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Judgment
Ashok Menon, Chairperson
This appeal impugns the judgment and order in Securitisation Application No. 4 of 2010 (SA) on the files of Debts Recovery Tribunal, Nagpur (DRT) dated 08/06/2015.
The aforesaid SA was filed by the 3rd Respondent herein who was the principal borrower owing money to the 1st Respondent Co-operative Bank, represented by the 2nd Respondent, the creditor. Respondent No. 4 was the guarantor. The secured property was sold in auction in consequence of the Sarfaesi measures initiated by the Co-operative Bank against the borrower and sold to the Appellants. The Applicant had in the SA, challenged the validity of the mortgage and the consequent sale before the DRT under section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’ for short) and succeeded. The SA was allowed vide the impugned order to set aside the sale with a direction to return the money to the auction purchasers. The Appellants who are the auction purchasers, are aggrieved and hence, the appeal.
The 3rd Respondent as a member of the 1st Respondent bank had applied for a housing loan for the construction of a hotel named, “Hotel Mandeep” in the year 2002 and accordingly, the loan was sanctioned for ₹ 5 lakhs. The borrower executed a mortgage deed on 27/12/1999 for the said amount in favour of the bank. The loan was to be repaid in 60 equal monthly instalments. In fact, the 3rd Respondent had executed 3 mortgage deeds in favour of the bank. The first of the mortgages was on 09/03/1998 for a sum of ₹2,25,000/-advanced to him for which, he had executed an agreement, a demand promissory note, a letter of continuity and a guarantee agreement. It is made clear in the agreement that the loan was advanced for the purpose of constructing a hotel. In clause 9 of the said document, it is made clear that the mortgaged property would remain secured till the end for recovery of the principal sum interest and other monies payable to the mortgagee. On 16/07/1998 yet another mortgage deed was executed for ₹ 2,25,000/-and all the documents referred to earlier were executed. It is also stated in paragraph 12 of the deed that the said deed is in addition to the amount advanced by way of a registered mortgage deed dated 09/03/1998 and that the liability is increased as per the documents and the mortgagor is liable to pay the amount as shown in the documents. A similar clause 9 is included in this document as well. Thereafter, the 3rd Respondent executed yet another mortgage on 27/12/1999 in favour of the bank for a loan of ₹ 5 lakhs. It is also made clear that the loan is being advanced for the purpose of enabling the mortgagor to complete the remaining work of constructing the hotel. It is further made clear that the advance is in addition to the earlier advances which are being obtained by the mortgagor from the bank for which required documents in separate documents are being executed. All the documents executed earlier at the time of execution of the earlier two mortgages were again executed. There is an identical clause 9 in this deed of mortgage as well. On 22/12/1999, the 3rd Respondent executed a promissory note ₹ 47 lakhs in favour of the bank. On the very same day, he had also executed a ‘Letter of Lien’ in favour of the bank. On the very same day, the 3rd Respondent had also executed a ‘Letter of Continuity’ in favour of the bank for ₹ 47 lakhs. The 3rd Respondent defaulted on payment of the amount and the Respondent bank filed a claim petition before the Cooperative Court, Amravati under the provisions of the Maharashtra Cooperative Societies Act for the realisation of an outstanding sum of ₹ 77,47,518/-together with interest at the rate of 20% per annum. The 3rd Respondent appeared and filed a written statement before the Cooperative Court Amravati admitting that a loan of ₹ 47 lakhs was advanced by the bank to him with two persons guarantors and documents are also executed in favour of the bank. The only dispute that was raised was regarding the rate of interest. It is an admitted case that the Cooperative Court had resolved the dispute in favour of the bank. The 3rd Respondent had filed a writ petition before the Hon’ble High Court of Judicature at Bombay Nagpur bench as WP No. 702/2006 and vide order dated 04/09/2007 it is made clear that the bank is at liberty to take appropriate proceedings in terms of the Maharashtra Cooperative Societies Act with regard to agricultural land belonging to the borrower, and the Writ was disposed of.
A notice under section 13 (2) of the SARFAESI Act was issued by the bank to the borrower and the guarantors on 01/01/2004 demanding payment of ₹ 94,99,316/-outstanding as of 30/11/2003. The borrower nor the guarantors did not respond to it. Consequently, Sarfaesi measures under section 13 (4) were initiated.
A reading of the impugned judgment makes it clear that apart from the finding that the mortgage is only for ₹ 5 lakhs, there is also a violation of Rules 8 (6) and 9 (1) of the Security Interest (Enforcement) Rules, 2002 noted. In the notice that was published in a newspaper dated 28/09/2009, there is no date of sale, the reserve price, or the last date of receipt of bids mentioned. Moreover, the valuation report pertaining to the property stipulated under rule 8 (5) was also not obtained. Since there is no date of sale mentioned, it cannot be said that 30 days' notice was given prior to the sale. Hence the mandatory provisions of the Rules have been violated. The Appellants have no answer for these violations. It is a settled position that violation of the Rules renders the sale invalid.
Under the circumstances, even if it is to be found that there is a mortgage for the entire amount claimed by the Appellants, the flaws in the Rules pertaining to the auction would entail setting aside the sale. Under the circumstances, the impugned order cannot be upset on any grounds. It is borne out and the documents that the 1st Respondent bank has already sent a notice to the Appellants on 29/06/2015 to receive back the money together with interest till that date. The Appellants are entitled to that money and nothing more. In view of the fact that the bank was willing to return the money together with interest as directed in the impugned order, nothing survives, and the appeal is only to be dismissed.
As the result, the appeal is dismissed.