State Bank of India vs Shri Brijesh Dubey, S/o Shri Mihilal Dubey

R. S. Kulhari, Chairperson

This appeal has been preferred under section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "the SARFAESI Act") challenging the order dated 29.07.2017 passed by the Tribunal below, whereby the securitization application (S.A.) filed by the respondent No. 1 was allowed.

The appellant-Bank granted cash credit limit to the respondent No. 1, which was secured by creation of equitable mortgage on his residential house. The borrower committed default in repayment of the loan. After classifying the account as NPA, the demand notice dated 28.08.2015 was issued under section 13 (2) of the SARFAESI Act followed by the possession notice dated 03.11.2015 of the said Act. Thereafter, the appellant-Bank published the sale-notice in two Newspapers on 06.11.2016 and the property was sold to the respondent No. 2-Auction Purchaser on 09.12.2016. However, no sale notice was issued or served to the respondent No. 1 till the auction of the property, but thereafter a letter dated 07.11.2016 was got acknowledged from the respondent on 17.12.2016.

The other interesting feature of the proceedings is that on the date of auction i.e. 09.12.2016, a letter was written in the name of the District Magistrate (D.M.), Shivpuri, on which the ADM directed the Tehsildar to take possession and physical possession was taken by the Bank on 19.01.2017 under the garb of such letter. The possession of the property was handed over to the auction purchaser on 21.03.2017. After taking possession on 19.01.2017, the Bank issued a letter dated 01.03.2017 to the respondent-borrower directing him to remove the household goods lying in the house within 15 days.

On the basis of letter dated 01.03.2017, the borrower filed the S.A. before the Tribunal below alleging that the demand notice, possession notice or the sale notice were never served and the possession was wrongly taken, with a prayer to set aside all the proceedings of the Bank. An application for condonation of delay was also filed, which was allowed by the Tribunal below vide its order dated 24.04.2017. The said order was not challenged, therefore, it has attained finality.

The Tribunal below vide impugned order dated 29.07.2017 quashed the sale conducted by the Bank on the ground that the physical possession was wrongly taken and 30 days' sale-notice was not given to the borrower. The Bank was directed to handover the physical possession to the applicant and also to pay the cost of Rs. 10,000/- to the borrower. Being aggrieved by the said order the present appeal has been filed.

The respondent-borrower appeared and filed reply. However, the respondent no. 2-auction did not appear despite service through paper publication, therefore, he was proceeded ex-parte.

Heard the learned counsels for the parties and perused the record.

Learned counsel for the appellant submits that the order of the D.M. was not under challenge in the S.A., thus the relief was given without any pleading and prayer. Further, the possession was taken in compliance of the order of the D.M., therefore, no illegality was caused. With regard to the sale notice, it was argued that though it was served to the borrower after auction of the property, but the borrower was having knowledge of the sale, therefore, no prejudice was caused to the borrower.

On the contrary, the learned counsel for the borrower-respondent contends that the possession was taken on 19.01.2017 under the garb of the order of the ADM, which was very much under challenge and even the limitation was taken from the letter given by the Bank informing about the letter of the D.M. Further, the Bank was required to serve 30 days' sale notice before auction as per mandatory requirement of Rule 8(6) of the Rules, 2002, but the same was not sent nor served to the borrower, therefore, the proceedings were rightly quashed.

Having heard the learned counsels for the parties and considering the material available on record, there is no dispute on the factual aspects that the sale notice was published on 6.11.2016 and the auction was conducted on 9.12.2016. No sale notice was served before the auction to the borrower and it was given only on 14.12.2016 showing the letter to have been issued on 7.11.2016.

Thus, it is admitted position of the Bank that no 30 days' sale notice prior to the auction of the property was served to the borrower, which is mandatory requirement, as laid down by the Hon'ble Supreme Court in Mathew Varghese Vs. M. Amritha Kumar and others, (2014) 5 Supreme Court Cases 610. The requirement of service of sale notice on the borrower/guarantor is in addition to the publication of the sale notice in the newspapers. Therefore, the Bank has utterly failed to follow the mandatory requirement of the statute. The delay of two months in challenging the sale notice has been condoned by the Tribunal below considering the facts of the matter and in my opinion, the same was rightly condoned. Thus, the sale was liable to be quashed because of the substantial irregularity caused by the Bank in serving the sale notice.

With regard to the physical possession, the Tribunal below has rightly observed that no procedure as provided under section 14 of the Act was followed by the Bank. The DM/ADM is not supposed to issue any direction for taking possession of the property without following due procedure. Even the letter dated 9.12.2016 was not ordered by the DM, to whom it was addressed, but the ADM, Shivpuri on 13.12.2016 directed the Tehsildar to act upon and on that basis, Tehsildar and the Bank officer have put the lock on the subject property. Thus, the physical possession was taken without following the procedure and in flagrant violation of the provisions of the rules, hence the same was rightly set aside by the Tribunal below.

The argument that there was no pleading/prayer with regard to quashing the order of the DM/ADM, is devoid of force. The SA-applicant has stated in limitation clause for having knowledge of the possession notice on the basis of the letter written on 1.3.2017 by the Bank. There is no proof on record that the borrower was ever informed earlier about the alleged DM's order. After receipt of this letter, The S.A. was filed within limitation challenging the physical possession as well as the relief was also sought for quashing the sale and the entire proceedings conducted till filing of the S.A., which includes the challenge to the physical possession of the property. Therefore, it cannot be said that the Tribunal below has granted any relief without or beyond the prayer.

Thus, it is apparent that the Bank has committed grave irregularities in conducting the sale as well as taking the physical possession. So the cost was rightly imposed by the Tribunal below. As such there is no ground for interference in the impugned order. Accordingly, the impugned order is affirmed and the appeal is dismissed. However, the parties shall bear their own costs with regard to this appeal.

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