is again raising those issues only to drag on the matter. Under these circumstances to thwart the further endeavors of the Applicant seeking some more documents, copies of all the relevant documents are submitted herewith again. It is submitted that the Bank followed procedure perfectly and the Sale Certificate issued in favour of the Second Respondent is issued after conducting the Auction as per procedure only and consequently the relief sought by the Applicant is set aside the said Sale Certificate is not at all tenable and cannot be granted. It is submitted that huge amount is due from the Applicant to the Respondent Bank and the Applicant filing S.A. after S.A. is dragging on the matter and the amount due is mounting up. The Hon'ble Court may kindly appreciate that in the previous S.A. also the Applicant has filed number of Applications just to drag on the matter. It is submitted that when the Applicant did not pursue the previous S.A. wherein he challenged on certain aspects and when the said S.A. was dismissed for default and when the Applicant failed to get it restored, the Applicant cannot again raise those issues in this S.A. Under these circumstances it is submitted that the S.A. itself is not maintainable under law and there are no bonafides at all on the part of the Applicant. The Applicant approached this Court concealing all the real facts. It is therefore prayed that under these circumstances the S.A. may be dismissed with costs.
The respondent No.2 has filed reply stating that the SA filed by the applicant is not maintainable under law much less under the provisions of the SARFAESI Act. All the allegations made by the applicant is hereby denied except those which are expressly admitted herein. The applicant has approached this Tribunal with unclean hands and suppressed the material facts. This SA has been filed with an intention to procrastinate the proceedings. The material allegations made in the appeal in para 5(a) (b) and (c) are all within the knowledge of the applicant and the 1st respondent bank. The material allegations made in the Grounds of appeal with regard to the SARFAESI proceedings are all denied and the applicant is put to strict proof of the same. The reply filed by the 1st respondent bank may be pleased to read as part of this reply. It is submitted that the 1st respondent bank has properly followed the procedure under SARFAESI Act and valued the Item No.1 (a) to (e) schedule properties and conducted the e-auction. It is submitted that this 2nd respondent was successful bidder in the e-auction conducted by the 1st respondent bank with regard to the Item No.1(a) to (e) schedule properties mentioned in the SA for Rs. 5,03,00,000/- and the 1st respondent bank issued Sale Confirmation advice on 20.06.2019. This 2nd respondent has paid the entire sale price of Rs. 5,03,00,000/- and the 1st respondent bank issued Sale Certificate in favour of this 2nd respondent on 27.06.2019. The 1st respondent bank has registered the Sale Certificate on 03.07.2019 vide Doc. No.3946/2019 in favour of this 2nd respondent. The sale confirmation advice dt. 20.06.2019, Sale certificate dt. 27.06.2019 and registered the Sale Certificate dt. 03.07.2019 vide Doc.N0.3946/2019 are filed. It is submitted that the applicant having knowledge of the fact that the 1st respondent bank is conducting e-auction of the Item No.1 (a) to (e) schedule properties in the SA including all other properties and also well aware of the SARFAESI proceedings right from Section-13(2) SARFAESI Act and having kept quite all these days till the e-auction is completed and Sale Certificate is registered has filed this SA only with an intention to harass the cause loss to this 2nd Respondent. It is submitted that this Respondent is a bonafide purchaser and invested his hard earned huge amount of Rs. 5,03,00,000/- and purchased the Item No.1 (a) to (e) schedule properties in the SA and the applicant has no locus standi to file the above SA since the sale is completed and even the Sale Certificate is also registered. The applicant has no cause of action to file the above SA and the same is invented for the purpose of dragging the proceedings and cause damage to this 2nd respondent. Therefore, this 2nd respondent prayed to dismiss the above SA with exemplary costs, in the interest of justice.
Written arguments have been filed by the applicant reiterating the averments made in the SA and further stated that the applicant prayed to set aside the sale said to have been conducted by R1 bank on 20.6.2019 and also to cancel the sale certificate issued by R1 bank in favour of R2 and also set aside all the measures under the Act.
According to the arguments of the Ld. Counsel for the applicant that the applicant had been regular in the matter of repayment of loan however the respondent bank has incorrectly classified the loan account of the applicant as NPA and initiated recovery measures under SARFAESI Act and further argued that the classification of account as NPA is itself irregular/illegal. But how it is irregular/illegal in declaring the account as NPA has not been established/pointed by the applicant and so it cannot be said that the account of the applicant declared as NPA is incorrect and illegal. Admittedly, the respondent bank issued demand notice under section 13(2) and initiated proceedings under SARFAESI Act. It is contended by the applicant that demand notice was not properly served by the respondent bank and the guarantors were also not served with demand notice. It is further submitted by the Ld. Counsel for the applicant that there is no service of demand notice dt.29.6.2016 on the guarantors. It is further submitted that the proceedings under section 13(4) of SARFAESI Act also not properly invoked by the respondent bank and respondent bank has not followed the section 13(4) notice properly. The possession notice has not been published in newspapers as required under the Act and the possession notice was also not affixed on the schedule properties nor published in newspapers as contemplated under the rule 8(1) and (2) of Security Interest (Enforcement) Rules, 2002 and the guarantor also not served with possession notice. It has been further contended that the possession notice is also not affixed to the schedule property. The Ld. Counsel for the applicant has submitted that the possession notice is not in accordance with the law and is not as per SARFAESI Act and there is no proof of service of possession notices also on the borrower and guarantors and also so called photos does not reveal what was affixed on the property. The possession notice dt.31.10.2016 was filed along with additional reply by R1 bank claims that possession of the property was taken on 31.10.2016. It has been stated by the Ld. Counsel for the applicant that the publication in Ongole edition claims that possession notice was taken on 1.11.2016 and the publication in Telugu daily on Prakasam edition also claims that the possession of property taken on 1.11.2016 and it was dated 1.11.2016. It has been stated that the so called possession notice dt.31.10.2016 was not published at all and the possession notice was not served on the applicant/guarantors nor affixed on the properties. It is further contended that the publication in Hyderabad edition English paper claims that the possession was taken on 31.10.2016 and the publication is dt.31.10.2016 and the publication in Hyderabad edition Telugu paper also claims that the possession was taken on 31.10.2016 and the publication is dated 31.10.2016 and therefore contended that the possession notice can only be termed as not in accordance with law.
On the other hand, the Ld. Counsel for the respondent bank contended that the account of the applicant became NPA on 28.6.2016 as the applicant failed to pay the amount and regularize the account in spite of repeated demands. It has been further submitted by the Ld. Counsel for the respondent bank that respondent bank issued demand notice under section 13(2) dt.29.6.2016 demanding payment of Rs.8,15,20,531.27ps due as on 29.6.2016 and the total amount due under two loan accounts is Rs.11,24,00,000/- as on 31.3.2019, therefore it cannot be said that declaration of the account as NPA is illegal. It is further contended that after issuance of possession notice dt.31.10.2016 it was duly published in newspapers i.e., New Indian Express, Ongole and Nirnnal editions on 5.11.2016 and Telugu possession notice was published in Navatelangana and Praja Shakthi all dt.5.11.2016 and the possession notice was duly affixed at the secured properties and therefore the Ld. Counsel for the respondent bank submitted that the possession notice was issued properly in accordance with law. It has been further submitted by the Ld. Counsel for the respondent bank that an SA.79/17 was filed by the applicant challenging the auction notice dt. 22.1.2017 and ultimately that SA was dismissed for non prosecution. The Ld. Counsel for the respondent bank further contended that the applicant again now challenging the demand notice and possession notice etc. and contending that the possession notice was not properly served and possession notice was not properly affixed on the schedule property.
Admittedly, the SA.79/2017 was dismissed for default and the applicant has taken steps to restore the SA.79/17 and therefore the applicant is now challenging the section 13(2) and 13(4) notices stating that the these were not issued by following due process under law.
The present SA is filed by the applicant to set aside pre- sale notice dt.13.05.2019 got issued by respondent bank in respect of schedule properties, to set aside sale notice dt. 10.05.2019 published on 12.05.2019 and to set aside sale dt. 20.06.2019 in respect of item No.1 of schedule properties and it is also further amended and prayed to set aside and cancel Sale Certificate dt. 27.06.2019 issued by 1st Respondent Bank in favour of 2nd respondent. Therefore it is to be now decided by this Tribunal whether the Pre-sale notice dt.13.5.2019 issued by the respondent bank is in accordance with law and in accordance with rules 8(6) of Security Interest (Enforcement) Rules and whether the sale notice dt.10.5.2019 is illegal and whether the sale conducted on 20.6.2019 is illegal or not and whether the sale is liable to be set aside or not.
However, it is contended by the Ld. Counsel for the applicant that the pre-sale notice dt.13.5.2019 issued by the respondent bank is not in accordance with the law and not in compliance with rule 8(6) of Security Interest (Enforcement) Rules, 2002 and that the sale notice was neither affixed on the property nor published in two newspapers as mandated in rules 8(6) and (7) and also the Income Tax Department claiming an amount of Rs.1,46,00,000/- approximately got issued notices to the applicant as well as respondent bank around 3 years ago and that the applicant challenged said notices before the Tribunal at Hyderabad and the said proceedings are pending adjudication and therefore the Ld. Counsel for the applicant argued that the claim of Income Tax Department constitutes an encumbrance within the meaning of Rule 8(6)(a) of Security Interest (Enforcement )Rules and such claim requires specific mention in the sale notice got issued and published by the respondent bank. It has been further contended by the Ld.Counsel for the applicant that apparently publication dt.10.5.2019 in Eenadu local daily does not contain any mention of such encumbrance and therefore the sale notices dt.10.5.2019 published in Eenadu local daily on 12.5.2019 are not in accordance with law and liable to be set aside.
On the other hand, the Ld. Counsel for the respondent bank submitted that rule 8(6) notice was issued on 16.2.2019 and the same was duly served and subsequently in due compliance of Rule 9(1) auction notices were published and served on 13.5.2019 and in the SA the applicant has mischievously described notice dt.13.5.2019 as pre-sale notice which is not correct. The Ld. Counsel for the respondent bank further contended that auction notices were duly published as per procedure and auction was held on 20.6.2019 and one Sri Dhanpal Rishi, who is respondent No.2 herein declared as highest bidder for Rs.5,03,00,000/-and that Respondent No.2 has paid entire amount and sale certificate is also issued to him. Therefore, the Ld. Counsel for the respondent bank argued that the sale cannot be set aside and the respondent bank conducted the sale in accordance with law.
As can be seen from the documents filed by the respondent bank along with its reply and additional reply, the respondent bank has filed notice dt.16.2.2019 and the above notice was issued under rule 8(6) read with rule 9(1) of Security Interest (Enforcement) Rules. After the said notice also the respondent bank issued another sale notice dt.13.5.2019 and the above notice was also issued under rule 8(6) read with rule 9(1) of Security Interest (Enforcement) Rules and thereafter the respondent bank got published the sale notice in Telugu and English newspapers as required under law. But it can be seen that the respondent bank has issued two rule 8(6) notices read with rule 9(1) i.e., one is dt.16.2.2019 and another is dt.13.5.2019 and both the notices are issued under rule 8(6) and 9(1) under Security Interest (Enforcement) Rules but the law does not require to issue notices under rule 8(6) and 9(1) simultaneously and law provides that rule 8(6) is to be issued first by giving 30 days time so as to enable the borrower to redeem the property and after expiry of 30 days, sale notice is to be issued by the respondent bank. The two notices which are dt.16.2.2019 and 13.5.2019 read with rule 9(1) of Security Interest (Enforcement) Rules.
As per the decision of Division Bench of Hontle High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh in WP No. 8155/2018 in between Sri Sal Annadhatha Polymers and another Vs Canara Bank, Madanapalle "Once the said legal position is ascertained, the statutory prescription contained in Rules 8 and 9 have also got to be examined as the said Rules prescribe as to the procedure to be followed by a secured creditor while resorting to a sale after the issuance of the proceedings under Sections 13(1) to (4) of the SARFAESI Act. Under Rule 9(1), it is prescribed that no sale of an immovable property under the rules should take place before the expiry of 30 days from the date on which the public notice of sale is published in the newspapers as referred to in the proviso to sub-rule (6) of Rule 8 or notice of sale has been served to the borrower. Sub-rule (6) of Rule 8 again states that the authorized officer should serve to the borrower a notice of 30 days for the sale of the immovable secured assets. Reading sub-rule (6) of Rule 8 and sub-rule (1) of Rule 9 together, the service of individual notice to the borrower, specifying clear 30 days time-gap for effecting any sale of immovable secured asset is a statutory mandate. It is also stipulated that no sale should be effected before the expiry of 30 days from the date on which the public notice of sale is published in the newspapers. Therefore, the requirement under Rule 8(6) and Rule 9(1) contemplates a clear 30 days individual notice to the borrower and also a public notice by way of publication in the newspapers. In other words, while the publication in newspaper should provide for 30 days clear notice, since Rule 9(1) also states that such notice of sale is to be in accordance with the proviso to sub- rule (6) of Rule 8, 30 days clear notice to the borrower should also be ensured as stipulated under Rule 8(6) as well. Therefore, the use of the expression or in Rule 9(1) should be read as and as that alone would be in consonance with Section 13(81 of the SARFAESI Act".
"In the first place, as already stated by us, by virtue of the stipulation contained in Section 13(8)read along with Rules 8(6) and 9(1), the owner/borrower should have clear notice of 30 days before the date and time when the sale or transfer of the secured asset would be made, as that alone would enable the owner/borrower to take all efforts to retain his or her ownership by tendering the dues of the secured creditor before that date and time".
Therefore, Division Bench of Hon'ble High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh categorically observed that 30 days time period is to be maintained in between issuance of notice u/r 8(6) and paper publication u/r 9(1) so as to enable to borrower to redeem schedule property.
In this case on hand, the two rule 8(6) notices were issued read with rule 9(1) are dt.16.2.2019 and dt.13.5.2019 and without issuing rule 8(6) and 9(1) notices separately by maintaining 30 days time, which is clear violation of SARFAESI Act. The further contention of the Ld. Counsel for the applicant is that the property was undervalued by the respondent bank and that the respondent bank has valued the first item of the schedule property at Rs.3,54,00,000/- as upset price and at the time of sanction of the loan the said property was valued at Rs.6,56,60,000/- by Apri1,2015 itself. As can be seen from the valuation reports/certificates filed by the bank, along with reply and as per valuation report dt.9.1.2019 the fair market value of the property item No.1 is that Rs.4,12,00,000/-, Realizable Value is that Rs.3,50,20,000/-, Forced/Distress Sale Value is that Rs.2,62,65,000/-. The other valuation report filed by the respondent bank is dt.28.2.2019 and the sale was held on 20.6.2019 and the above two valuation reports are prior to sale notice dt.13.5.2019, therefore it cannot be said that the respondent bank has not followed Rule 8(5) of Security Interest (Enforcement) Rules. Though valuation done prior to sale notice, it is clearly establish from the documents filed by the respondent bank that the bank has not followed rule 8(6) and rule 9(1) of Security Interest (Enforcement) Rules and also encumbrances i.e., claim of Income Tax Department not mentioned in the sale notice and therefore on these aspects the sale is liable to be set aside. Therefore, considering the facts and circumstances of the case I am of the considered opinion that the respondent bank has not conducted the sale in accordance with rule 8(6) and 9(1) and therefore the sale conducted on 20.6.2019 is liable to be set aside and consequently the sale certificate issued on 27.6.2019 by the 1st respondent bank to 2nd respondent is also liable to be set aside.
In view of the above, the two sale notices dt.16.2.2019 and dt.13.5.2019 and also the sale held on 20.6.2019 are hereby set aside and thereby the sale certificate dt.27.6.2019 issued by 1st respondent bank to 2nd respondent pursuant to the sale notice dt.13.5.2019 and auction held on 20.6.2019 is also hereby set aside. However, respondent bank is at liberty to proceed afresh by following the due process of law under SARFAESI Act and rules made there under for realization of outstanding dues of applicant.
In the result, the SA.253/2019 is allowed. However, each parties do bear their own costs.
[Dictated to PS, transcribed by him and corrected and pronounced by me in the open court on this 30th day of September, 2020]