Punjab National Bank. vs M/s. Shri Sidhi Industries

Ashok Menon, Chairperson

This is an appeal filed under section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘the SARFAESI Act’) impugning the judgment of The Debts Recovery Tribunal-II, Ahmedabad (‘DRT’ for short) in Securitisation Application No. 152 of 2015 (‘SA’ for short) dated 19/09/2016.

The Punjab National Bank, a bank constituted under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970 is the Appellant (‘The Bank’ for short). The Respondent M/s Shri Sidhi Industries is a partnership firm represented by one of its partners (‘The Firm’ for short).

The aforesaid firm had availed financial assistance in terms of Cash Credit limited to ₹10 Crores and two term loans of ₹9.5 Crores and ₹72 Lakhs respectively from the Bank. The firm defaulted payment as a result of which the accounts were classified as Non-Performing Assets (‘NPA’ for short). Demand notice under section 13 (2) of the SARFAESI Act on 12/07/2013 demanding payment of ₹118,007,082/-, the amount outstanding on 30/06/2013. The firm raised objections to the demand notice on 06/09/2013 which was replied to by the Bank on 20/09/2013. The outstanding amount demanded was not paid within the stipulated time of 60 days. Further measures under sub-section (4) of section 13 of the SARFAESI Act were initiated, and the Bank took possession of the secured assets consisting of the factory land, the building thereon, as also the plant and machinery and the hypothecated stock situated in plot No. 21, Survey No. 328/1/1/2 of Masat village in the industrial estate, Silvassa, Dadra and Nagar Haveli, flat No. 310 on the 2nd floor of Niroz apartment Sikar, Rajasthan, Office No. 315 on the 3rd floor of Bharat chamber premises co-operative society Ltd, Baroda Street, Mumbai, and also flat No. 202, B wing, Rivera, Park City, survey No. 811/1/2/2, Amli, Silvassa, and put up those properties for sale after serving sale notice.

The firm filed the above-mentioned SA under section 17 of the SARFAESI Act challenging the Sarfaesi measures under various heads. The alleged creation of a mortgage of secured assets in favour of the Bank is denied. The validity of the demand notice under section 13 (2) of the SARFAESI Act is under challenge. It is also contended that the Bank is attempting to sell the secured assets at a throwaway price. The Applicant firm is willing to settle the account with the Bank. The classification of the account as NPA was in violation of the guidelines issued by the Reserve Bank of India. The charging of interest is illegal and not in accordance with norms issued by the RBI. The demand notice is not issued by an officer who is authorised to do so. proper Panchnama was not drawn at the time of taking physical possession of the secured assets.

The Bank contested the securitisation application on various grounds. First and foremost, it was contended that the SA is barred by limitation. The SA was filed by the firm with regard to properties mortgaged and belonging to guarantors who themselves have not come forward to challenge the Sarfaesi measures. The physical possession of the secured assets was taken way back in 2013. After taking physical possession, the hypothecated movables belonging to the firm were sold in e-auction in the year 2014. The auction of the mortgaged properties to be held on 04/09/2015 in consequence of the sale notice issued on 24/07/2015 remained unsuccessful. Thereafter, the present SA was filed only on 15/09/2015. It is also contended that the demand notice under section 13 (2) of the SARFAESI Act was issued by the Chief Manager, an authorised officer of the Bank. The discrepancy between the amount shown in the demand notice and the Ledger is explained by the Bank. The Ledger account does not include interest for the month of March, April, May, and June 2013, but the same has been included in the demand notice. The Appellants also contended that the firm has in its balance sheet dated 31/03/2012 admitted the credit facilities from the Bank. The repeated requests made by the Bank to the firm vide letters dated 09/04/2013 and 15/04/2013 to regularise the accounts went unresponded. the classification of the account as NPA was proper.

After framing issues regarding the plea of limitation, the legality of the demand notice under section 13 (2) of the SARFAESI Act as also the legality of the taking over possession of the property, the Learned PO held that the sale notice for the auction sale to be held on 04/09/2015 was issued on 24/07/2015 and therefore, the SA filed on 15/09/2015 is within the time of 45 days prescribed under the SARFAESI Act. The Learned PO also found fault with the notice issued under section 13 (2) for not mentioning the correct amount due and also for not giving the full details of the date as contemplated under sub-section (3) of section 13 of the SARFAESI Act. It is also observed in the impugned judgment that the reply sent by the Bank to the response made by the borrower under section 13 (3A) of the SARFAESI Act is also insufficient. The contention that the guarantors have not come forth with any objections to the Sarfaesi measures is also found against the Bank for the reason that one of the guarantors had raised an objection in a representation made on 06/09/2013 questioning the veracity of the statement of account. Hence it cannot be held that the guarantors have not come forward to question the Sarfaesi measures initiated by the Bank. The Learned PO held that the demand notice requires to be quashed, and therefore, all subsequent Sarfaesi measures would become invalid. Resultantly, the securitisation application was allowed, putting at nought the Sarfaesi measures taken by the Bank. Aggrieved, the Bank has come up with an appeal.

Despite  notice  being  served  on  the  Respondent,  none appeared. The Respondent firm was, therefore, set ex parte. Mr O.A. Das appeared for the Appellant and argued. Records perused.

The main question that arises for consideration in this Appeal is whether the learned P.O. was justified in allowing the S.A. for the reasons stated therein. In the impugned order, the objection regarding the question of limitation raised by the Appellant was disregarded by the Ld. PO. The demand notice issued under section 13 (2) of the SARFAESI Act was held to be not in compliance with sub-section 3 of Section 13. It was also held that the amounts mentioned in the demand notice and the account statement were at variance.

It is the question of limitation that needs consideration in the first instance. From the records, it is seen that the notice u/s 13 (2) of the SARFAESI Act was issued on 12.07.2013 demanding payment of Rs.11,86,07,082/- the dues as of 30.06.2013. An objection was raised on 06.09.2013 by one of the guarantors and the respondent Bank responded to it on 20.09.2013. There was no payment made within the period of 60 days and hence provisions u/s 13 (4) of the SARFAESI Act were invoked as early as in the year 2013. Symbolic possession, as well as physical possession of the secured assets, was taken. The Respondent did not respond, and no action was taken to challenge those measures taken under the SARFAESI Act. Ultimately, a sale notice was issued on 24.07.2015 putting up the secured assets for sale on 04.09.2015. The aforementioned Securitization Application was filed by the Respondent on 15. 09.2015 after the auction sale had become unsuccessful. The Respondent has challenged the sale notice but there are no specific grounds pointed out to challenge the sale notice. Since the auction did not take place as scheduled, the Respondent /Applicant could not have challenged the sale. From the date of sale notice, the Applicant/Respondent took 53 days to file the S.A. As per the requirement of section 17 (1) of the SARAFESI Act, the application challenging the Sarfaesi measures has to be filed within 45 days, hence it is clear that the application was filed beyond time. No application was filed for condonation of delay. The learned P.O. has taken the date of auction sale as the starting point for calculating the period of limitation. The sale did not take place and, therefore, no cause of action arose for the Applicant to file the S.A. based on the date of sale. The notice was published and the Applicant has no case that he did not get notice of the sale on 24.07.2015. The application is, therefore, clearly barred by limitation. All other sarfaesi measures u/s 13 (4) were taken by the Appellant Bank way back in 2013 and, therefore, the Applicant/Respondent could not have challenged them at this extent of time. It is true that a debtor cannot challenge the infirmities of demand notice under u/s 13 (2) until measures are taken u/s 13 (4). In the instant case, those measures u/s 13(4) of the SARFAESI Act were taken in 2013 and the firm did not challenge them within the stipulated time. The auction notice dated 24.07.2015 which is now being challenged by the Respondent is not challenged on any infirmity pertaining to that notice but on various other grounds like, there was no valid mortgage created, the N.P.A. was not classified properly, the interest charged and compounded is illegal and in violation of R.B.I. norms, the demand notice u/s 13 (2) is not issued by an authorised officer and that the mandatory requirement u/s 13 (3) has not been complied with and that the possession of the property without preparing a proper Panchnama. It is also contended that the mortgaged property is in the occupation of tenants. All these contentions were available to the Respondent since 2013 and the firm does not take any action u/s 17 (1) of the SARFAESI Act questioning those measures till 15.09.2015. Hence, even if those contentions and grounds were validly available to the Respondent, it is barred by limitation and cannot be challenged at the sweet will and pleasure of the Applicant at a time chosen by the firm in view of the specific embargo which precludes the filing of an application beyond the period of 45 days. Under the circumstances, I find that the learned Presiding Officer was not justified in allowing the Securitisation Application. The impugned judgment dated 19.09.2016 needs to be reversed.

In the result, the Appeal is allowed and the impugned judgment dated 19.09.2016 in S.A. No. 152 of 2015 is set aside and S.A. No. 152 of 2015 is dismissed.

All Miscellaneous Applications, if any, are dismissed as infructuous.