Small Industries Development Bank Of India vs Shanti Devi Halwai And Ors.

Ranjit Singh, J

This order will dispose of above-noted two appeals being inter-connected. The Tribunal has allowed the S.A. 13/2011 filed by the respondent herein on the ground that the demand notice dated 29.11.2010 under Section 13(2) of the SARFAESI Act was not served on all the borrowers, which included guarantor Mr. Sajjan Kumar Halwai, as required under Section 13(2) read with Section 2(f) of the Securitisation & Reconstruction of Financial Assets and enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act). Consequently, the Tribunal below has also quashed the possession notice dated 10.2.2011. While setting aside possession notice, it is held that the same was issued under Rule 9 of the Security Interest (Enforcement) Rules (for short, the Rules) which does not deal with the possession of the secured assets. The Tribunal has observed that this aspect is dealt with in Rule 8(1) of the Rules. This is an additional reason to set aside the demand notice and the possession notice referred to above. The Bank has been directed to restore the possession of the secured assets to respondents. Aggrieved against the same, the appellant -Small Industries Development Bank of India has filed the present appeal.

While issuing notice, the parties were directed to maintain the status quo in regard to the possession of the property. The plea raised by the respondents in the S.A. was that the possession notice dated 10.2.2011 was issued without issuing proper demand notice in accordance with the provisions of Section 13(2) of the SARFAESI Act. The plea primarily was that the demand notice dated 29.11.2010 was not issued to the guarantor Mr. S.K. Halwai whose was impleaded as respondent No. 2 in the S.A. The plea also was that the possession notice dated 10.2.2011 was in violation of the provisions of Rule 8(1) of the Rules as it was issued invoking Rule 9 of the Rules. The Bank had also issued demand notices on 22.4.2011 and 24.6.2011 without withdrawing the earlier demand notices dated 29.11.2010. In the S.A. it was further urged that the possession notice dated 10.2.2011 was not published in two leading newspapers of the locality, apart from various other pleas.

The appellant Bank had filed reply pleading that there was no requirement of endorsing signatures on each page of the demand notice. Once a demand notice was issued, the Bank was entitled to take further action for possessing the secured assets. The assertion that the demand notice was not sent to the guarantor Mr. Sajjan Kumar Halwai was denied and it was stated that the demand notice dated 29.11.2010 was sent to the guarantor, which was marked as Exhibit R-3. The Bank would also point out that it had taken possession of the secured asset on 10.2.2011, but due to a typographical error the year was wrongly got typed at one place as 2010 instead of 2011 and on this ground alone the possession notice could not be termed as illegal.

To explain the reference and mention made to Rule 9 in possession notice, it is stated that this is as per the format and the Bank cannot be penalised for the same. The Bank would further state that the second notice dated 24.6.2011 was not a demand notice but an intimation letter in furtherance of notice dated 29.11.2010, informing the respondent of the consequences of not paying the dues. As per the Bank, the possession notice dated 10.2.2011 was published in two newspapers and mere mention of date of notice as 15.2.2011 cannot nullify the requirement of the rule position. The date of possession notice is mentioned as 10.2.2011 in the published notices.

The Tribunal has considered the respective pleas raised before it. It is noticed that the Bank had filed some additional affidavit on 30.1.2015 pursuant to some direction given by the Tribunal. Mr. A.K. Vijayvargiya filed an additional affidavit stating that the Bank had sent the notice to Mr. Sajjan Kumar Halwai through UPC. Copy of the UPC evidencing despatch of demand notice was also annexed. The Counsel for the appellant would challenge the finding returned by the Tribunal that from the copy of the UPC the Tribunal did not find any evidence that the said demand notice was despatched to Mr. Sajjan Kumar Halwai as his name did not appear on the despatch receipt. By referring to the said document itself, the UPC receipt (Annexure A-5), Counsel states that it contains a mention to the name of Mr. Sajjan Kumar Halwai. Counsel contends that how, then, the Tribunal has given this finding that UPC receipt does not contain the name of Mr. Sajjan Kumar Halwai cannot be made out. The Counsel seems to be justified in raising this plea. The name of Mr. Sajj an Kumar clearly appears on Annexure A-5 and thus the finding returned by the Tribunal below would appear contrary to the evidence which was placed before it.

Even otherwise, it may be vital to examine if there is any legal necessity or need to serve demand notice on the guarantor as well in this case. A perusal of the pleading would show that this S.A. was filed by Atma Ram Halwai and others in a case of Term Loan facility of about Rs. 100 lac to M/s. Shanti Constructions, which is a partnership firm. Late Mr. Atma Ram Halwai, Mr. Sajjan Kumar Halwai and Smt. Shanti Devi Halwai were the partners of this firm. The sanction letter would show that the Bank had addressed this letter to the Managing Partner of M/s. Shanti Constructions (A-2 refers). The firm had entered into an agreement with the appellant Bank on 6.9.2004 for availing this loan facility. The partners had furnished their personal guarantees. Late Mr. Atma Ram Halwai had created an equitable mortgage of his property Plot No. 297 (old)/185 (new), Shiv Nagar, Chomu road, Jaipur, measuring 353.88 sq. yds. The Bank had disbursed the loan to the borrower. The loan account was classified as NPA and notice dated 15.10.2010 was issued for recalling of the loan. Notice under Section 13(2) was issued on 29.11.2010.

What is to be seen is whether the notice was required to be issued to each of the partners of this partnership firm or notice to the partnership firm would be enough to satisfy the requirement of Section 13(2) of the Act. In this regard, reference can be made to Section 24 of the Indian Partnership Act, which talks of effect of notice to acting partner. This section provides that notice to a partner, who habitually acts in the business of the firm of any matter relating to the affairs of the firm operates as notice to the firm, except in the case of a fraud on the firm committed by or with the consent of that partner. Section 25 of the Partnership Act makes every partner liable jointly with all the other partners and also severally, for all acts of the firm done while he is a partner. As the liability of a partners is joint and several, it is open to a creditor of the firm to recover the debt from any one or more of the partners (See: Sahu Rajeshwar Nath v. I.T.O. Meerut, 1968 (SLT Soft) 412 : AIR 1969 SC 667).

In this regard, the Counsel for the appellant has relied upon the decision of the Hon'ble Supreme Court in the case of Ashutosh v. State of Rajasthan & Ors., IV (2005) BC 13 (SC) : VI (2005) SLT 520 : (2005) 7 SCC 308. The issue before the Hon'ble Supreme Court was recovery of an amount decreed against the State of Rajasthan. For recovery of this amount, House No. 80, B-Block, Sri Ganganagar was given as security along with some security bonds. The appeal preferred against the decree by the State was allowed ex parte by the High Court. The issue about the exclusive ownership of House No. 80, B-Block, Sri Ganganagar was raised, which was bequeathed by the owner in favour of her daughter's son Ashutosh. The plea raised before the Court was that except Smt. Dhanwanti Devi (owner of the house) no other person including her husband had any right, title or interest in the said property. On the contrary, the Counsel for the State pleaded that partner of a partnership firm was always liable for partnership debt unless there was implied or express restriction and that where the transfer was made to defeat the execution of decree then in those cases provisions of Order 21 rules 49 and 150 CPC would not be applicable. While accepting the plea of the State, the Court considered the provisions of Sections 24 and 25 of the Partnership Act. It is observed that Section 24 deals with the effect of a notice to the partner. Such notice would be binding if the following conditions are satisfied:

(a) The notice must be given to a partner;

(b) The notice must be a notice of any matter relating to the affairs of the firms;

(c) Fraud should not have been committed with the consent of such partner on the firm.

It is held that this Section is based on the principle that as a partner stands as an agent in relation to the firm, a notice to the agent is tantamount to the principles and vice versa. It is further held that as a general rule, notice to a principal is notice to all his agents; and notice to an agent of matters connected with his agency is notice to his principal. The Court has further observed that under Section 25 the liability of the partners is joint and several and it is open to a creditor of the firm to recover the debt from any one or more of the partners. Each partner shall be liable as if the debt of the firm has been incurred on his personal liability. The Court has gone on to make reference to the case of Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., IV (2000) SLT 152 : 11 (2000) CLT 199 (SC) : (2000) 5 SCC 694, where the issue of recovery of sales tax dues amounting to Crown debt would have precedence over the right of the Bank to proceed against the property of the borrowers mortgaged in favour of the Bank was considered. The second issue was whether the property belonging to the partners can be proceeded against for recovery of dues on account of sales tax assessed against the partnership firm under the provisions of the Karnataka Sales Tax Act. The Court has observed that it was concerned only with regard to the second question. In this regard, the Court in Dena Bank's case has observed as under-

"18. The High Court has relied on Section 25 of the Partnership Act, 1932 for the purpose of holding the partners as individuals liable to meet the tax liability of the firm. Section 25 provides that every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner. A firm is not a legal entity. It is only a collective or compendious name for all the partners. In other words, a firm does not have any existence away from its partners. A decree in favour of or against a firm in the name of the firm has the same effect as a decree in favour of or against the partners. While the firm is incurring a liability it can be assumed that all the partners were incurring that liability and so the partners remain liable jointly and severally for all the acts of the firm."

Thus, as held, the firm is not a legal entity and it is only a compendious name for all the partners. The firm does not have any existence away from its partners. A decree in favour of or against the firm has the same effect as a decree in favour of or against all the partners. While the firm is incurring liability, it can be assumed that all the partners are incurring that liability and so the partners remain liable jointly and severally for all the acts of the firm. The Tribunal was accordingly required to consider whether in view of this legal position there was any need to separately issue notice to each partner once notice was served on the partnership firm. The Counsel for the respondent could not advance any meaningful submission to show that in view of the legal position, as noticed above, there was still a need to serve demand notice on each of the partners.

The liability of the partners is joint and several and this joint and several liability is not only in respect of contractual obligation but also in respect of obligation arising out of tort committed by any one of the partners. Thus, every partner would be liable for the obligation of the firm incurred in the usual course of the business of the firm by the other partners. That being the legal position, the Tribunal below was required to see if there was any need to serve individual notice to each of the partners. In this case, the notice, as can be seen from Annexure A-5, was sent even to Mr. Sajjan Kumar Halwai, which, perhaps, has escaped the notice of the Tribunal.

Another reason to set aside the possession notice is that the same was issued under Rule 9 of the Rules whereas this aspect is dealt under Rule 8 of the Rules. This finding can also not be sustained in view of the observation made by this Tribunal in Appeal No. 269/2014 - Indian Bull Housing Finance Ltd. v. Sh. Surendra Kumar Khedwal & Anr., I (2016) BC 23, decided on 8.4.2015. This Tribunal has held as under:-

"The legal position, therefore, is well settled that a action or order would not get vitiated merely on account of mentioning of a wrong provision or non-mentioning of a provision if the statutory authority has the requisite power. The competent officer of the Bank was well within his jurisdiction to issue the possession notice under Section 13(12) read with Rule 8 of the Rules. Because of misprint in the gazette notification instead of Rule 8 of the Rules, Rule 9 has got mentioned in this notice. Once the officer is competent to issue this notice and jurisdiction, non mentioning or mentioning of a wrong provision would not invalidate the possession notice as such in view of the law laid down by the Hon'ble Supreme Court and noticed above. The authorized officer of the Bank had the power under law and merely because while exercising such power to issue possession notice he happened to mention a wrong provision of rule would not itself go to vitiate the exercise of power as such when the power did exist and was traceable to a source. Moreover, this mistake is due to a misprint in gazette notification which percolated into the published book as well where specimen notice as Appendix IV to the Rules is reproduced. Accordingly the view expressed by the Tribunal below to invalidate the possession notice on this ground cannot be sustained and would call for interference."

This finding, therefore, is set aside.

In view of the above, the impugned order cannot be sustained and is set aside.

Since the order impugned in the Appeal No. 149/2015 is based on the impugned order which is now being set aside, the said order impugned in Appeal No. 149/2015 can also not be sustained. The case will now go back to the Tribunal below to reconsider the issue whether there would be any need to serve notice on each of the partners or whether, such notice was served on Mr. Sajjan Kumar Halwai or not. Both the appeals are allowed in the above terms.