H ANURADHA v. CANARA BANK

1 . The Applicant filed the present Securitisation Application Under Section 17 of SARFAESI Act' 2002 under The Securitization and Reconstruction of Financial Assets and Enforcement of Security lnterest Act' 2002 (SARFAESI Act' 2002) to set aside all the measures initiated by the Respondent No' 1 in pursuance of 'E-Auction Sale Notice' dated 20 1120'17 fixing the date of auction on 27 12.2017 issued by the respondent bank against the Securitisation Application scheduled property' 2.Thecaseoftheapplicantinbriefisthat'theapplicantsarethe legal heirs of Late H Daya Kiran who is the son of Late Gangaram. The family of the ancestors of "GANGAMM FAMILY' is a well known business house in Nizamabad and runningbusinessinvariousfields'Theapplicantsallegethat after the demise of Late H' Gangaram' Mr' H. Sampath' one of the sons, has taken advantage of the situation and took control of the properties and business of the "HARIDAS FAMILY" and the assets of its businesses as the other members of the family has not shown interest and the applicants are residing ln Hyderabad Subsequently' Mr' Sampath Kumar indulged into sA 373 0F 2017 mis-management and mis-appropriation of monies and properties of 'HARIDAS FAMILY' and its businesses applicants further submit that in view of the malafide actions of Mr. Sampath Kumar, there was severe unrest and discontent among the family members and several partners of the partnership businesses have been making complaints agalnst him as regards the manner in which the firms businesses were being conducted. The applicants further submit that the respondent bank has initiated the proceedings under the SARFAESI Act against one of the partnership firm i e' ' M/s H Gangaram Jewelleries' Nizamabadandsoldthemortgagedpropertiesandthesurplus amount of Rs.2'47'05,890 97 in excess of the outstanding amount and the excess amount was distributed to the identified partners by the respondent bank without looking into the legal issues and with malafide intentions The applicants submit that they have their share to the extent of 8 33% in the excess amount. The applicants further submit that aggrieved by the abovesaidillegalactionsadoptedbytherespondents'they have preferred to file a suit for partition' separation' possession sA 371 oF 2017 of its scheduled propertles with the metes and bounds including theexcesssaleproceedsandforperpetualinjunctionagainst the respondents vide O S No 26 of 2016 on the file of the Principal District Judge, at Nizamabad After hearing submissions, the Hon'ble Court vide order dated

11 11 '2016 was pleased to direct the respondents including the respondent bank not to alienaie the suit schedule property and the same is extending from time to time The applicants further submit that to their utter surprise' respondent bank has issued a Demand Notice dated 01.08.2017 under Section 13(2) of the SARFAESI Acl' 2002 alleging that the financial facilities sanctioned to the Borrower/Respondent No 2 firm against the asset creating a security interest in favour of the respondent bank The respondentBankhasalsoallegedthattheapplicantshave acknowledged the liability by executing various documents from time to time and the alleged financial facilities have become irregular and the debt has been classified as non-performing assetanddemandedtheapplicanttopaytheoutstandingdues. It is further submitted that on receipt of the said Demand sA 3?3 0F 2017 Notice, the applicant no 1 has raised certain objections' vide her letter dated 15082017 The Respondent Bank receivedthesaidobjectionsbut'notpreferredtogivereplyin compliance of Section 1 3(3A) of the Act and without consideringtheob'iectionsraisedbytheApplicants,inahurried manner the Respondent Bank has initiated the measures under Section 13(4) of the Act' 2002 issued a Possession Notice dated 24.10.2017 against the alleged secured assets lt is further submitted that upon receipt of the Possession Notice daled 24.10 2017 on 31 10 2017' the applicant no l again raised certain objections through her advocate's letter dated ol.ll.2olTandtherespondentbankthroughitsadvocatehas replied vide its letter dated 15 112017 and reiected the same with all untenable grounds' The applicants further submit that without serving the Sale Notice under Rule 8(6) of the SARFAESI Act' 2002' the respondent bank has directly published the 'e-auction Sale Notice' dated 20 11 2017 in Newspapers' The applicant further submits that issuing the above said noticesandinitiatingthemeasuresbytheRespondentBank sA 373 ()F 2017 undertheActandRules'2002againsttheScheduleproperties are highly obiectionable and unwarranted lt is further submittedthattherespondentbankhasnotcompliedwiththe mandatory provision as stipulated under section 13(3A)is not within the spirit of the provisions under the SARFAESI Act' 2OO2 and against the guidelines issued by the Hon'ble Supreme Court in the case of Mardia Chemicals Vs. lJnion of tndia. Theapplicants further submit that the respondent bank failed to appreciate that the bank was restrained from taking any action against the schedule property by virtue of orders passed by the Principal District Judge' Nizamabad in lA' No.1401/2017 in O S no26of2017' The applicants No 2 & 3 submit that the respondent bank has not issued any notice on them who are the legal heirs of late Sri Dayakiran who has valid legal right and interest over the schedule properties since the same belongs to Hindu Undivided Family The applicants further submit that the said impugned Possession Notice dated 24'10 2017 and not served the 30 days Sale Notice under Rule 8(6) are not seNed and both notices were neither afflxed at the conspicuous places of the sA 373 0F 2017 SA scheduled properties nor published in two leading News Papers as stipulated under Rule 8(1) and (2) of the Security interest(Enforcement) Rules' 2002' The applicants further submit that the respondent bank has not obtained the valuation and not followed the Rule 8(5) before getting the properties for sale and the reserve price fixed by the respondent bank is shabby and very low The Applicants further submit that the respondent bank has not followed any of the procedures contemplated under section 13(2), 13 3(A), 13(4) of the Act and Rule 8(5X6X7) and 9(1) of the rules, 2002 against the schedule property' The respondents no 2 and 8 submit that the levelling of allegations against these respondents in more specific reference to the 8th respondent is a clear motivated' malicious act of the applicants to tarnish the reputation and good will of the 2nd respondent in public and the image of the 8th respondent with the financial institutions and also in publlc which is wholly unnecessary and unwarranted They further submit that the applicants having knowledge of the irresponsible acts of the person who managed the affairs sA 373 0F 2017 M/s. H. Gangaram Jewellers' Nizamabad and without making any attempt to rectify him or atleast bring out the true conduct of the said individual in the above appeal' makes thelr stand clear that they are hand in glove with the said individual reasons best known to them'

3. Per contra, it is the submission of the Respondent Bank that inspite of granting sufficient time' the Borrower/Respondent No.2 failed to regularize the loan account and the loan account was classified as NPA on 25 07 2017 The recall notices were issued on 06.05.2017 and 21 06 2017 Thereafter' the Respondent Bank initiated recovery proceedings under SARFAESI Act, 2OO2 and issued demand notice dated 01.08.2017 under Sec 13(2) of the Act' The notice is issued specifically to proceed against the hypothecated stocks and receivables and immoveable properties' The borrower/defendant no.2 firm has failed to repay the entire loan amounttotheRespondentBankinspiteofgrantingSufficient time. As no amount is paid within 60 days of issuance of Demand Notice, the Respondent Bank issued Possession Notice under Section 13(4) of the said Act on 24 10 2017 and sA 373 0F 2017 the possession notice was served on the borrowers/guarantors' The said possession notice dated 24 1O'2O17 was duly published in news papers in "Namasthe Telangana(Telugu)" and "Telangana Today (English)" dated 30'10 2017 After taking over the symbolic possession of the properties' the respondent bank issued auction notice under Rule 8(6) and 9 of the Security interest (Enforcement) Rules 2OO2 on 20 11 2017 fixing the auction date on 27 12'2017 and the auction notice was published in "The Hindu-English" and "Eenadu-Telugu" on

21 .11.2017 . On receiving the objections to the Demand Notice dated O1.08.2017 from the Applicant vide her letter dated 15 08 20'17' which was received by the Respondent Bank on 09 112017 sent the reply dated 15.01.2017 considering the obiections' The allegation of the Applicants that the Bank has not considered the ob.iections as required in law is not correct and the Respondent Bank complied all the Rules' The respondent bank further submits that the applicant no 1 Dr' H. Anuradha, who was the wife of Late Sri H Dayakiran was the partner in the respondent no 2 firm, hence' all required sA 373 0F 2017 notices as per law were sent and served on her and Sri H' Dayakiran was not a partner in the respondent no 2 firm' so question of issuing notice to applicant no 2 and 3 does not arise. The propertles mentioned in the e-auction sale notice dated 20.11.2017 are self-acquired properties of Respondent No.3, Respondent No.8 and Respondent No 12 and not ioint family properties which are evidenced from letter of deposit of title deeds. The respondent bank further submits that as per the bank's policy wherever the property is valued more than Rs.5.00 crores, two valuations reports are to be obtained from SARFAESI panel valuers of the Bank and accordingly the respondent bank has duly obtained valuation reports from SARFAESI panel valuers and the reserve price was kept from the highest valued rePort. The respondent bank further submits that vide its reply notice dated 1 5.1 1 .2017 clarified that the surplus proceeds in the sale of properties of M/s. H. Gangaram Jewellers were distributed the concerned mortgagors as per their share lt is submitted that as per the records of the respondent bank' the properties that were sold were not partnership assets' and the same were <)--,s- sA 373 0F 2017 self acquired properties Therefore' the question of sharing surplus proceeds to the applicants does not arise and the respective mortgagors whose properties were sold' approached the respondent bank for disbursement of the surplus sale proceeds in proportion to the respective properties and accordingly as a matter of practice' the bank proportionately released the same to the mortgagors'

4. Now the point that arise for consideration is whether the Appticant made out any vatid ground for quashing the action taken by the Respondent Bank against the schedule propefty under the provisions of the SARFAESI Act' The Applicants submit that the Respondent Bank has not followed the provisions of SARFAESI Act and they have followed the stipulations under the Act while issuing Demand Notice, Possession Notice and 'E-Auction Notice' Hence the Samearetobedec|aredasinvalid.TheyfurtherSubmitthatthe respondent bank has not obtained fresh valuation report of the schedule property before proceeding for E-Auction and the reserve price fixed by the respondent bank is shabby and very low. They further submit that the respondent bank has not sA 373 ()F 2017

5. I have gone through the material placed on record meticulouslY. The Applicant is alleging the violations in SARFAESI measures taken by the Respondent Bank namely viz the Respondent Bank has not replied to the objections raised by the Applicant to the Demand Notice Hence not complied with Section 13(3A) of the act. Further' the respondent bank has not followed any of the procedures contemplated under section 13(2)' 13 3(A)' 13(4) of the Act and Rule 8(5X6X7) and (9) of the rules' 2002 against the schedule property No notices are served on applicants No.2 & 3' who are legal heirs of Late H Daya Kiran and the SA schedule property is HUF property Further respondent bank has not properly distributed the surplus sale proceeds of securities of securities of M/s Gangaram Jewellers. Per Gontra, the Respondent Bank is contending that they have strictly followed all the mandatory provisions of SARFAESI Act while issuing Demand Notice' Possession Notice and 'E- Auction. The respondent bank submits that the excess amount {fl-/ sA 373 0F 2017 received in the account of M/s Gangaram Jewellers was distributed to the owners of the properties and the properties were self acquired and not partnership properties They further submit that applicant no l is the partner in defendant no 2 firm and the properties given as security are individual properties Applicant No.2 and 3 are in no way connected with this account. The Respondent Bank filed proof of reply to the objections of the applicant dated 15082017 to the notice under Section 13(2) of the SARFAESI Act The Respondent Bank further replied to the objections of the applicant no '1 dated 1 11 2017 vide letter dated 15.11 2017 and the same is received by the applicant. Hence complied with Section '13 (3A) of the SARFAESI Act. The applicants themselves admit that they have received demand notice and possession notice and raised certain objections. The Respondent Bank also filed proof of affixation and publication of the Possession Notice dated

24 10 2017 and the same was published on 30 10 2017 in "Namaste Telangana-Telugu" and "Telangana Today-English" on \q-- sA 373 0F 2017 30.1O.2Ol7. Similarly, the'e-Auction Notice" dated 21 11'2017 was affixed and published in "The Hindu-English" and "Eenadu- Telugu" on 21.11 .2017 . Hence complied with Rule 8(1 ) & (2) of the SARFAESI Act. Separate Possession Notices were issued on 24'10'2017 for Schedule ('l) and Schedule (2) properties Demand Notice was issued on O1.O8.2O17 Postal receipts evidencing the delivery of Demand Notice are flled Postal acknowledgements evidencing delivery of Possession Notices are filed Proof of affixation of Possession notice at the SA schedule properties is filed by the respondent bank. Possession Notice for Schedule (1 ) and Schedute (2) properties was published on 27 1O 2017 in "Telangana Today" and "Nava Telangana" Prior sale notice and E Action Notice dated 20.11 2017 are served and postal acknowledgements filed as proof of service E Auction Notice published in "Hindu" and "Eenadu" on 21 11 2017 ' Photos affixing auction notice filed. Respondent Bank filed copy of reply dated 15.11.2017 addressed to applicants filed hence complied with Section 13(3A) sA 373 0F 201?

6. Propertv in SA Schedule (1). As per possession notice daled 24 10 2017' Shri H' Narsaiah, Shri H. Kishan, Shri H. Gangadhar, Sri H Dayakiran' Sri K. Krishna Kumar and Sri H. Sanjay Kumar are the owners of Schedule (1) property. No notices are served on applicant nos.2 & 3, who are the legal heirs of Late H Daya Kiran' Hence, the SARFAESI measures initiated against SA Schedule (1) property are set aside for non-service of Demand Notice and Possession Notice on the legal heirs of Late H Daya Kiran as H. Daya Kiran is one of the owner and mortgagor of SA Schedule (1) properties The legal heirs are entitled for the notices for the property jointly owned by late H Daya Kiran along with others.

7. Propertv in SA Schedule (2) The respondent bank has strictly complied with all the provisions of SARFAESI Act with regard to Schedule (2) Property. The respondent bank established that the SA Schedule (2) property is individual property of respondents no.3, I and 12 and not part of HUF properties Hence' sA 373 0F 2017 applicants No 2 & 3' who are legal heirs of Late H Daya Kiran are not entitled for any notices since Late H Daya Kiran is not ownerofSASchedule(2)property.Assuchapplicantsno.2 and 3 have no locus standi to question the SARFAESI measures of resPondent no 1 bank'

8. ln view of the Stay Orders issued by the Tribunal' proposed auction on 27 12 2017 couldnotbeheld' From the above discussion' facts and circumstances of the case' I hold that the applicants failed to make valid grounds to set aside SARFAESI measures initiated by the respondent bank against Schedule (2) property The respondent bank can proceedfurtheragainstSchedule(2)propertydulyfollowingthe norms.

9. Further' the SARFAESI measures against the Schedule (1) property are set aside in view of non issuance of necessary noticestothelegalheirsofLateH.DayaKiran.However,the respondent bank is at liberty to initiate fresh SARFAESI measuresagainstSchedule(1)propertydulyfollowingthe norms. l9 gV sA 3?3 0F 2017 '10. ln the result' SA is partly allowed against Schedule Property onlY'

1 1 . Communicate a copy of this order to the parties concerned' ( Dictated to P A , transcnbed by him' corrected' signed and pronounced by me in the ' :r"J::;'#i"1he 23rd dav or Aprir' 201s \ *n ( R. MALLIKARJUNA ) Presiding Officer'