The Makcrunch Food Pvt. Ltd. vs M/s Ratna Priya Rest House & Ors.

JUSTICE R. D. KHARE, CHAIRPERSON

The present appeal has been filed under section 18 of the Securitization and Reconstruction of Financial Asset and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "the SARFAESI Act") against the judgment dated 07.01.2019, whereby the Securitization Application No. 200/2017 filed by the respondents no. 1 & 2 has been allowed.

Brief facts of the matter are that the respondent no. 1 was granted two loans by the respondent-Bank, one was cash credit limit of Rs.76.00 lacs and another was a term loan of Rs.24.00 lacs on 29.03.2014 and 17.03.2015 respectively. In order to secure the said facilities, the properties in question were mortgaged by the respondent no. 2 by depositing original title deeds with the respondent-Bank. Since the respondents-borrowers did not adhere to the terms of loan agreement, therefore, both the accounts were classified as NPA and a demand notice dated 27.01.2016 u/s 13(2) of the SARAESI Act was issued for a sum of Rs.83,76,217/- as on 18.01.2016. Since the borrowers did not pay any heed to the said demand, therefore, possession notice dated 28.07.2016 was issued u/s 13(4) of the said Act.

The respondents no. 1-borrower has challenged the possession notice dated 28.07.2016 by filing S.A. No. 187/2016 before the Tribunal below. Thereafter, a fresh possession notice was issued on 09.09.2016, which was published in the newspapers on 16.09.2016, as the earlier possession notice could not be published in time. The said notice was also served upon the borrowers and affixed on the conspicuous place of the property in question. Thereafter, the Bank has got the property valued and the e-auction sale notice was issued on 04.03.2017, which was published in the newspapers on 06.03.2017 scheduling the auction of the property in question on 11.04.2017. However, the said proceedings were not in the knowledge of the respondent-borrower as stated, but on coming to know the same, the same was challenged by the borrower in the pending S.A. by filing a separate I.A., which was allowed and the S.A. was amended accordingly.

The Tribunal below vide order dated 10.04.2017 has dismissed the said S.A. holding that the Bank has followed the mandatory procedures as laid down under the SARFAESI Act and Rules while taking possession of the property and putting the property on e-auction sale. The said order/judgment has never been challenged by any of the parties, therefore, the said judgment/order has attained finality.

It appears that the aforesaid sale could not materialize on 11.04.2017, but the physical possession of the property in question was taken on 01.09.2017 by the respondent- Bank and thereafter, the respondent-Bank again issued a sale notice dated 16.10.2017, which was published in the newspapers scheduling the auction of two properties on 23.11.2017.

The respondents-borrowers challenged the e-auction sale notice dated 16.10.2017 before the Tribunal below by filing S.A. No. 200/2017. Since the said auction could not take place on 23.11.2017, therefore, the Bank again issued e-auction sale notice dated 29.11.2017 for both the properties scheduling the date of auction on 22.12.2017, which was challenged by the borrowers by filing Interim Application in the said S.A., which was allowed and the said S.A. was accordingly amended. Both the properties were sold in favour of the appellant for a sum of Rs.2,39,59,000/- and the sale certificate was issued on 31.01.2018. The Tribunal below vide order impugned has allowed the said S.A. of the borrowers holding that the respondent-Bank has not followed the mandatory procedures by not serving the demand notice for the second due amount and by not issuing the possession notice for the second due amount and the auction sale notice dated 29.11.2017 and subsequent sale conducted on 22.12.2017 were set aside and further the respondent-Bank was directed to return the auction amount to the auction purchaser along with interest @ 9% p.a. simple. Being aggrieved by the said order, the present appeal has been filed by the appellant-auction purchaser.

Learned counsel for the appellant-auction purchaser submitted that the respondent-Bank had filed a supplementary affidavit before the Tribunal below bringing on record the fact that the property has been sold on 22.12.2017 pursuant to the sale notice dated 29.11.2017 for a sum of Rs.2,39,69,000/- and also the fact that the documents pertaining to the loan accounts of the respondents-borrowers have been stolen and a FIR dated 08.06.2017 has been lodged with the concerned police authority. It was further contended that the appellant has deposited entire sale consideration in accordance with the provisions of the Act and Rules, therefore, the sale certificate has been issued in favour of the appellant on 31.01.2018 and thereafter, the name of the appellant has been mutated in the revenue record. It was also contended that subsequently, the appellant has also paid the outstanding bill of Power Corporation and got the connection transferred in its name. It was further contended that after issuance of sale certificate, the appellant has invested about Rs.60.00 lacs in improving and decorating the property in question, as the same is a Hotel and has also invested a huge amount approximately Rs.1.00 crore towards construction and finishing including furniture, plumbing, fall ceiling, painting, repairs and decorations.

Learned counsel further submitted that the respondent-Bank in its supplementary affidavit filed before the Tribunal below has categorically stated that the documents of the loan account of the borrowers have been stolen and a FIR has also been lodged with the concerned police authority, but the Tribunal below while passing the order impugned has not considered the same, thus the order impugned is not sustainable.

Learned counsel also submitted that the respondent-Bank in the said supplementary affidavit as well as in its reply to the S.A. stated that all the formalities required under the said Act has been complied with before issuance of e-auction notice and in the pleadings, the Bank has brought forward an explanation for not providing the copies of notices u/s 13(2) & 13(4) in original in respect of demand of outstanding of Rs.28,38,597/-, but the Tribunal below has not considered the same while passing the order impugned, rather kept silent on the said issue. It was lastly contended that the appellant has bonafidely purchased the property in question through e-auction and paid the sale consideration as agreed and thereafter has invested huge amount in further construction and renovation, but without considering it, the Tribunal below has passed the impugned order to return the sale consideration with interest of 9% while the stake of the appellant in the property in question is much higher. It was, therefore, prayed that the order impugned may be set aside and in the alternative direct the respondents-Bank to pay the actual value of the property in question after getting it assessed.

Learned counsel for the respondent-Bank submitted that the appellant was fully aware of pendency of the S.A. by filing its reply and after deposition of entire sale consideration, the sale certificate was issued in favour of the appellant, but the Tribunal below has set aside the sale conducted by the Bank with the observation that the Bank has not followed the mandatory procedure by not serving the demand notice for the second due amount and by not issuing the possession notice for second due amount. It was further contended that pursuant to the order impugned, the respondent-bank vide letter dated 21.01.2019 requested the appellant to receive the demand draft of entire auction amount along with interest awarded and return back the physical possession of the sold property to the bank, but the appellant vide letter dated 22.01.2019 stated that he was neither ready to accept the demand draft in terms of the order impugned nor he was in position to hand over the physical possession back to the Bank and till date the physical possession has not been handed over to the Bank. It was also contended that if the appellant during pendency of the case has invested huge amount in improving and decorating the property in question, then it itself is responsible for it. It was, therefore, prayed that the appeal filed by the appellant may be dismissed with heavy costs.

It appears that despite service of notice through paper publication, no one had appeared on behalf of the respondents no. 1 & 2, but on 15.03.2024, Shri Alok Rai, Advocate had appeared and submitted that the father of respondent no. 2 had approached him and informed that the said respondent is missing after passing of the order impugned by the Tribunal below and sought time to take legal remedy open to him. However, the right of respondents no. 1 & 2 was ultimately closed vide order dated 13.05.2024, but a miscellaneous application being I.A. No. 990/2024 was filed on behalf of the father of the respondent no. 2 praying that the applicant may be permitted to represent the state of respondent no. 1 & 2 and allow him to contest the case on merits.

I have considered the rival contentions of the learned counsels for the parties and perused the material available on record.

The Tribunal below vide order impugned has set aside the auction sale dated 22.12.2017 only on the ground that the respondent-Bank has not followed the mandatory procedures by not serving the demand notice for the second due amount and by not issuing the possession notice for the same i.e. Rs.28,38,597/-, but the said finding has not been controverted either by the appellant or by the respondent-Bank. In this regard, the contention of the appellant as well as the respondent-Bank that the file containing the original documents relating to account was stolen from branch, for which FIR dated 08.06.2017 was lodged, also does not controvert the finding of the Tribunal below because the demand notice for the second amount due was issued on 18.06.2016 and the possession notice would definitely have been issued after 60 days of it, meaning thereby the same was issued in the last of the month of August, 2016. However, the sale notice was issued in the month of November, 2017. If the file containing the original document of the loan accounts were stolen from the branch, the Bank ought to have issued first demand notice and possession notice for the second amount due instead of issuing the present auction sale notice. It is not the case of the Bank that it was not aware of the stealing of the documents, because in this regard, FIR was lodged on 08.06.2017 and the present sale notice was issued on 29.11.2017, which is after the said FIR. Thus the contention of the respondent-Bank as well as the appellant that the demand notice and the possession notice for the second amount due could not be produced in the Tribunal below on account of theft is not tenable. Thus the order impugned does not call for any interference by this Tribunal to this extent.

The main grievance of the appellant is that after issuance of sale certificate, it has invested a huge amount over the property in question and the interest of 9% as awarded by the Tribunal below is not sufficient to cover the said investment, therefore, the amount claimed by the appellant may be directed to be paid by the respondent-Bank. In this regard, the paragraph no. XIII of the memo of appeal filed by the appellant is relevant, which is quoted here-in-below:-

From the above, it is clear that the appellant was fully aware of the fact that the present auction sale, by which the property was purchased by it, is under challenge, meaning thereby the appellant had invested the amount over the property in question deliberately and at his risk. However, the property in question is a Hotel and in my opinion, the money had been invested by the appellant for earning the money from the said Hotel. Thus, the Bank cannot be held responsible for the same. The money of the Bank is already under cloud because the sale conducted by the bank has already been set aside by the Tribunal below vide order impugned, therefore, I do not deem it fit to direct the Bank to pay the amount incurred by the appellant over the property in question towards construction and decoration. However, the auction amount has already been directed to be returned back along with interest of 9% p.a. simple by the Tribunal below vide order impugned to the auction purchaser, therefore, no order in this regard is required to be passed by this Tribunal.

In view of the discussions as held above, the order impugned does not call for any interference by this Tribunal, hence the appeal deserves dismissal. Accordingly, the same is dismissed with no order as to costs. Pending I.As., if any, also stand disposed off.

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