Triveni Enterprises & Ors. vs Bank Of Baroda & Ors.

JUSTICE R.D. KHARE, CHAIRPERSON

The present appeal has been filed under section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short “the SARFAESI Act”) against the judgment dated 14.10.2021 passed by DRT, Allahabad, whereby the S.A. No. 216 of 2019 filed by the appellants has been dismissed.

The brief facts of the matter are that the appellant no. 1 is a proprietorship concern, which was granted a cash credit limit of Rs. 2.25 crores in the year 2012 through its proprietor appellant no. 2-Smt. Asha Agrawal. In order to secure the said facility, the appellant nos. 2, 3, 5, 6, 7 & 8 created equitable mortgage over their properties in question by depositing title deeds with the respondent-Bank. Since the appellants did not maintain the financial discipline, therefore, the account was classified as NPA on 29.06.2017 and demand notice dated 20.07.2017 was issued under Section 13(2) of the SARFAESI Act for a sum of Rs. 2,26,57,215/-. Since the appellants have not deposited any amount against the said demand, therefore, possession notice dated 08.11.2017 was issued under Section 13(4) of the SARFAESI Act and the same was affixed on 08.11.2017 and published in the newspapers on 11.11.2017. Thereafter, the appellant no. 1 deposited Rs. 1.20 crores with the Bank to reduce the outstanding dues of Rs. 2.27 crores and thereafter from time to time, the interest accrued was charged and debited to the account in question.

It appears that thereafter, the respondent-Bank issued auction sale notice dated 22.02.2018 scheduling the auction of the property in question to be held on 26.03.2018. Subsequently, the respondent-Bank filed an application before the District Magistrate, Prayagraj under Section 14 of the SARFAESI Act on 22.03.2018.

The appellants-borrowers challenged the entire actions of the Bank by filing S.A. No. 120/2018 before the Tribunal below, which was dismissed being infructuous vide order dated 08.01.2019 on the ground that the respondent-Bank had withdrawn the impugned sale notice as well has the possession notice.

It transpires that after dismissal of the S.A. filed by the appellants, the application filed by the respondent-Bank under section 14 of the SARFAESI Act was allowed by the District Magistrate, Allahabad vide order dated 31.01.2019 and thereafter, respondent-Bank issued fresh possession notice dated 26.02.2019, which was published in the newspapers on 27.02.2019 and thereafter, published e-auction notice dated 07.03.2019, but the same could not take place. Thereafter, the respondent-Bank issued e-auction notice dated 12.03.2019, which was also published in the newspapers.

The appellants-borrowers filed S.A. No. 216/2019 on 04.04.2019 challenging the entire proceedings of the Bank i.e. demand notice dated 20.07.2017, possession notice dated 26.02.2019 and its publication dated 27.02.2019 and e-auction notice dated 12.03.2019 on various grounds.

It is averred that during the pendency of the aforesaid S.A., the respondent-Bank issued sale notice dated 10.06.2019, which was published in the newspapers on 11.06.2019, fixing the date of auction on 15.07.2019. Thereafter, the appellants filed an amended application dated 25.06.2019 challenging the said sale in the pending S.A., which was allowed and the S.A. was amended accordingly, to which the respondent-Bank filed reply on 17.02.2020 stating therein that the auction sale notice dated 11.06.2021 could not be materialized for want of bidders.

It further appears that the respondent-Bank filed an affidavit on 16.07.2019 before the District Magistrate requesting therein that the order passed earlier on 31.01.2019 may be cancelled by issuing fresh notice to the borrowers, which was allowed vide order dated 21.10.2019. When the appellants came to know on 03.02.2020 that an order dated 31.01.2019 under section 14 of the SARFAESI Act has already been passed by the District Magistrate, they obtained the certified copy of the same on 03.02.2020 and filed an amendment application dated 10.02.2020 along with stay application to challenge the order dated 31.01.2019 passed by the District Magistrate, to which an objection dated 12.07.2020 was filed by the respondent- Bank along with copy of notice dated 21.10.2019.

The Tribunal below vide order dated 14.07.2020 rejected the stay application being I.A. No. 287/2020, which was challenged by the appellants before this Tribunal by filing Appeal Dy. No. 205/2020, which was allowed vide order dated 13.08.2020 with a direction to the Tribunal below to decide all the issues involved in the S.A. including the issue of DM' order.

It further appears that the respondent-Bank in the last published e-auction notice on 21.08.2020 scheduling the auction on 10.09.2020, which was challenged by the appellants by way of amendment application dated 22.08.2020, which was allowed and the S.A. was amended accordingly. Thereafter, an impleadment application was filed on 29.10.2020, which was allowed.

It further transpires that when the appellant came to know that the auction dated 15.07.2019 had taken place, then he informed the Tribunal below and the Tribunal below vide order dated 27.11.2020 directed the Bank to bring on record the facts by filing supplementary affidavit and accordingly, the same was filed on 14.12.2020.

It also appears that the appellants pressed the interim relief on 11.01.2021 for restraining the Bank from taking physical possession in pursuance of the order dated 31.01.2020 passed by the District Magistrate under Section 14 of the SARFAESI Act, but the Tribunal below rejected the same holding that no prima facie case exists in favour of the S.A.-applicants, against which the appellants filed an Appeal Dy. No. 26/2021 before this Tribunal and the same was allowed vide order dated 27.01.2021 directing the Tribunal below to decide the S.A. as expeditiously as possible on 21.02.2021 i.e. on the next date, but in case within one month thereafter and till the disposal of the S.A., the respondent-Bank was restrained from taking physical possession of the property in question in compliance of DM's order.

The Tribunal below vide order impugned dismissed the S.A. filed by the appellants holding that there is no illegality in the process of the Bank. Being aggrieved by the said order, the present appeal has been filed by the appellants.

Learned counsel for the appellants submitted that the demand notice dated 20.07.2017, possession notice date 26.02.2019, auction sale dated 15.07.2019 and order of District Magistrate dated 31.01.2020 are under challenge in the present appeal. Learned counsel has drawn attention of this court to page No. 402 of the memo of the appeal, which is an order dated 13.08.2020 passed in Appeal Dy. No. 205/2020. It was further contended that as per the said order, all the issues involved in the S.A. including the issue of District Magistrate's order were to be decided together by the Tribunal below, but the same has not been done while passing the order impugned.

Learned counsel has further drawn attention of this court to the order impugned dated 14.10.2021 passed by the Tribunal below in S.A. No. 216 of 2019 and has referred to its para 74 at page No. 54 of the paper book, wherein it has been noted that only two issues were involved, whereas not only two issues but various issues were challenged, which were not touched by the Tribunal below, hence the order impinged is not sustainable in the eye of law.

The issue No. 1 as mentioned in para 74 of the order impugned was decided by the Tribunal below giving detail in para 75 to 85 of the order impugned and it was contended that the said paragraph do not deal with the matter in hand. It was thus contended that in para 82 of the order impugned, it has been recorded by the Tribunal below that the physical possession of the property in question has been taken in presence of an advocate as well as the other concerned officers, when in fact the possession has not been taken till date.

With regard to the second issue as mentioned in para 74 of the impugned order, it was contended that the said issue has not been adjudicated upon by the Tribunal below. The next contention was that initially, the auction sale notice was issued on 07.03.2019 and auction was conducted on 11.04.2019, but the sale was cancelled later-on and fresh auction sale notice dated 07.06.2019 was issued and published on 10.06.2019 in the newspapers scheduling the auction for 15.07.2019. In support of his contention, he has referred to page 305, which is reply of the S.A. No. 216/2019 and the same was filed on 17.02.2020, in which it has been stated that no sale has taken place in November 2019 when reply was filed. The said averment is on record on oath at page No. 423 of the memo of appeal (annexure 11). It was next contended that on 27.11.2020 oral submission was made before the Tribunal below on behalf of the Bank that the property was auctioned on 15.07.2019. It was further contended that since the auction sale notice and possession notice were withdrawn, therefore, the order dated 31.01.2019 passed by the District Magistrate under section 14 of the SARFAESI Act is also not sustainable.

It was further contended that a clear thirty days' sale notice was not given as per Rule 8(6) and in support of it, he has relied upon a judgment passed by the Hon'ble Apex Court in Cellir LLP Vs. Bafna Motors. It was thus argued that all the issues, which were agitated by the appellants, have not been decided by the Tribunal below, therefore, the matter may be remanded back for fresh adjudication.

Learned counsel for the respondent-Bank submitted that appellants have sold the property in question during continuation of the mortgage without any permission of the Bank, therefore, fraud has been played by the appellants. In support of it, he has relied upon a judgment passed by the Hon'ble Apex Court in M/s Prestige Lite Ltd. Vs. State Bank of India, 2007 AIR SCW 5350, wherein it is held that if fraud has been played, party concerned shall not be heard on merits of the case. It was further contended that all the actions of the Bank are as per law and procedures as laid down in the statute. It was also contended that the first demand notice dated 20.07.2017 followed by possession notice dated 08.11.2017 were issued and served upon the appellants, which were challenged by the borrowers by filing S.A. No. 120/2018 before the Tribunal below, but later-on the said notices were withdrawn by the bank, therefore, the said S.A. had become infructuous and accordingly, the same was dismissed as having become infructuous vide order dated 08.01.2019 and the same has never been challenged by the appellants in any forum, therefore, the same has attained finality. Thus the grievance with regard to demand notice dated 20.07.2017 is barred by the principles of res-judicata. It was further contended that there was no irregularity in the proceedings of the Bank, as the auction was taken place after getting the property valued from the competent valuer.

It was next contended that since the property was mortgaged with the Bank and the contention of the appellant that statement was given by the Bank that the property was not sold, is true, because in fact the property, which was sold, is a different property and not the property in question. It was further contended that the entire auction amount has been deposited and it does not matter that the same has been deposited by one person or three persons.

Learned counsel further submitted that the respondent-Bank had released a part of mortgaged property i.e. house No. 39 (Old) and new number 24, Shiv Charan Lal Road, Allahabad and another property situated at plot as part of Arazi no. 431 Kha, Maua-Dabhaw, Arail, Karchhana, District-Allahabad having area of 685 Sq.metres, which were sold by the appellants and sale proceeds were deposited in the loan account, which reduced the liability and not reduced by the appellants. It was further contended that the auction sale notice dated 22.02.2018 was issued but the auction sale held pursuant to it was also cancelled by the respondent-Bank. It was also contended that the contention of the appellants that respondent-Bank has not complied with the proviso to section 14(1) before the DM, Allahabad is incorrect, as the same was complied with by the respondent-Bank by filing application duly supported by the affidavit. It was further contended that the provisions of section 14 of the SARFAESI Act does not provide anywhere for giving any opportunity of hearing to the appellants before passing the order under the said section by the District-Magistrate and as such there is no illegality in the order dated 31.01.2019 passed by the District-Magistrate, Allahabad.

Learned counsel also submitted that the fresh possession notice dated 26.02.2019 was issued and sent to the borrowers through registered post on 28.02.2019, which was affixed on the conspicuous place of the property in question and was published in two Newspapers on 27.02.2019. It was thus contended that Rules 8(1) and 8(2) have been complied with.

Learned counsel also submitted that since the order dated 31.01.2019 was passed by the District Magistrate without giving any opportunity of hearing to the appellants and pursuant to it, further proceedings were not justified, therefore, the respondent-Bank prayed before the District Magistrate for cancelling the same and pass a fresh order after giving opportunity of hearing to the appellants. It was further contended that after notice, the appellants appeared before the District Magistrate and sought time to file their objection, but despite several opportunities, the appellants did not file any objection and simply delayed the proceedings with malafide intention, which compelled the District Magistrate to pass the order dated 31.01.2020.

Learned counsel further submitted that the properties in question were already auctioned in the year 2019 and 2020, so there was no question of any alleged unsuccessful auction in the year 2021. It was further contended that the contention of the appellants that the auction purchasers have not deposited the auction sale amount within the time as stipulated in Rule 9(3) and 9(4) of the Rules, 2002 is incorrect, as they have complied with the said Rules by depositing the auction sale amount in view of the documents as annexed Annexure No. 3 to the objection of the respondent-Bank. It was lastly contended that the Tribunal below has considered all the legal aspects of the case and evidence on rerecord while passing the order impugned, therefore, there is no scope for interference in the same by this Tribunal. It was, therefore, prayed that the appeal may be dismissed with heavy costs.

Learned counsel for the auction purchaser have adopted the arguments as advanced by the learned counsel for the respondent-bank by adding further that they are bonafide purchasers of the properties in question and have deposited the entire sale consideration in accordance with the Act and Rules made thereunder. It was, therefore, prayed that the appeal filed by the appellants may be dismissed with heavy costs.

Having heard the learned counsels for the parties and considering the material available on record, undisputedly, the demand notice dated 20.07.2017, possession notice dated 08.11.2017 and e-auction notice dated 22.02.2018 were initially challenged by the appellants before the Tribunal below by filing the S.A. No. 120/2018, which was dismissed as having become infructuous vide order dated 08.01.2019 on the ground that the respondent-Bank had withdrawn its possession notice as well as the sale notice. It is also not disputed that the appellants had challenged the entire proceedings, which were undertaken by the Bank after withdrawal of the first possession notice initiated under the SARFAESI Act, before the Tribunal below by filing the S.A. No. 216/2019 including the order dated 31.01.2019 passed by the District Magistrate under section 14 of the SARFAESI Act.

While going through the order impugned, it is found that the Tribunal below had not decided the issues pertaining to the demand notice dated 20.07.2017 and possession notice dated 26.02.2019 holding as under:-

From the above, it is clear that the S.A. filed by the appellants was dismissed as having become infructuous due to withdrawal of the first possession notice and the sale notice by the Bank, meaning thereby the matter, which was challenged, was not decided on merits. As such after issuance of fresh possession notice dated 26.02.2019, a new cause of action had arisen for the appellants to challenge the legality and validity of the said notice along with the demand notice, because the said demand notice was also not considered and decided by the Tribunal below in the earlier S.A., which was dismissed being infructuous. Thus the finding of the Tribunal below that the respondent-Bank issued fresh possession notice dated 26.02.2019 under section 13(4) of the SARFAESI Act, therefore, the S. Applicants are not entitled to raise the issue of lease/mortgage as well as the contention of the respondent-Bank that the issue raised with regard to the demand notice dated 20.07.2017 is barred by the principles of the res-judicata, are not sustainable. In this regard, section 17 of the said Act says as under:-

From the above, it is clear that any of the measures taken by the Bank under the said section gives fresh cause of action to the borrower, who may challenge the same before the Tribunal below by filing application under section 17 of the said Act. In the present, when the earlier possession notice and sale notice were withdrawn by the Bank due to some technical defect and fresh possession notice was issued, then afresh cause of action had arisen for the borrower to challenge the same before the Tribunal below as per provision laid down in section 13(4) of the SARFAESI Act and accordingly, the same was challenged. It is not the case of the appellants that the possession notice was challenged and the same was considered and upheld by the Tribunal below and they have challenge the same again by challenging another issue before the Tribunal below. Thus the Tribunal below has erred in not touching and deciding the legality and validity of possession notice while passing the order impugned on the ground that fresh possession notice has been issued. On this count alone, order impugned is not sustainable and the matter is required to be remanded back for its adjudication.

So far as the demand notice is concerned, it is to be seen that in the earlier S.A., the same was also challenged, but the same was admittedly not considered because the said S.A. was dismissed as having become infructuous on the ground of withdrawal of possession notice and sale notice by the Bank. As per provisions of the SARFAESI Act, issuance of demand notice does give cause of action to the borrower for challenging the same, as the same can be challenged, only when any measures taken under section 13(4) is challenged under section 17 of the said Act before the Tribunal below. Accordingly, the same was challenged along with the possession notice in the present S.A. filed by the appellants and the same ought to have been considered by the Tribunal below while passing the order impugned, but the Tribunal below did not do so. Thus the order impugned is not sustainable on this count also and the matter requires to be remanded back to the Tribunal below for its adjudication on merits.

The contention of the respondent-Bank that the issue with regard to demand notice and possession notice is barred by res-judicata, is not tenable for the reason that the Bank itself had withdrawn its possession notice and sale notice on account of some technical defects, due to which the first S.A. of the borrowers was dismissed as having become infructuous, meaning thereby, nothing was decided on merits including the demand notice. Thereafter, fresh possession notice was issued, which had given fresh cause of action to the borrowers for challenging the same as per provisions of section 17 of the SARFAESI Act and the same was challenged along with the demand notice before the Tribunal below. Besides it, it is relevant to state that if any issue is raised and decided in any proceeding and the same is challenged again in any other proceeding, then the same comes under the definition of "barred by res-judicata, as the present demand notice and possession notice has never been considered by the Tribunal below either in earlier S.A. or in the present S.A. In the present case, the demand notice, possession notice and sale notice were challenged, but the same were admittedly not considered and decided in the earlier S.A. on merits, because the respondent-Bank had withdrawn the same except the demand notice. However, the demand notice alone could not be decided on merits because the same could not be considered independently, as it does not arise the cause of action to the parties concerned.

In view of the discussions as recorded above, the order impugned is set aside and the case is remanded back to the Tribunal below for deciding all the issues as raised in the S.A. afresh in accordance with law without being influenced by the observations made herein above after affording opportunity of hearing to the parties concerned. The appeal filed by the appellants is accordingly disposed off with no order as to costs.

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.