AI Structured Summary
Not yet generated for this judgment
Judgment
Ashok Menon, Chairperson
The Appellants are a consortium of Multi-State Cooperative Banks seeking to recover the various credit facilities advanced to the 1st Respondent company of which Respondents Nos. 2 to 6 are the directors, and the 7th Respondent firm the mortgagor. A total amount of ₹64,42,79,834/-together with interest was due from the Respondents on the date of issuance of demand notice under section 13 (2) of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (‘SARFAESI Act ‘, for short). Possession of the secured assets situated in Valsad in Gujarat, Silvassa in Dadra and Nagar Haveli and in Jogeshwari, Mumbai have already been taken by the Appellants on various dates. Securitisation Application (S.A.) No. 33 of 2006 was filed by the Respondents before the Debts Recovery Tribunal-II, Mumbai (DRT) challenging the Sarfaesi measures initiated by the Appellants. After considering the rival contentions raised, the aforesaid S.A. was allowed vide judgment and order dated 29/06/2010. The Sarfaesi measures were quashed and the Appellants were directed to redeliver possession of the secured assets to the Respondents within four weeks. The Appellants are aggrieved, and hence, in appeal.
The Appellants challenge the impugned judgment on various grounds. It is contended that the DRT has exceeded its jurisdiction under the provisions of section 17 of the SARFAESI Act by determining the quantum of the debt due from the Respondents. It is the argument of Mr Rohit Gupta, the Ld. Counsel appearing for the Appellants that in an application under Sec. 17 of the SARFAESI Act, the Tribunal should be concerned only with the validity of the acts of the secured creditors of taking possession of the securities and dealing with the same under Sec. 13, and while considering this, it is not necessary to finally adjudicate the exact amount due to the secured creditor. It is submitted that the purpose of an application under Sec. 17 is not the determination of the amount of the claim per se. It is further submitted that in cases where the debt due is higher than the value of the security, it would not be necessary for the DRT in such a case to adjudicate the exact amount due from the borrower to the secured creditor. It is pointed out that in the instant case, the debt due from the Respondents is over ₹64 crores whereas, the secured assets are valued at much less than that. In such a case, adjudication is only for the purpose of ascertaining the validity of the action of the secured creditor in enforcing its security under Sec. 13 and not for the purpose of a final adjudication regarding the indebtedness of the borrower. It is submitted that under Sec. 13(10) of the SARFAESI Act, where the dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the DRT having jurisdiction or even the competent court, as the case may be, for recovery of the balance amount from the borrower. The Ld. Counsel also points out that there is nothing in the SARFAESI Act which even remotely suggests that a notice under Sec. 13 (2) is bad if the amount stated therein as due is not the exact amount actually due. Mr Rohit Gupta would rely on the decisions of Khaja Industries vs. State of Maharashtra 2007 (6) Mh.L.J. of the Hon’ble Bombay High Court, and also on M/s Lakshmi Shankar Mills Pvt. Ltd. & Ors vs. The Authorised Officer/Chief Manager Indian Bank & Ors 2008 (2) CTC 529, of the Full Bench of the Hon’ble Madras High Court in support of his arguments.
The Ld. Counsel appearing for the Respondents, Mr Rishabh Shah supports the impugned judgment and order by stating that the DRT has not adjudicated the amount payable by the borrowers to the creditors as alleged by the Appellants. The adjudication was for the limited purpose of finding the correctness of the claim to the extent that the Appellants have capitalised the penal interest charged. That apart, the Ld. Counsel submits that the Appellants have not been able to assail the impugned judgment with regard to the non-compliance of the mandatory provisions under Sec.13 (3). The Ld. Counsel relies on the decision of the Hon’ble Gujarat High Court in Punjab National Bank v. Mithilanchal Industries (High Court Gujarat) Manu/GJ/1069/2020 to support his arguments.
The Ld. Presiding Officer has in the impugned judgment found an error in the amount claimed by the Appellants. It is observed that the bank guarantees were invoked on the date of issuance of the demand notice there is an error in calculating the unapplied interest, and therefore, the amount demanded by the Appellants is not the actual amount due from the Respondents. The Ld. P.O. has also found fault with the notices issued under Sec. 13(2) for not complying with the provisions under sub-section (3) to Sec.13 by not giving the breakup of the principal amount, interest and other expenses due. It is also observed that the 1st notice under Sec. 13 (2) was issued only to the 1st Respondent company on 30/12/2005 while the 2nd notice dated 02/01/2006 was issued to the 7th Respondent firm and its partners alone and not to the rest of the borrowers. Under such circumstances, the Sarfaesi measures were found inadequate and inconsistent with the law. Hence, the Sarfaesi measures were set aside.
After having anxiously considered the rival contentions raised by the parties, I am in agreement with the Ld. Counsel for the Appellants that no adjudication of the amount due is necessary for proceedings under the SARFAESI Act. It is also true that where the value of the secured assets is equal or greater than the dues of the borrower, the D.R.T. may well have to adjudicate the amount due to the secured creditor by the borrower even in the proceedings under Sec. 17. But such adjudication is only for the purpose of adjudicating the validity of the action of the secured creditor in enforcing its security under Sec. 13 and not for the purpose of a final adjudication regarding the indebtedness of the borrower. I am also in agreement that the correctness of the amount mentioned in the demand notice may not have any bearing on the Sarfaesi measures.
But the situation in the instant case is slightly different. The Ld. Presiding Officer has not adjudicated the correctness of the amount for the purpose of determining as to what exactly is the amount due and payable to the creditors. The adjudication was only for the purpose of ascertaining the correctness of the demand. It is glaring there is a violation of sub-section (3) to Sec. 13 in both the notices issued by the Appellants. The finding of the Hon’ble Gujarat High Court in Mithilanchal Industries runs counter and the notices cannot be held to be valid.
That apart, there is also a violation of Rule 3 (4) of the Security Interest (Enforcement) Rules, 2002. The Rule stipulates, where there are more than one borrower, demand notice shall be served on each borrower. In the instant case, the notice dated 30.12.2005 was issued only to the first Respondent. And the second demand notice dated 02.01.2006 is issued only to the seventh Respondent firm and its partners. The definition of the term ‘borrower’ under section 2(1) (f) of the SARFAESI Act includes a mortgagor or a guarantor. Hence, the Appellants should have issued demand notices to all the borrowers which include the mortgagor. The demand notices are, therefore, defective. When the demand notices are defective on two counts, namely for not complying with the mandatory provision under sub-section (3) to Sec. 13 of the SARFAESI Act and also for not complying with the provisions under Rule 3(4) of the Rules, it cannot be considered to be valid notices. When the demand notices are not valid, further Sarfaesi measures contemplated under section 13(4) of the SARFAESI Act would also not be sustainable. The impugned order of the Ld. Presiding Officer cannot, therefore, be found at fault with, calling for interference in appeal.
The appeal is, therefore, dismissed.