Vasireddy Krishna & Anr. vs The Collector And District Magistrate, East Godavari District, Rajamahendravaram & Ors.

(Per Hon’ble Sri Justice Tuhin Kumar Gedela)

Heard,

Sri P. Rajesh Babu, learned counsel for the petitioners and Sri S.V.R. Subrahmanyam, learned counsel for the respondent Nos.3 & 4/ bank.

This Writ Petition is filed seeking a Writ of Mandamus by declaring the Proceedings issued by the 1^st Respondent vide D.Dis/C4/552/2022, dated 22.6.2022 directing the 2^nd Respondent to take possession of the property of the Petitioners i.e., undivided and unspecified joint half right of an extent of 150.67 sq. yards out of 301.33 sq. yards of the G + 3 Upper Floor Building bearing Door No.86-26-15/6K, in an extent of 301.33 sq.yards in R.S.No.285/2 (old R.S.No.310) V.L.Puram, Rajamahendravaram Municipal Corporation limits, and to deliver the same to the 3^rd Respondent, upon the Letter placed by the 4^th Respondent, as arbitrary, illegal, unlawful and completely contrary to the provisions of SARFAESI Act and Rules 2002 in violation of the Fundamental Rights of the Petitioners guaranteed under Art 14, 21 and 300-A of the Constitution of India and in violation of Principles of Natural Justice by consequently set aside the said proceedings of the 1^st Respondent vide D.Dis/C4/552/2022, dated 22.6.2022, by further consequently declaring the Reply Notice dt.31.01.2022 issued by the 3^rd Respondent denying for rescheduling of the loan as arbitrary unreasonable and unlawful by further consequently directing the Respondents 3 and 4 not to initiate any proceedings under Section 14 of the SARFAESI Act without considering the legal notice of the Petitioners dated 17.12.2021 and pass such order or orders.

Sri P. Rajesh Babu, learned counsel for the petitioners, would submit that his daughter and himself availed credit facility from the respondent No.4 bank at Rajamahendravaram, originally housing loan of Rs.30 lakhs with monthly installment of Rs.60,000/- in the year 2017. Thereafter, the said loan was converted as OD facility. He further would submit that the petitioners maintained loan facility regularly, but somehow became irregular during Covid period. He would further submit that the petitioners made payments into the loan account in the recent past, i.e., Rs.25,000/- on 24.06.2021, Rs.25,000/-on 14.07.2021, Rs.25,000/- on 22.07.2021, Rs.2,00,000/- on 09.12.2021, and Rs.1,00,000/- on 09.03.2022. He would also submit that the petitioner paid Rs.50,000/- after the receipt of the demand notice issued by the respondent bank.

Learned counsel for the petitioners would further submit that, despite the payments made towards the loan, the 4^th respondent-bank got issued a demand notice and despite the request made by the petitioners to furnish the statement of account, the same is not furnished. This made the petitioners to issue a legal notice to the 3^rd respondent, which is caused on 17.12.2021, narrating all the events and also the harassment being made by the employees of the 3^rd respondent and 4^th respondent and further requested to regularize the account by re-scheduling the loan. In response thereto, the respondent No.3 issued a reply dated 31.01.2022, stating that the account already having classified as NPA, and the re-scheduling of the loan cannot be accepted and the amount due as on 31.12.2021 is of Rs.34,72,731/- and was advised to pay at the earliest point of time. While this being the position, the respondent No.3 issued a possession notice on 19.03.2022, wherein the petitioners found that the payments which was made after the Covid was not all shown in the said notice and without intimation to the petitioners, the respondent Nos.3 and 4 issued further notice without considering the request in pursuant to the possession notice, directing the 1^st respondent to deliver the physical possession to the respondent No.4, which was addressed on 18.05.2022. Though nothing is spelt about the letter dated 18.05.2022, the Court can presume that the letter was addressed to the 1^st respondent to act upon the said letter to considering it as an affidavit under Section 14 of the Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002 (for short “the SARFAESI Act”).

Learned counsel for the petitioners argues that the impugned proceedings, which are challenged dated 22.06.2022 refers to the Gazette Notification dated 28.01.2003, stating that the SARFAESI Act is applicable to the Co-operative banks. The arguments advanced by the learned counsel for the petitioners is precisely that respondent No.1 should not have acted upon the letter dated 18.05.2022 seeking delivery of possession by invoking Section 14 of the SARFAESI Act. He would submit that the procedure prescribed, even assuming that the SARFAESI proceedings are applicable to the Co-operative societies, the Act mandates certain procedure to be followed which is mandatory. Learned counsel for the petitioners would urge this Court to allow the Writ Petition on the grounds indicated above.

Refuting the said argument, Sri S.V.R.Subrahmanyam, learned counsel for the respondent bank answers through the counter filed by the respondent Nos.3 and 4 (bank). The principal argument advanced by the learned counsel is that this matter was actively dragged by the petitioners by obtaining an interim order from this Court till date has not paid any amount. He would further submit that the amount which as on today to be paid as per the counter is Rs.61,19,528/-.

Learned counsel for the respondent bank would submit that 13(2) notice was issued by the bank calling upon the borrower to pay the entire amount within 60 days from the date of receipt of the said notice and the petitioner has not responded to the said notice. The respondent bank issued notice under Section 13(4) possession notice duly affixing the said notice on the scheduled property given. He would further argues that secured creditor having right to approach before the Magistrate under Section 14 of the SARFAESI Act, 2002 duly accompanied by an affidavit duly signed by the Authorized Officer of the respondent bank duly following the requirements under the said Section vide letter dated 18.05.2022. The District Magistrate of East Godavari District after satisfying the contents of the affidavit passed suitable orders and issued proceedings vide D.Dis/C4/552/2022 dated 22.06.2022 directing the 2^nd respondent to take physical possession of the schedule property of the petitioner. He would further submit that, in view of the borrower not paying the amount as promised while taking the loan, the respondent bank initiated proceedings under SARFAESI Act and after availing the loan and being a defaulter now cannot be escape in paying the amount by raising technical issues.

Learned counsel for the respondent bank submits that all the formalities and mandatory provisions are scrupulously followed, including the essential ingredients embodied in Section 14 of the SARFAESI Act, and ultimately prays that this Court to dismiss the Writ Petition with exemplary costs.

Heard learned counsel for the petitioners as well as the learned counsel for the respondents.

Before adverting to the facts of the case which are not in dispute to some extent, it is necessary for this Court to reproduce the Section 14 of the SARFAESI Act.

A cursory glance at Section 14 of the SARFAESI Act would indicate that the essential elements maintained in Section 14 of the Act, need to be duly complied with and any deviation are liable to be set aside as non est.

The other aspect is that there is no dispute with regard to applicability of the SARFAESI Act to Co-operative banks pursuant to the Gazette Notification dated 28.01.2003 and also the counter, the letter addressed by the 4^th respondent to the 1^st respondent dated 18.05.2022 is not placed on record, but the same can be cult out through the proceedings issued by the District Collector dated 22.06.2022 in pursuant to the letter addressed by the bank i.e., 18.05.2022 to take possession and delivery, the said possession to the respondent No.4.

Adverting to the Notification dated 28.01.2003, the Hon’ble Supreme Court, in the Constitutional Bench, in Pandurang Ganpati Chaugule v. Vishwasrao Patil Murgud^{11.(2020) 9 SCC 215}, upheld the Gazette Notification issued by the Central Government.

In the said proceedings, there is no mention by the District Collector that an affidavit is filed satisfying the conditions enumerated in Section 14 of the SARFAESI Act and it only elucidates that the Authorized Officer, Kanaka Mahalakshmi Co-operative Bank, Innispeta, Rajahmundry Branch, East Godavari informed that they have initiated action under Securitisation Act, 2002 by issuing demand and Possession notices to the defaulted borrowers, and there is no response from the borrower/borrowers for clearing off the dues in their respective accounts. Further, requested to assist the bank to take possession of the secured assets under the Rules laid down in Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 for conducting punchanama of the property on a convenient date. The matter has been examined and found that the borrower has violated conditions imposed by the bank authorities at the time of taking loan. Except this, there is nothing emanating from the said proceedings that the enquiry conducted strictly under Section 14 of the SARFAESI Act and that the affidavit is filed in support of the letter dated 18.05.2022 in consonance with Section 14 of the SARFAESI Act.

In the absence of such an affidavit, this Court finds it difficult to accept the contention of the bank that the essential ingredients of Section 14 of the SARFAESI are complied with. Mere adverting to the Section in the counter-affidavit, does not amount to sufficient compliance of the Section 14 of the SARFAESI Act. As seen from the Act, even the District Magistrate, who is empowered to take possession of the secured asset through the subordinate, has to follow the provisions of Section 14 of the SARFAESI Act.

In Standard Chartered Bank v. Noble Kumar and Others ^{22.(2013) 9 SCC 620} , the Hon’ble Supreme Court, holding that Section 14 of the SARFAESI Act is mandatory and precisely, the affidavit to be accompanied satisfying all the requirements entailed in Section 14 of the Act.

In the present case, this Court is conscious of the fact that the borrower defaulted in payment of the amounts deserves no protection from this Court, especially to a person who is a willful defaulter and the protection under the SARFAESI Act cannot be extended to the borrower in the present case. However, as seen from the facts of the case, immediately after the issuance of the demand notice, the petitioner contended that he has paid certain amounts, as indicated in the affidavit is not rebutted in the counter-affidavit or answered which by its legal fiction amounts to admission and further that the amounts which are paid have to be mentioned and also shown in the affidavit filed in support of the proceedings under Section 14 of the SARFAESI Act.

As stated supra, there is no reflection of the amounts paid, which necessarily indicates that the requirements/provisions of the SARFAESI Act, were not complied with. There is a blatant statutory flaw committed by the respondents and in view of the ratio laid down by the Hon’ble Supreme Court, this Court is of the opinion that, to the extent of taking possession without complying the conditions of under Section 14 of the SARFAESI Act, the order passed by the District Collector dated 26.06.2022 is liable to be set aside. However, this will not preclude the bank from initiating or taking steps by necessarily and duly following with the provisions of the SARFAESI Act, strictly from the step where this Court finds fault.

In this case, admittedly, the version of the bank find force that the borrower committed defaults in paying the loan amounts and notices under Sections 13(2) and 13(4) are not challenged before this Court and only insofar as, non-adhering to the statutory flavour by the District Magistrate i.e., 1^st respondent, in taking possession by invoking Section 14 of the SARFAESI Act. Under the doctrine of judicial review, this Court approves that the decision taken by the District Collector is crippled with infirmities and hence, as stated above, the impugned order dated 26.02.2022 is set aside, and the Writ Petition is allowed.

In E.Muthurathinasabathy & Ors v. M/s. Sri International & Others^{33.2026 LiveLaw (SC) 319}, at paragraphs 23 and 33, the Hon’ble Supreme Court, observed as follows:

In the present case, as stated supra, the borrower paid certain amounts, which are not reflected and absolutely, the ratio laid down by the Hon’ble Supreme Court in E.Muthurathinasabathy’s case squarely applies to the facts of the present case.

In Summation of the facts and reasons indicated above, the Writ Petition is allowed, setting aside the proceedings vide D.Dis/C4/552/2022, dated 22.06.2022 passed by the 1^st respondent. There shall be no order as to costs. Consequently, miscellaneous applications, pending if any, shall stand closed.