Panwar Steel Ltd. And Ors. vs Indian Overseas Bank And Ors.

The S.A. filed by the appellant has been dismissed by the Tribunal on 16.12.2013. Aggrieved against the order passed by the Tribunal below the appellant has filed the present appeal.

The appellants had impugned the action of the respondent Indian Overseas Bank under the provisions of the SARFAESI Act. Appellant M/s. Panwar Steel Ltd. had availed loan facilities to the tune of Rs. 300 lacs on 24.6.2004. This was enhanced to Rs. 350 lac on 7.8.2004. The appellant company had also obtained a term loan of Rs. 740 lac from Haryana State Industrial and Infrastructure Development Corporation Ltd. (HSIIDC). It is stated that the Haryana State Pollution Control Board closed down the operations of the company on 3.1.2006. HSIIDC being a secured creditor took possession of the secured assets of the company which was Plot No. 78, Sector No. 21, Huda Industrial Area, Bhiwani, Haryana. The possession of the plot was taken along with the raw material, finished and semi-finished goods on which the respondent Bank had first charge.

As per the appellants, the company informed the Bank about the action taken by the Haryarra State Pollution Control Board as well as HSIIDC, still, the Bank did not take any action to secure the raw material and other movables over which it had the first charge.

HSIIDC sold the unit of the appellant along with the raw material finished and semi-finished goods for a sum of Rs. 537 lac. The Bank, on the other hand, issued a demand notice under Section 13(2) of the SARFAESI Act on 1.3.2007 claiming an amount of Rs. 3,88,79,000/- along with interest thereon. This was followed by notice dated 24.9.2007 under Section 13(4) of the Act for taking possession of the residential Plot Nos. 407, 408 and 409, Scheme 8A, Vikas Nagar, Bhiwani. This possession notice was published in the newspaper. 'The Tribune' after expiry of two months which, as per the appellants, would be against the explicit mandate of the Rule 8(2) of the Security Interest (Enforcement) Rules, 2002 (for short, the Rules).

The respondent Bank, thereafter, published a sale notice on 4.3.2008 in 'The Tribune' and 'Dainik Bhaskar' and bids were called for on or before 11.4.2008. No bids, however, were received. The Bank, therefore, again issued sale notice dated 9.8.2008 which was published in the newspaper paper on 11.8.2008. The bids were called for on or before 16.9.2008. During this time, the appellants claim to have approached the Bank with bona fide intent for settling the dues and thus entered into one-time settlement (OTS) with the respondent Bank for a sum of Rs. 165 lac. It is stated that a slim of Rs. 20 lac was lying in no-lien account which was to be appropriated. The appellants state to have paid Rs. 60 lac towards this OTS though this payment was made with some delay.

On 17.5.2011, the appellants sought permission from the respondent Bank for selling one of the mortgaged properties. The date for compliance of OTS was extended to 31.8.2011. The appellants would urge that due to circumstances beyond their control the sale could not materialize and further payment as per the OTS could not be made. When this happened, the respondent Bank took fresh action for the sale of the property and accordingly took fresh valuation of the three plots in October 2011.

The Bank issued fresh sale notice fixing reserve price of Plot Nos. 408 and 409 at Rs. 69.47 lac and of Plot No. 407 at 35.32 lac. The bids were called for on or before 27.12.2011. Still, no bids were received. It is stated that the respondent Bank forcibly took possession of the residential plots under Section 14 of the SARFAESI Act between January 2012 and March 2012, though earlier only symbolic possession was taken. On 19.3.2012, notice under Section 13(4) of the SARFAESI Act was also issued for taking possession of the land situated at Village Kharak Kalan, Tehsil and Distt. Bhiwani. The objection by the appellants is that this was an agricultural land. Fresh notice was issued on 23.3.2012 fixing the date of auction as 30.3.2012. The appellants would urge that this was in violation of the Rule 8(6) of the Rules. In this manner, the Bank sold the Plot Nos. 408 and 409 for a paltry sum of Rs. 90 lac and Plot No. 407 for a sum of Rs. 45 lac on 30.3.2012.

The possession notice in regard to the land referred to above was issued on 8.4.2012. The appellants then came to file the S.A. on 9.4.2012 when the Tribunal directed the appellants to deposit Rs. 50 lac within three days and the balance amount within one month. The Tribunal also issued direction to the Bank not to hand over the possession to the auction purchaser besides observing that the sale conducted shall be subject to the final outcome of the S.A.

The appellants state that they had paid the entire remaining OTS amount of Rs. 1.05 crore before the Tribunal below on 18.4.2012. The Bank accepted the said amount, but, subsequently, came out with the statement that the OTS had already expired and stood cancelled.

The agricultural property was sold for Rs. 98.85 lac on 24.8.2012. The auction of the land was held on 20.9.2012, One day prior to the said auction, i.e., 19.9.2012, the appellants filed I.A. No. 339/2012 for stay of the auction and for quashing the possession notice on the ground that the land was an agricultural land, The prayer was declined when the Bank pointed out before the Tribunal that the land was being used as godown and accordingly the land was sold. Though this order dated 19.9.2012 was challenged before this Tribunal, but the said appeal was disposed of on 12.9.2013. As the S.A. was still pending before the Tribunal below, the Tribunal was directed to dispose of the S.A. within two months and until then the parties were directed to maintain status quo in regard to the properties. The SA has now been dismissed necessitating the filing of the appeal by the appellants.

On 3.9.2014, while hearing the appeal it was considered appropriate to hear the auction purchaser as well. The appellants accordingly moved an application and auction purchasers have been impleaded as party respondents. They are fully represented at the time of hearing of the appeal.

Counsel for the appellants has challenged the impugned order on two counts. The Counsel would first submit that the sale of the property was held without giving 30 days' sale notice, which would be in violation of the mandate of the rules which are now held to be mandatory. It is urged that the sale notice was published 24.3.2012 for conducting sale on 30.3.2012 which would thus be violative of Rule 8(6) of the Security Interest (Enforcement) Rules, 2002. The second ground urged is that the Tribunal below has failed to decide the plea raised by the appellants that the land sold by way of auction was an agricultural land and thus not amenable to the action under the SARFAESI Act, It is, therefore, pleaded that the order passed by the Tribunal below would be unsustainable.

The appellants had raised another plea that the OTS entered into with the Bank would survive once the appellants had made payment of Rs. 60 lac. The Tribunal below has dismissed all the pleas raised by the appellants.

The response of the Bank to the plea that the sale was held in violation of the rule inasmuch as 30 days' notice was not given was that the appellants were well-aware of the sale due to earlier notices issued on 4.3.2008, 11.8.2008 and 25.11.2011. Plea accordingly was that 30 days' notice would not be required for each sale notice issued. In this regard, the Bank had placed reliance on the judgment of the Madras high Court in Kalpesh P.C. Surana v. Indian Bank, III (2010) BC 262=AIR 2010 Madras 169, where it was viewed that 30 days' notice would be required only for first sale. The same view had been expressed by the Rajasthan High Court in the case of State Bank of Indore v. Prashan Jhunjhunwala & Ors., 2012 (6) RCR (Civil) 2815. Accepting this submission made on behalf of the Bank, the Tribunal below has rejected the plea raised by the appellants.

This issue now has been settled by the Hon'ble Supreme Court in the case of Mathew Varghese v. M. Amritha Kumar & Ors., III (2014) BC 657=VII (2014) SLT 17=2014 (2) SCALE 331. The Court has clearly held that unless and until a clear 30 days notice is given to the borrower, no sale or transfer can be resorted to by the secured creditor. The Court has also considered the eventuality where earlier sale notice had been issued. It is observed that once the sale does not take place pursuant to a sale notice issued under Rules 8 and 9, read along with Section 13(8) for which the entire blame cannot be thrown on the borrower, it is imperative that for effecting the sale, the procedure prescribed in the rules will have to be followed afresh, as the notice issued earlier would lapse. The Court has accordingly held that it is, therefore, imperative that for the sale to be effected under Section 13(8), the procedure prescribed under Rule 8 read along with Rule 9(1) has to be necessarily followed, inasmuch as that is the prescription of law for effecting the sale as was explained in detail by the Court in the said judgment by referring to Sections 13(1), 13(8) and 37 read with Section 29 and Rule 15. This being the legal position now settled by the Supreme Court, the view expressed by the Tribunal below in upholding the auction held in favour of the auction purchaser on the ground that earlier notices had been issued and 30 days notice was not needed for effecting the sale, cannot be sustained.

The Counsel for the respondent Bank as well as the auction purchasers had no option but to accept this position as this is the law laid down by the Hon'ble Supreme Court and thus the legal position. Accordingly, the auction sale of the property held in this case of Plot Nos. 407, 408 and 409 cannot be sustained and will have to be set aside. However, this shall not be a bar for sale of the property in question by following the legal position in letter and spirit.

The auction purchasers would be at liberty to withdraw their money. The auction purchasers, if so desire, may participate in the fresh auction sale if and when held. It would be open for the auction purchasers to keep the money already deposited till the completion of fresh auction. The auction purchasers can approach appropriate Forum for payment of interest on the amount so deposited by the auction purchasers if they decide to withdraw this amount.

I also find substance in the submission made by the Counsel for the appellants that the Tribunal below has failed to address itself about the issue of land sold being an agricultural land and thus not amenable to action under the SARFAESI Act. The Counsel has invited my attention to that part of the pleadings where this issue is found to have been raised specifically. The Tribunal below, however, has not considered or adjudicated the said issue in any manner.

The Counsel for the respondent did make a feeble attempt to say that the Tribunal did not deal with this issue as it was not pressed, but could not succeed in making good his plea from the record. The Counsel has made reference to the reply filed by the Bank in extenso and also to the rejoinder filed by the appellants to urge that this plea was given up. It cannot be made out from the pleading that the appellants had given up this plea in any manner but the record shows that this plea was pressed before the Tribunal below. Since there was no infirmity in the sale for want of 30 days' notice so far the auction of the land is concerned, the same cannot be held bad on account of violation of Rule 8 read with Rule 9 of the Rules. However, the plea of the appellants that the land was agricultural land, was required to be considered and decided by the Tribunal below. It is, therefore, considered appropriate to remand this S.A. back to the Tribunal below to consider this limited aspect regarding the land being an agricultural land on the basis of the pleadings raised before the Tribunal below. The parties shall not be permitted to file any additional pleadings or evidence. The Tribunal below would decide this issue on the basis of pleadings, evidence and material which is already on the record in this regard.

The Counsel for the respondent Bank submits that the appellants have raised the issue regarding OTS being still alive in a writ petition filed by the appellants against the order passed by this Tribunal dismissing their appeal against the order allowing the O.A, filed by the Bank. This Tribunal had dismissed the said appeal on the ground of delay and have not given any finding on this issue.

A copy of the order dated 16.10.2014 is placed before me which reads as under:

"Learned Counsel for the petitioners contends that for the delayed payment of one time settlement, the petitioners are ready and willing to pay the interest. However, one time settlement could not have been cancelled.

Notice of motion for 4.12.2014.

In the meantime, recovery of dues shall remain stayed."

It is thus obvious that this issue is being considered by the Hon'ble High Court. Propriety would demand that this Tribunal should not consider and decide this issue as it is being considered before the High Court.

The appeal shall accordingly stand disposed of in the light of the observations made above. Parties through their Counsel are directed to appear before the Tribunal below on 1.5.2015 for further proceedings.

Appeal disposed of