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Judgment
Ashok Menon, Chairperson
The appellants are the Applicants in Securitisation Application (S.A.) No. 85 of 2007 on the files of the Debts Recovery Tribunal-III, Mumbai (D.R.T.) who are aggrieved by the dismissal of the S.A. by order dated 20.05.2010.
The first appellant is a company represented by appellants Nos. 2 and 3 as its directors. The first respondent bank had advanced a loan to the first appellant company for its business of construction of infrastructure projects. The loan was secured by creating a mortgage of the secured assets. The company was allotted a tender for constructing gantries and signage boards in a tender floated by the Nashik Municipal Corporation (NMC). Vide the sanction letter dated 28.02.2003 the first respondent sanctioned a loan of ₹1 crore. Contrary to the assurance given by the bank, the loan was disbursed only in piecemeal and hence could not be utilized for which it was availed. ₹50 lakhs alone was disbursed between March and June 2003. The work undertaken by the appellants therefore came to stand still for want of sufficient funds. Since the work was not completed, a dispute arose between the company and the Municipal Corporation resulting in the NMC cancelling the contract. The arbitration clause was invoked by the appellants and Shri Justice B. C. Gadgil was appointed as an arbitrator who allowed the claim of the appellants in part vide Award dated 14.04.2007. The Award was challenged by the NMC under Sec. 34 of the Arbitration and Conciliation Act, 1996 before the District Court, Nashik.
The bank was fully aware of the arbitration proceedings. Because of the cancellation of the contract, the loan repayment was defaulted. The appellant requested for restructuring of the loan after an OTS proposal submitted by the appellants was rejected. Despite earnest attempts made by the appellants to clear the debt, the bank proceeded to take measures under the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (“SARFAESI Act”, for short). A notice was issued under Sec. 13(2) of the SARFAESI Act on 23.06.2006 demanding payment of a sum of ₹50,64,974/- as of 31.03.2006. The appellants objected to the demand notice vide letter dated 28.06.2006 informing the bank that pending the proposal of restructuring of the loan, the issuance of the demand notice was unwarranted. The appellants sent yet another letter on 06.07.2006 raising various objections to the demand notice. There was no response from the bank.
The appellants had submitted a proposal for repayment of the entire amount due with the interest at the rate of 10% per annum. A sum of ₹1.5 lakhs was also paid to the bank together with a letter dated 03.07.2006. No action was taken by the bank for more than three months. On 12.09.2006, the bank issued a notice intending to take possession of the secured assets on 20.09.2006. This was after the appellants approached the bank on 13.09.2006 with a proposal to settle the debt. The fact regarding this discussion is minuted by the appellants vide letter dated 19.09.2006. To prove their bonafide, the appellant paid a sum of Rs₹10 lakhs to the bank and followed it up with a further payment of ₹1.5 lakhs vide letter dated 09.12.2006.
The Zonal Office of the respondent bank issued a proposal vide letter dated 03.01.2007 to the appellants which was modified by a letter dated 31.03.2007 demanding a sum of ₹39,27,000/-. The appellants were not able to pay such an amount within two months as required by the bank. They once again approached the bank and offered an additional payment of ₹81,750/- vide letter dated 30.03.2007. The bank extended the time for payment till 20.04.2007. A cheque was also deposited with the bank for the aforesaid additional amount. The appellants wanted a further extension and sent a letter to the bank on 10. 04.2007 expressing their difficulty in making the payment as demanded. The appellants thereafter sent a notice to the respondent bank through their counsel calling upon the bank to take steps concerning the proposal made by the appellants under the OTS Scheme. The bank even sought details of prime securities in the form of gantries and foundations.
Nevertheless, the bank issued a notice on 09.07.2007 indicating that possession of the secured asset would be taken on 21.07.2007. The appellants replied to that notice on 21.07.2007 reiterating their proposal as per the OTS. Though the taking over of possession was deferred by the bank, soon thereafter, yet another letter of taking possession was issued to the appellants on 08.08.2007 and accordingly, possession of the property was taken by the bank on 09.08.2007.
The appellants would contend that their account was wrongly classified as NPA in violation of the prudential norms issued by RBI. The appellants would rely upon an admission of the respondent's vide letter dated 29.12.2005 wherein it is admitted that the account is not classified as NPA. The appellants had thereafter made payments till 29.12.2006 and therefore, the account could not have been classified as NPA. There is no default of more than 90 days in payment of the outstanding amount. Hence, it is submitted that the entire Sarfaesi action will have to fail.
Per contra, it is the contention of the bank that it had promptly disbursed the loan amount to the appellants from time to time. However, the project had come to stand standstill following a dispute between the appellant and the NMC. There was a default in repayment of the debt following which Sarfaesi action was taken. An OTS proposal was submitted by the appellants vide letter dated 17.01.2007 and the bank had approved it subject to payment of ₹39,27,000/- on or before 25.03.2007. However, the appellants failed to comply with the same resulting in the OTS proposal getting cancelled. The appellants were to pay a sum of ₹3.90 lakhs as a down payment by the OTS proposal. They issued a cheque for ₹1.50 lakhs followed by another cheque of ₹2.40 lakhs. The cheque for ₹1.5 lakhs was dishonoured and the said amount was paid in cash. However, subsequent payments as per OTS were not forthcoming.
Suppressing material facts, appellant No. 2 filed a Civil Suit No. 280 of 2007 before the Court of Civil Judge, Senior Division, Nashik followed by a similar suit filed by the third appellant and obtained an ex-parte order of injunction restraining the bank from taking further steps under the SARFAESI Act. Thereafter, the suits were withdrawn.
Since no payments were forthcoming, the bank was constrained to take measures under Sec. 13(4) of the SARFAESI Act. There was no challenge raised by the appellant about the possession notice. The properties were sold in public auction to respondents Nos. 2 and 3. The sale was confirmed and the sale certificate was issued and registered.
The Ld. Presiding Officer did not accept the challenges raised by the appellants and hence, dismissed the S.A. The aggrieved applicants came in appeal. This Tribunal had earlier vide order dated 15. 05.2014 allowed the appeal holding that the demand notice under Sec. 13(2) was not proper and in consequence, the entire Sarfaesi action has to fail. The sale was set aside. The third respondent challenged the order of this Tribunal before the High Court of Bombay in Writ Petition which was allowed and this Tribunal was directed to restore the appeal to the file and dispose it of afresh.
The second appellant appeared in person for the appellants. Mr Nainesh Amin, the Ld. Counsel appearing for the first respondent bank, and Mr Anoshak Daver, the Ld. Counsel appearing for the third respondent heard. Records perused.
The grounds on which the appellants have challenged the impugned judgment and order are that the respondent bank did not respond to the objections raised by the appellants to the demand notice under Sec. 13(2) of the SARFAESI Act and therefore further Sarfaesi measures cannot be sustained. It is also contended that the classification of the account as NPA was not in accordance with RBI guidelines. The appellants also complain about the respondent bank not disbursing the loan amount in time.
The documentary evidence would indicate that the bank had released ₹50 lakhs to the appellants. Altogether a total sum of ₹1 crore was sanctioned by the bank. The amount was to be released as and when the project undertaken by the appellants progressed and it is as requested by the appellants that the amounts were released in tranches to them. Material available would also show that the appellants had a dispute with the NMC resulting in the work coming to a standstill. The appellants also failed to complete the documentation in accordance with the sanction letter. The extract as per the 7/12 was not produced by the appellants. The dispute between the NMC and the appellants was referred to an Arbitrator and the Award was passed only on 14. 04.2007 which stood challenged before the District Court by the NMC.
A demand notice was issued on 23.06.2006 calling upon the appellants to pay the debt due. The demand is only concerning the amount which was disbursed together with the interest accrued which came to ₹,50,60,794/- interest with effect from 01.04.2006 was also demanded. The contention that the appellants were not able to complete the project because of the non-disbursement of the loan does not appear to be the reason for the non-completion of the project. The appellant sent a reply to this demand notice on 28.06.2006 stating that their claim against the NMC is legally sustainable. The letter also indicates that the appellants could not repay the amount because the project had not yet started yielding any income. A request for restructuring of the debt is also requested. Yet another letter addressed by the appellants to the bank reiterates the request for restructuring the loan and an OTS proposal to pay off the debt is also made.
The material on record would indicate an extension of the moratorium period was granted by the bank. The appellants have not challenged the claim put forth by the bank in demand notice. They have only requested for restructuring of the debt and not to proceed with the claim in the demand notice. A further request is made for extending the moratorium period and to permit them to pay interest at the rate of 10% simple. The reasons for non-payment of the debt on time are also explained attributing it entirely to the dispute with the NMC. It is also pertinent to note that the Zonal Office of the bank had vide letter dated 28.12.2006 accepted the OTS proposal made by the appellants and permitted them to repay the amount of ₹39,27,000/- within a year. This was communicated to the appellants on 03.03.2007. The appellants had attempted to repay the debt by submitting cheques for ₹1.50 lakhs and ₹2.40 lakhs being 10% of the settlement amount payable as per the OTS. The first cheque of ₹1.50 lakhs was dishonoured and paid in cash but the balance amount was never paid and as a result, the OTS failed.
The decision of the Hon’ble Supreme Court ARCE Polymers Pvt. Ltd. vs. Alphine Pharmaceuticals Pvt; Ltd. (2022) 2 SCC 221 considers the question of waiver, estoppel and acquiescence and whether the statutory rights could be waived by the borrower by implied conduct. It has been observed that when the borrower wrote repeated request letters of restructuring the loan, in which prayers were considered by the bank by giving indulgence, time, and opportunities and the borrower was aware and conscious of his rights, chose to abandon the statutory claim and took its chance and even procured favourable decision, it conduct have put the bank in a position where they have lost time and suffered on account of delay and laches, the appellants cannot insist on pressing their claims challenging the Sarfaesi measures. In the instant case, the appellants had after receipt of the demand notice, requested a restructuring of the loan and had also come up with an OTS proposal which was accepted by the bank by giving them one year time to pay the reduced amount of ₹39,27,000/-and the appellants had also responded in favourably, by submitting two cheques towards initial payment. In the light of this action of the appellants, it is clear that they have waived their challenges against the Sarfaesi measures taken by the bank and therefore, estopped from challenging the violation of Sec. 13(3-A) as also the classification of the NPA. In an earlier decision of the Hon’ble Supreme Court in ITC Ltd vs Blue Coast Hotels Ltd. & Ors. (2018) 15 SCC 99, it was held that the debtor’s repeated assurances and promises made to the creditor and the creditor granting opportunities to the debtor to repay the debt and despite that the failure on the part to repay the debt will not enable the debtor by resorting to non-compliance of sub-sec. 3-A of Sec. 13.
There is also a contention raised by the appellants that the possession of the property was taken without compliance with the statutory rules under the Security Interest (Enforcement)Rules, 2002. The possession notice was issued on 09.07.2007. The receipt of that notice is not disputed. The possession was intended to be taken on 27. 07.2007 but the same was deferred on request made by the appellants. There is also material to indicate that the notice was pasted on the subject property by the authorised officer. The panchnama stands as evidence for such taking of possession. The bank had also published the notice in two newspapers as required under Rule 8(2) one of which is in the vernacular. 30 days' notice has to be served on the borrowers before the auction sale. Notice was issued on 24.08.2007 about the intended sale. It was published in the newspaper on 18.10.2007. There is sufficient notice. The objection of non-compliance of Rule 8(6) would, therefore, not lie. The objection of the appellants regarding the violation of Rule 9(2) is also not sustainable. The third respondent had bid the property for ₹11 lakhs against the reserve price of ₹10.07 lakhs for Plot No. 2 and ₹7.5 lakhs offered for Plot No. 3 against the reserve price of ₹7.30 lakhs.
The appellants have contended that 25% of the sale price was deposited even before the auction sale by the third respondent and therefore, there is a collusion. Rule 9(3) requires a deposit of 25% of the sale price following the confirmation of the sale. It is seen that the third respondent had deposited 25% in pursuance to the negotiations that have taken place for a sale by private treaty which did not materialise. The amount was already there in the deposit when the bid took place. Hence, nothing wrong could be pointed against the sale. The contention that the pendency of the S.A. was not mentioned in the sale proclamation or the sale certificate and would, therefore, amount to a violation of Rule 9(9) is not also not sustainable because the mere pendency of an S.A. is not an encumbrance as contemplated under the Rules. There was no embargo in confirming the sale even if an S.A. was pending before the D.R.T. that challenged the Sarfaesi measures. The sale would be subject to the ultimate findings of the D.R.T. The request of the appellants for the redemption of the mortgage is unsustainable given the embargo under Sec. 13(8) of the SARFAESI Act as upheld by the Hon’ble Supreme Court in Celir LLP vs. Bafana Motors (Mumbai) Pvt. Ltd. & Ors. 2023 SCC OnLine SC 1209. There is no indication of any fraud in the sale that is conducted and hence, the sale cannot be set aside on that ground as well.
Resultantly, the appeal is found to be without any merits and hence, dismissed.