Smt. Rani Shivhare & Anr. vs Punjab National Bank & Anr.

The present appeal has been preferred by the appellants under section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short "The SARFAESI Act") against the order dated 04.11.2024, whereby the S.A. No. 660/2023 filed by the appellants has been dismissed by the Tribunal below.

Brief facts of the matter are that the appellants were granted a term loan of Rs.20.00 lacs on 05.07.2016 by the respondent-Bank. In order to secure the same, a loan agreement was executed between the appellants and Bank and the property in question was mortgaged by the appellants by depositing original title deed with the Bank. Since the appellants-borrowers did not maintain the financial discipline, therefore, the account was classified as NPA on 29.09.2022 and a demand notice dated 10.11.2022 was issued under Section 13(2) of the SARFAESI Act for a sum of Rs.19,90,143.10. Since the appellants-borrowers did not pay any heed to the said demand, therefore, the possession notice u/s 13(4) of the said Act was issued on 14.02.2023. Thereafter, the sale notice dated 28.04.2023 was issued for auction of the property in question, but the same could not materialize, therefore, the respondent-bank issued another sale notice dated 06.05.2023 scheduling the auction of the property in question on 19.06.2023 with the reserve price of Rs.34.71 lacs. The property was sold and sale certificate was issued on 10.07.2023 in favour of the respondent no. 2.

The appellants-borrowers challenged the entire proceedings of the Bank before the Tribunal below by filing S.A. No. 660/2023, which has been dismissed vide order impugned. Being aggrieved by the said order, the present appeal has been filed by the appellants.

Learned counsel for the appellants submitted that the description of the property in question as mentioned in the demand notice and possession notice is not correct, but the Tribunal below has not considered the same in its right perspective while passing the order impugned, hence the same is not sustainable. It was further contended that prior to issuance of first sale notice dated 28.04.2023, the appellants had given a letter for redemption of the property in question along with a cheque of Rs.75000/-, but the respondent-bank has not considered the same while issuing the said notice. It was also contended that since the first sale notice could not materialize, therefore, the respondent-Bank issued second sale notice dated 06.05.2023 for auction of the property in question at throwaway price of Rs.34.71 lacs on 19.06.2023, whereas the Bank itself had got the said property valued at Rs.45.60 lacs as on 01.07.2016 and as such the property in question has been sold at the price, which was much less than the valuation of the house at the time of sanctioning the loan. It was thus contended that the said sale is not sustainable on this count alone.

Learned counsel further submitted that there is violation of Rule 8(6) of the Security Interest (Enforcement) Rules, 2002, as the sale notice was published in the newspapers on 05.05.2023, whereas the sale notice was issued on 06.05.2023, but the said fact has not been considered by the Tribunal below in its right perspective while passing the order impugned, thus the auction sale is not sustainable in the eye of law.

Learned counsel also submitted that there is violation of Rule 9(4) of the Rules, 2002, as 75% of the bid amount was to be deposited within 15 days, but the appellants had deposited the same beyond the said period. It was, therefore, prayed that the order impugned may be set aside and the appeal may be allowed.

Learned counsel for the respondent-Bank submitted that the demand notice and possession notice were served upon the appellants, proof of which is filed as Annexure No. 1 & 2 to the reply filed by the Bank. It was further contended that since the first sale notice dated 21.03.2023 could not materialize, therefore, the second sale notice was issued on 06.05.2023 for auction of the property in question on 19.04.2023. It was also contended that the said sale notice was sent to the borrowers through registered post on 08.05.2023 and the same were received by the borrowers on 09.05.2023 and the said sale notice was published in the newspapers on 05.05.2023. Learned counsel has referred to Annexure No. 8 & 10 of its reply, which are copies of sale notice dated 06.05.2023, photographs of affixation and publication of the same.

Learned counsel also submitted that pursuant to the aforesaid sale notice, the Bank had received the entire sale consideration of Rs.34.96 lacs well within the prescribed time, thus the Bank had rightly confirmed the sale on 20.06.2023 and issued sale certificate on 10.07.2023 in favour of the respondent no. 2-auction purchaser. It was further contended that prior to the said auction sale, the respondent-Bank had got the property in question valued from its approved valuer and according to the report given by the valuer, the reserve price was fixed and the property was sold over and above the reserve price fixed in the sale notice. It was also contended that if the appellants had any grievance with regard to the valuation of the property in question, the appellant ought to have filed their own valuation report, but they have not filed any valuation along with the S.A. and the valuation report dated 20.07.2023 has been filed by the appellant for the first time with the present appeal, which appears to have been filed an afterthought, therefore, the said valuation report cannot be considered.

Learned counsel further submitted that the appellants have right to redeem their property, but before the publication of auction sale notice in view of the amended section 13(8) of the SARFAESI Act, as in the present case, the appellant has not filed any application for redemption of the mortgaged property till publication of the auction sale notice and as such the appellant cannot take any new ground and bring on record any new document in the present appeal, which was not filed before the Tribunal below. It was further contended that the contention of the appellants that the sale notice was published on 05.05.2023 and issued on 06.05.2023, which is violation of Rule 8(6), is not correct and baseless, as there is no legal impediment in publication of sale notice one day prior to the date of issuance of sale notice. It was further contended that the said ground was not taken by the appellants before the Tribunal below, therefore, the same cannot be considered directly before this Tribunal.

It was lastly contended on behalf of the respondent-Bank that the S.A. filed by the appellants was barred by time, but the appellants had failed to explain and show the sufficient reason for the same in respect of the possession notice and despite it, the same was condoned, as the Tribunal below has no power to condone the delay in filing the S.A.

It was also canvassed that the property has already been sold and third-party interest has also been created, therefore, at this stage, the sale cannot be disturbed. It was, therefore, prayed that the appeal filed by the appellants may be dismissed with heavy costs.

The respondent-auction purchaser in person has adopted the arguments as advanced on behalf of the respondent-Bank adding further that he is bonafide purchaser of the property in question and entire sale consideration was deposited with the Bank in accordance with the Act and Rules made thereunder. It was, therefore, prayed that the appeal filed by the appellant may be dismissed with heavy costs.

I have considered the rival contentions of the learned counsels for the parties and perused the material available on record.

Undisputedly, the appellants have not challenged the findings of the Tribunal below with regard to the legality and validity of the demand notice and possession notice in the present appeal, therefore, the order impugned to this extent has attained finality.

The contention of the appellants that the description given in the demand notice and possession notice is incorrect, is not considerable for the reasons that the appellants themselves have mortgaged their property with the Bank and they are well aware, which property was mortgaged by them with the respondent-Bank. If the said issue was raised by the party other than the appellants, then it ought to have been taken into consideration, but the said issue has been raised by the appellants, who have themselves created mortgage over the property in question with the Bank, therefore, there is no relevance of the said issue in the present case, as the same does not cause any prejudice to the appellants.

So far as the contention of the appellants that the property has been sold at undervalued price is concerned, it is to be seen that prior to effecting the said sale, the respondent-Bank had obtained a valuation report on 04.03.2023 from its approved valuer, which is placed at Annexure No. R-5 at page no. 41 of the reply filed by the Bank. As per the said report, the market value of the property in question was assessed to be Rs.40.83 lacs and realizable value Rs.34,70,550/- and the distress value Rs.32,66,400/-. Accordingly, the reserve price was fixed by the Bank while selling the property in question at Rs.34.71 lacs. In this regard, it is stated that if there was any grievance of the appellants that the property was being sold at its less value, the appellants ought to have produced a prospective buyer, who could offer better price than the reserve price, but the appellants had neither produced any prospective buyer nor had submitted any valuation report either before the Tribunal below or before the Bank. However, the appellants have filed a valuation report dated 20.07.2023 as Annexure 7(A) to the memo of appeal, which was obtained by the appellants after sale of the property in question. Since the said report was neither filed nor considered by the Tribunal below, therefore, the same cannot be permitted to be filed directly before this Tribunal. As such the contention of the appellants that the property has been sold at undervalued price is not tenable.

It has also been contended on behalf of the appellants that there is violation of Rule 8(6) of the Rules, 2002, as prior to issuance of the sale notice to the borrower, the respondent-Bank had published the same in the newspapers, which forfeited the right of redemption of the appellants in view of Section 13(8) of the SARFAESI Act. In this regard, the para 8 of the reply/objection of the respondent-Bank is relevant, which is quoted as under:-

From the above, it is crystal clear that prior to issuance of sale notice dated 06.05.2023, the auction sale notice was published in the newspapers on 05.05.2023. Thus, it is to be seen, as to whether the publication of sale notice prior to issuance of the same to the borrowers causes any prejudice to the appellants or not? In this regard, Rule 8(6) of the Rules, 2002 read with section 13(8) of the SARFAESI Act is as under:-

From the above provisions, it is clear that Rule 8(6) provides an opportunity to the borrower for redeeming his property, but prior to the date of publication of sale notice. The object of Rule 8(6) and its proviso is very clear that the Bank shall give first opportunity of 30 days by issuing the notice to the borrower under the said rule to redeem his property, but in the present case, the respondent-bank published the sale notice in the newspapers on 05.05.2023 and issued the sale notice under Rule 8(6) on 06.05.2023, thus the Bank has sold the property without giving any opportunity to the borrower for redeeming the property in question. As such the Bank has failed to comply with the said Rule by not issuing the sale notice to the borrower prior to publication of the same in the newspapers, which forfeited the right of the borrower to redeem his property. Hence, the auction sale is liable to be quashed.

Since the auction sale has been set aside, therefore, the compliance of Rule 9(3) and 9(4) is not required to be dealt with. However, the same have been complied with by the auction purchaser, as it is evident from the record that pursuant to the auction dated 19.06.2023, 25% of the bid amount was deposited by the auction purchaser on 20.06.2023 and the remaining was deposited by 05.07.2023 i.e. on 15th day. Thus there is no violation of Rules 9(3) & 9(4) of the Rules, 2002.

The contention of the respondent-Bank that the ground with regard to the issuance and publication of sale notice was not taken by the appellants before the Tribunal below, therefore, the same cannot be taken before this Tribunal, is not tenable, because the respondent-Bank in para 5.25 of its reply to the S.A. of the appellants has clearly explained its stand with regard to the said issue.

The further contention of the respondent-Bank that the S.A. filed by the appellant was barred by time, but the appellants had failed to explain and show sufficient reason for the same in respect of the possession notice and despite it, the same was condoned, as the Tribunal below has no power to condone the delay in filing the S.A., is also not tenable, because if the respondent-bank had any grievance against the same, the bank ought to have challenged the order of the Tribunal below, by which the delay was condoned, at the relevant point of time, but it did not do so, therefore, the respondent-Bank cannot be permitted to raise the said issue at this stage in the appeal filed by the borrowers.

In view of the discussions as recorded above, the auction sale dated 19.06.2023 pursuant to the auction sale notice dated 06.05.2023 and its all subsequent actions are set aside. Consequently, the order impugned is also set aside to this extent and rest part of the same shall remain intact.

Learned counsel for the respondent-Bank is directed to return the auction amount to the auction purchaser along with interest @8% p.a. simple within 15 days from today.

The respondent-Bank is further directed to provide the calculation of the amount payable to the appellants within 15 days from today, who shall pay the same within 30 days thereafter to the bank. In case of non-compliance, the respondent-bank would be free to proceed further for its recovery in accordance with law.

The appeal filed by the appellants is accordingly disposed off with no order as to costs.

A copy of this judgment be forwarded to the parties as well as the DRT concerned and be also uploaded on the e-DRT portal.