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Judgment
ORDER
This appeal is filed under Section 18 of the SARFAESI Act, challenging the order passed in SA 520/2014 by Learned Presiding Officer, DRT, Bangalore, which was filed challenging the Possession Notice dated 26.09.2014.
The case of the appellant is that the appellant is the owner of the subject property. As a vacant site, this property was allotted to the second respondent by Chethana Co-operative Housing Society Limited, and sale deed was executed in his favour by the Chairman of the Society on 12.10.1999. Second respondent constructed a residential building in the plot and then sold the property to the third respondent on 21.08.2003. Appellant purchased the property from the third respondent on 25.06.2004. Therefore, appellant is a bona fide purchaser for value of the property, without knowing the mortgage created by second respondent in favour of first respondent. Only on receiving the impugned demand notice, appellant was aware of the mortgage. Thereafter, he filed SA 520/2014, challenging impugned possession notice and that was dismissed.
Learned Counsel for the appellant submitted that the SARFAESI measure initiated with issuance of 13(2) demand notice is barred by limitation. The reason is that, as per demand notice dated 10.06.2014, the borrower failed to repay the equated monthly instalment, with effect from 01.10.2001 resulting in classification of account as NPA. The demand notice was not issued within 12 years from the date of default on 01.10.2001, but it was issued after 12 years, which is beyond the period of limitation prescribed under Article 62 of Limitation Act. Therefore, SARFAESI measures have to fail. Though the aspect of limitation was taken up before learned Presiding Officer, learned Presiding Officer had not considered this aspect and proceeded to dismiss the SA.
He relied on the judgment of Somnath Manocha Vs. Punjab and Sindh Bank and Anr., reported in 2012 SCC online Del 2251, for the proposition that there must be a subsisting liability on the date of issuance of 13(2) demand notice. If there is no subsisting liability and the demand notice is issued beyond the period of limitation, then, SARFAESI measures would fail. He also relied on the decision of Hon’ble High Court of Calcutta, in re Sri Din Dayal Kayan Vs. Canara Bank and another in WPO/580/2024 for the same proposition.
It is his further submission that since the appellant had purchased the property from the borrower, he is entitled to challenge the SARFAESI measures on the grounds available to the borrower. Though his right to property is subject to the mortgage, he is always entitled to make use of the defence available to the mortgagor, if he is challenging the SARFAESI measures. In support of this submission, he pressed into the service the judgment in Kanti Ram and Ors. Vs. Kutubuddin Mahomed and ors., reported MANU/WB/007/1894; Samarendra Nath Sinha and Ors. Vs. Krishna Kumar Nag, reported in MANU/SC/0217/1966 and Central Bank of India and Anr. Vs. Prabha Jain and Ors., reported in (2025) 4 SCC 38. Thus, learned counsel for appellant prays for setting aside the order of Tribunal below and allow the appeal and Securitization Application.
In reply, Learned Counsel for first Respondent Institution submitted that Section 13(2) demand notice empowers the first respondent to issue notice claiming the debt due within 60 days from the date of notice, failing payment, first respondent is entitled to proceed under section 13(4) of the SASRFAESI Act. The date of classification of account as NPA is not the starting point for computing the limitation. Loan facility was availed vide sanction proceedings dated 02.05.2000. After the borrower defaulted in making repayment, he approached the Institution with a proposal for settlement. He sent two letters on 19.07.2003 and 17.11.2003. In the letter dated 19.07.2003, he stated that he was not able to service the loan due to bad financial situation, thus, he was not able to pay the dues. During the personal meeting with LIC officials in Belgaum, he assured to sell the property, so that balance loan can be cleared. In the letter dated 17.11.2003, the same reasons were stated for non-repayment. It is also stated in the said letter that he forwarded a letter to the LIC, Housing Finance Ltd., Hubli, duly authorizing the manager to sell the building and clear his dues. Contents of these two letters clearly show that the borrower had acknowledged his liability to pay the loan due to first respondent institution and he was trying to settle the loan account. From the date of acknowledgement of the liability, the demand notice was issued within 12 years, therefore, SARFAESI measures taken was within time.
I have considered the rival submissions and perused the records.
From the facts narrated above, the main ground taken by the appellant is that demand notice under Section 13(2) of the SARFAESI Act was barred by limitation, therefore, SARFAESI measures initiated in pursuance of the demand notice are liable to be quashed and set aside.
Admittedly, second respondent was allotted vacant site by Chethana Co-operative Housing Society Limited and sale deed was executed in his favour on 12.10.1999. Second respondent availed loan facility from the first respondent financial institution to put up construction of a residential house consisting of ground and first floor. Thereafter, he sold the property to the 3rd respondent through a registered sale deed dated 21.8.2003, when the mortgage in favour of the first respondent was in force. Third respondent, in turn, sold the property to the appellant vide registered sale deed dated 25.6.2004. Thus, it is clear from the sale transactions that when the mortgage in favour of the first respondent is in subsistence, second respondent sold the mortgaged property to the 3rd respondent and the 3rd respondent in turn sold to the appellant. Sale in favour of the appellant is only subject to the mortgage created in favour of the first respondent.
Admittedly, second respondent did not pay the loan amount, resulting in classification of the account as NPA and initiation of SARFAESI measures under the SARFAESI Act. Ld. Counsel for the appellant relied on the copy of encumbrance certificate produced to show that mortgage in favour of first respondent financial institution is not reflected in the encumbrance certificate, therefore, appellant has to be considered as a bona fide purchaser.
Even in the SARFAESI Application, it was stated that when the appellant wanted original title documents executed in favour of the second respondent from the third respondent, he said to have informed that 2nd respondent informed him that original title deed dated 12.10.1999 executed in favour of 2nd respondent was misplaced. In the absence of original title deed in favour of the second respondent, appellant should have avoided going ahead with purchase of the property. Creation of equitable mortgage by deposit of title deed was not required to be registered when this mortgage was created. Mortgage in favour of the first respondent is not denied. Therefore, appellant cannot take shelter under the encumbrance certificate that there is no entry with regard to the mortgage in favour of the first respondent.
Demand Notice dated 10.6.2014 was issued demanding a sum of Rs.23,27,742.75p with future interest. It was followed by issuance of possession notice dated 26.9.2014.
Learned Counsel for the appellant heavily relied on the contents of Section 13(2) demand notice, wherein it is stated that borrower failed to repay equated monthly instalments with effect from 1.10.2001. Therefore, demand notice issued on 10.6.2014 , after 12 years from 1.10.2001 is barred by limitation. So also the other measures taken under the SARFAESI Act.
Countering this submission, Learned Counsel for the first respondent produced a Memo along with original Memorandum of Deposit of title deed dated 17.5.2000, letter dated 19.7.2003 addressed by the borrower to the first respondent, letter dated 17.11.2003 addressed by the borrower to the Asst. Commissioner, HDMC Library Building, Lamington Road, HUBLI 580 020 with a copy marked to the first respondent. Aforesaid letters had been produced to show that borrower had acknowledged his debt and liability to the first respondent in the year 2003 and therefore, the demand notice issued on 10.6.2014 is well within time.
Reading of letter dated 19.7.2003 shows that borrower was not in service due to some departmental action, therefore, he was not able to pay the dues. It is also stated that, “his financial position is very bad and he was unable to survive with his wife and three college going children. He decided to sell the property through LIC Housing Finance Limited so that loan balance can be cleared.” This letter clearly shows that borrower had acknowledged his loan liability with the first respondent financial institution and his intention to sell the property through LIC Housing Finance Limited to clear the loan.
In the letter dated 17.11.2003, he reiterated his offer to sell the property through LIC Housing Finance Limited. Thus, there is effective acknowledgment of debt/liability by the borrower in favour of the first respondent on 19.7.2003. Thus, demand notice issued on 10.6.2014 issued within 12 years from the date of acknowledgment of liability on 19.7.2003 is well within time and SARFAESI measures initiated in pursuance of demand notice are also in accordance with law.
No other grounds are raised by the appellant against the order of the Learned Presiding Officer, DRT, Bangalore passed in SA No.520/2014 dated 4.9.2015. Decision relied by the Learned Counsel for the appellant with regard to limitation aspect is not applicable to the facts and circumstances of the case when this Tribunal found that demand notice issued under Section 13(2) of the SARFAESI Act was issued within the period of limitation. The decisions relied on by the Learned Counsel for the appellant for the proposition that subsequent purchaser can take the defences available to the borrower, will not help the appellant to upset the order of lower Tribunal.
Thus, this Tribunal finds that there is no reason to interfere with the order of the Learned Presiding Officer, DRT, Bangalore dated 4.9.2015 passed in SA No.520/2014 and the same is confirmed.
In the result, Appeal RA(SA) 74/2017 is dismissed.
Parties are directed to bear their own costs.
Pending IAs, if any, stand closed.