Sri Srikanth Reddy Kasu vs Bank of India

Anil Kumar Srivastava, Chairperson

THE APPELLATE TRIBUNAL :

Instant appeal has arisen against judgment and order dated 14.12.2022, passed by Learned DRT-I, Hyderabad dismissing T.S.A. 3 of 2022 (Srikanth Reddy Kasu -vs- Bank of India & Another).

As per the pleadings of the parties, a Housing Loan of Rs.1.27 lac was sanctioned to the SARFAESI Applicant, Appellant herein, for purchase of a plot and for construction of building thereon. Schedule property was mortgaged to secure the loan. It is stated that the entire amount of loan was not released by the Bank as per the schedule. Accordingly, construction of the building got delayed. Rate of interest was increased from 7% to 10.5% per annum by the Bank without informing the Appellant. An amount of Rs.45.00 lac was deposited by the Appellant. Appellant came to know from his friends and relatives that Sale Notice dated 23.5.2022 was issued by the Bank fixing the auction on 27.6.2022. Objections against the Demand Notice were made which were not considered. It appears that a SARFAESI Application under Section 17 of the SARFAESI Act, 2002 (herein referred to as the Act) was filed by the Appellant challenging the action of the Bank. It is further stated that Possession Notice was not served upon the Appellant and it was not published in two leading newspapers. It was also not affixed on the secured assets. Sale Notice dated 23.5.2022 was not served upon the Appellant and was also not affixed on the secured assets and not published in two leading newspapers. It is further stated that the description of the property was wrong, boundaries of the property, in the Sale Notice dated 23.5.2022, were not given and the valuation report of the property was not obtained from the approved valuer. Provisions of Rules 8 (1), 8 (2), 8 (5), 8 (6), 8 (7), 9 (1) and 9 (3) of the Security Interest (Enforcement) Rules, were violated. Amendment was sought in the SARFAESI Application to the effect that action taken by the Bank, in pursuance of the Advocate Commissioner Notice dated 17.9.2022 in Criminal Proceedings No. M.P. No. 54 of 2022 in the file of Chief Judicial Magistrate, Medchal Malkajgiri, be set aside as illegal and against law.

Respondent Bank filed the opposition before the Learned DRT stating that the Housing Loan of Rs.1.27 lac was sanctioned to the Appellant for purchase of a plot and construction of the house on 18.11.2017 which was duly acknowledged and confirmed by the Appellant. Appellant was duly informed about the revision of interest on account of delay in constructing the building on 11.01.2022. Since Appellant failed to repay the loan as per the terms and conditions of the sanction letter, it was classified as N.P.A. on 20.01.2022. Demand Notice dated 21.1.2022 for Rs.1,48,25,807.78 was issued. Objections were made by the Appellant on 27.1.2022 which was duly replied by the Bank on 18.2.2022. Possession Notice was published on 01.4.2022 and symbolic possession was taken by the Bank. Possession Notice was also served upon the Appellant and was affixed on the secured assets and published in two newspapers. Sale Notice dated 23.5.2022 fixing the date of e-auction on 27.6.2022 was published in Hindu and Andhra Jyothi newspapers on 26.5.2022.

Valuation Report was obtained from the Government approved valuer and the reserve price was fixed at Rs.2.17 lac. In the e-auction, conducted on 27.6.2022, Respondent No. 2 stood as the highest bidder for an amount of Rs.2.32 lac who paid Rs.58.00 lac on 28.6.2022 as 25% of the bid amount.

In the meantime, Appellant moved an application, being I.A. 777 of 2022, in T.S.A. 3 of 2022 for stay of further proceedings wherein vide order dated 30.06.2022 confirmation of sale and issuance of Sale Certificate, including handing over physical possession, was stayed by the Learned DRT subject to the condition that the Appellant should deposit Rs.20.00 lac on or before 15.7.2022 and the balance Rs.20.00 lac on or before 29.7.2022. If any of the conditions are not complied, the stay order shall stand vacated. Only an amount of Rs.10,58,764.00 was received by the Bank on 15.7.2022. Since the Appellant did not comply the conditions imposed by the Learned DRT, Respondent No. 2/Auction Purchaser, deposited remaining 75% of the bid amount on 2.8.2022 and the Sale Certificate was issued on 6.8.2022. Respondent Bank also approached Chief Judicial Magistrate, Medchal Malkajgiri  under Section 14 of the Act wherein the Advocate Commissioner issued notice for handing over possession by 17.9.2022.

After hearing the Learned Counsel for the parties, Learned DRT framed the following two issues for consideration:

Whether the Appellant has established any valid ground for setting aside the e-auction sale of the application schedule property conducted by 1st Respondent Bank on 27.6.2022 and the consequential Sale Certificate dated 6.8.2022, issued by the 1st Respondent Bank in favour of 2nd Respondent?

To what relief?

Learned DRT arrived at a finding that the Bank has duly followed the provisions of Section 13 (2) 13 (3A), 13 (4) of the Act read with Rules 8 (1), 8 (2), 8 (5), 8 (6), 8 (7), and 9 (1) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as the Rules). It is further held that the property was sold for an appropriate amount and Rule 8 (5) was not violated. Accordingly, SARFAESI Application was dismissed.

I have heard the Learned Counsel for the parties and perused the record.

Learned Counsel for the Appellant would submit that Learned DRT has erred in recording a finding that the Bank has followed the procedure in accordance with law. It is further submitted that the Valuation Report, which was obtained by the Bank was not of an approved valuer. Further, the valuation report submitted by the Appellant herein was not considered by the Learned DRT. It is submitted that in the Sale Notice description of the property was not fully given. A structure was standing on the secured assets but the same is not mentioned in the Sale Notice. Had it been so, secured asset could have fetched more value than Rs.2.32 lac upon which the secured assets were auctioned.

It is further submitted that the Respondent Bank has not complied the provisions of Rule 8 (6) and 9 (1) of the Rules. Sale Notice was not served upon the Appellant; clear 30 days notice was not given to the Appellant.

Learned Counsel for the Appellant further submits that the Bank failed to comply the provisions of Section 13 (3A) of the Act. A representation was made by the Appellant which was not duly considered by the Bank. Learned Counsel would further submit that no notice of enhancement of interest was given to the Appellant, as required under the Circular of the Respondent Bank dated 3.5.2018.

Learned Counsel for the Appellant would further submit that the Appellant has deposited Rs.45.00 lac in his account but the same was not adjusted towards the principal amount rather the whole amount was only adjusted either towards interest or penalty.

Per contra, Learned Counsel for the Respondent Bank would submit that the Bank initiated the proceedings and proceeded in accordance with law. Loan was sanctioned for purchase of land as well as construction of the building. Construction was not completed within six months after expiry of moratorium period; accordingly, rate of interest was enhanced in accordance with the Circular dated 3.5.2018 which was well within the knowledge of the Appellant. It is further submitted that reply to the representation under Section 13 (3A) of the Act was duly communicated to the Appellant. E-auction sale proceedings were conducted in accordance with law.

Learned Counsel for Respondent No. 3/Auction Purchaser would submit that he is the bona fide purchaser for value. He made the deposit in accordance with law. Learned Senior Counsel for Respondent No. 3/Auction Purchaser would further submit that Bank has complied with the mandatory provisions of SARFAESI Act as well Rules.

Perusal of the application under Section 17 of the Act would reveal that relief sought was for setting aside the proceedings initiated by the secured creditor in pursuance of e-auction sale notice dated 23.5.2022 fixing the date of auction on 27.6.2022 be declared as null and void and illegal and further proceedings be also quashed. Specific ground is taken by the Appellant about violation of Rules 8 (6) and 9 (1) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as the Rules). It is borne out from the record that the secured assets have been sold and sale certificate has also been issued in favour of Respondent No. 3 herein, namely, Sri Jagan Mohan Pyrasani.

Now we have to look into the issue regarding validity of notice under Rule 8 (6) and 9 (1) of the Rules whether procedure, as prescribed under the law, is followed by the secured creditor or not?

Before dealing with the issue, it would be pertinent to observe that the Learned DRT, despite specific plea about the violation of Rules, have neither considered nor discussed nor recorded any reasoned finding on the issue rather a simple finding is recorded that there is no violation of Rules 8 (6) and 9 (1) of the Rules. At the very outset, such type of findings is bad in law which is arbitrary exercise of jurisdiction by the Learned DRT.

We are conscious of the fact that in a recent judgment in CELIR LPP -vs- Bafna Motors (Mumbai) Private Limited & Others [(2024 2 SCC 1] the Hon’ble Apex Court has dealt with all the issues relating to the auction sale as well as compliance of the provisions of the Act as well as the Rules. The Hon’ble Apex Court has dealt with the issue on the sanctity of public auction. Hon’ble the Apex Court has placed reliance upon a judgment in Valji Khimji And Company -vs- Official Liquidator of Hindustan Nitro Product (Gujarat) Limited & Others [(2008) 9 SCC 299] wherein it was held that once an auction is confirmed, the same can be interfered only on very limited grounds as otherwise no auction would ever be complete.

Hon’ble Apex Court in Bafna Motors (supra) has reiterated the case of K. Kumara Gupta -vs- Sri Markendaya and Sri Omkareswara Swamy Temple & Others [(2022) 5 SCC 710] wherein the Hon’ble Apex Court in paragraph 17 it has held that:

“17. The sale pursuant to the public auction can be set aside in eventuality where it is found on the basis of material on record That the property had been sold away at a throwaway price and/or on a wholly inadequate consideration because of the fraud and/or collusion and/or after any material irregularity and/or illegality is found in conducing/holding the public auction. After the public auction is held and the highest bid is received and the property is sold in a public auction in favour of a highest bidder, such a sale cannot be set aside on the basis of some offer made by third parties subsequently and that too when they did not participate in the auction proceedings and made any offer and/or the offer is made only for the sake of making it and without any serious intent. In the present case, as observed hereinabove, though Shri Jagat Kumar immediately after finalising the auction stated that he is ready and willing to pay a higher price, however, subsequently, he backed out. If the auction-sale pursuant to the public auction is set aside on the basis of such frivolous and irresponsible representations made by such persons then the sanctity of a public auction would be frustrated and the rights of a genuine bidder would be adversely affected."

Further Hon’ble Apex Court has reiterated in Case Law and has held in Eva Agro Feeds Private Limited -vs- Punjab National Bank [(2023) SCC OnLine 1138] wherein it was held that there can be no absolute or unfettered discretion on the part of the Liquidator to cancel an auction which is otherwise valid. Hence it was held by the Hon’ble Apex Court that in the case of Bafna Motors (supra) that :

“86. Thus, what is discernible from above is that, it is the duty of the courts to zealously protect the sanctity of any auction conducted. The courts ought to be loath in interfering with auctions, otherwise it would frustrate the very object and purpose behind auctions and deter public confidence and participation in the same.

Any other interpretation of the amended Section 13 (8) will lead to a situation where multiple redemption offers would be encouraged by a mischievous borrower, the members of the public would be dissuaded and discouraged from in participating in the auction process and the overall sanctity of the auction process would be frustrated thereby defeating the very purpose of the SARFAESI Act. Thus, it is in the larger public interest to maintain the sanctity of the auction process under the SARFAESI Act.”

“96. More than a decade back, this Court had expressed serious concern despite its repeated pronouncements in regard to the High Courts ignoring the availability of statutory remedies under the RDBFI Act and the SARFAESI Act and exercise of jurisdiction under Article 226 of the Constitution. Even after, the decision of this Court in Satyawati Tondon (supra), it appears that the High Courts have continued to exercise its writ jurisdiction under Article 226 ignoring the statutory remedies under the RDBFI Act and the SARFAESI Act.

Conduct of the Bank

The genesis of the entire case lies in the illegitimate conduct of the Bank in placing different concerns above the clear provisions of the law. First, there was failure on the part of the Bank to issue sale certificate in favour of the auction purchaser despite the fact that the entire payment of auction bid was made. Secondly, although the right of redemption clearly stood lapsed under Section 13 (8) of the SARFAESI Act and auction having taken place wherein full bid amount was received, yet the Bank proceeded to accept the offer of full payment of the Borrower which is clearly impermissible in law. Once the auction notice is published in accordance with Section 13 (8) of the SARFAESI Act, then unless and until the auction is held to be bad and illegal in the facts of the case, the right of redemption of mortgage is not available to the borrower.”

In view of the law laid down by the Hon’ble Apex Court, now we have to scrutinize whether the procedure, described in Rules 8 (6) and 9 (1) of The Rules, is followed by the secured creditors or not?

In the present case, admittedly a notice for sale of secured assets under Section 13 (8) of the SARFAESI Act, 2002 ( hereinafter referred to as the Act) read with Rules 8 (6) and 9 (1) of the Rules, was issued on 23.5.2022 wherein the date of sale was fixed on 27.6.2022. This notice was published in the newspaper on 26.5.2022 and affixed on the secured assets on 24.5.2022 and was acknowledged by the Borrower on 25.5.2022. Auction sale was conducted on 27.6.2022. Although there is some dispute regarding date of service of the notice but it is clear from the records that simultaneous notice was issued under 8 (6) and 9 (1) of the Rules on 23.5.2022. Now we have to look into the validity and legality of the notice dated 23.5.2022 issued simultaneously in one notice under Rules 8 (6) and 9 (1) of the Rules. Section 13 (8) of the SARFAESI Act reads as under :

“(8) Where the amount of dues of the  secured creditor together with all costs, charges expenses incurred by him is tendered to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets,-

(i) the secured assets shall not be transferred by way of lease, assignment or sale by the secured creditor; and

(ii) in case, any step has been taken by the secured creditor for transfer by way of lease or assignment or sale of the assets before tendering of such amount under this sub-section, no further step shall be taken by such secured creditor for transfer by way of lease or assignment or sale of such secured assets.]”

Rules 8 and 9 of Security Interest (Enforcement) Rules, 2002 read as under:

“8. Sale of immovable secured assets -

(1) Where the secured asset is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix-IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property.

(2) The possession notice as referred to in sub-rule (1) shall also be published, as soon as possible but in any case not later than seven days from the date of taking possession, in two leading newspapers, one in vernacular language having sufficient in that locality, by the authorised officer.

(2A) All notices under these rules may also be served upon the borrower through electronic mode of service, in addition to the modes prescribed under sub-rule (1) and sub-rule (2) of rule 8.]

(3) In the event of possession of immovable property is actually taken by the authorised officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by in his custody as an him, who shall take as much care of the property owner of ordinary prudence would, under the similar circumstances, take of such property.

(4) The authorised officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of.

(5) Before  effecting  sale  of  the  immovable  property referred to in sub-rule (1) of rule 9, the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:-

(a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or

(b) by inviting tenders from the public;

(c) by holding public auction including through e-auction mode; or

(d) by private treaty:

(6) The authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5):

(7) Every  notice  of  sale  shall  be  affixed  on  the conspicuous part of the immovable the sale, on the web-site of the secured creditor, which shall include-

(a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor;

(b) the secured debt for recovery of which the property is to be sold;

(c) reserve price of the immovable secured assets below which the property may not be sold;

(d) time and place of public auction or the time after which sale by any other mode shall be completed;

(e) deposit of earnest money as may be stipulated by the secured creditor;

(f) any other terms and conditions, which the authorised officer considers it necessary for a purchaser to know the nature and value of the property.

(8) Sale by any method other than public auction or public tender, shall be on such terms as may be settled between the secured creditor and the proposed purchaser in writing.

Time of sale, issue of sale certificate and delivery of possession, etc.

(1) No sale of immovable property under these rules, in first instance shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the   proviso to  sub-rule (6) of rule 8 or notice of sale has been served to the borrower:

(2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor:

(3) On every sale of immovable property, the purchaser shall immediately, i.e. on the same day or not later than next working day, as the case may be, pay a deposit of twenty-five per cent. of the amount of the sale price, which is inclusive of earnest money deposited, if any, to the authorised officer conducting the sale and in default of such deposit, the property shall be sold again.

(4) The balance amount of purchase price payable shall be paid by the purchaser to the authorised officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period ¹[as may be agreed upon in writing between the purchaser and the secured creditor, in any case not exceeding three months.

(5) In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited [to the secured creditor and the property shall be resold and the defaulting purchaser shall forfeit all claims to the property or to any part of the sum for which it may be subsequently sold.

(6) On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorised officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the form given in Appendix-V to these rules.

(7) Where the immovable property sold is subject to any encumbrances, the authorised officer may, if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him:

(8) On such deposit of money for discharge of the encumbrances, the authorised officer [shall] issue or cause the purchaser to issue notices to the persons interested in or entitled to the money deposited with him and take steps to make the payment accordingly.

(9) The authorised officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified in sub-rule (7) above.

(10) The certificate of sale issued under sub-rule (6) shall specifically mention that whether the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not.”

Issue of notice, under Rule 8 (6) and 9 (1) of the Rules, is not res integra which has been settled by the Hon’ble Apex Court in the case of Bafna Motors (supra). The Hon’ble Apex Court in paragraph 26 of the judgment has framed the following issues apart from other issues :

(a) Whether the High Court was justified in exercising its writ jurisdiction under Article 226 of the constitution more particularly when the alternative remedy available to the Borrowers had already been availed of?

(b) Whether the confirmation of sale by the Bank under Rule 9 (2) of the Rules of 2002 invests the successful auction purchaser with a vested right?

(c) What  is  the impact of the amended Section 13 (8) of the  SARFAESI Act on the Borrowers' right of redemption in an auction conducted under the SARFAESI Act? Or in other words, what is the effect of amendment to Section 13 (8) of the SARFAESI Act read with Section 60 of the Act 1882?

(d) Whether a Bank after having confirmed the  sale under Rule 9 (2), can withhold the sale certificate under Rule 9(6) of the Rules of 2002 and enter into a private arrangement with a borrower?

(e) Whether the High Court under Article 226, could have applied equitable considerations to override the outcome contemplated by the statutory auction process prescribed by the SARFAESI Act?

(f) Whether the right of redemption of mortgage stood extinguished upon publication of notice of auction? Or in other words till what point of time the right of redemption of mortgage can be exercised in respect of secured asset under the SARFAESI Act?

(g) Whether the decisions of Telangana High Court in the case of Concern Readymix (supra) and Amme Srisailam (supra) lay down the correct position of law?

Dealing with the right to redemption, as provided under Section 13 (8) of the Act, The Hon’ble Apex Court has placed reliance upon Narandas Karsondas -vs- S.A. Kamtam & Another (1977 (3) SCC 247 wherein in paragraph 37 it was held :

“37. In view of the fact that only on execution of conveyance, ownership passes from one party to another it cannot be held that the mortgagor lost the right of redemption just because the property was put to auction. The mortgagor has a right to redeem unless the sale of the property was complete by registration in accordance with the provisions of the Registration Act."

In view of the fact that only on execution of conveyance ownership passes from one party to another, it could not be held that the mortgagor lost the right of redemption just because property was put to auction. The mortgagor has a right to redemption unless the sale of the property was complete by registration in accordance with the provisions of the Registration Act. This was the situation when Section 13 (8) of the SARFAESI Act was not amended. It was held by the The Hon’ble Apex Court in paragraph 49 of Bafna Motors (supra) that :

“49. Thus, prior to the amendment of Section 13 (8) of the SARFAESI Act, this Court consistently held, that the borrower shall continue to have a right of redemption of mortgage until the execution of the conveyance of the secured asset by way of a registered instrument. Furthermore, this Court in Mathew Varghese (supra) found no inconsistency between the unamended Section 13 (8) of SARFAESI Act and the general right of redemption under Section 60 of the Act 1882.”

Subsequent thereto, Section 13 sub section 8 of the Act got amended on 1st September, 2016 and the words “any time before the date fixed for sale or transfer” of the original provision was replaced with “at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets.”

Scope of amended Section 13 (8) of the Act was considered by the Division Bench of the Hon’ble Andhra Pradesh High Court in Sri Sai Annadhatha Polymers & Another -vs- Canara Bank (2018 SCC OnLine Hyderabad 178) wherein it was held that the right of the borrower to redeem the secured asset was available till the sale or transfer of such secured asset. The Hon’ble Court went on to say that the amended provisions of Section 13 (8) of the SARFAESI Act brought in a radical change inasmuch as the right of the borrower to redeem the secured asset would stand extinguished thereunder on the very date of publication of the notice for public auction under Rule 9(1) of the Rules. Hon’ble Apex Court has placed reliance upon its own decision in Mathew Varghese -vs- M. Amritha Kumar & Others [(2014) 5 SCC 610].

Subsequently, in the case of K.V.V. Prasad Rao Gupta -vs-State Bank of India (2021 SCC OnLine TS 328) the law laid down in Sri Sai Annadhatha Polymers (supra) was reiterated.

The Hon’ble Apex Court in Bafna Motors (supra) has also placed reliance upon its own judgment in the case of Shakeena & Another -vs- Bank of India & Others [(2021) 12 SCC 761] wherein it was held in paragraph 55 that:

"15. Be it noted that on 1-9-2016 amendment to Section 13 (8) of the 2002 Act came into force as a result of which the dues of the secured creditor together with all costs, charges and expenses incurred by him are required to be tendered to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets.”

Hence, in paragraph 59 of the Bafna Motors (supra) Hon’ble Apex Court has held that :

“59. Thus, from the aforesaid, it is evident that the Telangana High Court in the Amme Srisailam (supra) has not referred to or looked into its earlier decision in the case of K.V.V. Prasad Rao Gupta (supra). The decision of the Andhra Pradesh High Court in Sri Sai Annadhatha Polymers (supra) was also not been looked into by the Telangana High Court in the case of Amme Srisailam (supra). It appears that the Telangana High Court in Concern Readymix (supra) and Amme Srisailam (supra) as well as the Punjab and Haryana High Court in the case of Pal Alloys (supra) have taken the view that the amended Section 13 (8) of the SARFAESI Act does not exclude the application of Section 60 of the Act 1882 in view of Sections 35 and 37 respectively of the SARFAESI Act.”

Hon’ble Apex Court specifically deals with the amendment of Section 13 (8) of the SARFAESI Act in Bafna Motors (supra). It was held in paragraph 68 that the right of redemption of mortgage is available to the Borrower under the SARFAESI Act only till the publication of auction notice and not thereafter, in the light of the amended Section 13 (8) of the Act. It was further held that the provisions of Transfer of Property Act would not be applicable in addition to the SARFAESI Act as statutory right of redemption in the Act of 1882 will not be applicable to the SARFAESI Act at least in view of the amended Section 13 (8) of the Act and any right of redemption of the Borrower must be found in terms of Section 13 (8). It was further held in paragraphs 80 and 81 that :

“80. To read it otherwise in a strict manner as to only stipulating a restriction upon the secured creditor and not on the borrower's right of redemption would lead to a very chilling effect, where no auction conducted under the SARFAESI Act would have any form of sanctity, and in such a situation no person would be willing to come forward and participate in any auction due to the fear and apprehension that despite being declared a successful bidder, the borrower could still at any time come and redeem the mortgage and thereby thwart the very auction process.

Such a scenario is all the more worrisome, because the general public who participate in such auctions are often neither aware nor informed by the secured creditors conducting the auctions, that as long as the sale certificate is not issued, they will not have a right in the said asset and that the borrower whose asset is being auctioned could sweep-in and redeem the mortgage any time, and thereby thwart their rights and the very auction process.”

It was further held in paragraph 88 that :

“88. In view of the aforesaid discussion, we hold that as per the amended Section 13 (8) of the SARFAESI Act, once the borrower fails to tender the entire amount of dues with all cost & charges to the secured creditor before the publication of auction notice, his right of redemption of mortgage shall stand extinguished / waived on the date of publication of the auction notice in the newspaper in accordance with Rule 8 of the Rules of 2002.”

Ultimately, Hon’ble Apex Court in paragraph 104 held that :

“x x x x However, the amended provisions of Section 13 (8) of the SARFAESI Act, make it clear that the right of the borrower to redeem the secured asset stands extinguished thereunder on the very date of publication of the notice for public auction under Rule 9 (1) of the Rules of 2002. In effect, the right of redemption available to the borrower under the present statutory regime is drastically curtailed and would be available only till the date of publication of the notice under Rule 9 (1) of the Rules of 2002 and not till the completion of the sale or transfer of the secured asset in favour of the auction purchaser.”

It was further specifically held that the decision of the Telangana High Court in the case of Concern Readymix -vs- Authorised Officer, Corporation Bank (2018 SCC OnLine Hyderabad 783, Amme Srisailam -vs- Union Bank of India, (2022 SCC OnLine AP 3484) and the judgment of The Hon’ble Punjab & Haryana High Court in the case of M/s. Pal Alloys & Metal India Private Limited (2021 SCC OnLine P&H 2733) has not laid down the correct position of law. However, the decisions of the Hon’ble Andhra Pradesh High Court in Sri Sai Annadhatha Polymers (supra) and Hon’ble Telangana High Court in K.V.V. Prasad Rao Gupta (supra) have laid down the correct position of law while interpreting the amended Section of 13(8) of the SARFAESI Act.  At this stage it would be apposite to refer to the judgment of the Hon’ble Andhra Pradesh High Court in Sri Sai Annadhatha Polymers (supra) wherein considering the amendment of Section 13 (8) of the Act, it was held that post amendment scenario inevitably requires a clear thirty days notice period to be maintained between issuance of the sale notice under Rule 8 (6) of the Rules and the publication of the sale notice under Rule 9 (1) of the Rules thereof as the right of redemption available to the Borrower, in terms of Rule 8 (6) of the Rules, as pointed out in Mathew Varghese (supra), stands extinguished upon publication of the sale notice under Rule 9 (1) of the Rules. (emphasis supplied) In the case of Sri Sai Annadhatha Polymers (supra) notice under Rule 8 (6) was issued on 1.3.2018 and publication of the sale notice in newspaper under Rule 9 (1) was on 3.3.2018. Hence it was held that there is a clear violation of statutory mandate which vitiates the exercise undertaken by the Bank. These findings have been confirmed and affirmed by the Hon’ble Apex Court in the case of Bafna Motors (supra). Hence it is crystal clear that there should be a clear thirty days notice period being maintained between the issuance of the sale notice under Rule 8 (6) of the Rules and the publication of the sale notice under Rule 9 (1) of the Rules as right of redemption available to the Borrower in terms of Rule 8 (6) of the Rules stands extinguished on publication of the sale notice under Rule 9 (1) of the Rules.

Now, in view of the aforesaid legal scenario, we have to examine the facts of the present case wherein a combined notice, under Rules 8 (6) and 9 (1) of the Rules, was issued on 23.5.2022 and the Sale Notice was published in the newspaper on 26.5.2022 fixing the auction sale on 27.6.2022.

Hon’ble Apex Court, in the case of Bafna Motors (supra), has reiterated the laws laid down in National Spot Exchange Limited -vs- Anil Kohli, Resolution Professional for Dunar Foods Limited [(2022) 11 SCC 761] that :

“102. x x x x where the law is clear the consequence thereof  must follow. The  High Court  has no  option  but implement the law. The relevant observations  made  in  it are being reproduced below: -

"15.1. In Mishri Lal [BSNL -vs- Mishri  Lal, (2011) 14 SCC  739:  (2014)  1 SCC (L&S) 387], it is observed that the  law  prevails  over  equity  if  there  is  a  conflict. It is observed further that equity can only supplement the law and not supplant it.

15.2. In Raghunath Rai Bareja [Raghunath Rai Bareja -vs-Punjab National Bank, (2007) 2 SCC 230], in paras 30 to 37, this Court observed and held as under: (SCC pp. 242-43)

"30. Thus, in Madamanchi Ramappa -vs-Muthaluru Bojjappa [AIR 1963 SC 1633] (vide para 12) this Court observed: (AIR p. 1637)

12.... [What is administered in Courts is justice according to law, and considerations of fair play and equity however important they may be, must yield to clear and express provisions of the law."

In Council for Indian School Certificate Examination v. Isha Mittal [(2000) 7 SCC 521] (vide para 4) this Court observed: (SCC p. 522)

‘4.... Considerations of equity cannot prevail and do not permit a High Court to pass an order contrary to the law.’

Similarly, in P.M. Latha v. State of Kerala [(2003) 3 SCC 541: 2003 SCC (L&S) 339] (vide para 13) this Court observed: (SCC p. 546)

'13. Equity and law are twin brothers and law should be applied and interpreted equitably but equity cannot override written or settled law.

In Laxminarayan R. Bhattad -vs- State of Maharashtra [(2003) 5 SCC 413] (vide para 73) this Court observed: (SCC p. 436)

‘73. It is now well settled that when there is a conflict between law and equity the former shall prevail.'

Similarly, in Nasiruddin -vs- Sita Ram Agarwal [(2003) 2 SCC 577] (vide para 35) this Court observed: (SCC p. 588)

'35.  In  a case where the statutory provision is plain and unambiguous, the court shall not interpret the same in a different manner, only because of harsh consequences arising therefrom.'

Similarly, in E. Palanisamy -vs- Palanisamy [(2003) 1 SCC 123] (vide para 5) this Court observed: (SCC p. 127)

'5. Equitable considerations have no place where the statute contained express provisions.

In India House -vs- Kishan N. Lalwani [(2003) 9 SCC 393] (vide para 7) this Court held that: (SCC p. 398)

'7. ... The period of limitation statutorily prescribed has to be strictly adhered to and cannot be relaxed or departed from for equitable considerations.’ …”

In the present case, as has been noted above, notice under Rules 8 (6) and 9 (1) of the Rules was issued on 23.5.2022 and the sale notice was published in newspaper on 26.5.2022 fixing the auction sale on 27.6.2022. There is a clear violation of the statutory amended Rules 8 (6) and 9 (1) of the Rules in the context of amended provisions of Section 13 (8) of the SARFAESI Act. When specific mandatory provisions are made in the Act, then no other interpretation can be made. As has been held in the case of Nasiruddin -vs- Sita Ram Agarwal [(2003) 2 SCC 577] that when a statutory provision is plain and unambiguous, the Court shall not interpret the same in a different manner only because harsh consequences are arising therefrom. Hence when the provisions of Rule 8 (6) and 9 (1) are unambiguous and clear no other interpretation can be made. Action of the Bank, in bringing the secured assets to sale under the notice date 23.5.2022 issued under Rule 8 (6) and the auction sale notice dated 23.5.2022 issued under Rule 9 (1) thereof published in newspaper on 26.5.2022, cannot be sustained.

Learned Counsel for Appellant submitted that valuation of the secured assets were not properly made. Valuation report was not obtained from approved valuer. Property was sold for lesser value although it could have fetched much more value.

Per contra, Learned Counsel for the Respondent Bank submits that reserve price was fixed on the basis of the valuation approved by the approved valuer. Property was sold for Rs. 217.00 lac which was more than the reserve price.

As would be evident from the records, the reserve price was fixed by the Authorised Officer on the basis of the report of the approved valuer of the Bank to the tune of Rs.2.17 lac and the successful bidder bid for Rs.2.32 lac.

As far as the report of the valuer is concerned, it is well discussed report stating the grounds and criteria for calculating the valuation of the property. Although SARFAESI Applicant made an attempt to revert the same by filing the report of his valuers which could not be sustained in view of the fact that those reports are subsequent and cannot stand the test of law. Report of the approved valuer of the Bank is based on the materials on record. Accordingly, I am of the considered view that finding of the Learned DRT on this count need no interference.

Challenge is also made regarding non-compliance of Section 13 (3A) of the Act as well as under valuation of the secured assets at the time of fixing of the reserve price. As far as question of compliance of Rule 13 (3A) is concerned, objection to the demand notice was allegedly sent by the Appellant on 27th January, 2022. A reply was sent by the Bank on 18.02.2022 wherein it is stated that the representation was received on 11.2.2022 which was considered and did not find favour of the Bank. A challenge is made on the issue that firstly, reply was not submitted within fifteen days of the representation; secondly, it was not a reasoned reply. I do not find any force in the submission. It is in the reply that representation was received on 11.2.2022. Accordingly, reply was sent within time and in accordance with the provisions of Section 13 (3A) of the Act after considering the assertions made by the Borrower. Accordingly, I am of the considered view that there is no illegality committed by the Bank in making compliance of Section 13 (3A) of the Act.

Learned Counsel for Appellant submits that the rate of interest was enhanced without any notice top the Appellant. Learned Counsel for Respondent would submit that the date of interest was enhanced as per the agreement as well as the Master Circular of the Bank.

It is further submitted by the Learned Counsel for Appellant that notice under Section 13 (2) of the Act is bad in law.

As far as both these pleas are concerned, they were not challenged in the SARFAESI Application. Accordingly, now in appeal Appellant cannot raise the pleas which have not been taken in the application under Section 17 of the Act.

On the basis of the discussion made above, I am of the considered view that there is a violation of the mandatory provisions of Rules 8 (6) and 9 (1) of the Rules in conducting the auction sale. Accordingly, the SARFAESI Application is liable to be allowed to an extent setting aside the sale notice dated 23.5.2022 and consequentially the auction sale, conducted on 27.6.2022, cannot be sustained. Accordingly, appeal deserves to be allowed and the impugned order is liable to be set aside.

ORDERED

Appeal is allowed. The impugned order passed by the Learned DRT-I, Hyderabad, dated 14.12. 2022 is set aside to an extent that the sale notice dated 23.5.2022 is violative of the mandatory provisions of Rules 8 (6) and 9 (1) of the Security Interest (Enforcement) Rules.

Accordingly, the auction sale conducted on 27.6.2022 is also set aside although the secured creditor would be at liberty to proceed again in accordance with law. Secured creditors, i.e. Respondents No. 1 and 2, are hereby directed to return the bid amount deposited by the Respondent No. 3, i.e. Auction Purchaser, with interest at the rate of 7% from the date of deposit till the date of actual payment. Payment should be made within a period of one month from today.

No order as to costs.

Copy of the order be supplied to Appellant and the Respondents and a copy be also forwarded to the concerned DRT.

File be consigned to Record room.

Order signed, dated and pronounced in open Court.