Smt. Renu Singh vs Authorized Officer, Union Bank Of India & Anr.

JUSTICE R. D. KHARE, CHAIRPERSON

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 judgment and order dated 11.07.2024, whereby the S.A. No. 637/2023 filed by the appellant has been dismissed by the Tribunal below.

Brief facts of the matter are that M/s Raj Building Material was granted financial assistance by the respondent-Bank through its proprietor Arvind Singh. In order to secure the same, the appellant stood as guarantor and created equitable mortgage over her property i.e. part and parcel of the land and building, Khata No. 0094, Khasra No. 317 having area of 553 sq.mtrs. situated at Deva, Ajamgarh Road, post- Dullahpur, Tehsil-Jakhania, Distt-Ghazipur. Since the borrower did not maintain the financial discipline, therefore, the account was classified as NPA on 30.04.2019 and a demand notice dated 15.05.2019 u/s 13(2) of the SARFAESI Act was issued for a sum of Rs.22,51,226.70. Since the borrower did not pay any heed to the said demand, therefore, the possession notice dated 16.12.2009 u/s 13(4) of the SARFAESI Act was issued and the symbolic possession of the property in question was taken by the Bank. Thereafter, the respondent-Bank issued e-auction sale notice dated 03.08.2023, which was published in the newspapers scheduling the auction of the property in question on 24.08.2023. The property was sold to respondent no. 2.

The appellant challenged the entire proceedings including the auction sale of the respondent-bank by filing the present S.A. before the Tribunal below, which has been dismissed vide order impugned holding that there is no irregularity in the process of the Bank. Being aggrieved by the said order, the present appeal has been filed by the appellant.

Learned counsel for the appellant submitted that there were three points, which were to be considered by the Tribunal below. The first point is that the loan account was not NPA, second is that the money was lying in the account of the appellant, but without adjusting the same in the loan account, the property has been sold and third point is that the property was sold under valued price, whereas the valuation report is on record, but these points have not been considered by the Tribunal below while passing the order impugned.

Learned counsel further submitted that there is non compliance of Rule 8(1) and 8(2) of the Security Interest (Enforcement) Rules, 2002, as the possession notice has neither been served nor published in the Newspapers having wide circulation in the area, where the borrowers resided. It was also contended that there is also non compliance of Rule 8(6) and Rule 9(1) of the Rules, 2002, as the property was sold prior to the expiry of statutory time as prescribed under law. It was further contended that the respondent-Bank has not filed the details of deposit made by the auction purchaser. It was thus contended that Bank there is also non compliance of Rules 9(3) & (4) of the Rules, 2002. 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 account was declared as NPA properly and all the notices were served upon the appellant in accordance with law. The contention of the appellant that without adjusting the amount lying in his account, the account was declared as NPA is incorrect, as the appellant had not given his consent to adjust the amount of his savings account in the loan account. Learned counsel further submitted that prior to the sale, the property in question was got properly valued by the competent authority. It was also contended that the Tribunal below has rightly dismissed the S.A. considering all the points as stated above, it was, therefore, prayed that the appeal may be dismissed with heavy costs.

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

Having heard the learned counsels for the parties and considering the material available on record, Undisputedly, the loan was availed by Raj Building Material Firm through its proprietor Arvind Singh, for which the appellant stood as guarantor and created equitable mortgager over her property in question in favour of the respondent-Bank.

The contention of the appellant that the property mortgaged with the Bank is an agriculture land, is not tenable, as the appellant himself has admitted in para 3 of the memo of appeal that on the said land, there is a shop, which is given on rent to the proprietor of the aforesaid firm. As it has already been held by the several Hon'ble High Courts as well as the Hon'ble Apex Court that if no agricultural activity is going-on on the land and there exists any shop or building, the same cannot be considered to be an agricultural land either the nature of the said land is not converted for the other purposes. However, the page no. 32 of the memo of appeal, which is copy of the sale deed, by which the said property was purchased by the appellant, clearly mentions that the property in question was sold for the residential purpose. Thus the property in question cannot be said to be agricultural land and the mortgage created over the said land by the appellant is valid.

So far as the contention of the appellant that account was not NPA, as sufficient amount was available in her savings account, which was in the same branch of the respondent-Bank, is not acceptable, because the appellant has not filed any document, which may show that the appellant has ever given her consent to adjust the overdue amount from the amount lying in her savings account, as Bank has no right to debit the amount in any of the account of the borrower without her/his consent.

With regard to non-compliance of Rule 3, the demand notice dated 13.05.2019 is placed at page no. 21 & 22 of the reply of the respondent-Bank. In this regard, it has been contended on behalf of the respondent-Bank that the said notice was served personally on behalf of the appellant and receipt of her is on the demand notice itself. If the signatures of the appellant appended at the demand notice and at the sale deed are compared, then both the signatures prima facie appear to be same and similar. Thus the contention of the appellant that the demand notice was not served upon the appellant is incorrect.

Regarding non-compliance of Rule 8(1) and 8(2) of the Rules, 2002, it is to be seen that the possession notice was issued by the respondent-bank on 16.12.2019 and the same was affixed at a conspicuous place of the property in question and also published in two newspapers on 20.12.2019. The said notice was sent to the borrowers including the appellant through registered post. Copies of postal receipts have been placed at page no. 26 of the paper book. Thus the respondent-Bank has complied with the Rules 8(1) and 8(2) of the Rules, 2002. As such the contention of the appellant that the possession notice has neither been served, affixed nor published in the newspapers is erroneous.

So far as the contention of the appellant that the property has been sold at undervalued price is concerned, the valuation report dated 31.07.2023 is placed from page no. 39 to 54 of the reply of the respondent-Bank. As per the said report, the market value of the property in question was assessed to be Rs.60.74 lacs and the realizable value Rs. 51.62 lacs and distress value Rs.48.59 lacs, but as per sale certificate dated 04.09.2023, copy of which is placed at page no. 57 of the said reply, the property was sold in favour of the respondent no. 2 for Rs.51.72 lacs, which is over and above the distress and realizable value assessed by the approved valuer of the respondent-Bank. Thus the contention of the appellant that property has been sold at under-valued price is also not tenable, as the present sale is second sale.

So far as non-compliance of Rule 8(6) & 9(1) of the Rules, 2002 is concerned, the sale notice dated 03.08.2023 is placed at page no. 32 to 39 of the reply of the respondent-Bank. The said notice was dispatched through registered post to the borrowers on 04.08.2023, but the same was published in two newspapers, one in vernacular language, scheduling the auction of the property in question on 24.08.2023. Copies of the said notice have been placed at page no. 44 & 45 of the reply of the respondent-Bank. The said notice was dispatched through registered post on 04.08.2023, copies of the postal receipts are placed at page no. 40 of the reply, but respondent-Bank has not filed any tracking report along with its reply to authenticate the date on which the said notice was served upon the borrowers including the appellant. In this regard, the respondent-Bank in para 24 & 25 of its reply has stated as under:-

From the above, it is clear that the sale notice was served on 09.08.2023 and the property was sold on 24.08.2023, thus the sale was made on 15th day. In this regard, the proviso of Rule 9(1) says as under:-

In view of the aforesaid Rule, a clear 15 days sale notice is required to be served upon the borrowers, but in the present case, the property was sold on 15th day from the date of service of sale notice, which clearly violates Rule 9(1) of the Rules, 2002. The plea taken by the appellant that the appellant has avoided the service of sale notice, therefore, such delay was occurred, cannot be accepted because the respondent-Bank has neither filed any tracking report of the postal department nor filed any document, which may support the contention of the respondent-Bank. Thus it is held that no clear 15 days' sale notice has been given by the Bank for conducting the auction of the property in question on 24.08.2023, which violates Rule 8(6) of the Rules, 2002. On this count alone, the auction sale dated 24.08.2023 is liable to be set aside.

Besides above, the auction sale notice dated 03.08.2023 was published in the newspapers, one in vernacular language, copies of which are placed at page no. 44 & 45 of the reply of the respondent-Bank, but the said paper clippings do not contain the name of the newspapers nor the date of publication, therefore, the same cannot be taken into consideration. Thus it is held that no publication of sale notice has been published in the newspapers as required the Act and Rules made thereunder. As such there is also violation of Rule 9(1) of the Rules, 2002. On this count also, the auction sale is liable to be quashed.

With regard to non-compliance of Rules 9(3) & 9(4) of the Rules, 2002, it is to be seen that the property in question was sold on 24.08.2023 in favour of the respondent no. 2, but the respondent-Bank has not filed any document, which may show the date of deposit of 25% and remaining 75% of the bid amount by the auction purchaser, thus there is no option before this Tribunal, but to accept the contention of the appellant that Rules 9(3) & 9(4) of the Rules, 2002 have not been complied with. If any question arises from the side of the borrower, it is duty of the Bank to controvert the same by producing relevant document. In the present case, the said question was raised by the appellant before the Tribunal below, but there also, the respondent-Bank had not stated anything about the same and the Tribunal below has considered this point very lightly and held that there is no irregularity in the process of the Bank, which is not sustainable. Thus the Rules 9(3) & 9(4) of the Rules, 2002 is held to have not been complied with by the Bank as well as auction purchaser. As such the Tribunal below while passing order impugned has erred in holding that there is no irregularity in conducting the auction sale of the property in question by the Bank. Thus the order impugned is liable to be set aside to this extent.

In view of the discussions as recorded above, the auction sale dated 24.08.2023 pursuant to the auction sale notice dated 03.08.2023 and its subsequent actions of the Bank are set aside. Thus the order impugned is set aside to the extent of auction sale dated 24.08.2023 and the rest part of the order impugned shall remain intact. Consequently, the appeal is allowed to the extent of challenge of the said auction sale, but the same is dismissed to the extent of challenge upto possession notice.

The respondent-Bank is directed to refund the auction amount to the auction purchaser along with interest @ 8% per annum simple from the date of deposit till the date of payment. If the possession of the property has been handed over to the auction purchaser, the interest is only payable for the period, during which the possession was not with the auction purchaser.

The respondent-Bank is further directed to provide the details of the outstanding amount to the appellant within 15 days from the date of receipt of copy of this judgment, who shall pay the same within a month thereafter. In case, the appellant fails to pay the amount as given by the Bank within the stipulated period, the respondent-Bank would be free to proceed for its recovery in accordance with law from the stage of issuance of auction sale notice.

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