Royal Bank Of Scotland N.V vs Nippun Gupta And Ors

P.K. Bhasin, J

ABN Amro Bank NV, now known as the Royal Bank of Scotland NV and which is the appellant in Appeal No. 198/2012 and reference to which Bank will hereinafter be made as 'The Bank', had in the beginning of the year 2005 granted home loan of Rs. 1,25,00,000/- (on crore twenty five lacs) to respondents 1 and 2 herein, who are husband and wife, to enable them to make the payment to a builder by the name M/s. Omaxe Construction Ltd., (which company subsequently came to be known as 'Omaxe Ltd.'), respondent No. 3 herein (hereinafter to be referred as 'the Builder'), which had allotted one Apartment No. 102, in one of the Towers known as 'Joshua' in its residential Project to be constructed (The Forest) in Sector 92, Noida (hereinafter to be referred as the (Apartment in dispute'). As per the terms of allotment the respondents 1 and 2 (hereinafter to be referred as 'the Allottees/Borrowers'), the total amount which the Allottees/Borrowers were to pay for the said Apartment to the Builder was Rs. 1,48,10,000/- as per the allotment letter dated 22.2.2005. Out of that amount they paid from their own funds a sum of Rs. 13,32,000/- on 22.2.2005 to the Builder. Thereafter, when the Builder raised a further demand of Rs. 1,20,67,000/- to be paid to the Builder by 7.4.2005, the Allottees/Borrowers had approached the Bank for a home loan and the Bank sanctioned a loan of Rs. 1,25,00,000/- (one crore and twenty five lacs) vide sanction letter dated 3.3.3005. Upon the Allottees/Borrowers accepting the terms and conditions of the loan a Tripartite Agreement was executed on 22.3.2005 between the Bank, the Builder and the Allottees/Borrowers. As per the Tripartite Agreement dated 22.3.2005 the Builder had undertaken not to deliver possession of the Apartment in dispute as well as the conveyance deed upon completion of the 'Forest' project to the Allottees/Borrowers without the permission of the Bank which had in fact made payment of over a crore of rupees to the Builder on behalf of the Allottees/Borrowers. It was also agreed in the Tripartite Agreement by the three parties thereto that the agreement which had been executed between the Builder and the Allottees/Borrowers regarding the allotment of the Apartment in dispute will remain in the possession of the Bank. The Bank's case has been that it was a secured creditor and even the Builder had recorded in its records the lien/charge of the Bank in respect of the Flat in dispute.

The Bank made the payment of Rs. 1,20,67,000/- to the Builder on 21.3.2005 on behalf of the Allottees/Borrowers though the receipt was issued by the Builder in the names of the Allottees/Borrowers.

The Allottees/Borrowers started making payment of the instalments to the Bank as and when the same became due as per the terms of the loan. However, after paying some instalments they became defaulters and that their default led to the declaration of their account as a Non-Performing Asset (NPA) by the Bank. Then a statutory demand notice dated 4.12.2007 under Section 13(2) of SARFAESI Act was served upon the Allottees/Borrowers requiring them to clear the total outstanding Bank's dues of Rs. 1,25,80,533.19 as on the date of the notice within the statutory period of sixty days.

Allottees/Borrowers do not appear to have made any representation against the notice under Section 13(2) of SARFAESI Act. They have not even claimed to have done that during the course of arguments or in reply to the Bank's appeal. Nor any payment was made by the Allottees/Borrowers within me statutory period of sixty days from the date of receipt of the demand notice which admittedly had been received by them. In the meanwhile, construction of 'The Forest' project was completed and since the Builder had already been paid almost full sale consideration it sent a letter dated 25.5.2007 to the Allottees/Borrowers to complete requisite formalities for registration of title documents etc. and also to make payment of Rs. 18,05,421 towards registration charges etc. The Allottees/Borrowers, however, failed to comply with that letter of the Builder.

Because of the failure on the part of the Allottees/Borrowers to clear the dues of the Bank, the Bank threatened to take possession of the Apartment in dispute directly from the Builder in exercise of their rights under Section 13(4) of SARFAESI Act. It was at mat stage that the Allottees/Borrowers approached the Debts Recovery Tribunal (DRT), Delhi on 2.2.2009 with a Securitisation Application (S.A.) against the Bank under Section 17(1) of SARFAESI Act which came to be registered as S.A. No. 7/2009. The prayers made in that petition were as under:

"It is therefore, most respectfully prayed mat this Hon'ble Tribunal may graciously pleased to--

(a) Declare the notice given under Section 13(2) of the SARFAESI Act, 2002 as null and void in the interest of justice.

(b) Restrain the respondent Bank from taking further action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 in respect of the Apartment No. 102, First Floor, Joshua Tower, the Forest Sector 92, Noida, U.P.

(c) Grant 6 months Moratorium from the date of possession of the property in question for repayment of the outstanding EMIs as the business of the applicants has deteriorated due to the volatile market condition in global economic melt down.

(d) Impose damages to the respondent Bank against the illegal acts in respect of the subject property.

(e) Pass such other order and further orders as this Hon'ble Tribunal deems fit and proper in the facts and circumstances of the present case."

It may be noticed here that since on the date of filing of the S.A. i.e. 2.2.2009 only a notice under Section 13(2) of SARFAESI Act had been served upon the Allottees/Borrowers they themselves were having the impression that their S.A. was premature as no measures under Section 13(4) had been taken when the S.A. was filed. This aspect, however appears to have not cropped for consideration of the DRT as on 5.2.2009 the Bank had taken the physical possession of the Apartment in dispute in exercise of its power under Section 13(4) SARFAESI Act and thereafter the S.A. continued to proceed instead of getting rejected as being premature when it was filed.

The Bank resisted the S.A. filed by the Allottees/Borrowers by filing reply dated 13.2.2009 inter alia on the grounds that they having availed of huge amount of loan facility sanctioned in their favour by the Bank and then having failed to clear the Bank's outstanding dues even after receipt of notice under Section 13(2) of SARFAESI Act were not entitled to any relief from the DRT and further that the Bank had already taken physical possession of the Apartment in dispute on 5.2.2009 from the Builder. It was further pleaded that as per the understanding between the Builder and the Bank it had also been decided to auction the Apartment in dispute.

The Allottees/Borrowers had also prayed for an interim relief in their S.A. for delivery of possession back to them. The DRT had granted interim relief to them vide order dated 12.3.2009, though quite shockingly despite having come to the conclusion that the Security Applicants had no prima facie case in their favour, and had also directed the Bank to restore back the possession of the Apartment in dispute subject to the Allottees/Borrowers making payment of Rs. 23,00,000/- to the Bank within ten days. However, the Allottees/Borrowers failed to comply with that direction of the DRT and their application I.A. No. 502/2009 filed for keeping the said condition of deposit with the Bank in abeyance was rejected vide order dated 25.6.2009. The Bank then had initiated steps for the sale of the Apartment in dispute by way of public auction. The amount which was shown in the sale proclamation dated 28.5.2009 to be recoverable from the Allottees/borrowers was Rs. 1,50,70,360.99 and finally the Apartment came to be sold to Shri Sundeep Jain who was the highest bidder in the auction conducted on 29.6.2009. He had given the highest bid of Rs. 1,82,50,000/-. Shri Sudeep Jain is the appellant in Appeal No. 171/2012 and is respondent No. 4 in Bank's appeal No. 198/2012. The said auction purchaser had got loan from the appellant Bank to pay the 75% of the bid amount and subsequently he claims to have taken loan/refinance from ICICI Bank to repay to the appellant Bank after creating equitable mortgage of the Apartment in dispute in favour of ICICI Bank.

Thereafter Allottees/Borrowers got the auction purchaser impleaded in the S.A. and also had sought some amendments in the S.A. by moving an amendment application on 5.5.2010, I.A. No. 402/2010, which was allowed by DRT on 1.11.2010 and amended S.A. dated 1.5.2010 which was already filed came to be taken formally on record. In the amended S.A. they challenged the legality of the auction conducted by the Bank in respect of the Apartment in dispute. The prayers made in the amended S.A. were as under:

"It is therefore, most respectfully that this Hon'ble Tribunal may graciously pleased to--

(a) Declare the notice given under Section 13(2) of the SERFESI Act, 2002 as null and void in the interest of justice.

(aa) Declare the action taken by the respondent Bank under Section 13(4) of the Securitisation Act, 2002 as illegal and not as per the provision of the Securitisation Act, 2002 and therefore, declare the physical possession taken by the respondent Bank over the property bearing No. 102 First Floor, Joshua Tower, the Forest, Sector 92, Noida U.P. as null and void.

(aaa) Restore back the physical possession taken by the respondent Bank over the property bearing No. 102, First Floor, Joshua Tower, the Forest Sector 92, Noida, U.P. in favour of the applicants.

(b) Restrain the respondent Bank from taking further action under me Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 in respect of the Apartment No. 102, First Floor, Joshua Tower, the Forest Sector 92, Noida U.P.

(c) Grant 6 months Moratorium from the date of possession of the property in question for repayment of the outstanding EMIs as the business of the applicants has deteriorated due to the volatile market condition in global economic melt down.

(d) Impose damages to the respondent Bank against the illegal acts in respect of the subject property.

(e) Pass such other order and further orders as this Hon'ble Tribunal deems fit and proper in the facts and circumstances of the present case."

The Bank claimed that it had sold the Apartment in dispute in auction to the highest bidder Shri Suddep Jain for Rs. 1,82,50,000/- after complying with all the requirements of law and the relevant Procedure Rules under the SARFAESI Act and after making the final payment to the Builder which it had claimed from the Allottees/Borrowers on the completion of 'the Forest' Project. After receiving full payment from the auction purchaser sale deed was executed in his favour by the NOIDA Authority and the Builder in July, 2009 and the physical possession of the Apartment in dispute was also handed over to him.

The auction purchaser's case, as usual taken by auction purchasers, was that he had purchased the Apartment in dispute in a public auction conducted by the Bank and thus being a bona fide purchaser was lawfully in occupation of the Apartment in dispute. Since the sale in his favour was in accordance with law no fault could be found with it.

The learned DRT finally allowed the S.A. of the Allottees/Borrowers-Security Applicants before it vide impugned order passed on 4.4.2012 and the sale of the Apartment in dispute has been set aside after quashing the notice under Section 13(2) and other steps taken by the Bank under the SARFAESI Act. The relevant observations from the impugned order of the DRT are being extracted below:

"Defendant No. 2 (the Builder herein) filed written statement contending as follows:

(a) The applicants, as per application dated 17.2.2005, requested this defendant to allot them residential apartment No. 102, First Floor, Joshua Tower, Sector 92, NOIDA (U.P.) in its project "The Forest" for a total consideration of Rs. 1,48,10,000/- agreeing to abide by the terms and conditions detailed in the Allotment Letter. On 22.2.2005, this defendant allotted the said plot as per allotment letter and payment plan annexed with it. The applicants tendered payment of Rs. 13,32,000/- towards part-payment. The remaining amount of Rs. 1,20,67,000/- was to be paid on or before 7.4.2005. The applicants obtained a home loan by executing the tripartite agreement dated 22.3.2005 and defendant No. 1 paid Rs. 1,20,67,000/- to the defendant. The defendant had created lien on the said property in favour of the defendant No. 1 as per the terms of the tripartite agreement. As per the payment plan, statement of account, as on 25.5.2007, the applicants were under debit balance of Rs. 18,05,421/-. They were requested to make payment and take possession as per letter dated 25.5.2007. The applicants failed to make payment. They were requested on 2.7.2007 to arrange stamp duty for registration, but nothing was done. As per letter dated 26.7.2007, the defendant requested the applicants to deposit Rs. 18,33,021/- immediately and to get registration of the plot. The applicants were also requested to make the payment on 17.8.2007, 19.8.2007, 18.10.2007, 15.11.2007, 12.12.2007, 21.1.2008, 16.2.2008, 10.3.2008, 25.3.2008, 17.4.2008, 10.6.2008, 9.7.2008 and 4.11.2008, defendant No. 1 communicated to defendant No. 2 that the applicants have failed to re-pay the instalment and they have declared the account as NPA and they were taking actions under Sections 13(2) and 13(4) of SARFAESI Act. On receiving the said communication, this defendant requested the applicants as per letter dated 27.11.2008 to clear the account of defendant No. 1 and defendant No. 2. The applicants requested to defer the Bank in taking action as they were raising the funds to discharge the liabilities. This was communicated to defendant No. 1. But the applicants did not keep the promise and thus the defendant had to co-operate with the Bank.

On the above pleadings, the parties went for trial. The applicants filed joint affidavit as AW1 and Exhibits P1 to P6 were marked on their side. On behalf of the first respondent, RW1 Sh. Sachin Oberoi, the authorised officer, gave evidence by way of affidavit. Exhibits R1/1 to R1/43 were marked through him. The 3rd respondent gave evidence as RW3 and Exhibits RW3/1 to RW3/13 were marked through him.

The points for determination are:

Whether the notice issued under Section 13(2) of the SARFAESI Act is bad in law?

Whether the action taken by the Bank as per Section 13(4) of the Act is void?

Whether the Bank is justified in taking action as per the provision of the Securitisation Act?

Whether the sale conducted by the Bank is liable to be set aside?

Whether the Contempt of Court proceedings have to be initiated against the Defendant No. 1?

Relief

Point No. 1

The applicants-husband and wife-with sweet dreams-to have a shelter under which they can live peacefully, attracted by the Home Loan Scheme "all smiles home loan" projected by the respondent No. 1 Bank, after fixing "The Forest" as the ideal place for their next, identified Apartment No. 102, First Floor, Joshua Tower, Sector 92, Noida (U.P.), entered into a tripartite agreement with builder, on the first part, the applicants on the second part and the Bank on the third part, signed the Home Purchase Loan Agreement. The Bank sanctioned a house purchase loan of Rs. 1.25 crores to the applicants. The total value of the plot at the time of entering into the agreement was Rs. 1,48,10,000/-

On 4.12.2007, the Bank issued Exhibit R1/10 notice under Section 13(2) of the Securitisation Act. The Bank says that the account became non-performing and, therefore, the Bank had issued the notice. The contention taken by the applicants is that on that date, the account did not become NPA and the classification of the account as NPA was wrong on the side of the Bank. The applicants would say that they were regularly paying the instalments and the Bank has failed to comply with guidelines issued by the RBI in the Master Circular for classifying an account as NPA. Para 6 of the notice says that financial assistance/credit facilities have become irregular and the debts were classified as non-performing asset as per circular issued by RBI consequent to the default created by the applicants in repayment of principal debt and interest thereon. Let me now look at the account of the Bank as on 4.12.2007. The account statement issued by the Bank on 17.4.2008 shows that there was the payment up to 30.11.2007. The account also shows that there was payment up to 30.11.2007 regularly and the interest accrued has been paid. The important aspect is that all the payments were adjusted towards the interest only relying upon the clause for payment of pre EMI. In the Master Circular, the Reserve Bank has prescribed the guidelines to be followed before an account is classified as non-performing asset.

The notice under Section 13(2) of the Securitisation Act Exhibit R1/10 was issued on 4.12.2007. In the notice, it is stated that financial assistance sanctioned by the Bank is for a total sum of Rs. 1,25,000/-. this statement is not correct. Even though this amount was sanctioned, the Bank did not advance Rs. 1.25 crores what was advanced was only Rs. 1,20,67,000/- and only this should have been mentioned in the notice. This is a wrong statement available in the notice under Section 13(2) of the Act.

The notice reads that the borrowers had created equitable mortgage by way of deposit of title deed/registered mortgage creating security interest in favour of the Bank. This statement is also not correct, as on that date, the title deed was not available. There was no creation of mortgage by way of deposit of title deed. The learned Counsel for the Bank submits that what is created is security interest in the property and the parties were aware that no title deed was available in respect of the property as on that date. The security interest is defined in Section 2(zf) of the act, to mean any right, title and interest of any kind whatsoever upon property, created in favour of any security creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in Section 31. If that be the case, the Bank could have stated a security interest was created. Instead of that a wrong statement was given. So, the statement in Para 3 of the notice is also not correct.

None of the steps were taken by the Bank when the account was classified as non-performing asset. In fact, just four days back, there was a payment towards the interest and the interest did not accumulate in arrears. The entire interest was paid and only the principal amount was remaining unpaid and that was because of hyper technical clause available in the agreement. It appears that for three years, the applicants were paying only towards the principal amount on the reason that the Bank withheld the sum of Rs. 4,33,000/-. It is not evident from anywhere why this amount of Rs. 4,33,000/- was withheld by the Bank. The Bank has paid the sale consideration due to the borrower amounting to Rs. 1,20,67,000/-. The applicant was required to pay a sum of Rs. 18,05,421/- to complete the payment with the builder and the Bank could have advanced the sum to the applicants/builder, but it was not done and the Bank had by a cunning device only to extract interest under the pretext of pre-EMI, withheld this amount without disbursement. There was not even a time lag of 30 days in payment of the instalments and for reason best known, the Bank preferred to treat the account as non-performing. The classification of the account of the applicants as NPA is in gross violation of guidelines issued by the Reserve Bank of India.

The notice issued under Section 13(2) is in gross violation of the statutory provisions. The amount availed as loan is not correctly stated. There is a false statement that the tide deed has been deposited so as to create mortgage and there is a false statement that the account become non-performing asset as per the guidelines issued by the Reserve Bank of India. When there are such drawbacks and failure to comply statutory provisions while issuing notice under Section 13(2) of the Securitisation Act, what is the consequence? In AIR 2009 Orissa 147 Hon'ble High Court held that condition precedent for taking away someone's property or disposing of the secured assets, is that the authority must ensure compliance of the statutory provisions. The Hon'ble High Court of Orissa held:

"It is settled legal proposition that if initial action is not in consonance with law, the subsequent proceedings would not sanctify the same in such a fact situation, the legal maximum "'sublato fundamento cadit opus" is applicable meaning thereby in case a foundation is removed, the superstructure falls."

........The learned Counsel for Bank submitted that before issuing of notice under Section 13(2) of the Act, the party cannot claim a chance of hearing. It is to bring to the notice of the borrower that he is a defaulter and the defaulter can certainly make his account updated so that further provisions under Section 13(4) are not restored to by the Bank. Learned Counsel for the Bank also submitted that borrowers have failed to give reply to the notice under Section 13(2) and they have, in fact, waived their right to raise any objection with regard to the notice under Section 13(2) of the Act.

Section 13(2) gives a valuable right to the borrower. It even envisages the right to information. The fact that the persons who received the notice did not give a reply will not take us to a situation of validating the action taken. Section 13(3) gives the details to be incorporated in the notice under Section 13(2). Section 13(2) says in what circumstances a notice can be issued. Those circumstances must be available and the Bank cannot bring in those circumstances by deceptive means. Absence of a communication from borrower will not and cannot legitimize this action of the Bank which they are supposed to do as per the mandate of a statute as a precautionary measure for the further serious actions that may follow.

Point No. 2

Then comes the notice issued under Section 13(4) of the Act on 14.11.2008, Exhibit R1/13 to defendant No. 2. The Bank thereafter issued notice under Section 13(4) on 5.2.2009 to the applicants. In the notice, it is stated that the Bank had issued notice under Section 13(2) and the same was published in Vir Arjun Hindi daily and Statesman English daily. It is further stated that borrowers have failed to make the payment within 60 days. It is also stated that the Bank has initiated further course of action under the act and taken over the possession of the premises on 5.3.2009. It is to be borne in mind that the Bank did not take any action in pursuance of the notice under Section 13(2) dated 4.12.2007 for quite some time and all of a sudden action is initiated on 5.2.2009 when the S.A. was filed on 2.2.2009. As per Rule 8(2), possession notice shall be published in two leading news papers, one in vernacular language having sufficient circulation in that locality. The applicants' Counsel would say this rule has been violated.

This publication was in Statement and Vir Arjun. The applicants' Counsel has produced the details of distribution and territorial breakdown of circulation published by Audit Bureau of Circulation in respect of the statement 'that locality' mentioned in Rule 8(2) is Noida, U.P. The circulation of Statement in the entire state of U.P. is only 302 copies and in neighbouring Delhi 6,218 copies. Average qualifying circulation of other leading newspapers are produced and the figure of Statement is far below and it can never be said that statement is a leading news paper.

In Appeal No. 256/2010 M/s. Ram Murti Pyare Lal v. Central Bank of India & Ors., the Hon'ble DRAT, Delhi at Para 12 of the judgment has held that Vir Arjun news paper is neither a leading news paper nor it has sufficient circulation in Delhi. Further, the publication in Hindi News paper is in English and not in the vernacular. This is not due compliance of the provision as held by Hon'ble Orissa High Court in AIR 2009 Orissa 147, Swastik Agency & Ors. v. State Bank of India. Thus, there is violation of Rule 8(2).

The notice under Section 13(4) was issued after the communication of notice under Section 13(2), I have found that the notice under Section 13(2) is bad and issuance of notice was just 4 days after payment of one instalment i.e. 30.11.2007 and the account was declared as NPA on 4.12.2007. This being the situation, the notice under Section 13(4) also becomes nullified.

Point No. 3

(a) The applicants and the Bank had entered into an agreement. The applicants had opted for the floating rate of interest at 7% p.a. with the first Reset date 30.6.2005. After having entered into such an agreement, the applicants cannot now complain that the Bank had arbitrarily enhanced the interest rate just to the double after passage of a short time. The applicants are bound by the contract and they cannot raise any grievance on the point of interest. They opted for floating rate and whenever there was change in the rate of interest, the Bank as per contract had the right to enhance the rate of interest.

(b) The main argument has been on the pre-EMI collections and this issue needs some discussion. The standard terms and conditions of the offer at Clause 3 deals with pre-EMI which says:

"3. Pre-EMI interest @ at which the EMI has been calculated as stated aforesaid, shall be charged from the respective disbursement dates to date of commencement of EMI in respect of the amount disbursed."

(c) The agreement defines P-EMI interest as the interest at the rate indicated in Schedule II on the facility amount applicable from the date/dates of disbursement of the facility amount to the date immediately prior to the date of commencement of the EMI. 'Equated Monthly Instalment EMI' means the amount of payment set out in Schedule II of the agreement to be made monthly by the borrower to the Bank comprising of principal and interest.

(d) Para 2.5.1(6) of the agreement says, the Bank shall have the right to adjust PEMI or any other dues against disbursed amount. Para 2.5.2 and Para 2.5.3 which are relevant are quoted.

"Para 2.5.2. In case the disbursement of the facility amount is done in instalments as would required for the purchase/acquisition of a property under construction, the borrower can choose and/or the Bank can allow repayment through EMIs, which would be calculated for the part of the facility amount already disbursed, over the full tenor of the Facility Amount with each additional disbursement, this EMI amount would increase and such increased EMI shall be applicable for every future EMI repayments."

"Para 2.5.3. Alternatively in the above situation, where the disbursement is being done in instalments, the borrowers can chose to and/or the Bank can allow payment of only the PEMI, till such time the entire facility amount is disbursed, after which repayment by EMI would commence."

(e) There is provision for alterations and rescheduling of EMI is case entire facility amount is not drawn within a reasonable time as envisaged in Para 2.10.

Schedule II of the agreement says out of the 240 instalments @ Rs. 96,913/- initially the first instalments is due on 17.4.2005.

(f) Was the Bank fair in their documents?

We have the receipt dated 18.3.2005 signed by applicants for receipt of Rs. 1,20,67,000/- which was the first instalment of the sanctioned amount Rs. 1.25 crore. The Bank has no case that Rs. 1.25 crores was paid at any time. But see the copy of the demand promissory note which was obtained from the applicants. The value received is shown as Rs. 1,25,00,000/-. Did the Bank on that day pay that amount? Is it not a false document? Even though the applicants are highly educated, the (Bank could secure such false documents being created in their favour, the reason is simple. The applicants were at the mercy of the Bank and the following factual assertions would demonstrate how shylokian was the Bank towards the applicants.

(g) The applicants were only in need of Rs. 1,20,67,000/- as on 18.3.2005. Since mat was the amount to be paid to the builder by that time and out of the sanctioned Rs. 1.25 crores, the Bank disbursed 1,20,67,000/- keeping the balance undisbursed. Without setting on either of the clauses available in Para 2.5.2 or 2.5.3 of the agreement, the Bank decides to collect pre-EMI interest in spite of the specific clause in the Schedule II of the agreement which sets out 240 instalments towards the amount sanctioned the first instalment to commence on 17.4.2005. See the account statement. Though the applicants had opted for the floating rate of interest as per the agreement, the first reset date for rate of interest was 30.6.2005. But on 17.5.2005 on the second instalment itself the rate of interest was enhanced thereby the instalment from Rs. 68,121/- rose to Rs. 70,391/-. On 17.6.1995 also, the enhanced interest was collected which the Bank was not entitled to do as per the contract. It is not violation of the terms of contract? The tragic plight of the applicants to which they were put is evident from the statement of account thereafter. Though they were regularly paying the instalments which started climbing ladders and jumping at times, the principal component remained static. Reliance on the vague clause on the pre-EMI available in the agreement is nothing but sadistic. What prevented the Bank in disbursing the balance sanctioned amount to be paid to the Builder as demanded by them to complete the process of conveyance and start collection of EMI instead of pre-EMI. Adjusting all the payments towards the interest keeping the principal constant for nearly 4 years was unconscionable. Had there been realization as EMI as agreed upon by the parties, this case would not have arisen.

(h) The learned Counsel for the Bank would maintain that the privity of contract would prevail and having not raised any objection while entering into the contract and having consented they cannot raise such an objection at this stage. This submission can be met reminding the observation of the Hon'ble Apex Court in Mardia Chemicals v. Union of India, 110 (2004) DLT 665 (SC) : II (2004) BC 397 (SC) : II (2004) SLT 991 : (2004) 4 SCC 311 at 358.

"The Financial Institutions, namely, me lenders owe a duty to act fairly and in good faith. There has to be a fair dealing between the parties and the financing companies/institutions are not free to ignore performance of their part of the obligation as a party to the contracts.... It is incumbent upon such financial institutions to act fairly and in good faith complying with their parts to obligations under the contract."

In fact, the applicants raised their objections the Bank in no reducing the principal component by making a complaint to the Reserve Bank of India Ex. R1/16 (Ex. P5 from applicants' side) dated 12.1.2009. The Reserve Bank of India instructed the Bank to look into the complaint. The Bank did not consider the complaint in the right perspective. There was no reason why the Bank did not disburse the rest of the sanctioned amount which resulted in financial crunch to the applicants and they could not pay the builder the balance amount. The Bank has contended mat even if they had paid the balance, the applicants could not have been saved. Had the Bank been honest, sincere and customer-friendly, there was no opportunity for the Bank to receive as pre-EMI a sum of Rs. 25,87,789 towards the loan of Rs. 1,20,67,000/- and remain the principal amount as such even after payment of just 1/5th of the principal amount.

(i) In Suraj Kanha Pharmaceutical v. Bihar State Financial Corpn. and Anr., (III) (2009) BC 445, the Patna High Court had to consider breach of promise in advancing the full sanctioned loan by Patna Financial Corpn. Out of the total sanctioned amount of Rs. 13.06 lacs, only Rs. 4.07 lacs was disbursed. The Financial Corpn. instituted action for realizing the said amount which amounted to Rs. 60 lacs. The borrowers under the promise of Financial Corpn. had invested to Rs. 60 lacs, from their pocket and thereafter, the Financial Corpn. informed the borrowers that due to financial constraints, The Corpn. was not in a position to disburse the balance sanctioned loan. The Hon'ble Patna High Court observed that the fundamental basis of the contract was the fulfillment of the obligation on the part of the Corpn. in disbursing the full amount of sanctioned loan in absence whereof nothing could move forward for implementation of the contract, the later part of which was obligation to re-pay. One party who had committed fundamental breach cannot enforce and ask the other party to perform his part of the obligation without fulfilling its own obligation. But in that case, the borrower was asked to settle the account by paying an amount of Rs. 10 lacs to the Corpn. as against Rs. 4.07 lacs advanced by the Corpn. Here also, in the case of the Bank, there was a breach of promise in not paying the balance sum of Rs. 4,33,000/- for which the applicants had to pay nearly Rs. 25 lacs as interest alone and the principal amount to remain the same.

(j) Bank had withdrawn unilaterally from their promise to disburse the balance amount, rather they detained the amount as a measure to charge pre-EMI interest and they conveniently introduced a buyer classifying illegally the applicants as defaulter and their account NPA even when there was payment into account just 4 days back. This was arbitrary and the conduct of the Bank is not free from doubt. The Bank is not justified in any manner in disposing the property under the color of their exercising powers under the Securitisation Act.

Point No. 4

When the possession was taken over by the Bank, the applicants aggrieved by the action, had approached this Tribunal filing this application under Section 17 of the Securitisation Act. The possession notice by defendant No. 1 to applicants was issued as per letter dated 5.2.2009 and on 2.2.2009, the appeal was presented before this Tribunal. So, immediately on the cause of action had arisen, the applicants had approached before this Tribunal and there was no delay on their part.

(b) After taking possession of the property by the Bank from defendant No. 2, the Bank obtained the valuation report Exhibit R1/21 dated 3.3.2009. The valuer reported that for similar type of flats which are located in better location in the complex, the value could be in the rate of Rs. 1.95 - 2.15 crores depending upon the location and interiors. The flat, according to the valuer, is located in a higher location in the complex and similar type of flats are available in the rage of Rs. 1.80 to Rs. 2.00 crores. When the valuer says that similar type of flats valuing up to Rs. 2.15 crores are available and this flat is located in a higher location, I do not find any reason in reducing the value. Again, he come up with strange observation, the particular nature of the flat/property, a value of Rs. 1.80-Rs. 2.00 crores. This valuation, according to me, is without any sound reason. After having arrived at this conclusion, he has calculated the fair market value in the second page of the report and he says that the market value of the property is 1.80 - 1.90 crores. After that, quick sale value/minimum sale value is arrived at 1.30-1.40 crores. The property was sold immediately for Rs. 1,82,50,000/- on 29.6.2009 whereas the report was prepared on 31.3.2009. This indicates that the quick value assessment of the valuer is also not correct. So, this valuation as well as fixation of Reserve price had gone wrong detrimental to the interest of the borrower causing great prejudice to the borrower.

(c) The learned Counsel for the applicant has brought to the notice of this Tribunal after having copy of the opposite sides the price list of Ultra Luxury Apartments and Pent Houses. 'The Forest 3PA 93B NOIDA, Express Highway'. So, it relates to the same project. The area of subject matter house is 4,150 sq. feet and for similar apartment as per Serial No. 3, in this price list, the Down payment is Rs. 3,89,79,000/- with effect from 9.8.2007. This does not include the additional charges (one time payment) for car parking which is Rs. 3 lacs for each and bear in mind, the apartment of the applicants had 3 car parking space. The valuation report reaches nowhere near this amount. The valuer did not consider this sale price published in 2007, the valuation is not proper on this reason as well.

(d) The property was put for sale by publishing the notice of sale on 28.5.2009 in the Statement and Vir Arjun--Two papers were selected because one paper is in English and other is in the vernacular Hindi. Rule 8 Sub-rule (5) of the Securities Interest (Enforcement) Rule lays down publication of notice in two leading Newspapers--one in vernacular language having sufficient circulation in the locality by setting out the terms of sale. The terms of sale shall include the reserve price, and the time and manner of payment, etc. as contemplated in Rules 8(6)(a) to (f). The reserve price fixed by the Bank was not the actual amount that would have fetched for the property. The value of the property w.e.f. 9.8.2007 was Rs. 3,89,79,000/-. The notice of sale was published after two years on 28.5.2009 and definitely, the value of the property would have gone higher and in that sense there was no proper valuation of the property. So, the auction was not taking into consideration the interest of the borrower.

(e) The sale notice published in Hindi Newspaper was also in English. In AIR 2009 Orissa 147, Swastic Agency & Ors. v. State Bank of India, the Hon'ble High Court has held that the rule has been prescribed to protect the person who may be aggrieved because of distress sale. The term vernacular has to be considered in a correct perspective in the context of the rural and illiterate masses of the country. If the notice is published in English in a Newspaper printed in vernacular language, it would definitely not serve the purpose for which the rule has been grafted. Therefore, the notice has to be published in vernacular language in the Newspaper published in vernacular language. The Hon'ble High Court proceeded to say that requirement to cause publication in vernacular language in the Newspaper is fundamental and the statutory requirement cannot be compromised. It is not for the borrower or guarantor to establish that non-publication of the said notice in vernacular language in the Newspaper has caused any prejudice. It is for the respondent to establish that non-compliance of the statutory requirement has not caused any prejudice at all. The proof of prejudice is unnecessary where requirement of statutory provision is mandatory.

(f) This judgment has been referred in Appeal 256/2010, M/s. Ram Muti Payare Lal v. Central Bank of India and Ors., by Hon'ble DRAT, Delhi. It is observed in Para 10 of this judgment that this judgment of Orissa High Court was questioned in SLP preferred before the Hon'ble Supreme Court vide its order dated 9.4.2009 declined to interfere with the impugned order. It has been observed by the Hon'ble Chairperson in the above appeal at Para 12 that Veer Arjun is not a leading news paper and I have already found that the Statement is also not a leading News Paper. Therefore, there is violation of Rule 8(6).

(a) Rule 8(6) further mandates service of notice to the borrower for sale of immovable secured assets before effecting sale. This mandatory provision has not been complied.

(b) The learned Counsel for the applicant has submitted that the sale thereafter is a mess and instances of violation of the rules and terms and conditions of the tender are in abundance and compliance was only exceptions. I shall consider the same one by one.

(i) The sale notice is available at Paras 298 and 299 of the Paper book. Date and time of opening tender is 29.6.2009 at 11 a.m.

(j) As per Clause 9(d) the intending tenderer shall submit their tenders on a plain in a sealed cover.... along with earnest money Deposit (EMD) being 10%. Reserve price by way of D.D. favouring ABN AMRO Bank NV conducting the sale on or before 27.6.2009 at 3 p.m. Form of Bid offer of Sandeep Jain is at Page 300 of the paper book. He quoted Rs. 1,82,50,000/-. So, he had to deposit Rs. 18,25,000/- as EMD by way of DD favouring ABN AMRO Bank. He did not produce D.D. He had only produced on "a/c payee only" cheque of ING Vysya dated 24.6.2009 (see Page 301). The insistence of D.D. at Clause 9(d) was not followed rather dispensed. Since it was only an a/c payee cheque, encashment on the same day was impossible. The cheque was cleared only on 4.7.2009. The applicant has made available the statement of account of Sandeep Jain of the account number on which he had issued the cheque. The statement of account is for the period from 1.5.2009 to 1.8.2009. Up to 1.7.2009, the balance is zero. So as on 27.6.2009, there was no amount to honour the cheque. Paper book 302 says earnest money deposit 10% was received. But see Page 303 of me paper book. The payment receipt is dated 29.6.2009 for Rs. 18,25,000/- and it says cheque dated 24.6.2009 for Rs. 18,25,000/- has been received. And most funny aspect it was subject to realization of cheque/DD. Plainly speaking, this is nothing but fraud. Clause 9(f) of the sale notice says "the successful bidder shall deposit 25% of the sale price (inclusive of EMD already paid) immediately on the allotment of tender in his/her favour and the balance within 15 days from the date of confirmation of sale. If the successful tenderer fails to pay the sale price as stated above, the deposit made by him shall be forfeited."

(k) This clause mandates the remaining 15% to make up 25% should have been paid immediately. Page 302 of the paper book is the allotment of tender in favour of Sandeep Jain. Sandeep Jain was declared the successful bidder as per this letter on 20.6.2009 itself. The 15% Rs. 27,37,500/- had to be paid immediately. This is in compliance of Rule 9(3). While construing the phrase "immediately" appearing in Order 21 Rule 84, CPC -- an identical provision -- It has been held in catena of decisions mat immediately connotes proximity in time to comply and the requirement of deposit as first condition that is to take place within relatively short interval of time and without any other intervening recurrence. (See AIR 1995 SC 2195, Rao Mahood Ahmed Khan v. Sh. Ranbir Singh & Ors.). It has also been the law declared that payment of Rs. 2,76,37,500/- should have been on 29.6.2009 itself, 29.6.2009 is Monday, and the sale was at 11 a.m. On 29.6.2009 Cheque for Rs. 9,12,500/- was given. It was received subject to realization (see Page 305 Paper book -- Payment receipt). There was no payment immediately. The cheque was cleared only on 7.7.2009 (see INg Vysya a/c). Demand Draft for Rs. 18,25,000/- was deposited on 30.6.2009 only on the next day. This is non-compliance and violation of Rule 9(3). When the amount was not paid immediately, why the deposit made was forfeited? The authorized officer has to explain.

(l) There is shadow of doubt on the payment of balance amount on 11.7.2009 Banker's cheque for Rs. 1,36,87,500/- was received. The applicants submitted that the authorized officer made the financial arrangement to the auction purchaser since he had no fund with him. On the other hand, the auction purchaser pleaded that he had availed a housing loan from ICICI Home Finance. Is it true? Page 400 of the booklet is the a/c statement of Sandeep Jain. Rs. 1,20,00,000/- was sanctioned only on 31.10.2009. The act now jumps out of the bag. It is just 3 months after, the payment through ICICI Home Finance came.

(m) All the above facts put together leads to the irresistible conclusion that the Bank had an unholy role to smoke out the dreaming couples who started in all smiles and ended in tears, firstly compelling to pay only pre-EMI for years to remain the principal constant even after paying approximately Rs. 25 lacs enhancing the rate of interest before the due date, classifying the account as NPA after 4 days of payment of interest. Not serving a notice under Section 8(6), Not making any publication as required in the locality, introducing a buyer of Bank's choice, allow him to flout all conditions of payment stipulated in the sale notice. Allow him to participate in the auction sale without producing a Demand Draft, provide him financial assistance to make up the payment, definitely me authorized officer of me Bank will-have to "import perfume in large quantity from Arabia".

(n) The learned Counsel for the Bank submitted that this provision is directory in nature and this property being near Delhi and having due regard to the high value of the property and the nature of the property being a flat, publication in English in vernacular Newspaper was a sufficient compliance of Rule 8(5). The learned Counsel has brought to my notice Valji Khimji & Co. v. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd. & Ors., IV (2008) BC 536 (SC) : VII (2008) SLT 621 : (2008) 9 SCC 299; where the Hon'ble Supreme Court held that auction sale should be set aside only if there is a fundamental error in the procedure of auction e.g. not giving wide publication or evidence that property could have fetched more value or there is somebody to offer substantially increased amount and not only a little over the auction price. Where the statute provided for a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention of the same. Where the statute requires to do a thing in a certain way, the thing must be done in that way or not at all. The learned Counsel for the Bank submitted that the Court would never do injustice nor allow injustice being perpetuated which is for the sake of upholding technicalities. The publishing of the notice is a requirement under the Security Interest (Enforcement) Rule and when that requirement is not directly followed as per the instructions governed by statutory provisions, it cannot be said that the Court is insisting on a hyper technicality.

(o) The learned Counsel for the Bank as well as the learned Counsel for the Auction Purchaser have submitted that there was a proper sale of the secured asset, the subsequent events would reveal that the Bank had complied the legal formalities, there was delivery of possession there is an absolute completed sale which is recognized by registration of the document in favour of the auction purchaser by spending a huge amount, and at this stage, the sale shall not be set aside. The notice for sale was published on 28.5.2009. The auction purchaser, who is a party to these proceedings, offered highest amount of Rs. 1,82,50,000/- and he was declared a successful bidder. He had complied the formalities prescribed in the sale notice and on payment of the full amount the loan was adjusted and the balance amount of Rs. 2,15,699/- has been kept as balance payable to the applicants. On 17.7.2009, physical possession of the property was delivered to the auction purchaser. On 24.7.2009, the property was registered in the name of the auction purchaser at the office of Sub-Registrar, NOIDA.

(p) The learned Counsel for the auction purchaser relies upon AIR 1967 SC 608, Janak Raj v. Gurdial Singh & Anr. The question paused there was whether a sale of immovable property in execution of a money decree ought to be confirmed when it is found that the ex-parte decree which was put into execution has been set aside subsequently. The Hon'ble Supreme Court held "For the reasons already given and the decisions noticed, it must be held that the applicant auction purchaser was entitled to a confirmation of the sale notwithstanding the fact that after the holding of the sale the decree had been set aside. The policy of the Legislature seems to be that unless a stranger auction purchaser is protected against the vicissitudes of the fortunes of the suit, sales in execution would not attract customers and it would be to the detriment of the interest of the borrower and the creditor alike if sales were allowed to be impugned merely because the decree was ultimately set aside or modified". This judgment cannot be put into application in this case because what this Court has found is that there is no valid sale and there has been blatant violation of various provisions of the rule governing the deposit of the sale price. In such circumstances, the auction purchaser is not entitled to any protection. The learned Counsel for the applicant has relied upon several materials which are not pleaded. He relies upon the Supreme Court judgment in (2010) 12 SCC 758, Commissioner of Central Excise v. Oswal Petrochemical Ltd., and submits that the Court shall not pass orders beyond the pleadings of parties. It is submitted that the learned Counsel for the applicant has taken this Court to the statements of the Bank which were not produced earlier and which were never the subject matter of the application and, therefore, the same cannot be considered. The Counsel for the applicant has relied upon the Bank statement of the auction purchaser, the genuineness of which can never be disputed by the auction purchaser. He had the opportunity to rebut same. When there is an attack on the sale on the ground on noncompliance of mandatory rules, in order to substantiate the same, the applicant wanted to rely upon certain material and on the principles of strict of pleading, the same material cannot be discarded. This being a Tribunal, where the strict application of the code of civil procedure is not adhered to, those material which are relevant can definitely be considered to arrive at a just conclusion.

(q) The learned Counsel for the Bank submits that the applicants are chronic defaulters in respect of other transactions as well as and he has produced Exhibit R1/42, the report of Credit Information Bureau Ltd. It may be a fact that the applicants are chronic defaulters, but that is not a ground to come to conclusion that they are not entitled to the relief prayed for in this application when the facts are in their favour.

(r) On examining the facts and circumstances of the case, evidence produced by parties, I come to the conclusion that the measures taken under Section 13(4) of the Act by the secured creditor are not in accordance with the provisions of the Act and the rules framed there under namely:

(i) The notice under Section 13(2) is void.

(ii) Taking possession of the property under Section 13(4) of the Act is vitiated for non-compliance of Rule 8(2).

(iii) Violation of Rule 8(5) as fixation of Reserve price had gone wrong for want of proper valuation.

(iv) Non-compliance of Rule 8(6) as notice was not served on borrowers.

(v) Violation of Rule 8(6) for absence of proper public notice.

(vi) Violation of Rule 9(3).

Therefore, the sale is liable to be set aside and I do so.

(s) The sale was conducted on 29.6.2009. This application was filed before the Tribunal on 2.2.2009. So, the application was filed much earlier to the sale. The applicants had requested for interim relief of stay of further proceedings, but the same was not granted. Definitely, for all the transactions that had taken place in respect of the secured assets, the doctrine of lis pendens would apply. The learned Counsel for auction purchaser submits that injustice would be caused to the auction purchaser especially when documentation has been completed. Auction purchaser entered into the field, participated in the auction, takes the property, knowing very well that the litigation is pending and that the property is very much involved in the litigation. So, he cannot, under the pretext of equity, claim any privilege. When the auction conducted by the statutory authority is against the principles of law and in violation of natural justice and when the sale is held to be vitiated and set aside, all actions consequent to sale are null and void and that results in declaring the sale certificate and consequent registration of sale deed in favour of the auction purchaser as invalid. Ordinarily, the auction purchaser is entitled to get back the money paid by him with compensation in the form of interest on the deposit amount. But in mis case, I have already found that the hands of the auction purchaser are not clear. He had not complied the conditions of sale in terms of Rule 9(3). The amount was not deposited immediately. He had not even taken the Demand Draft which was a condition precedent for participating in the bid. For non-compliance of Rule 9(3), the 10% earnest money deposit amounting to Rs. 18,25,000 is liable to be forfeited. The EMD of Rs. 18,25,000/- deposited by Sandeep Jain is forfeited. This amount shall be adjusted towards the debt. He has been in possession enjoying possession of the apartment and, therefore, he shall be entitled to return of the balance amount of sale consideration without any compensation.

Point No. 5

IA No. 125/2011

(a) This application under Section 345, Cr.P.C. is filed by the applicants to proceed against the Bank to initiate action against them for committing the offence of forgery. The applicants would say that the Bank has filed a false affidavit on the basis of false document stating that the applicants had created equitable mortgage in respect of the property. This amounts to forgery as defined under Section 195, they submit that the Bank filed false affidavit stating that equitable mortgage by deposit of title deed was done by the applicants. It is further stated that the Bank has given a false notice under Section 13(2) with a view to create on evidence in their favour by giving wrongful loss to the applicants and by having wrongful gain by the Bank. The application has been opposed by the Bank. I have considered the entire pleadings. When there is litigation between two parties, it is very natural that some mistakes do occur in the pleadings. Even though the property was not registered in the name of the applicants, as per the tripartite agreement entered into between the builder, applicants and the Bank, it was made clear that the Bank shall have charge over the property and possession shall never be handed over to the applicants without the concurrence of the Bank. Several clauses of tripartite agreement would indicate that in fact the applicants could do nothing in relation to the property unless the loan advanced was paid and the amount due to the builder was paid. It was, in such a situation, the Bank pleaded that they had a charge over the property and there was creation of an equitable mortgage.....The Bank was always correct in saying that they had lien over the property instead of expressing that term, they went further and said there was a creation of equitable mortgage which appeals to be nor correct. That was not intentional conduct on the side of the Bank, but a mere over stepping of the pleadings when the Courts is asked to initiate Contempt of Court proceedings under Section 340, Cr.P.C., the Court must be satisfied that it is expedient in the interest of justice to do so having due regard to the scenario. I do not find such circumstances available and the application to initiate contempt proceedings against the Bank is liable to be dismissed and IA 125/2011 stands dismissed accordingly.

Point No. 6

What is the next option?

(a) The Bank is not without any remedy. The Bank, definitely is entitled to issue a fresh notice under Section 13(2) and thereafter, the notice under Section 13(4), if required, complying strictly and legal formalities, and they can realize the amount due from the applicants. The only rider is that they shall not be entitled to claim any interest from 5.7.2008 onwards, the date on which the account of the applicant was illegally classified as non-performing asset till this date. The tripartite agreement is binding on applicants, they are not entitled to possession of the property in pursuance of this order as they never had been in possession.

(b) This case reveals the tragic plight of a couple who had to fight against the odd. They have by the time lost their precious time, mental peace and, of course, their purse became lighter. The conduct of the authorised officer and the Bank justifies awarding exemplary cost which having due regard to the facts and circumstances, is quantified at Rs. 50,000/-.

In the result, the application is allowed:

(i) The notice issued under Section 13(2) of the SARFAESI Act by the Bank against the applicants, is declared null and void.

(ii) The recourse to the measures taken by the Bank under Section 13(4) of the Act are declared as invalid.

(iii) The sale of the property. Apartment No. 102, First Floor, Joshua Tower, Sector 92, NOIDA, U.P. is set aside.

(iv) The sale deed and the documents executed in favour of defendant No. 3 in respect of the property, Apartment No. 102, First Floor, Joshua Tower, Sector 92, NOIDA, U.P. are cancelled.

(v) The EMD of Rs. 18,25,000/- deposited by D3 is forfeited and shall be adjusted towards the debt.

(vi) The defendant Bank shall be entitled to initiate fresh action against the applicants for realizing the amount due but they shall not be entitled to claim any interest from 5.7.2008 till this date.

(vii) Applicants shall be entitled to cost Rs. 50,000/- from defendant No. 1 in addition to the ordinary cost."

The Bank as well as the auction purchaser Shri Sudeep Jain felt aggrieved with this decision of the learned DRT. The Bank's appeal is Appeal No. 198/2012 while the auction purchaser's appeal is Appeal No. 171/2012. The Bank felt aggrieved because its entire exercise undertaken to recover its dues to the tune of over a crore of rupees has been found to be illegal and all measures under the SARFAESI Act have been quashed. The auction purchaser is aggrieved because the auction of the Apartment in dispute for the purchase of which he had paid Rs. 1,82,50,000/- way back in the year 2009 has been set aside and that decision will render him without any shelter.

Since the appeals of the Bank and the auction purchaser were heard analogously and common submissions were advanced by the Counsel for all the parties during the course of arguments I propose to dispose of both the appeals by a common order.

I will now examine whether the learned DRT was justified in setting at naught the entire exercise undertaken by the appellant Bank under the SARFAESI Act to recover its money which it had admittedly advanced to the two Allottees/Borrowers of the Apartment in dispute to enable them to pay the sale consideration of that Apartment to its builder from whom they had purchased in February, 2005 for Rs. 1,48,50,000/- out of which they themselves had paid from their own funds only Rs. 13,32,000/- and for balance payment they had to approach the Bank for Home Loan.

First question that arises for being answered by this Tribunal is whether the appellant Bank was entitled to invoke the stringent measures provided under SARFAESI Act for the recovery of the dues of the Banks and other Financial Institutions. SARFAESI actions can be resorted to only by the Banks and other Financial Institutions which fall within the category of 'secured creditors'. In case any lending institution invoking the powers vested in a 'secured creditor' under SAFRAESI Act including that of taking possession of properties in which it has 'secured interest' without the intervention of the Courts or Tribunals has no secured interest in the property which is sought to be taken over and sold for the realization of its money lent to its borrower then the lending institution cannot invoke any of the provisions of SARFAESI Act. In the present case the appellant Bank had sought to invoke SARFAESI Act to recover over a crore of rupees from the Allottees/Borrowers by taking over physical possession of the Apartment in dispute from the Builder and then to sell the same by auction by invoking Section 13(4) of the said Act. Its stand in its pleadings before the DRT as well as before this Tribunal has been that the loan granted by it to the allottees/Borrowers was secured by way of 'equitable mortgage' and so it was a secured creditor entitled to invoke the stringent measures provided to it as a secured creditor under the SARFAESI Act. The learned DRT has, however, rejected this claim of the Bank with the strong observations in its impugned order that this was a false claim being put forth right from the beginning when it issued demand notice under Section 13(2) of SARFAESI Act in which it had claimed that its loan was secured by way of an equitable mortgage and then in its reply to the S.A. also same false averment was made and that stand was false since admittedly no tide deed had even come into existence in favour of the Allottees/Borrowers at any stage.

The Allottees/Borrowers at the time of approaching the Bank for home loan had admittedly with them only an Allotment Agreement containing the terms and conditions on which the Builder had agreed to allot one Apartment in its yet to be constructed residential multi-storeyed Project to be called 'The Forest' in NOIDA. Mr. Vijay Sondhi, learned Counsel for the appellant Bank had not disputed that there was no sale deed/conveyance deed in existence in respect of the Apartment in dispute at the time of sanction and disbursement of home loan to the Allottees/Borrowers and only the Allotment Agreement which had been executed between the Builder and the Allottees/Borrowers was kept in the possession of the Bank as per the terms of the Tripartite Agreement between the Bank, the Builder and the Allottees/Borrowers and that too as had been desired by the Allottees/Borrowers as was mentioned in that Tripartite Agreement itself. That fact is indispute. Mr. Sondhi submitted that whether that agreement, stricto sensu, was a title document, deposit whereof with the Bank could bring into existence an equitable mortgage or not in respect of the Apartment in dispute, was in fact not really relevant for deciding whether the Bank had a right in the facts and circumstances of the case to claim itself to be a secured creditor of the Allottees/Borrowers or not since to invoke SARFAESI Act provisions it is not necessary that there must be only an equitable mortgage by way of deposit of title deeds of some immovable property in favour of the Bank. All that is required to be shown by the Bank is whether at the time of invocation of the provisions of SARFAESI Act the Bank had 'security interest' in any immovable property which was being to sought to the enforced in the event of the defaulting borrower failing to clear the Bank's outstanding loan dues. And this all important factor has not even been examined by the learned Presiding Officer of the DRT and he has simply rejected the Bank's actions invoked under SARFAESI Act merely on the ground that it had been falsely being claimed by it that its loan repayment was secured by way of an equitable mortgage by deposit of title does in respect of the Apartment in dispute. Mr. Sondhi's main thrust was to show that in the admitted facts and circumstances of this case the DRT should have held that this was a case where a 'charge' was created in favour of the Bank from which its dues could be recovered in the event of the Allottees/Borrowers defaulting in repayment of the loan as per the terms and conditions of the loan and if that aspect had been examined in true spirit the only conclusion which would have been arrived at was that the Bank was a 'secured creditor' to whom the remedies under the SARFAESI Act were available. It was contended that the Apartment in dispute had actually and admittedly come into existence in May 2007 and the Bank's secured interest in that Apartment became available to it for being enforced under the SARFAESI Act. It was further argued by Mr. Sondhi that the right of the Bank as a secured creditor in this case being a matter of legal interpretation on the basis of admitted facts if the learned Presiding Officer of the DRT was of the view that the Allotment Agreement between the Allottees/Borrowers and the Builder and the Tripartite Agreement could not be considered as title documents so as to come bring the case of the Bank within the purview of Section 58(f) of the Transfer of Property Act and that the claim of the Bank that repayment of its dues was secured by way of an equitable mortgage was not acceptable it could have simply been said to but certainly not with strong adverse comments that the Bank had sought to project a false claim. There was no justification, Mr. Sondhi submitted, for making such a serious charge against the Bank by the learned Presiding Officer and, therefore, the adverse comments to that effect need to be expunged from the impugned order of the DRT.

Responding to these submissions of Mr. Vijay Sondhi, Mr. Pallav Saxena, learned Counsel for the Allottees/Borrowers, had not disputed the legal proposition that a lending institution like the appellant Bank can invoke SARFAESI Act for the recovery of its dues from its borrowers even without showing that there was any mortgage in its favour, simple or an equitable one by way deposit of title deeds and that resort to stringent measures under this Act can be resorted to by a Bank simply by showing that it had a 'secured interest' in the property which is the subject matter of the litigation by way of a 'charge' in its favour from which its money could be recovered. However, Mr. Saxena had strongly contended that in the facts and circumstances of this case it cannot be said that any 'charge' over the Apartment in dispute came to be created in favour of the Bank on the basis of the Tripartite Agreement since the same was unregistered and so inadmissible as a document of creation of 'charge' over the Apartment in dispute either at the initial stages of the loan transaction or at the time when the construction was complete and possession was being offered to the Allottees/Borrowers by the Builder. In support of the submission mat there being no registered document of 'charge' as contemplated under Section 100 of the Transfer of Property Act Mr. Saxena cited some judgments wherein it has been held that no 'charge' over an immovable property of the value of over Rs. 100/- can be created except by way of a registered document.

There is no quarrel about the legal position laid down in the various judgments relied upon by the learned Counsel for the Allottees/Borrowers that a document of creation of 'charge' over some immovable property of the value of over one hundred of rupees has to be registered otherwise the same is ineffective and so I need not refer to those judgments. Mr. Pallav Saxena was right that a 'charge' document has to be registered otherwise it cannot be used by any creditor to show that it had a 'charge' over property from which its dues are being sought to recovered as a secured creditor. However, Mr. Saxena as well as the learned Presiding Officer of the DRT appear to be not aware of the judgment of the Hon'ble Supreme Court in the case of M.L. Abdul Jabhar Sahib v. H.V. Venkata Sastri & Sons & Ors., 1969 (SLT Soft) 289 : AIR 1969 SC 1147, 1969 SCR (3) 513, wherein it was held that 'charge' can be created orally also and de hors the written unregistered 'charge' document a creditor can establish that it was a 'secured creditor'. The relevant part of that judgment is extracted below:

"As to the second question, the argument on behalf of the respondents is mat Section 100 of the Transfer of Property Act attracts Section 59 and that a charge can be created only by a document signed, registered and attested, by two witnesses in accordance with Section 50 where the principal money secured is Rs. 100 or upwards. The High Court accepted this contention following its earlier decisions in Viswanadhan v. Menon and Shiva Rao v. Shanmugasundara Swami and held mat the security bond was, invalid as it was Swami attested be one witness only. We are unable to agree with this opinion. Section 100 is in these terms "Where immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property', and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge.

Nothing in this section applies to the charge of a trustee on the trust property for expenses property incurred. In the execution of his trust, and, save as otherwise expressly provided by any law for the time being in force no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge.

The first paragraph consists of two parts. The first part concerns the creation, of a charge over immovable property. A charge may be made by act of parties or by operation of law. No restriction is put on the manner in which a charge can be made. Where such a charge has been created the second part comes into play. It provides that all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge. The second part does not address itself to the question of creation of a charge. It does not attract the provisions of Section 59 relating to the creation of a mortgage. With regard to the applicability of the provisions relating to a simple mortgage, the second part of the first paragraph makes no distinction between a charge created by act of parties and a charge by operation of law. Now a charge by operation of law is not made by a signed, registered and attested instrument. Obviously, the second part has not the effect of attracting the provisions of Section 59 to such a charge. Likewise the legislature could not have intended that the second part would attract the provisions of Section 59 to a charge created by act of parties. Had this been the intention of the legislature the second part would have been differently warded.

If a charge can be made by a registered instrument only in accordance with Section 59, the subsequent transferee will always have notice of the charge in view of Section 3 under which registration of the instrument operates as such a notice. But the basic assumption of the doctrine of notice enunciated in the second paragraph is that there may be cases where the subsequent transferee may not have notice of the charge. The plain implication of this paragraph is that a charge can be made without any writing.

If a non-testamentary instrument creates a charge of the value of Rs. 100 or upwards, the document must be registered under Section 17(1)(b) of the Indian Registration Act. But there is no provision of law which requires that an instrument creating the charge must be attested by witnesses.

Before Section 100 was amended by Act 20 of 1929 it was well settled that the section did not prescribe any particular mode of creating a charge. The amendment substituted the words "all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge," for the words "all the provisions hereinbefore contained as to a mortgagor shall, so far as may be, apply to the owner of such property, and the provisions of Sections 81 and 82 shall, so far as may be, apply to the person having such charge." The object of the amendment was to make it clear that the rights and liabilities of the parties in case of a charge shall, so far as may be, the same as rights, and liabilities of the parties to a simple mortgage. The amendment was not intended to prescribe any particular mode for the creation of a charge........"

Hon'ble Delhi High Court took the same view following the said decision of the Apex Court in the case of Sushil Prasad v. Vinod Morots (Pvt.) Ltd., (1984) 55 Comp. Cases 52 : 20 (1981) DLT 85. The relevant discussion and the conclusions are being re-produced below:

"(1) The short question which comes up for consideration in this case is as to whether the petitioner is a secured creditor or not.

(2) The company in liquidation belonged to the family of the petitioner. It ran into financial difficulties. Large sums of money were owed by the company to the Central Bank of India.

(5) The Official Liquidator invited claims from various debtors of the company. By order dated 9th September, 1976 the Official Liquidator admitted the claim of the petitioner amounting to Rs. 1,48,045.46 but informed the petitioner that the same be regarded as an ordinary claim against the company as the charge was not registered under the Indian Registration Act............

(7) It will be seen that the Official Liquidator vide his letter dated 9th September, 1976 had accepted the claim of the petitioner that he was a creditor to the tune of Rs. 1,48,045.46. It was further stated in the said letter that "as the charge was not registered under the Indian Registration Act and was within one year preceding the date of winding up order, therefore the claim cannot be treated as secured.".......

(8) The first question which arises for consideration is whether a charge is compulsorily registrable or not. Previously the view of same of the High Courts was that a valid charge cannot be created, under the provisions of the Transfer of Property Act itself, orally and the charge could be created only by instrument which was duly registered. This was so held by Madras High Court in Pt. Shiva Rao & Anr. v. D.A. Shunmugha-sundraswami, Official Liquidator & Ors., AIR 1940 Madras 140. In arriving at this conclusion reference was made by the Madras High Court to Sections 59 and 100 of the Transfer of Property Act and it was held mat though charge was not the same thing as mortgage but nevertheless in view of the provisions of Section 100, which, inter alia, stated that all the provisions regarding of simple mortgage would apply to a charge, the provisions of Section 59 became applicable and a charge could be effected only by a registered instrument executed in the manner provided by Section 59. The Supreme Court, however, in a decision reported as M.L. Abdul Jabbar Sahib v. H. Venkata Shastri & Sons. & Ors. etc., came to the conclusion that a charge is not compulsorily registrable under the Registration Act. The Supreme Court held that the provisions of Section 59 were not attracted in the creation of the charge. It was observed by the Supreme Court a charge could be created orally. It was, however, stated that if a charge was created by a written document then the provisions of the Registration Act would have to be complied with and the document registered.

(9) .......... The question which arises for consideration is whether this creation of charge was valid or not because of non-registration of the said document. It is also the contention of Mr. Nayar that the charge was validly created and that, in any event, even if that document is ignored the company had orally agreed to and had in fact created a charge of its property.

(10) What is the effect of a document creating a charge not being registered? Section 49 of the Registration Act, inter alia, provides that no document which is required by Section 17 or by provisions of Transfer of Property Act to be registered shall "affect any immovable property comprised therein" unless it is registered. To my mind the plain meaning of these words can be only one and that is that if a document is required to be registered the character of that property would not change if the document is not registered. Or, to put it differently, that document will not affect the said property. The non-registration of the document, whether under the provisions of Section 17 of the Registration Act or under the provisions of the Transfer of Property Act, has been placed at par by Section 49. Just as a sale of immovable property is not complete and effective unless there is a registered sale-deed, because that is the requirement of Transfer of property Act, similarly I must hold that a charge if sought to be created by a document, and which would require registration under Section 17 of the Registration Act, cannot be said to come into existence.........

(11) It will be seen that a charge, as held by the Supreme Court can be created orally as well as by written document. The written document in the present case dated 19th December, 1967 is clearly inadmissible in evidence. Does it mean mat, on the facts and circumstances of the present case, no charge at all was created? Document dated 19th December, 1967 cannot be relied upon by the petitioner for the purposes of showing that a charge came into existence, but a charge can be created orally also. The conduct of the parties can be such which would show that de hors a written document a charge was created...............

..........It has now been held by the Supreme Court in New Kaiser-I-Hind's case (supra) that creation of a charge does not amount to any transfer of interest in me properly. In this case it was further held that in a case of a charge there was no transfer of property or any interest therein but a charge only record a right of payment out of the specified property.

(13) Mrs. Jain also referred to Krishna Deva Bhargava & Ors. v. Official Liquidator U.P. Oil Industries Ltd. In that case it was held that a charge could be created on an immovable property only by registered document. In my opinion this proposition of law is no longer good law, in view of the later pronouncements of the Supreme Court in Abdul Jabbar's case (supra) and M.C. Chacko's case (supra). Reference to Rana Vidya Bhushan Singh v. Rati Ram, C.A. 460 of 1966 decided by the Supreme Court on 28th January, 1969, can also be of no assistance to the respondent because that case was concerned with Section 49 of the Registration Act. In the present case the document need not be referred to at all for coming to the conclusion that there was a creation of charge by the company. The charge can be created orally. It is not compulsory for the creation of a charge that there should be a document in writing duly registered."

(Emphasis laid by me)

This decision of the Hon'ble Delhi High Court was subsequently relied upon by Hon'ble Madras High Court also in its judgment in the case of L.G. Balakrishnan & Brothers v. Commissioner of Income Tax, (2000) 245 ITR 743 (Mad.).

In the present case, it is not in dispute that when the Allottees/Borrowers approached the appellant Bank for home loan they were told that the Bank will like to have their charge/lien over the Apartment in dispute recorded in the records of the Builder so that in future upon completion of the construction the Bank could recover its money which it had agreed to advance to them to enable them to pay to the Builder to acquire the apartment in the event of their defaulting in re-payment of the loan amount. Accordingly, the Builder had written to the Bank on 9th March, 2005 (Annexure R-1/7 to the reply to the S.A.) filed before me DRT by the Bank and which was not disputed by the Counsel for the Allottees/Borrowers during arguments before this Tribunal) that:

"In consideration of your having agreed to/having provided loan facility to Mr. Nippun Gupta and Mrs. Anurag Gupta.........

In our records we have noted the charge/lien in respect of the property in favour of your Bank."

We shall intimate and take prior permission from the Bank before handing over the physical possession of the said property to the owner/borrower.

We shall ensure that the original sale deed/conveyance deed as and when executed and registered with the concerned Sub-Registrar of Assurances is sent directly to the Bank."

Thus, right from the beginning it was the common intention of the Allottees/Borrowers, Bank and the Builder that the Apartment in dispute whenever it was completed shall remain charged with the Bank for the payment of the loan amount which it had agreed to give to the Allottees/Borrowers. Thereafter a Tripartite Agreement to the same effect was also executed between these three parties when the loan amount was sanctioned by the appellant Bank and before the amount was disbursed. These documents reflect the conduct of all the three parties concerned that they always wanted that as and when the Apartment in dispute becomes available for delivery of possession to the Allottees/Borrowers it will also come under the 'charge' of the Bank so that if need be Bank's dues could be recovered from that Apartment. These documents thus did not require registration. The conduct of the Allottees/Borrowers in not challenging the issuance of notice under Section 13(2) of SARFAESI Act on any ground including the one that the Bank was not a secured creditor and so no action under SARFAESI could not be initiated by it also shows that parties particularly the Allottees/Borrowers knew that the Bank was a secured creditor in respect of the home loan given to them. Even in the S.A. filed by them initially on receipt of notice under Section 13(2) it was not claimed that the appellant Bank was not their secured creditor. All that was pleaded was that the Bank could not have issued any notice under Section 13(2) unless their account had been legally declared as NPA and that their account was not irregular and so could not have been declared as an NPA. Their conduct at that time also on receipt of the notice of demand under SARFAESI Act showed that they were accepting the position that the appellant Bank was their secured creditor and was competent to invoke the stringent remedies available to the secured creditors under the SARFAESI Act.

Even the learned Presiding Officer himself was also of the view that the appellant Bank was a secured creditor of the Allottees/Borrowers but gave a very strange reason for not giving the benefit of that view to the Bank. That is evident from the following para in the impugned order and particularly the highlighted observations:

"The notice reads that the borrowers had created equitable mortgage by way of deposit of title deed/registered mortgage creating security interest in favour of the Bank. This statement is also not correct, as on that date, the title deed was not available. There was no creation of mortgage by way of deposit of title deed. The learned Counsel for the Bank submits that what is created is security interest in the property and the parties were aware that no title deed was available in respect of the property as on that date. The security interest is defined in Section 2(zf) of the Act, to mean any right, title and interest of any kind whatsoever upon property, created in favour of any security creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in Section 31. If that be the case, the Bank could have stated a security interest was created. Instead of that a wrong statement was given. So, the statement in Para 3 of the notice is also not correct."

In my view, the DRT has given undue importance to the fact that the Bank had claimed in the demand notice that there was equitable mortgage in its favour and simply for the reason the S.A. ought not to have been allowed. Earlier during the course of hearing of the S.A. the DRT itself had in its proceedings held on 25.6.2009 observed that prima facie there was a charge created in favour of the Bank. Thereafter the DRT changed its view not on any sound reasoning but on the basis of totally unjustified reasoning expressed in the above extracted paragraph from the impugned order.

There is another reason also to say that the learned Presiding Officer of the DRT himself was fully convinced that in this case the Bank had security interest in the Apartment in dispute and that reason is that while quashing the measures taken by the Bank under the SARFAESI Act he gave the liberty to the Bank to initiate fresh steps under the SARFAESI Act. If the Presiding Officer was of the view that the Bank was not a secured creditor then where was the occasion to give liberty to it to initiate fresh steps for recovery of its money under SARFAESI Act.

Thus, from all these circumstances it can be safely concluded that the appellant was a secured creditor qua the loan facility extended by it to the Allottees/Borrowers and that was always the understanding of the Allottees, Builder and the Bank. The loan facility extended to the husband-wife duo was a 'secured debt'. Consequently, the learned DRT was not justified in rejecting the case of the Bank and that too with adverse comments which according to Mr. Sondhi were not justified at all. Accordingly, the decision of the DRT that the appellant Bank was not the secured creditor of the Allottees/Borrowers is set aside.

Now, I come to the other aspects of the matter which include the challenge of the Allottees/Borrowers to the issuance of notice under Section 13(2) of SARFAESI Act as also further actions taken by the Bank for taking actual physical possession of the Apartment in dispute from the Builder on 5.2.2009 and its sale in favour of Shri Sudeep Jain in the auction conducted on 29.6.2009.

Action under the SARFAESI Act at the instance of a secured creditor starts with the declaration of the account of defaulting borrower as a Non Performing Assets by the secured creditor, which the appellant Bank in the case in hand was. Once that step is taken the Banks and other Financial Institutions serve a statutory demand notice under Section 13(2) of SARFAESI Act calling upon the defaulting borrowers to clear the entire outstanding dues within the statutory period of sixty days. In case the borrowers make a representation against the demand notice as provided under Section 13(3A) but the same is rejected by the Bank or the Financial Institution concerned or where no objections are raised against the statutory demand notice and even dues are not cleared in compliance of the demand notice under Section 13(2) the Banks and other Financial Institutions become entitled to proceed further in accordance with Section 13(4) of SARFAESI Act and to have recourse to the measures provided there under which measures include taking over the possession of their secured assets and then to sell the same or to take over the management of the business of the borrowers etc. Thus, issuance of the demand notice is the foundation of the steps to be taken by any Bank or a Financial Institution under Section 13(4) though merely on receipt of demand notice no cause of action arises for the aggrieved borrower to approach the DRT at the stage. In the present case, the learned DRT has knocked down the very foundation of the steps taken by the appellant Bank firstly to take the physical possession of the Apartment in dispute from the Builder and then to sell the same to Shri Sudeep Jain, appellant in Appeal No. 171/2012 and respondent No. 4 in Appeal No. 198/2012. The DRT has come to the conclusion that there was no occasion for the Bank to declare the account of the Allottees/Borrowers as NPA and the same had been illegally declared as such. This finding of the learned DRT has been challenged as being totally unsustainable by the appellant Bank on the ground that the demand notice was served upon the Allottees/Borrowers way back in the year 2007 but at that time no objection of any kind was raised against the declaration of their account as NPA or the outstanding dues which were being claimed in that notice dated 4.12.2007 which showed that they had really no grievance against the Bank's initial actions. Thus, the learned DRT could not have gone into that aspect suo motu to find fault with the decision of the secured creditor in declaring the account of the defaulting borrowers as NPA and also to find fault with the notice under Section 13(2). If validity of notice under Section 13(2) is permitted to be gone into by the DRTs even when the borrowers themselves had not responded to the notice under Section 13(2) then the very object of establishment of DRTs for speedy adjudication of disputes between the secured creditors and defaulting borrowers will get defeated. It is significant to notice that before 2004 the borrowers had no right to make any representation against the demand notice under Section 13(4) but in 2004 Section 13(3A) was inserted in the SARFAESI Act to enable the borrowers to submit representation/objections against the demand notice under Section 13(2) received by them on any grounds. If the defaulting borrowers without at first instance raising the objections thereto before the Bank are permitted to raise objections at any time at their convenience and the secured creditors are called upon to justify their demand notice under Section 13(2) any time objections are raised by the borrowers the whole purpose of incorporation of Section 13(3A) in the SARFAESI Act will get frustrated. In my view, the Bank cannot be called upon to defend its notice under Section 13(2) in case the borrower concerned himself fails to challenge its validity within the period of sixty days from the date of receipt of demand notice within which outstanding dues are supposed to be cleared. In case any of the grounds of challenge is raised before the Bank it has to deal with the same and to take appropriate decision by passing a reasoned order. Thus, the DRT in this case ought not to have taken the botheration of finding faults with the declaration of borrowers' account as NPA, charging of excessive interest etc. and then quashing the same by observing that no filing of objections against the demand notice will not validate the notice if on the face of the material on record the DRT could come to the conclusion that the account of me Allottees/Borrowers was illegally declared as NPA and that "Absence of a communication from borrower will not and cannot legitimize this action of the Bank.........". SARFAESI Act was enacted to eliminate the involvement of Tribunals/Courts in the enforcement of secured interest of the secured creditors in the secured assets. The way the DRT in this case has involved itself in questions of fact and then to put spokes in the enforcement of secured interest of the Bank in the Apartment in dispute to recover over a crore of rupees from the defaulting borrowers was certainly not in accordance with the law and aimed at ensuring that the object behind the enactment of SARFAESI Act viz. speedy recovery of public money, was defeated instead of being achieved.

In fact, the DRT should have rejected the S.A. straightaway at the threshold because when it was filed by the Allottees/Borrowers the Bank had not taken any measure under Section 13(4) of SARFAESI Act and by now it is well settled that Section 17(1) cannot be invoked at any stage before that. The Allottees/Borrowers themselves were also conscious of the legal position that their S.A. was premature when it was filed. On 9.2.2009 when the Counsel for the Bank had entered appearance after receipt of notice of the S.A. he had informed the Tribunal that it had already taken possession of the Apartment in dispute. At that stage itself the DRT should have told the Allottees/Borrowers to challenge the action of the Bank in taking over physical possession of their Apartment if the were aggrieved by filing a fresh petition under Section 17(1) of SARFAESI Act within the limitation period of 45 days. So, the entire exercise undertaken by the learned DRT in finding faults with the measures taken by the Bank under Section 13(2) and then under 13(4), which action was taken during the pendency of the prematurely filed S.A., ought not to have undertaken by the DRT by allowing amendments in the S.A. so as to enable the Allottees/Borrowers to raise challenge to those measures in a non-maintainable S.A. to "avoid multiplicity of the proceedings". So, the manner in which the DRT dealt with a non-maintainable S.A. and proceeded also to allow the same finally and that too with some castigating remarks against the Bank instead of criticizing the Borrowers in not adhering to the repayment schedule fixed by the Bank, cannot be approved by this Tribunal. It appears that the Borrowers, in fact, never had money to pay back to the Bank and they were only expecting re-scheduling of re-payment plan and took an unsustainable plea that since the Bank had failed to release a negligible amount from the sanctioned loan amount they were justified in not returning back to the Bank whatever money they had received from it as they suffered loss on account of non-receipt of rental income from the Apartment in dispute which they would have earned had they got possession of the Apartment when it was offered to them and which they could not get since they could not pay to the Builder the final demand which was required to be paid upon completion of the project. The Allottees/Borrowers were expecting that when the Builder had raised the final demand of Rs. 18,05,421/- in May 2007 the Bank was obliged to make that payment also to the Builder and also to have released the unpaid loan amount of Rs. 4,33,000/- and since the Bank did not do the needful in terms of the loan agreement which provided that the loan amount could be increased also, the Allottees/Borrowers did not get possession from the Builder. However, for this reason the Allottees/Borrowers could not avoid re-payment of the amount which already stood disbursed by the Bank by way of payment to the Builder directly. As far as this plea is concerned, the DRT had in fact itself negative the same while dealing with this plea. The Allottees/Borrowers had also made a prayer for a moratorium period of six months being imposed upon the Bank due to the reason that "as the business of the applicants has deteriorated due to the volatile market condition in global economic melt down". Such a relief does not fall within the ambit of Section 17(1) of SARFAESI Act and the DRT cannot entertain such like pleas.

The measure taken by the Bank in taking over physical possession of the Apartment in dispute on 5.2.2009 was also held to be illegal in the S.A. which right from day one was not maintainable, which as per the learned Presiding Officer justified giving a direction to the Bank to return back the possession of the Apartment in dispute. Apart from the fact that no grievances of the Allottees/Borrowers in this regard could be entertained in the pending S.A. in which the only challenge was against the declaration of their account as NPA there are other reasons also for setting aside the conclusion of the learned DRT that action of the Bank under Section 13(4) of SARFAESI Act in taking over of the possession of the Apartment in dispute on 5.2.2009 was bad in law. The learned Presiding Officer has observed that notice under Section 13(4) was issued by the Bank after issuance of notice under Section 13(2) and since the notice under Section 13(2) was bad the notice under Section 13(4) also became nullified. The reasoning of the learned Presiding Officer is not sustainable and in fact could not have been given at all since, as noticed already, the Borrowers had not even raised any objection against the issuance of the notice under Section 13(2) or the demand raised in that notice.

The Allottees/Borrowers had definitely a right to impugned the action taken by the Bank under Section 13(4) but not in the prematurely filed S.A. However, even if it is accepted that challenge could be introduced even in the non-maintainable S.A. on account of its being pre-mature by introducing the new grounds of challenge by way of amendments in the S.A. the decision of the DRT in quashing the possession notice cannot be sustained. As noticed already, the Bank right on the first date of appearance before the DRT on 9.2.2009 had informed that it had already taken over possession of the Apartment in dispute and the Allottees/Borrowers had been informed about that development vide letter dated 7.2.2009. The Allottees/Borrowers had themselves placed on record that letter on 13.2.2009. However, the Allottees/Borrowers did not take any steps to challenge that measure taken by the Bank under Section 13(4) of the SARFAESI Act within 45 days which is the period of limitation prescribed under Section 17(1) itself. The whole purpose behind prescribing a period within which only any measure taken by the secured creditor can be challenged is that the defaulting borrowers approach the DRTs with their grievances at leisure and obtain stay orders from DRTs which delays the recoveries of public money by the Banks and other Financial Institutions. Therefore, the learned DRT in the present case in any event could not have quashed the measure of taking over of possession of the secured asset by the appellant Bank after the expiry of 45 days from the date when the Allottees/Borrowers had received the notice under Section 13(4) informing them that the Bank had taken possession on 5.2.2009. Instead, they sought to introduce their challenge to that measure sometime in the year 2010 after the Apartment in dispute stood auctioned on 29.6.2009. That grievance could not be raised after the expiry of limitation period of 45 days.

Now comes the stage to examine the correctness/legality of the decision of the DRT that the auction sale of the Apartment in dispute was also illegal. As far as the findings of the learned DRT to the effect that there was no genuine sale in respect of Apartment in dispute is concerned, I am also of the view that the sale of the Apartment in dispute conducted by the appellant Bank in favour of Shri Sudeep Jain (auction purchaser) was not a genuine sale. However, I am of the view that the sale at the instance of Allottees/Borrowers could not have been set aside by the learned DRT for the reason that they had not challenged the same within the period of 45 days from the date cause of auction to challenge the same had arisen in the S.A. sometime in May 2010 while the auction took place on 29.6.2009 about which Allottees/Borrowers were fully aware as admitted by themselves before the DRT in 2009 itself. It is again reiterated that there is a purpose behind the providing of limitation period for raising a challenge by any aggrieved borrower against any of the measures taken by a secured creditor. The purpose is that there should be speedy adjudication of the disputes between secured creditors and defaulting borrowers and expeditious recovery of the public dues with which objection the SARFAESI Act was brought into existence by the Parliament after it had been experienced that the promulgation of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 had not yielded the desired results is in so far as the recovery of dues of the Banks and other Financial Institutions from the defaulting borrowers were concerned. If the defaulting borrowers have the liberty to object to the measures taken by the secured creditors and other financial institutions, as per the convenience of the defaulting borrowers, the recovery of public dues will definitely be held up instead of getting expedited by invocation of stringent measures provided to the secured creditors under the SARFAESI Act. As far as the auction in the present case is concerned, this Tribunal is of the view that there was in fact no auction at all the entire auction proceedings were a stage-managed affair.

As per the copies of auction proceedings available in the record of the DRT, there were four persons who had submitted their bids in sealed covers, out of whom Shri Sudeep Jain was the highest bidder and his bid was for Rs. 1,82,50,000/-. As per the terms and conditions of the auction, duly published by the appellant Bank in two newspapers, the bids were to be accompanied by Earnest Money of 10% of the reserve price of the Apartment in dispute, which was fixed at Rs. 1,75,00,000. The EMD was to be made in the form of a demand draft issued by Bank. It is now well settled that the conditions centering around making of deposit of EMDs in tendering exercise is an essential and mandatory term. Sale proclamation did not provide that the Bank could accept EMDs by cheques also and not only by way of Bank drafts. In the present case, undisputedly, all the four persons who had submitted their bids, including Shri Sundeep Jain, had submitted only cheques of their respective Bank accounts towards the payment of EMDs. The Bank gladly accepted those cheques and consequently entertained ineligible persons for participation in the auction. The Bank has not given any justification for not adhering to its own sale proclamation which clearly provided the EMDs had to be made only by way of Bank drafts. As far as the successful auction purchaser is concerned, it is also not in dispute that in his Bank account there was 'Nil' balance on the date when cheque dated 24.6.2009 was issued by him as EMD. The learned DRT has noticed in the impugned order that cheque was cleared on 4.7.2009. That observation has not been disputed by Shri Sudeep Jain. That means, Shri Sudeep Jain's bid was entertained without any EMD. The cheque given by him appears to have been sent for encashment after opening of the bid envelopes, which shows that Shri Sudeep Jain wanted to make payment of the EMD only in case his bid was the highest. The appellant Bank has also not given any justification for not insisting upon immediate payment of 15% of the bid amount even though the bidding process had started at 11 a.m. and Shri Sudeep Jain could have easily got the demand draft prepared and submitted immediately op 29.6.2009 upon being declared as the successful bidder. He again issued a cheque on 29.6.2009 for a sum of Rs. 9,12,500/- and the same was also accepted without any protest by the authorised officer instead of rejecting the bid of Shri Sudeep Jain. That cheque was encashed, as was observed by the DRT, on 7.7.2009 and which observation regarding encashment of that cheque has also not been challenged as being incorrect either by the Bank or by the auction purchaser. On 30.6.2009, the auction purchaser paid further amount of Rs. 18,25,000 but this time he had submitted a Bank draft. In case, he could get that Bank draft issued from the Bank where he had his account from which he had issued earlier two cheques with 'Nil' balance, he could have very well obtained Bank draft for amounts of two cheques issued by him.

The above highlighted circumstances lead to the conclusion that the so-called auction conducted by the Bank on 29.6.2009 was a farce and the learned DRT has rightly come to the conclusion that no legality is attached to the auction. However, in view of the fact that Allottees/Borrowers had woken up to challenge the auction much after the expiry of period of limitation of 45 days as provided under Section 17(1) of the SARFAESI Act, no relief could have been granted by the DRT to them by setting aside the auction and directing the auction purchaser to return the possession of the apartment in dispute. The DRT also could not have passed an order for forfeiture of the amount of Rs. 18,25,000/-. These appeals are accordingly allowed and the impugned order of the DRT is hereby set aside.