State Bank Of Patiala vs Hargobind Fashions (Pvt.) Ltd.

S.N.H. Zaidi, J

This Appeal impugns the judgment and order dated 5th June, 2009 passed by D.R.T.-1 Delhi in S.A. No. 37/2006 whereby the possession notice dated 24th November, 2006 has been quashed and the Bank has been directed to hand over possession of the property in question to the S.A. applicants. The facts giving rise to this Appeal, in brief, are that the appellant Bank had granted certain credit facilities, i.e. Packing Credit Limit (P.C.L.) for Rs. 20 lacs, Bank Guarantee for Rs. 5 lacs and Foreign Bill Purchase to respondent No. 1 Company on execution of loan and Security documents and creation of equitable mortgage of property bearing No. A-9, Hauz Khas, New Delhi by Smt. Shakuntla Devi in favour of the Bank. The Directors of the Company, namely, Ms. Seema Sharma and Pritpal Singh executed balance confirmation letters dated 19th May, 1992 acknowledging the liability qua the P.C.L. and Foreign Bill Purchase. When the borrower Company defaulted in repayment of the loan, the Bank sent a notice dated 12th April, 1993 through its Counsel calling upon the borrower/guarantors mortgagor to pay the outstanding balance of Rs. 41,21,878/- and filed Original Application No. 7/1995 on 20th July, 1994 against them for the recovery of Rs. 61,94,043,97 along with pendente lite and future interest. The Original Application is still pending disposal before the D.R.T. concerned.

After the enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act) the Bank issued a demand notice under Section 13(2) thereof to the borrower/guarantors, claiming an amount of Rs. 5,29,39,317.97, which was replied to by the guarantor Pritpal Singh through his Counsel, vide letter dated 18th October, 2004, stating inter alia that the mortgagor Smt. Shakuntla Devi had died on 18th October, 1993. The Bank issued another notice dated 23rd September, 2006 under Section 13(2) of the SARFAESI Act to the borrower/guarantors as well as to the legal representatives (LRs) of the deceased mortgagor. The borrower/guarantors sent an objection dated 20th November, 2006 qua that notice through their Counsel, which was replied to by the Bank vide letter dated 8th December, 2006. The Bank also issued notice dated 24th November, 2006 under Section 13(4) of the said Act for taking the possession of the mortgaged property and published it in the newspapers, Feeling aggrieved with the measures of the Bank, the borrower Company and one of its Directors Ms. Seema Sharma filed S.A. No. 37/2006 on 27th November, 2006 before D.R.T.-1, Delhi. The Bank contested the S.A. and the learned Tribunal below allowing the S.A. has quashed the possession notice and has directed the Bank to restore the possession of the property in question to the S.A. applicants by the order impugned.

I have heard Mr. Tyagi, the learned Counsel appearing for the appellant Bank and Mr. Sanjeev Bhandari, the learned Counsel for the respondents and perused the record. The appellant has also filed its written submissions.

The learned Tribunal below has allowed the S.A. mainly on three counts, namely, (i) possession notice dated 24th November, 2006 was barred by limitation, (ii) the applicant did not comply with the provisions of Rule 8(2) of the Security Interest (Enforcement) Rules, 2004 (for short, the Enforcement Rules) and (iii) Original Application No. 7/1995 was abated qua Smt. Shakuntla Devi vide order dated 11th January, 2002 but the Bank did not file any application for setting aside the abatement.

I will take up the issue of limitation after dealing with the remaining issues. The Tribunal below has held in respect of Rule 8(2) of the Enforcement Rules that since the Bank has failed to show that the possession notice was published in any newspaper in compliance of the said sub-rule; as such the proceedings under Section 13(4) of the SARFAESI Act were irregular and liable to be set aside. It has also observed that the Bank had neither said in its written statement that the possession notice was published in any newspapers nor had produced any evidence qua its publication and relying upon the observations of the DRAT, Kolkata in U.C.O. Bank v. Randhir Chakraborty, 2008 (2) Bank C.L.R. 449 and D.R.A.T. Chennai, in Vysya Co-operative Bank Ltd. v. B.V. Govindraj II (2008) BC 99, that the compliance of Rule 8(2) is mandatory and its failure would vitiate the proceedings initiated under Section 13(4), has held that the compliance of this sub-rule is not proved. Mr. Tyagi has, however, contended that since no plea qua the compliance of Rule 8(2) was raised in the S.A., therefore, nothing was said in this regard in the written statement and no proof showing the compliance thereof was accordingly filed. He has contended that the possession notice was duly published in the New Delhi editions of the newspapers 'The Indian Express' and 'The Financial Express' on 30th November, 2006 and in 'Jansatta' in Hindi language on 1st December, 2006 as well as on 16th December, 2006. The photocopies of the publication in the newspaper have been filed by the appellant as Annexure A-5 (pages 85-87) to this Appeal. Rule 8(2) of the Enforcement Rules, as it stood in 2006, i.e. prior to its amendment by S.O. 1837(E) dated 26th October, 2007 had mandated that:

(2) The possession notice referred to in Sub-rule (1) shall also be published in two leading newspapers, one in vernacular language having sufficient circulation in that locality by the Authorized Officer.

Annexure A-5 clearly shows that the Authorized Officer had duly complied with the requirement of the above sub-rule by publishing the possession notice in the newspaper and the finding of the Tribunal below in this regard, being contrary to the factual matrix is not sustainable.

The Tribunal below has observed that the guarantor/mortgagor Smt. Shakuntla Devi was already dead when Original Application No. 7/1995, impleading her defendant No. 4, was filed on 20th July, 1994 as she had expired on 18th October, 1993. It has further observed that though defendant Nos. 1 to 3 in para 5 of their written statement had disclosed in 1995 that Smt. Shakuntla Devi had died on 18th October, 1993, yet the Bank took no steps to bring her LRs on record. It has also observed that the proceedings of the original application qua Smt. Shakuntla Devi were abated, vide order dated 11th January, 2002, but despite that the Bank did not file any application for setting aside the abatement. This observation has been disputed by Mr. Tyagi with the contention that an application I.A. No. 151/2007 (Annexure A-15, pages 163-175) was filed in the Original Application by the Bank on 5th April, 2007 which was pending disposal before the D.R.T. when the order impugned dated 5th June, 2009 was passed by the Tribunal below. He has, however, not disclosed the fate of that application in his written submissions. The circumstances of the case show that although the factum of death of defendant No. 4 Smt. Shakuntla Devi on 18th October, 1993 had come on record of the original application with the filing of the written statement by the remaining respondents in 1995, yet since the Bank took no steps for bringing her LRs on record, the original application was ultimately abated qua her by the Tribunal below, vide order dated 11th January, 2002. Even thereafter the Bank kept on sleeping for another five years and filed application (I.A. No. 151/2007) for setting aside the abatement on 5th April, 2007. The law relating to abatement, as per Order 22 of C.P.C., applies on the death of a party during the pendency of a suit, but where the defendant was already dead before the institution of the suit, the provisions of the said order will have no application. In the instant case also, that lone mortgagor of the property in question had died prior to the institution of the original application, as such this could be a relevant circumstance for the purposes of original application, but the death of a mortgagor does not affect the right of a secured creditor in respect of the enforcement of its security interest qua the mortgaged property under the SARFAESI Act, as the property would devolve upon the LRs of the deceased mortgagor along with the mortgage. In view of this legal matrix, failure on the part of the appellant Bank to bring on record the LRs of the deceased mortgagor in the original application would have no adverse effect so far as the legality of the actions taken by the secured creditor qua the secured asset under the SARFAESI Act is concerned.

So far as the question of limitation qua the measures taken by the Bank in respect of the secured asset is concerned, Section 36 of the SARFAESI Act provides that, "No secured creditor shall be entitled to take all or any of the measures under Sub-section (4) of Section 13, unless his claim in respect of the financial asset is made within the period of limitation prescribed under the Limitation Act, 1963." The period of limitation for taking the measure to enforce the payment of money secured by a mortgage of an immovable property, under Article 62 of the Limitation Act, is 12 years from the date when the money sued for becomes due.

In the instant case, a notice dated 12th April, 1993 was sent by the Bank's Counsel to the respondents claiming certain amount from them and, as per the Bank's case, the loan was also recalled through that notice and since the time allowed for payments by that notice had expired on 30th April, 1993, as such the limitation period of 12 years was expired on 29th April, 2005. Mr. Tyagi has, however, contended that the Bank had issued a demand notice under Section 13(2) of the SARFAESI Act on 30th September, 2004, i.e. prior to the expiry of the limitation period on 29th April, 2005, and since one of the guarantors, viz., Pritpal Singh had partly acknowledged the liability in his reply sent to that notice on 18th October, 2004, therefore, the period of limitation would again run from the said date. In this regard he has relied upon the judgment of the Madras High Court in A. Venkatramani v. LIC Housing Finance Ltd., (2007) 135 Com. Cas. 514, where it has been observed that subsequent acknowledgement of liability shall also be taken into consideration for calculating the period of 12 years as contemplated in Section 36 of the SARFAESI Act. Mr. Tyagi relying heavily on the aforesaid reply dated 18th October, 2004 (page 72) has also contended that the learned Tribunal below, while holding that the measure of possession taken by the Bank was barred by limitation, did not consider the effect of the said acknowledgement of one of the borrowers Pritpal Singh in the light of Section 18 of the Limitation Act. The said section reads as under:

Effect of acknowledgement in writing--(1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgement was so signed.

(2) Where the writing containing the acknowledgement is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received.

Explanation--For the purpose of this section,--

(a) An acknowledgement may be sufficient though it omits to specify the exact nature of the property or right, or avers the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set-off, or is addressed to a person other than a person entitled to the property or right;$$

(b) The word "signed" means signed either personally or by an agent duly authorized in this behalf; and

(c) An application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right.

The above provision clarities that if the party, against whom any property or right is claimed, acknowledges the liability in writing under his signature before the expiration of the period of limitation for a suit or application in respect of such property or right, a fresh period of limitation would reckon from the date when such acknowledgement was signed. In view of this legal proposition, it is to be seen as to whether Pritpal Singh had acknowledged any liability, whether wholly or in part, in the reply dated 18th October, 2004 sent qua the claim of Rs. 5,29,39,317.97 demanded through the Bank's notice dated 30th September, 1994. Since the appellant's Counsel is mainly relying upon this document in respect of his contention qua the issue of limitation, therefore, it would be pertinent to reproduce the entire reply, which says that:

Reference: Notice dated NIL under Section 13(2) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security interest Act; addressed to Shri Pritpal Singh s/o Shri Karam Singh, E-9, Hauz Khas, New Delhi

Sir,

My client Shri Pritpal Singh s/o Shri Karam Singh, E-9, Hauz Khas, New Delhi has placed before me the above referred notice for submitting reply thereto. Therefore, under the instruction and on his behalf, the reply to your aforesaid undated notice is as under--

(1) Notice is frivolous and does not contain correct statement. Hargobind Fashion Pvt. Ltd. (for short the firm) took only PCL facility that too for Rs. 5.00 lacs. The said firm never enjoyed CCL or any other credit facility much less any one as wrongly stated in your notice.

(2) The said firm never availed any C.C.L. facility as alleged in your notice under reply. Entire amount has been shown as due on account of C.C.L. which in fact was never obtained/availed by the said firm.

(3) It is surprising and shocking as to how the P.C.L., limit of Rs. 5.00 lacs swell to give rise to your bewildering claim of Rs. 5,29,39,317.97 which has remained unexplained and it requires to be explained by you.

(4) Your claim of Rs. 5,29,39,317.97 besides being highly inflated and exaggerated beyond proportions, is hopelessly time barred.

(5) It is within your knowledge that proceedings in Original Application being Original Application No. 7/95 filed by you before the D.R.T., Delhi have been stayed by D.R.A.T., New Delhi vide order dated 3rd December, 2002 as the Original Application No. 7/95 filed by you before D.R.T., is liable to be dismissed in view of pre-emptory order dated 21st April, 1999 passed by D.R.T.

(6) Since your claim before D.R.T. was/is frivolous you deliberately did not file Statement of Account before D.R.T. along with Original Application No. 7/95 nor you have furnished the details in your notice under reply while making a bogus claim of Rs. 5,29,39,317.97. It is apparent that your claim is bogus inasmuch as P.C.L. facility of Rs. 5.00 lacs cannot swell to Rs. 5,29,39,317.97 from 1991 as claimed wide notice under reply. Your notice is, therefore, deficient in information as to how this huge amount accrued against the firm.

(7) Your action before D.R.T. was similarly deficient as the Original Application was filed without Statement of Account obviously because the amount claimed by you before the D.R.T. had not accrued against the firm. No evidence was led by you before D.R.T. to establish the amount legally recoverable against the firm as claimed in Original Application No. 7/95. There is absolutely no evidence whatsoever to substantiate your bogus claim.

(8) The amount claimed by you vide notice under reply is clearly astronomical and has no basis and it further establishes that you have not been maintaining the books of account in accordance with the Banking norms. That was also one of the reasons as to why the Bank did not file Statement of Account before D.R.T. in Original Application No. 7/95.

(9) That the alleged guarantor Smt. Shakuntla Devi has died since long on 18th October, 1993 which fact is within your knowledge. Despite knowledge of her LRs you chose not to bring them on record in the said Original Application No. 7/95 before the D.R.T., Delhi wherefore, your claim stood abated against her and it has been so recorded by D.R.T. in its proceedings dated 11th January, 2002, 13th February, 2002, 22nd May, 2002 and 11th September, 2002.

In view of the above reasons your undated notice is required to be withdrawn and to action, as threatened by you, deserves to be taken.

Yours faithfully

(M.C. Dhingra) Advocate.

A perusal of the above reply would show that one of the guarantor/borrowers had admitted that only P.C.L. facility for Rs. 5 lacs was taken/availed from the Bank and had nowhere acknowledged any liability of payment of any amount, even towards the said facility. The said admission, therefore, cannot be accepted as an acknowledgement of any part liability and the period of limitation cannot be held to have extended on the basis of such reply under Section 18 of the Limitation Act. I am also of the considered view that on the basis of the aforesaid reply sent by of one of the guarantor/borrower, the respondents herein cannot be held to have acknowledged any liability of payment of any amount and thus the period of limitation cannot be said to have extended further after its expiry on 29th April, 2005.

The period of limitation under Section 36 of the SARFAESI Act read with Article 62 of the Limitation Act qua the measure under Section 13(4) of the SARFAESI Act for the enforcement of security interest is to run from the date when the payment of money becomes due. According to Mr. Tyagi, the payment of debt had become due on 29th April, 1993 when the time allowed therefor by the notice dated 12th April, 1993 had expired and, as per Bank's case, pursuant to the possession notice dated 24th November, 2006 symbolic possession of the mortgaged property was taken on that date. Since the measure of possession envisaged under Section 13(4) was taken by the Bank on 24th November, 2006, therefore, it is clear that the said measure was taken after the expiration of 12 years from 29th April, 1993, i.e., when the debt had become due. Even computing the limitation period of 12 years from the date of filing Original Application No. 7/1995 on 20th July, 1994, the possession taken on 24th November, 2006 would appear to be barred by limitation. In view of this, there appears to be no infirmity in the finding of the Tribunal below in the order impugned that the possession notice dated 24th November, 2006 was barred by limitation and it is in accordance with the factual and legal matrix of the case and does not require any interference of this Tribunal.

Another contention raised by Mr. Tyagi is that the Tribunal below has erred by not adjudicating the issue of forged and fabricated payment receipts filed by the respondents with the affidavit dated 9th May, 2006 of Pritpal Singh with the averment that no credit was given by the Bank to the payment of Rs. 28,44,454/- made by the respondents. According to him, the S.A. applicants had manipulated those receipts by changing the amounts and dates to make the Tribunal believe that the appellant Bank did not maintain the statement of account properly and thereby played fraud with the Tribunal by filing forged and fabricated documents in the judicial proceedings. He has relied upon the observation of the Supreme Court made in Indian Bank v. Satyam Fibres (India) Pvt. Ltd., (1996) 5 SCC 550, that fraud committed before the Court vitiate the entire proceedings. The perusal of the record, however, shows that the respondents had stated in Para. 8 of the S.A. that certain payment receipts amounting to Rs. 28,44,454/- issued by the Bank filed in Original Application No. 7/1995 but the same were not credited by the Bank into the loan account. No receipt pertaining to the alleged deposit of Rs. 28,44,454/- has been filed in the S.A. The appellant has filed a copy of the supplementary affidavit dated 23 rd June, 2006 of Pritpal Singh (Annexure A-6) along with certain pay-in-slips which was filed in Original Application No. 7/1995 wherein averment regarding payment of Rs. 28,44,454/- during the years 1991/94 was made. Since the allegedly forged and fabricated pay-in-slips have not been filed in the S.A., as such it cannot be said that the applicants/respondents have played any fraud with the Tribunal. Moreover, it cannot be accepted that the said pay-in-slips relating to the years 1991-94 were forged and fabricated in the absence of any evidence in support of the allegation on record. Besides that, the Tribunal below while making the order impugned has not relied upon the alleged pay-in-slips relating to the years 1991-94 in support of any of its findings and the S.A. has been allowed, inter alia, on the ground that the measure of taking the possession through the possession notice dated 24th November, 2006 was barred by limitation. The record also shows that photocopies of certain counterfoils of pay-in-slips alongwith the affidavit of Pritpal Singh were filed by the applicant/respondents in this S.A. in support of the averments made in para 39 of the said affidavit that the applicants had deposited Rs. 92.5 lacs from 9th June, 2007 to 3rd June, 2008 after the filing of the S.A. These pay-in-slips have not been disputed by the Bank. In view of above, the Tribunal below was not required to adjudicate on the issue of the genuineness of the pay-in-slips of the year 1991-94 and the order impugned does not suffer with any infirmity on this count. On the basis of the foregoing discussion, I hold that the finding of the Tribunal below regarding the measure of taking the possession of the secured asset on the basis of possession notice dated 24th November, 2006 issued under Section 13(4) of the SARFAESI Act being barred by limitation, is correct and the order impugned does not require any interference by this Tribunal. Consequently, this Appeal fails and is liable to be dismissed. The Appeal is accordingly dismissed with cost.

Copy of the order be furnished to the parties as per law.