Smt. S. Uma vs The Authorised Officer, Bank of Baroda & Anr.

M/s Bhavana Farms is the borrower and availed loan to the tune of Rs.1.00 crore from the respondent bank in the year 2015. It is a partnership firm and is represented by its partner Mr. N. Srinivasa. There are other partners and they are Mrs. S. Uma and Mrs. S. Anitha. N. Srinvasa and S. Uma are joint owners of the schedule property and they had created security interest in respect of the said property for the loan availed by the Bhavana Farms by creation of mortgage. Since there had been default in paying the loan amount, the account of M/s Bhavana Farms was classified as NPA on 31.3.2019 and proceedings were initiated under the SARFAESI Act by issuing Section 13(2) Demand Notice.

The issue concerned in these appeals relate to sale of the secured asset in pursuance of the sale notice dated 1.3.2021. Mrs. S. Uma, partner of M/s Bhavana Farms filed SA No.410/2021 to set aside the impugned sale notice dated 1.3.2021 and all consequential measures like sale confirmation on 22.3.2021, issuance of sale certificate on 7.4.2021 in favour of the auction purchaser, viz., the second respondent and registration of sale certificate on 8.11.2021. Similarly, M/s Bhavana Farms represented by its partner N. Sreenivasa filed SA No.116/2022 to set aside the same sale notice dated 1.3.2021, sale certificate dated 7.4.2021 and to declare that security mortgage arrangement in respect of M/s Bhavana Farms stands discharged on payment of Rs.1,26,89,808.55p and for other incidental and consequential reliefs.

After contest, both SARFAESI applications were dismissed on 10.2.2023. Against the dismissal of SA No.410/2021, RA(SA) 120/2024 has been filed and against the dismissal of SA No.116/2022, RA(SA) 25/2023 has been filed under Section 18 of the SARFAESI Act.

The case of the appellants in RA(SA) 120/2024 in brief, is that appellants is one of the co-owners of the schedule mentioned property having purchased it with her husband Srinivasa on 29.4.2015. She is one of the partners of Bhavana Farms along with her husband and other partners. Schedule mentioned property was offered as security for the loan availed by the partnership firm to the tune of Rs.1.00 crores on 6.11.2015. The account was erroneously classified as NPA on 31.3.2019 and SARFAESI measures were initiated. Demand Notice was not served on the borrowers in accordance with the provisions of the SARFAESI Act.

During COVID 19 pandemic period, respondent bank issued sale notice dated 1.3.2021 to sell the secured asset on 22.3.2021. Earlier sale attempts failed for want of bidders. Borrower firm filed Writ Petition No.6464/2021 before the Hon’ble High Court of Karnataka and then Writ Appeal No.946/2021, wherein liberty was given to the petitioner to approach DRT. Accordingly, SA 410/2021 was filed. Without following the mandatory provisions of SARFAESI Act and Rules made thereunder with regard to valuation of the secured asset, fixation of reserve price and issuance of sale notice, the property was sold for a low price. The secured asset was not properly described in the possession notice and sale notices. There is a ground and three floors in the secured asset and that is not mentioned in the notices issued under section 13(2) and section 13(4) of the SARFAESI Act, more specifically in the sale notices issued. A secured asset which is not taken possession under section 13(4) of the SARFAESI Act, cannot be sold in SARFAESI sale. When ground plus three floor building was not taken possession as per the possession notice, the sale of the secured asset is in violation of the mandatory provisions of the SARFAESI Act and illegal. The secured asset was grossly undervalued and reserve price was substantially reduced during every sale attempt and ultimately sold for a low price. Identical grounds were taken in SA No.116/2022 along with a ground that the security interest was created only in respect of 50% each of the secured asset for the loan availed by M/s Bhavana Farms and M/s Vaishnavi Structures Pvt. Ltd. The grounds raised in the securitization applications touching upon these issues were not considered properly by the learned presiding officer and the Securitization applications were dismissed. Thus these appeals.

This contention of the appellants was disputed by the respondent bank. It is stated that bank had taken measures after following mandatory provisions of the SARFAESI Act. Learned Presiding Officer, on going through the records and the submissions made by Learned Counsel appearing for parties found that SARFAESI measures were taken by following the provisions of the SARFAESI Act and dismissed the Securitization applications.

Reiterating the grounds raised in the SARFAESI application, Learned Counsel for the appellants submitted that finding of the Learned Presiding Officer that SA No.410/2021 was filed with a delay of 239 days and delay cannot be condoned is not correct. The reason is that measures had been taken during the COVID pandemic period for the sale of the property, Hon’ble Supreme Court of India in suo moto Writ Petition (C) No.3/2020 along with MA 21/2022 in MA 665/2021 and MA 29/2022 in MA 665/2021 dated 10.1.2022 excluded the period commencing from 15.3.2020 to 28.2.2022 in computing limitation prescribed under the general law of limitation or under any special law (both Central and / or State) in respect of judicial and all other quasi judicial proceedings. This limitation was also extended for a period of 90 days from 1.3.2022. Therefore, SA was filed within the exempted period as aforesaid.

Guarantors and security interest for both the loan accounts are one and same. When any possession notice is issued by the secured creditor under Section 13(4) of the SARFAESI Act, it should have been issued for the secured assets as a whole. Law does not contemplate a separate and distinct possession notice for each account. Instead of issuing composite and comprehensive notice for both accounts, respondent bank issued 13(2) Notice on 1.4.2019 for the loan of M/s Vaishanvi Structures Pvt. Ltd. and issued a demand notice under Section 13(2) for the loan of M/s Bhavana Farms on 5.7.2019. First Possession Notice under Section 13(4) was issued on 6.6.2019 and the second possession notice was issued on 9.12.2019. It is against RBI Guidelines, where it is reiterated that classification has to be borrower-wise and not facilities-wise. It means, when there are more than one facility given to the borrowers and when one of the facilities becomes NPA, all the facilities granted to the borrowers shall have to be classified as NPA and proceedings under SARFAESI Act be initiated.

In the first possession notice dated 6.6.2019 and in the second Possession Notice dated 9.12.2019, relating to the very same secured asset, it is recorded that possession of immovable property standing in the name of N. Srinivasa and S. Uma, consisting of Plot no.17 (old No.315), situated at 15^th Cross Road, Sadashivanagar, Municipal Ward No.99 of Aramane Nagar, Bengaluru and measuring 2440 sq.ft was sought to be taken. But, there is no mention about the building in the said possession notice. Contrary to this, impugned sale notice dated 1.3.2021, respondent bank notified the sale of the building standing thereon, by way of adding “along with construction thereon”. There is ground and three floor building on the secured asset. Thus, there is mis-description of the description of the secured asset in the possession notice and in the sale notice. Without taking possession under Section 13(4), a secured asset cannot be sold. Thus, Impugned sale notice dated 1.3.2021 is unlawful and illegal.

Any measure initiated for the sale of the secured asset should be in conformity with Section 13(4) of the SARFAESI Act and Rule 8(6) and Rule 9(1) of SIE Rules, 2002. Property which was taken possession and sold should be the same property. Possession Notice and Sale Notice should indicate proper description of the property. Without taking possession of the property as on ground, sale held is illegal. To stress this point, decision of Hon’ble Supreme Court of India in re, Swastik Agency Vs. State Bank of India reported in 2009 SCC Online, Orissa is relied. This decision is also relied for the proposition that proof of service of possession notice through affixture should be established by panchanama and independent witness.

Authorised Officer is bound to make full disclosure and furnish full description of the secured asset before notifying for sale. Decision of Hon’ble High Court of Hyderabad in re, Kwality Agro Products Vs. Canara Bank reported in SCC Online Hyd 453; (2019) 1 ALD 157 is pressed into service in support of this proposition.

As against 13(4) Possession Notice dated 6.6.2019, SA No.299/2019 was filed and an interim order of stay was granted in IA 1703/2019. When this interim order was in force, secured creditor issued second demand notice dated 5.7.2019 and therefore, the second demand notice and the proceedings initiated in pursuance of this demand notice are illegal and non-est in law. Once stay of further proceeding is ordered, there should be no further proceeding under the SARFAESI Act in respect of the same secured asset. Any measure taken after stay is granted is to declared as null and void. Supporting this submission, the decision of Hon’ble Supreme Court of India in re Anita International Vs. Tungabadra Sugar Works reported in 2016 (9) SCC page 44 is relied.

To the Objection letter dated 7.9.2019 in terms of Section 13(3A) bank had not given reply. The reply alleged to have been sent on 9.9.2019 is a fabricated one. Respondent bank had not produced photographs to show affixture of first sale notice dated 1.1.2020 and no document produced to prove service of sale notice to the borrowers. Mere production of postal receipt dated 3.1.2020 will not establish service of sale notice. There was no clear 30 days notice given for the sale scheduled on 6.2.2020. Therefore, all the subsequent sale notices issued are bad in law. Subsequent sale notices dated 11.2.2020, 5.3.2020, 17.6.2020, 13.7.2020, 20.8.2020, 15.9.2020, 10.11.2020, 15.12.2020, 3.2.2021 and 1.3.2021 had been issued, without following Rule 8(6), 9(1) of SIE Rules, 2002.

Impugned sale notice dated 1.3.2021 was also issued without complying SIE Rules i.e., without serving notice under Rule 8(6) and Rule 9(1) and effecting affixture required under Rule 8(7) of SIE Rules, 2002. Sale notice was not published in English and vernacular language, as required under Rule 8(6).

In the WP 6464/2021 filed by the borrower, Hon’ble High Court of Karnataka directed the borrower to discharge the entire loan of Rs.1,26,88,808.55p in full. Appellants had remitted a sum of Rs.54.00 lakhs on 9.4.2021 and the balance amount of Rs.72,89,808.55p on 15.4.2021. On 16.4.2021, Hon’ble High Court recorded discharge of entire loan liability by the borrower and vide order dated 10.8.2021 disposed the Writ Petition No.6464/2021, with a direction to file SA before DRT, Bangaluru within 3 weeks. In WA No.946/2021 also, Hon’ble Division Bench of High Court of Karnataka granted three weeks time to file SARFAESI application before DRT, Bangalore vide its order dated 28.9.2021.

Respondent bank appeared through Counsel in SA No.116/2021 on 1.11.2021 and sought time. On 9.11.2021, it was informed that sale certificate was registered on 8.11.2021 in favour of the auction purchaser.

Valuation was not done as required under Rule 8(5) of SIE Rules. The amount recoverable is only 1,26,88,808.55p But, the value of the secured asset, as per the first sale notice dated 1.1.2020 was 8,45,00,000/-. Sale of one of the three floors would have been enough to satisfy the loan amount. Thus, it was contended that property was grossly undervalued and more extent was sold than that was required to satisfy the loan amount.

On the need to value the property properly as defined under Rule 8 (5) of the SIE Rules, 2002 decision of the Hon’ble Supreme Court of India in re, Ramkishun & others Vs. State of Uttar Pradesh reported in 2012(11) SCC page 511 is relied.

Authorised Officer shall have to obtain valuation report from an approved valuer and fix the reserve price in consultation with the secured creditor. Unilateral and arbitrary reduction of reserve price by the authorized officer is not permissible. In support of this proposition, decision of the Hon’ble High Court of Hyderabad in re, Pochi Raju Industries Limited Vs. Punjab National Bank and another reported in 2018 SCC Online Hyderabad Page 121 is relied.

If SARFAESI sale is found to be collusive, fraudulent, vitiated by under pricing and violative of the provision of the SARFAESI Act and SIE Rules, sale needs to be set aside. In support of this proposition, decision of Hon’ble Supreme Court of India in re, Celir LLP Vs. Mr. Sumati Prasad Bafna & Others reported in 2024 SCC Online SC page 3727 is relied.

Reserve price was fixed at Rs.8,45,00,000/- in the sale notice dated 1.1.2020 and during the subsequent sale attempts, it was grossly reduced and sold. Market value of the property was more than Rs.10.00 crores. As per the valuation report dated 21.3.2022 of the appellants’s valuer, the value of the property was Rs.10,22,00,000/-. It shows that bank official had deliberately undervalued the property and reduced the reserve price and sold for insufficient price. Appellants paid the following amounts, as against the alleged liability of Rs.2,27,60,325.15p.

In addition to these submissions, Learned Counsel for the appellants in RA(SA) 25/2023 submitted that the loan account was declared as NPA on 31.3.2019 and Demand Notice under Section 13(2) of the SARFAESI Act was issued on 5.7.2019, claiming a sum of Rs.,1,03,76,693/-. It was followed by issuance of Possession Notice dated 9.12.2019. Earlier, ten sale attempts failed, the eleventh sale notice dated 1.3.2021 was issued fixing the sale on 22.3.2021. For the 10^th sale attempt, reserve price was fixed at Rs.7,20,30,000/- and for the 11^th sale attempt, the reserve price was fixed at Rs.6,21,00,000/-. In the first sale notice, reserve price was fixed at Rs.8.45 cores and in the 11^th sale attempt, it was reduced to Rs.6.21 crores. There was no reason/logic for reducing the reserve price from Rs.8.45 crores within a short period to Rs.6.21 crores. Property situated in the heart of the city of Bangalore and it would fetch more than Rs.10.00 crores.

It is further submitted that objection to Section 13(2) demand notice was sent on 7.9.2019 and that was acknowledged by the first respondent bank. Bank claims that a reply dated 9.9.2019 was sent, but, it was not mentioned in the Section 14 application filed before the Addl. CMM, Bangalore. This reply purported to have been sent by the bank was not served on the borrower/guarantor. The said reply of the bank dated 9.9.2019 is a created document to suit the case of the bank. There is a building with ground plus three floors with terrace is available in the secured asset mentioned in the sale notice but the description of the property did not give any details about the building in existence. It is a serious violation of the Security Interest (Enforcement) Rules, 2002. Had proper description of the building was given in the sale notice, many bidders would have participated and the property would have been sold for a much higher price.

24.50% of the subject property is the secured asset for the loan availed by M/s Vaishnavi Structures Pvt. Ltd. but, that encumbrance was not shown in the sale notice. When 50% of the secured asset is alone offered as security for the loan availed by M/s Bhavana Farms, proceeding to sell the entire property is illegal.

Decision of the Hon’ble High Court of Madras in re, V.Sambandan Vs. Punjab National Bank reported in MANU/TN/0057/2017 is relied for the proposition that transfer of any asset should be free from all encumbrances and it is the duty of the banks and financial institutions to mention all encumbrances in the property.

Decision of Hon’ble Supreme Court of India in re Gajraj Vs. State of Bihar & Others reported in AIR 2004 SC 3392 is relied for the proposition that bidders should know the details of the assets. In the absence of proper mechanism, the auction sale becomes only a pretence.

Decision of the Hon’ble Supreme Court of India in re, Kerala Financial Corporation Vs. Vincent Paul and another reported in AIR 2011 (SC) 1388 is relied for the proposition that in the matter of sale of public property, utmost consideration to secure the best price for the property sold. For that, maximum public participation should be ensured, proper valuation has to be done for fixing the reserve price. Inaccurate value would result in non participation of intending buyers on the belief that property is not worth purchase by them. Property cannot be sold below the reserve price.

Decision of Hon’ble High Court of Kerala in re K.T. Unnikirhsnan Vs. The Authorised Officer, UCO Bank,Ernakulam and others reported in 2018 1 KLJ 796 is relied for the proposition that undoubtedly, public money should be recovered expeditiously. However, it does not mean that financial institutions are concerned only with recovery of their loan. They cannot behave like property dealers and be permitted to dispose of the secured asset in any unreasonable or arbitrary manner in flagrant violation of statutory provisions. For the same proposition, decision of the Hon’ble Supreme Court of India, in re, Mahew Varghese Vs. M. Amritha Kumar reported in (2014) 5 SCC 610 is relied.

Decision of the Hon’ble Supreme Court of India, in re, J. Rajiv Subramaniayan and another Vs. Pandiyas and others reported in (2014) 5 SCC 651 is relied for the proposition that secured asset should not be sold for a song. It should be ensured that sale of secured asset provides maximum benefit to the borrower. Secured Creditor is expected to take bona fide measures to ensure that there is maximum benefit for the secured creditor and the borrower.

Decision of Hon’ble Madhya Pradesh High Court in re, Anita Sadana Vs. Baljinder Kaur and Others reported in AIR 2014 SC 3392 is relied for the proposition that right to hold property is a constitutional right as well as human right. A person cannot be deprived of his property except in accordance with the provisions of statute.

In reply, Learned Senior Counsel for the respondent bank submitted that SARFAESI measures had been taken after following the provisions of the SARFAESI Act. As regards non-reply to Section 13(3A) reply, there is no specific plea taken in this regard by the appellants in the SARFAESI applications. The postal receipt received from the post office would show service of reply sent by the bank.

This SARFAESI application was filed beyond the period of limitation. Unless it is established that appellants prosecuted before other Forums bona fidely, the time spent in prosecuting the case in wrong Forum cannot be condoned. In respect of this submission, the decision of the Hon’ble High Court of Allahabad in re, Raj Ranjeet Singh and others Vs. Bind Bahadur Singh reported in 1973 SCC Online Alahabad 312 is produced. Same is the case on the alleged non-registration of the security interest under CERSAI. No such plea was taken in the SARFAESI application. Security interest was registered once the Rule came into force.

The valuation report produced shows that property was properly valued for the land and building. Adequate description of the property was given in the Sale Notice. Multiple mortgages of the same property is permissible. There is no common notice required under Section 13(2) of the SARFAESI Act. What is required is that each borrower should be given notice. Appellants failed to challenge the first sale notice raising grounds like lack of 30 days clear notice, no affixture, no publication, etc. When that was not challenged, these issues which ought to have been challenged at the first opportunity, cannot be challenged when the sale was successful in the 11^th attempt. Once sale notice is published, the right of redemption is lost. Ten sale attempts had been made and failed because of various reasons. When the sale fails because of want of bidders, it is a prudent banking practice to reduce the reserve price. That is how the reserve price fixed earlier during the first sale attempt was reduced in the successive sale attempts and ultimately it was fixed at Rs.6.21 crores in the 11^th sale attempt. Appellants could have found some buyer who could offer the best price and helped in concluding the sale. That was not done by the appellants.

Even if there is some deficiency in the description of the property, appellants cannot challenge that, but, only the auction purchaser can challenge it. There is no such challenge made by the auction purchaser. Sale certificate was registered when there was no order against the registration of sale certificate.

Decision of Hon’ble High Court of Madras in re, Pridhvi ARC Vs. Naihaa Retail Private Limited in OSA No.257/2016 is relied for the proposition as to the applicability of Section 14 of Limitation Act in condoning the period of limitation of the time spent before a wrong Forum.

Decision of Hon’ble High Court of Bombay in re, Vastu Invest & Holdings Pvt. Ltd. Vs. Gujarat Lease Financing reported in 2000 SCC Online Bom 729 is relied for the proposition that grounds must be raised within the limitation period prescribed and new grounds cannot be raised after expiry of limitation period.

Decision of Hon’ble High Court of Allahabad in re, Raj Ranjeet singh and others Vs. Bind Bahadur Singh reported in 1973 SCC Online all 312 is relied for the proposition that no party has the right to determine the forum nor can jurisdiction be conferred by consent on a court other than the one prescribed under some enactment.

Learned Counsel for auction purchaser, viz., the 2^nd respondent submitted that appellants initiated proceeding before the Hon’ble High Court of Karnataka when effective alternative forum is available for matters connected with SARFAESI Act. Auction purchaser was a successful bidder in the sale held on 1.3.2021. On confirmation of sale and payment of sale consideration, sale certificate was issued on 8.4.2021. Composite challenge was made on 27.10.2021 in SA No.116/2022 belatedly, which is barred by limitation. Many of the challenges made by the appellants are without pleadings in the SARFAESI application. There was no real challenge to the finding of the DRT. There was no illegality in the measures taken for sale of the secured asset and the sale. SA was filed by other borrower in SA No.299/2019 was dismissed. SA No.116/2021 though filed in the year 2021, was numbered in the year 2022 only. SARFAESI measures had been initiated earlier to the order passed by Hon’ble Supreme Court of India in the suo moto writ petition No.3/2020, therefore, that order cannot be taken to the advantage of the appellants for claiming exemption in limitation. Three sale notices issued prior to COVID pandemic situation were not challenged by the appellants. In support of his submission, he pressed into service the following decisions.

Decision of Hon’ble Supreme Court of India in re, Dwarika Prasad Vs. State of Uttar Pradesh reported in (2018) 5 SCC 491 is relied for the proposition that right of redemption is lost once sale notice is published under Section 13(8) of the SARFAESI Act. For the same proposition, decision of Hon’ble Supreme Court of India, in re, Shakeena and another Vs. Bank of India and others in re, 2019 SCC Online SC 1059 and in re, Celir LLP Vs. Bafna Motors (Mumbai) Pvt. Ltd and others reported in (2023) SCC Online SC 1209 are relied.

In reply, Learned Counsel for the appellants submitted that classification of the loan account as NPA is borrower-specific and not loan specific. When one loan is classified as NPA, all other loans, even if they are serviced properly, have to be declared as NPA. Respondent had not filed documents before the Tribunal deliberately. In the Section 14 application, contrary stand had been taken with regard to reply to Section 13(3A) reply. There is no proof of service of sale notice by all the three modes.

Perused the records and considered the rival submissions

Before proceeding to consider the merits of these appeals, it is necessary to decide as a preliminary point as to whether the dismissal of securitization application also on the ground of limitation is justified? The learned presiding officer held that the securitization application was filed beyond the period of 45 days of the measures taken for the sale of the secured asset and therefore, the securitization application is liable to dismissed on the ground of limitation also. It is pertinent to refer to the decision of the Hon’ble Hon’ble Supreme Court of India in suo moto Writ Petition (C) No.3/2020 cited by the appellants, wherein the period from 15.3.2020 to 28.2.2022 is exempted in computing the period of limitation for initiation of proceedings before Courts/Tribunals.

Decision of Hon’ble High Court of Madras in re, IOB Vs. G.S. Rajasekaran reported in 2008 SCC Online Mad 1195 is produced for the same proposition and also for the proposition that appellants had been prosecuting the proceeding before the Hon’ble High Court of Karnataka and that period has to be exempted from consideration for the purpose of limitation.

In the case before hand, SA No.410/2021 was filed on 20.12.2021 and SA No. 116/2022 was filed on 27.10.2021. Both challenged the sale notice dated 01.03.2021 and sale certificate dated 07.04.2021. The date of sale notice, date of sale and the date of sale certificate and the date of filing the securitization application fall within the period of 15.03.2020 and 28.02.2022 . Therefore, there is no doubt that the securitization applications have been filed within the exempted period of limitation as per the order of Hon’ble Supreme Court in suo moto Writ Petition (C) No.3/2020.The relevant portion is extracted hereunder.

When the securitization applications had been filed with the exempted time granted by the Hon’ble Supreme Court, the dismissal of securitization applications on the ground of limitation is not correct and thus the finding of the learned presiding officer in this regard is set aside.

This case concerns about the sale of secured asset for the loan availed by M/s. Bhavana Farms to the tune of Rs.1.00 crore in the year 2015 in the loan account No. 10110400000150. M/s. Bhavana Farms is a partnership firm in which Mr. N. Sreenivasa and his wife S. Uma and daughter S. Anitha are partners. There is yet another company, namely, M/s. Vaishnavi Structures Pvt. Ltd. M/s. Vaishnavi Structures Pvt. Ltd. has also availed loan facility from the Respondent Bank. The security interest was created for the loans availed by M/s. Bhavana Farms and M/s. Vaishnavi Structures Pvt. Ltd. in respect of the same property. The loan account number of M/s. Vaishnavi Structures Pvt. Ltd. is 10110400000151 and the loan was to the tune of Rs.1.00 crore. Apart from these two loans, there are two other loans availed i.e, housing loan to the tune of Rs.95.00 lakhs in loan account number 10110600001686 and HL-AAA loan in loan account number 10110600001687 in the name of Mrs. Bhavana S. There is no dispute with regard to the availing of these loan facilities. It is also not in dispute that the loan accounts of M/s. Bhavana Farms and M/s. Vaishnavi Structures Pvt. Ltd. were classified as NPA on 31.3.2019, followed by issuance of separate demand notices under Section 13(2) of the SARFAESI Act, and notice under Section 13(4) for taking possession, etc.

Learned Counsel for the Appellants challenged the classification of the accounts as NPA, as illegal and against the guidelines issued by the RBI in its Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances. It is contended that the classification of an account as NPA has to be borrower-wise and not facility-wise. When both loan accounts were classified as NPA on 31.3.2019, the possession notice issued under Section 13(4) of the SARFAESI Act ought to have been issued for the secured asset as a whole touching upon the entire liability of the borrower, especially when there is a common security in respect of multiple loan facilities. Contrary to this, two separate demand notices and possession notices had been issued in respect of the same secured asset and that is illegal.

On classification of account as NPA, it is submitted by the learned counsel for the appellants that NPA classification should confirm to the guidelines and circulars issued by RBI and non compliance would amount to offence punishable under the Banking Regulation Act, 1949. To support this proposition, decision of the Hon’ble Supreme Court of India in re M/s Sardar Associates & Others Vs. Punjab & Sind Bank & Others reported in 2009 (8) SCC 257 is relied.

Classification of account as NPA is borrower-wise and not facility wise. When the borrower has availed more than one facility in a bank, upon classification of one account as NPA, all other facilities granted by the ban will have to be treated as NPA. In support of this proposition, decision in re, Central Bank of India v. S A Plywood Industry Pvt. Ltd. (2025), the NCLT Kolkata is produced.

Directions and guidelines issued by RBI are binding on financial companies and they are bound to comply those directions. In support of this proposition, decision of Hon’ble Supreme Court of India, in re, M/s Pro Knits Vs. Board of Directors of Canara Bank reported in (2024) 10 SCC 292 is produced.

On classification of account as NPA, Clause 4 of Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances issued by RBI vide DOR.STR.REC.8/21.04.048/2024-25 dated 2.4.2024 reads as follows:

Clause 4.2.7 reads that the asset classification should be borrower-wise and not facility-wise i.e., when one of the facilities becomes a problem and not others, all the facilities granted by the Bank to the borrower shall have to be treated as NPA. There is no issue in this case with regard to treating both the loan accounts i.e., loan accounts of M/s. Bhavana Farms and M/s. Vaishnavi Structures Pvt. Ltd., as NPA w.e.f. 31.3.2019.

A Non-performing Asset means, an asset or account of a borrower which has been classified by a Bank or a Financial Institution as sub-standard, doubtful or loss asset. It starts with non-service/default in paying the loan due for a period of more than 90 days. It is the case of the Respondent that after availing the loan facility, the borrowers failed and neglected to comply with the terms and conditions of the sanction letter and defaulted in paying the amount. Substantial amount became due and payable by the borrowers and these amounts have not been paid, despite several reminders to the borrowers and the guarantors. EMI’s had not been paid as per terms and conditions in the loan application. Therefore, both the loan accounts had been classified as NPA on 31.3.2019. Thereafter, the first Respondent Bank issued separate demand notices and possession notices in respect of the separate loan accounts of M/s. Bhavana Farms and M/s. Vaishnavi Structures Pvt. Ltd. There was no reply/objection sent to the demand notice dated 1.4.2019 issued to M/s. Vaishnavi Structures Pvt. Ltd. The service of this demand notice is established by the Respondent Bank by production of copies of postal receipts and acknowledgement got in support of receipt of demand notice by M/s. Vaishnavi Structures Pvt. Ltd.

On 5.7.2019, the Respondent Bank issued demand notice under Section 13(2) of the SARFAESI Act to M/s. Bhavana Farms and to Mr. N. Sreenivasa and Mrs. S. Uma, individually. These demand notices had been received by the addressee and in proof of receipt, postal receipts and acknowledgements are produced by the Bank. This demand notice was replied to by M/s. Bhavana Farms on 7.9.2019 by raising objection to the demand made in the notice. The gist of the objections are:

It is the case of the appellants that this objection was not replied by the bank, but the bank fabricated a reply to show that it had sent the reply. Non- reply to the objections to demand notice is fatal and in support of this proposition, the decision of the Hon’ble Supreme Court of India in re, ITC Limited Vs. Blue Coast Hotels Limited reported in 2018 (15) SCC Page 99 is relied. It is held in this decision that, reply under Section 13(3A) is mandatory once objection under Section 13(3A) was raised by the borrowers/guarantors against the demand notice.

The aforesaid objection was said to have been replied by the Bank on 9.9.2019, wherein the objections taken by the Appellants were denied and the Bank reiterated that demand notice was in accordance with the law and there is valid security interest created in respect of the scheduled property.

There is a controversy surrounding the reply dated 9.9.2019 said to have been sent by the Respondent Bank. Of course, the Respondent Bank had not produced the acknowledgement card for showing proof of service of the reply dated 9.9.2019. In the application filed in CMP No.5125/2021 by the Bank before the 39^th Additional Chief Metropolitan Magistrate, Bengaluru, it was stated in paragraph 7 that the Respondent did not make any representation/objection as required under Section 13(3A) of the SARFAESI Act to the demand notice dated 5.7.2019. This affidavit was dated 2.11.2021. Thereafter, on 3.12.2021, a Memo was filed by the Bank and in paragraph 3 of the Memo, it was stated that it was inadvertently mentioned in the affidavit that Respondent did not make any representation/objection as required under Section 13(3A) of the SARFAESI Act whereas Respondent gave a representation/petition on 7.9.2019 and it was replied to by the Bank vide letter dated 9.9.2019 and copy of the same was produced.

Thereafter, Appellants filed a statement of objections before the 39^th Additional Chief Metropolitan Magistrate, Bengaluru on 30.3.2022 stating that the Memo dated 3.12.2021 was filed as an after-thought. Actually, no reply dated 9.9.2019 was sent and that no acknowledgement was filed to prove the service of reply dated 9.9.2019. An affidavit was also filed in this regard. Thus, it is submitted that reply dated 9.9.2019 is a creation of the Bank as an after-thought to get over its failure to send mandatory reply to the objection dated 7.7.2019. Both the Parties had not produced a copy of the order passed in CM No. 5125/2021 to find out what was the adjudication of the Learned 39^th Additional Chief Metropolitan Magistrate, Bengaluru, especially on the reply dated 9.9.2019 of the Bank.

Respondent bank produced the copy of a letter dated 24.12.2021 sent to the concerned post master seeking for the proof of delivery of reply dated 09.09.2019 sent the M/s Bhavana Farms. The post master sent a reply on 31.12.2021 stating that the records pertain to 2019 had been weeded out and therefore the details of RPAD posted on 09.09.2019 is not available. Copy of the account ledger is produced to show the expenses incurred for sending the registered post.

In the light of the objections raised to the demand notice dated 5.7.2019, it is required to be considered as to the loans availed, security interest created, classification of the account as NPA, and subsequent measures taken under Section 13(4) of the SARFAESI Act. It is not in dispute that the property offered as security interest by creation of equitable mortgage by deposit of title deed was purchased by the partners of M/s. Bhavana Farms i.e., Mr. N. Sreenivasa, and Mrs. S. Uma vide registered sale deed dated 29.4.2015. The loan sanction proceedings shows that M/s. Bhavana Farms availed working capital i.e., OD against the property to the tune of Rs.1.00 crore and executed the loan documents. The Memorandum Entry dated 7.11.2015 shows that the immovable residential property bearing Municipal New No. 17 (Old No. 315) situated at 15th Cross Road, Sadashiva nagar, Bengaluru, and Municipal Ward No. 99 of Aramane Nagar within the jurisdiction of Bruhat Bengaluru Mahanagara Palike, measuring East-West 61 feet and North-South 40 feet, totally admeasuring 2440 sq. feet and bounded by: East by Property No. 303, West by Road, North by Property bearing No. 314 and South by Road was offered as security interest for creation of mortgage by deposit of title documents for the loan availed by M/s. Bhavana Farms and M/s. Vaishnavi Structures Pvt. Ltd. Thus, the claim of the Appellants, M/s. Bhavana Farms, that security interest was created 50% in favour of M/s. Bhavana Farms and 50% in favour of M/s. Vaishnavi Structures Pvt. Ltd. cannot be accepted. Entire property was offered as security for both the loans. Thereafter, on 4.7.2018, Mr. N. Sreenivasa and Mrs. S. Uma executed an extension of mortgage by deposit of title deed to the loan availed by Mrs. S. Bhavana to the tune of Rs. 5.00 lakhs and Rs.95.00 lakhs, aggregating the loan to Rs.3.00 crores.

The security interest created in favour of M/s. Bhavana Farms and M/s. Vaishnavi Structures Pvt. Ltd. had been registered with the CERSAI and copies of the CERSAI certificate produced by the Bank. Therefore, the objections raised by the Appellants with regard to non-registration under CERSAI cannot be sustained.

We had earlier seen the issuance of the demand notice dated 1.4.2019 to M/s. Vaishnavi Structures Pvt. Ltd. and demand notice dated 5.7.2019 to M/s. Bhavana Farms and its partners. The demand notices had been issued on classifying both the loan accounts as NPAs on account of default in paying the loan amount. Appellants had not produced any materials like proof of payment either through cash / cheque / money transfer through NEFT/RTGS during the relevant point of time when the account was classified as NPA, to show that the account was classified wrongly as NPA. It is quite possible to get the bank statement through the online portal of the Bank and through online banking services offered by them. However, Appellants have not produced any material to show that they had been regular in making loan repayment and despite that the account was classified as NPA. Hence, the contention raised by the Learned Counsel for the Appellants with regard to the classification of the account as NPA has to be brushed aside as unfounded.

Chapter III deals with enforcement of security interest. Section 13(2) empowers the Bank / Financial Institution to classify an account as NPA on account of default committed in repayment of secured debt or any instalment thereon. The secured creditor may require the borrower by notice in writing to discharge in full his liabilities within 60 days from the date of the notice, failing which the secured creditor is entitled to exercise all or any of the rights under sub-section 4 of Section 13.

Under sub-section 13(4), if the borrower fails to discharge his liability within the specified period given under sub-section 13(2), the secured creditor may take recourse to one or more of the following measures to recover the secured debt.

It has to be borne in mind that the borrower M/s. Bhavana Farms and M/s. Vaishnavi Structures Pvt. Ltd. are two different entities. Some common features in both the concerns are Mr. N. Sreenivasa and Mrs. S. Uma are partners in M/s. Bhavana Farms and they are Directors in M/s. Vaishnavi Structures Pvt. Ltd. A common security was offered in respect of the loans availed by both the concerns. Two independent entities, two independent loan transactions, but one common security. Therefore, this Tribunal is of the view that issuing separate demand notices under Section 13(2) and possession notices under Section 13(4) of the SARFAESI Act, 2002 cannot be legally questioned by the Appellants. The Bank is within its rights to initiate measures under Section 13(4) of the SARFAESI independently against the multiple loan facilities.

The stay order granted in IA 1703/2019 in SA 299/2019 operates only against the possession notice issued to the loan account of defaulter M/s. Vaishnavi Structures Pvt. Ltd. That stay order will no way curtail the right of the Bank in proceeding against the loan availed by M/s. Bhavana Farms under Section 13(4) of the SARFAESI Act for taking possession / sale of the property, on account of classification of account as NPA. There is no legal violation or committing contempt of the order of the Debt Recovery Tribunal.

The possession notice dated 9.12.2019 issued to M/s. Bhavana Farms and its partners show that the borrowers failed to pay the amount, and therefore, possession of the secured asset was taken on 9.12.2019. This possession notice was affixed and published in English and in a Kannada daily newspapers. Proof of affixture and paper publication are also produced by the Bank. Postal receipts and proof of service of possession notice are produced by the Bank to show the service of possession notice to the Appellants. One important ground raised by the Appellants with regard to the possession notice is that there is no specific mention of taking possession of ground plus three floor building in the possession notice. It was just said “all the piece and parcel of the property” but the existence of the ground plus three floor building had not been mentioned. Only if possession is taken under Section 13(4) of the SARFAESI Act, the Bank can proceed further with the sale of the secured asset. When there is no indication of availability of ground plus three floor building in the possession notice, the subsequent sale held is invalid and illegal.

Admittedly, there is a ground plus three floor building in the secured asset. We have seen in the Memorandum of Entry executed in the year 2015, it was just mentioned as a residential property. There was no indication of ground plus three floors existing in the building. We have also seen that M/s. Bhavana Farms and M/s. Vaishnavi Structures Pvt. Ltd. have availed loans for business purposes. It is pleaded in SA 410/2021 that the loan was availed by the partnership firm in the course of the business. The loan was called ‘Baroda Traders Loan Overdraft Facility’. The sanction letter issued for M/s. Bhavana Farms also shows that it is a working capital OD loan. The same is the case with the loan availed by M/s. Vaishnavi Structures Pvt.Ltd. Apart from these loans, Mrs. S. Bhavana availed two loans to the tune of Rs. 5.00 lakhs and Rs.95 lakhs, as mentioned earlier. It is stated in the counter filed by the Bank before the Tribunal that these loans are housing loans. The security interest was extended to these loans also, as per the extension of mortgage by deposit of title deed. Whether the housing loan availed by Mrs. S. Bhavana was used for construction of a new building in the secured asset, there is no clear evidence. During the course of the submission, Learned Counsel for the Appellants in RA (SA) 25/2023 submitted that the loan was used for demolishing the existing construction and building a ground plus three floor building. It is not known as to whether any agreement had been entered into with the Bank or the Bank consented to demolish the existing residential structure in the secured asset and build a ground plus three floor building. Both sides have not produced any evidence in this regard. The fact remains there is a ground plus three floor building as per the valuation report of the Bank. The photograph filed to show the affixture of possession notice shows that a building was being constructed. Thus, it is obvious that the existing residential structure was demolished and a new building i.e., ground plus three floor building was constructed.

Confirming to the description of the scheduled property given in the Memorandum of Entry, the demand notice was issued describing the scheduled property as immovable residential property, as described earlier. It is mentioned as “all that piece and parcel of the property”. Other description remains the same. In a series of sale notices issued, the secured asset was mentioned as “all the piece and parcel of the property” bearing Municipal No. 17 (Old No. 315) situated at 15th Cross Road, Sadashiva Nagar, and Municipal Ward No. 99 of Aramane Nagar, Bengaluru and measuring 61 feet East-West, 40 feet North-South, adding to 2440 sq. feet along with construction thereon belonging to Mr. N. Sreenivasa, Mrs. S. Uma and bounded by: East bearing property 303, North by property 315, West by road and South by road. The description in the sale notice confirmed to the fact that there was a new construction after the creation of secured interest in the property. Appellants have not produced any material to show that the new construction was with the permission and consent of the Bank. In the absence of such a permission and consent, this Tribunal is of the view that the Bank cannot be expected to give a detailed description of the ground plus three floor building in the possession notice and in the sale notice. Sufficient description had been given for the intending purchaser to decide as to whether to participate in the sale or not.

Respondent Bank has established the taking of possession under Section 13(4) of the SARFAESI Act by producing evidence in support of service of possession notice and by affixture and paper publication with sufficient details. Thereafter, sale notice was issued. Issuance of sale notice complying with the requirements under Rule 8(6) and 9(1) is also established by the Bank.

The main ground canvassed by the Learned Counsel appearing for the Appellants is that the value of the property was not properly valued, rather undervalued, and the reserve price was drastically reduced from the first sale notice to the last sale notice where the sale was successful. Most importantly, it is submitted that a series of sale notices had been issued during the COVID 19 pandemic situation. The series of sale notices, starting from the first to the last, is given below:

The Bank had produced copies of these sale notices and postal receipts, along with a track delivery report. That apart, paper publication effected for the sale notice dated 1.3.2021 in English and a Kannada Daily on 1.3.2021 and affixture of sale notice has also been produced in support of the service of sale notice. The service of sale notice is not seriously disputed by the Appellants. In the first sale notice dated 1.1.2020, fixing the sale on 6.2.2020, the reserve price of the secured asset was fixed at Rs.8,45,00,000/-. In the last sale notice dated 1.3.2021, the reserve price was fixed at Rs.6,21,00,000/-.

There are two valuation reports dated 12.1.2021 and 21.1.2021 filed by the Bank, which are produced for the perusal of this Tribunal. As per the valuation report dated 12.1.2021, the land was valued at Rs.6,16,10,000/- and the building was valued at Rs.72,79.162.50p. The total value of the land and building was Rs.6,88,89,162.50p. The fair market value was Rs.6,88,89,162.50p, realisable market value was Rs.6,20,00,246.25p, and forced sale value was Rs.5,51,11,330/-.

As per the valuation report dated 21.1.2021, the value of the land was Rs.5,97,80,000/-, the value of the building was Rs.78,41,200/-, the total value of the land and the building was Rs.6,76,21,200/-, rounded off to 6,76,21,000/-. The fair market value was fixed at Rs.6,76,21,00/-, the realisable value was fixed at Rs.6,08,59,000/-, and forced sale value was fixed at Rs.5,40,97,000/-.

Appellants produced valuation report dated 21.3.2022. As per this report, the value of the land was fixed at Rs.8,54,00,000/-. The value of the building was fixed at Rs.1,68,28,880/- and the total market value was fixed at Rs.10,22,00,000/-. Appellants got the report one year after the sale. Therefore, appellants’ report cannot be taken for consideration.

COVID 19 pandemic struck in India and there had been a nation-wise lockdown starting from March 2020. The lockdown schedule is extracted hereunder:

Only till May, 2020, there was a bar against the Bank to proceed against the borrowers by grant of a moratorium. Thereafter, there was no bar for proceeding against the borrowers under the SARFAESI Act, subject to following the requirements under the SARFAESI Act. The sale notices dated 1.1.2020 and 11.2.2020 were prior to the onset of COVID 19. The sale notices starting from 20.8.2020 had been issued during the partial lockdown / no lockdown period. In the absence of any prohibition against the Bank from proceeding under the SARFAESI Act, the issuance of sale notices for enforcing the recovery against the secured interest cannot be questioned by the Appellants. The loan was availed in the year 2015, account was classified as NPA on 31.3.2019, Appellants had one year time prior to onset of COVID 19 pandemic for settling the loan account. Unfortunately, that was not done in this case necessitating the Bank to proceed with the sale measures.

We have seen that as per the impugned sale notice dated 1.3.2021, the reserve price was fixed at Rs.6,21,00,000/-, above the forced sale value fixed in both the valuation reports. It has to be borne in mind that the reserve price fixed at Rs.8,45,00,000/- in the sale notice dated 1.1.2020, and during the subsequent sale attempts, reserve price had been reduced, and ultimately it was reduced to Rs.6,21,00,000/-. in the sale notice dated 1.3.2021. It is also to be borne in mind that on the basis of the fresh valuation report, the vale was arrived at and a reserve price was fixed. The property was sold above the reserve price. The value got reduced obviously because of the slump in the real estate market because of COVID 19 pandemic after effect.

Another submission seriously projected by the Learned Counsel for the Appellants is that the amount recoverable from the Appellants was only Rs.1,26,89,808.55p as on 28.2.2021. Sale of one or two of the floors would have been enough to satisfy the loan due. There is no need to sell the entire ground plus three floor building. On the face of it, this submission appears laudable but Appellants failed to produce any evidence to show that the building is severable, has independent access to various floors, and therefore, it can be sold in units. In the absence of any such evidence to show the severability of this building, this contention of the Appellants cannot be accepted.

As per sale notice dated 1.3.2021 the amount demanded as due was Rs.1,26,89,808.55p as on 28.2.2021 and the reserve price was fixed at Rs.6,21,00,000/-. The property was sold for Rs.6,21,50,000/-. It is informed that balance sale consideration is still available with the first respondent bank. It is not the case of sale of property for insufficient price. Property was properly valued and sold for a fair price. Therefore, this Tribunal finds that there is no reason to interfere with the sale held in this case.

In the decision of Hon’ble Supreme Court of India in re, Celir LLP Vs. Mr. Sumati Prasad & Others reported 2024 SCC Online SC page 3727, it was held that a concluded sale cannot be set aside or interfered with lightly except on grounds that go to the core of the sale like being collusive, fraudulent or vitiated by inadequate pricing or underbidding. Mere irregularity or deviation from a rule which does not have any fundamental procedural error does not take away the foundation of authority for such proceeding. It was also made clear that courts should be mindful to refrain entertaining any ground for challenging an auction which either could have been taken earlier before the sale was conducted and confirmed or where no substantial injury has been caused on account of such irregularity.

In the case before hand, there is no ground made out like collusion, fraud, inadequate pricing or underbidding in the matter of issuing sale notice, sale, issuing sale certificate and its registration. Therefore, this Tribunal finds that there is no reason to interfere with the sale held in favour of the auction purchasers and the finding of the Learned Presiding Officer, DRT-I, Bangalore in dismissing the Securitization Applications. In this view of the matter, this Tribunal also finds that the decisions relied by the learned Counsel for the appellants are not useful to the case of the appellants.

In fine, in view of the reasons stated above, the order of the Learned Presiding Officer, DRT-I, Bangalore dated 10.2.2023 passed in SA No.410/2021 and SA No.116/2022 is confirmed and these appeals viz., RA(SA) 120/2024 and RA(SA) 25/2023 are dismissed.

Parties are directed to bear their own costs.

Pending IAs, if any, stand closed.