Date of Decision: 13.01.2021 R. S. KULHARI, CHAIRPERSON
1. This appeal has been preferred 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 order dated 23.09.2019 passed by the Presiding Officer, DRT, Lucknow, whereby the securitization application (S.A.) filed by the respondents was allowed.
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2. The relevant facts of the matter in brief are, that the appellant-Financial Institution (for short F.I.) granted certain credit facilities to the respondent no. 1-Company through its Directors-respondents no. 2 and 3. In order to secure the loan, the respondents no. 2 and 3 have deposited the title deeds of their properties and created equitable mortgage in favour of the F.I. The borrower-company failed to maintain the financial discipline, therefore, the account of the borrowers was declared as NPA on 11.08.2018 and a demand notice dated 10.11.2018 under section 13(2) of the SARFAESI Act was issued demanding a sum of Rs.1,60,22,234.48. The borrowers sent a representation on 14.01.2019 at 9:00 p.m. through email, which was rejected by the F.I. on 31.01.2019 and the same was conveyed to the borrowers through registered post, which was received by them on 02.02.2019. Since the respondents had not paid any amount within sixty days of the demand notice, hence the appellant-F.I. issued the possession notice dated 13.02.2019 and the symbolic possession of the property was taken. The said notice was affixed on the premises and published in two newspapers on 15.02.2019.
3. The borrowers/respondents challenged the proceedings of the F.I. by filing the S.A. No. 144 of
3 of 14 2019 stating that the representation was not disposed off within stipulated period and the symbolic possession was not taken in accordance with the Rules. During the pendency of the S.A., the appellant- F.I. filed an application before the District Magistrate (D.M.) under section 14 of the SARFAESI Act for taking physical possession, which was decided by the D.M. vide order dated 17.05.2019. The F.I. vide its letter dated 30.05.2019 informed the respondents to handover the actual possession. After receipt of this letter, an amendment application was filed by the borrowers. However, the actual physical possession was taken on 03.06.2019 in furtherance of DMs order dated 17.05.2019. Thereafter, the sale notice was issued on 05.07.2019 scheduling the auction of the property on 21.08.2019.
4. The Tribunal below vide impugned order allowed the S.A. of the respondents-Borrowers holding that the representation filed under section 13(3-A) of the SARFAESI Act was not disposed off within 15 days and the symbolic possession notice dated 13.02.2019 was not delivered to the borrowers, accordingly, while setting aside the demand notice dated 10.11.2018 and the possession notice dated 13.02.2019 directed the F.I. to restore the physical possession of the property.
4 of 14 Being aggrieved by the said order, the F.I. has preferred the present appeal.
5. The learned counsel for the appellant submitted that though the representation was sent through e-mail on 14.01.2019 at 9:00 p.m., but the same could be accessed by the concerned officer of the FI on 16.01.2019 on the opening of the Bank, as there was holiday on 15.01.2019 being Makarshankranti. The representation was disposed off on 31.01.2019. Thus, it was within 15 days from the date of receipt. However, this provision is directory in nature and the respondents have not raised any substantial issue in the representation, rather they sought time for a period of six months to deposit the amount and no amount has been paid by them even upto the date of issuance of sale notice. Therefore, even if, there has been any delay, such non compliance is excusable in view of the principle laid down by the Honble Supreme Court in the judgment of ITC Ltd. Vs. Blue Coast Hotels Ltd. and Ors., Manu/SC/0263/2018.
6. It was further contended that no substantial prejudice has been caused to the respondents by not disposing of the representation, because the FI has not proceeded further before receipt of rejection of the representation by the respondents. The same was received by the borrowers on 02.02.2019, whereas the
5 of 14 possession notice was issued on 13.02.2019. Thus, such type of hyper technicality is liable to be ignored as laid down by the Honble Supreme Court in the judgment of Civil Appeal No. 3413 of 2020-M/s L&T Housing Finance Limited Vs. M/s Trishul Developers and Anr., decided on 27.10.2020.
7. On the issue of possession notice, it was canvassed that the respondents no. 2 & 3 were present at the time of taking the symbolic possession, which is proved by their photographs taken at the time of affixation of the said notice. The notices were delivered to them by hand and were published in two newspapers. Thus, no irregularity was caused in taking the symbolic possession. However, the actual possession was taken on 03.06.2019 vide DMs order dated 17.05.2019 under section 14 of the SARFAESI Act, therefore, the earlier symbolic possession notice has lost its significance. As such, even if, any irregularity was caused in symbolic possession, it did not had any adverse impact on the proceedings of the Bank. To buttress his argument, the learned counsel has relied upon the judgment passed by the Honble Supreme Court in Standard Chartered Bank Vs. V. Noble Kumar and Ors., (2013) 9 SCC 620, wherein three modes for taking possession has been prescribed. Attention was also drawn to the principle
6 of 14 laid down by the Honble Supreme Court in Hindon Forge Private Limited and Anr. Vs. The State of U.P. and Anr., Manu/SC/1250/2018, wherein it has been held that the action taken under Rule 8(1) for taking symbolic possession and the action under Rule 8(3) for taking actual possession in compliance of section 14 of the SARFAESI Act are separate and distinct and are challengeable before the DRT. The Tribunal below has erred in interpreting these judgments in right perspective, therefore, the order impugned be set aside.
8. On the contrary, the learned counsel for the respondents contended that the representation submitted by the respondents on 14.01.2019 was disposed off on 31.01.2019, which was the 18th day. This provision is mandatory as held by the Honble Supreme Court in ITC Ltd. Vs. Blue Coast Hotels Ltd. and Ors. (Supra). Therefore, the Tribunal below has rightly recorded the findings on this aspect.
9. It was further submitted that measures taken for symbolic possession and physical possession give rise separate cause of action, therefore, even if, the physical possession was taken after taking the symbolic possession, yet the irregularity caused at the time of symbolic possession cannot be ignored. The secured creditor can take the benefit, only if it has not
7 of 14 opted for issuing the symbolic possession notice and has directly approached before the DM under section
14 of the SARFAESI Act. Thus, there is no infirmity in the order passed by the Tribunal below.
10. The learned counsel has also submitted that the appellant-F.I. was required to restructure the loan, as the respondent-company was covered under the MSME scheme of the Government. Thus, the FI has not followed the guidelines of the RBI, while declaring the account as NPA, therefore, the proceedings of the Bank are liable to be set aside on this count also.
11. I have considered the rival contentions of the learned counsels for the parties and perused the record as well as the written submissions filed by them. The findings of this Tribunal on the issues involved in this matter are as under:-
12. Disposal of representation filed by the borrowers under section 13(3-A) of the SARFAESI Act: A. It is apparent that the Tribunal below has observed that the representation filed by the borrowers was not decided within stipulated time. There is no dispute on the point that the representation was sent through e-mail on 14.01.2019 at 9:40 p.m. and also that 15.01.2019 was the holiday for the Bank and the
8 of 14 next working day of the bank was 16.01.2019. Thus, although the email was sent on 14.01.2019 at 9.40 p.m, after business hours of the Bank, but the concerned officer could access only on 16.01.2019. Hence, in my considered opinion, the relevant date for receipt of representation by the Bank was 16.01.2019 and cannot be treated as 14.01.2019. Admittedly, the representation was rejected by a detailed order on 31.01.2019 and was sent through registered post, which was received by the borrowers on 02.02.2019. The FI was required to decide the representation within
15 days from the date of receipt and the representation is required to be mandatorily decided before proceeding further as held by Honble Supreme Court in ITC Ltd. Vs. Blue Coast Hotels Ltd. (Supra). Thus, in the instant case, the FI had decided the representation within 15 days from the date of receipt of the representation and communicated vide registered post on 31.01.2019. B. Secondly, the said rejection letter was received by the borrowers on 02.02.2019 and the Bank has proceeded for symbolic possession on 13.02.2019. Thus, in any case, it was decided before proceeding further under section 13(4) of
9 of 14 the SARFAESI Act and the same was received by the borrowers before taking the symbolic possession on 13.02.2019, hence the substantial compliance has been made as laid down by the Honble Allahabad High Court in the judgment of Malhotra Tractors Vs. Chief Manager, State Bank of India, MANU/UP/1536/2008. C. Thirdly, the contents of the representation demonstrate that the emphasis of the borrowers was for seeking extension of time to liquidate the dues within six months and no other specific objections were taken except usual objection with regard to disbursement of the loan and interest etc. However, the borrowers have not deposited any amount even after expiry of six months. The Honble Supreme Court has laid down in ITC Ltd. Vs. Blue Coast Hotels Ltd. (Supra) that if only the time is sought and the other aspects were not of any substance, then non-compliance of the mandatory provision of section 13(3-A) of the SARFAESI Act may be excused. Thus, even if, it is treated that the rejection letter was not received within 15 days by the borrowers, yet such non compliance is excusable in view of the facts of the matter.
10 of 14 D. Lastly, the borrowers have failed to prove that any substantial prejudice has been caused to them by non-disposal of representation within time. The Honble Supreme Court has laid down in M/s L&T Housing Finance Limited Vs. M/s Trishul Developers (Supra) that if there is any trivial irregularity in procedure, that may be ignored, if no substantial prejudice is caused to the borrowers. Of-course, the issue of substantial prejudice depends on the facts and circumstances of each matter, but in the instant case, no prejudice has been caused to the borrowers, therefore, the principle laid down in the judgment is squarely applicable in the facts of the present case.
13. The issue of possession notice dated 13.02.2019 under section 13(4) of the SARFAESI Act: A. In this regard, the Tribunal below has observed that the possession notice dated 13.02.2019 was not delivered to the borrowers. Thus, the Bank had not followed the procedure while taking symbolic possession and the physical possession taken thereafter has no impact on the earlier possession notice. It is worthwhile to mention that as per Rule 8(1) and 8(2) of the Rules, 2002, the secured creditor is required to
11 of 14 deliver the possession notice to the borrowers/guarantors, to affix the same on the conspicuous place of the premises and to publish the same in two newspapers. In the instant case, the Bank has proved the affixation and the publication of the possession notice. However, the contention of the Bank was that the possession notice was delivered by hand, but no such proof was furnished on record, whereas the delivery of the possession notice by hand or dispatch through registered post is necessarily required to be followed. Thus, the Tribunal below has rightly observed that the Bank has failed to prove the service of possession notice dated 13.02.2019 on the borrowers. However, this ground for setting aside the proceedings of the Bank is not sustainable. B. Admittedly, the symbolic possession was taken on 13.02.2019 and the physical possession was taken on 30.06.2019 in compliance of the order of the DM. Before taking actual possession, the FI has also issued a letter dated 30.05.2019 to the borrowers, which was received by them. The Honble Supreme Court has laid down in para 37 of the judgment passed in Standard Chartered
12 of 14 Bank Vs. V. Noble Kumar (Supra) that the secured creditor may take possession under Rules 8(1) and 8(2) of the Rules, 2002. If any resistance is caused, then it may approach before the DM for taking actual possession under Rule 8(3) or the secured creditor may directly approach before the DM under section
14 of the SARFAESI Act. In case of Hindon Forge Private Limited Vs. The State of U.P. (Supra), it has been enunciated that the action taken under Rules 8(1), 8(2), 8(3) and section
14 are separate and give rise separate cause of action. As such, all these steps are challengeable before the DRT. On the basis of this proposition, the possession notice dated 13.02.2019 was challenged before the DRT. However, in the instant case, the physical possession was taken in compliance of the order passed under section 14 of the SARFAESI Act. Therefore, any irregularity caused in taking symbolic possession has become redundant and has lost its significance. C. Secondly, the borrowers have failed to point out any discrepancy in the order passed by the DM under section 14 of the SARFAESI Act. The appellant-FI had issued the letter dated
13 of 14 30.05.2019 to the borrowers. Thus, they were served the notice before taking physical possession and public at large was earlier made aware about the symbolic possession by way of publication made in two newspapers on 15.02.2019. D. Thirdly, no action was taken by the appellant in furtherance of the symbolic possession notice issued under Rule 8(1) and the sale notice was issued only after taking the physical possession on 3.6.2019. Had the sale notice been issued before taking physical possession, the irregularity caused in symbolic possession would have come in the way. The facts of the judgment passed by the Honble Madras High Court in Bharat Post Graduate College Vs. Indiabulls Housing Finance Limited, Manu/TN/5586/2018 are distinguishable, as in that case, the sale notice was issued on 19.05.2017 before the service of possession notice on 22.05.2017, whereas in the instant case, the sale notice was issued after taking physical possession and serving due notice dated 30.05.2019. Thus any kind of irregularity committed in sending the symbolic possession
14 of 14 notice had no impact on the proceedings of the Bank.
14. The Tribunal below could not appreciate the proposition of law and facts of the matter in right perspective, therefore, both the findings are liable to be set aside.
15. The argument with regard to restructuring of the loan and not following the guidelines of the RBI is not worth consideration in this appeal. The borrowers have not categorically pleaded these aspects in the S.A. therefore, the issues, which were not pleaded nor pressed before the Tribunal below, cannot be entertained directly at the appellate stage.
16. In view of the above, there is no infirmity in the proceedings of the Bank. Consequently, the appeal is allowed and the impugned order dated 23.09.2019 passed by the Tribunal below is set aside. No order as to costs. The appellant-F.I. is free to proceed further for recovery of its legitimate dues in accordance with law.
17. A copy of this judgment be sent to the parties as well as the DRT concerned and be also uploaded on the e- DRT portal. Chairperson Date: 13.01.2021 VN Giri