Date of Decision: 16.02.2021 R. S. KULHARI, CHAIRPERSON
1. All the above four appeals have been preferred under section 18 of the Securitization and Reconstruction of
3 of 12 Financial Assets and Enforcement of Security Interest Act, 2002 (for short the SARFAESI Act) against the order dated 13.08.2019 passed by the Presiding Officer, DRT, Lucknow, whereby two S.As. were decided by same order, therefore, these are being decided by this common order.
2. The relevant facts of the matter in brief are, that the Bank of Baroda granted a loan of Rs. 1.33 crores to the borrower-M/s Alchemist through its proprietor Dr. Utkarsh Shahi in the year 2009. Dr. Gyan Prakash Shahi, father of Utkarsh Shahi and Smt. Aparna Shahi, mother of Utkarsh Shahi stood as guarantors and had mortgaged three properties belonging to them to secure the loan. In March, 2010, the loan was taken-over by the respondent-Bank i.e. Bank of India and further credit facilities were provided, totaling to the tune of Rs. 3.50 crores. One additional security was mortgaged by the borrowers to secure the total loan, which was in the name of the firm-M/s Alchemist situated at Gomti Nagar, Lucknow.
3. Since the borrowers defaulted in repayment of the loan, therefore, the Bank issued a demand notice dated 17.01.2013 under section 13(2) of the SARFAESI Act demanding a sum of Rs. 3.70 crores. Since the amount was not paid in response to the demand, hence the Bank issued possession notice dated 30.07.2013 under section 13(4) of the SARFAESI Act and the symbolic possession of the secured assets was taken. The possession notice was published in two newspapers and was also sent to the borrowers/guarantors. Thereafter, in compliance of the OTS proposal, the borrowers/guarantors have deposited Rs. 50.00 lacs on 12.07.2014 and Rs. 40.00 lacs on 16.07.2014. However, the remaining amount was not deposited in terms of the OTS, hence the OTS had failed.
4 of 12 Consequently, the Bank has issued the sale notice dated 28.07.2015 for auction of the properties.
4. The guarantor-Dr. Gyan Prakash Shahi challenged the proceedings of the Bank by filing S.No.596/2015. However, the sale could not be materialized for want of bidders. Thereafter, another sale notice was issued on 26.02.2016, but it also met with the same fate. Subsequently, the sale notice was issued on 6.2.2017 scheduling the auction for 08.03.2017. Out of two properties, the property situated at Gomti Nagar comprising of two flats in the name of the borrower- M/s Alchemist was auctioned in favour of the auction purchaser Shri Yash Garg for Rs. 1,31,20,000/-. After deposit of sale price, the sale certificate was issued on 27.03.2017 and the sale deed was executed on 25.07.2017.
5. The borrowers challenged the auction by filing S.A. No. 178/2017 on 20.03.2017. Necessary amendments were also made in S.A. No. 586/2015. The Bank had filed a detailed reply in the S.As. The auction purchaser was also impleaded as respondent. The Tribunal below vide impugned order disposed of both the S.As. holding that there was no infirmity in conducting the auction or in valuation report of the Bank. However, it was observed that the possession notice dated 30.07.2013 was not properly served and the possession notice was dispatched to the S.A.-applicants after publication in the newspapers, hence there was no compliance of Rules 8(1) and (2) of the Security Interest (Enforcement)Rules, 2002 (in short Rules, 2002) and accordingly, set aside the possession notice, sale notice and the sale certificate issued by the Bank with direction to return the sale price with interest @
5 of 12 8% simple from the date of deposit. Being aggrieved by the said order, the Bank has filed the Appeal Dy. No. 290/2019 against the S.A. No. 178/2017 and Appeal Dy. No. 289/2019 against the S.A. No. 596/2015 and the Auction Purchaser has filed the Appeal Dy. No. 267/2019 against the S.A. No. 178/2017 and Appeal Dy. No. 334/2019 against the S.A. No. 596/2015.
6. Learned counsel for the Bank submitted that the S.A.- applicants have challenged the sale notice and the auction sale dated 08.03.2017 held in furtherance to the sale notice dated 06.02.2017. The Tribunal below has categorically observed that there was no infirmity in the service of the sale notice, valuation report and the auction of the property. However, it has observed that the possession notice was not served in accordance with the rules, whereas the possession notice was duly served to the borrowers/guarantors, that is why they have not pleaded in the S.A. for quashing the possession notice. Instead, they had admitted to have received the possession notice. As such, the issue of possession notice was barred by limitation on the date of filing of both the S.As. Neither any application for condonation of delay was filed nor the delay was condoned by the Tribunal below. Thus, the Tribunal below has erred in deciding the S.As. in favour of the borrowers.
7. Learned counsel for the action purchaser adopted the arguments as advanced on behalf of the Bank.
8. Per contra, the learned counsel for the respondents- borrower/guarantors, at the outset, raised an objection that the appeals filed by the auction purchaser-Yash Garg are not maintainable, as he is not an aggrieved person as defined under the SARFAESI Act. Therefore, the Appeal
6 of 12 Dy. No. 334/2019 and Appeal Dy. No. 267/2019 filed by Yash Garg are liable to be dismissed on this ground alone. In support of the contentions, the learned counsel has placed reliance on the following judgments:-
I. Axis Bank Vs. SBS Organics Private Limited and Another, (2016) 12 Supreme Court Cases 18.
II. P. S. Pushparaj Vs. The Authorized Officer, Bank of India and Anr., 2017 SCC OnLine Mad 30542.
III. Rose Valley Real Estate and Construction Ltd. Vs. United Commercial Bank and Anr., (2009) 1 Gauhati Law Reports 726.
IV. W.P. No. 1364 (M/B) of 2012-Nishant Kumar Pandey Vs. UCO Bank and others, decided on 23.05.2012.
9. On merits of the appeals, it was contended that the S.A. applicants have sought relief for quashing the entire recovery proceedings, therefore, the Tribunal below has rightly considered the issue of service of possession notice. Since the sale notice was issued in continuance of the possession notice, therefore, the limitation cannot be reckoned from the date of taking symbolic possession. No possession notice was served prior to taking the symbolic possession on 30.07.2013, therefore, the Tribunal below has rightly set aside the entire proceedings of the Bank.
10. An attempt was also made to canvass that the Bank has proceeded for issuing the sale notice without waiting for compliance of the terms and conditions of one time settlement (O.T.S.), therefore, on this ground also, the sale notice issued on 28.08.2015 and the subsequent sale notices were bad in law.
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11. I have considered the rival contentions of the learned counsels for the parties and perused the record.
12. Before proceeding further, it would be apt to decide the issue, as to whether the appeals filed by the auction purchaser are maintainable or not?
13. In this regard, section 18 of the SARFAESI Act provides that any person aggrieved by any order made by the DRT under section 17 of the said Act may prefer an appeal. Thus, a bare perusal of the provisions goes to show that two conditions should be satisfied to make a person eligible to file the appeal, first that he should be aggrieved by the order and the second that the order should have been passed under section 17 of the SARFAESI Act. Admittedly, these appeals have been filed by the auction purchaser against the order passed by the DRT under section 17 of the SARFAESI Act. With regard to the grievance, the Tribunal below has set aside the auction held in favour of the auction purchaser and also the sale certificate issued in furtherance thereto. Thus, the auction purchaser is very much aggrieved and affected person by the impugned order.
14. Secondly, the SA-applicants themselves have impleaded the auction purchaser as respondent in the respective S.As. by way of misc. application, therefore, the auction purchaser being a necessary party contested the case and on this ground also, he may file the appeal under section
18 of the SARFAESI Act.
15. The facts of case law referred by the learned counsel for the borrowers are distinguishable, hence are not applicable in the facts of the present matter. In Nishant Kumar Pandey Vs. UCO Bank (Supra), the writ petitioner was
8 of 12 the second highest bidder in the auction proceeding, therefore, it was held that he has no locus standi to file the writ petition, as he was not a person aggrieved by the proceedings conducted by the Bank and by non-deposit of 25% of the bid amount by the highest bidder.
16. In Rose Valley Real Estate and Construction Ltd. Vs. United Commercial Bank (Supra), the writ petition was filed against the forfeiture order passed by the Bank, hence it was observed that the petitioner was neither borrower nor a person aggrieved by the mode of recovery adopted by the Bank, whereas such is not the position in present case. In P. S. Pushparaj Vs. The Authorized Officer, Bank of India (Supra), the Honble Madras High Court while elaborating the provision of the SARFAESI Act has held that if the Tribunal has recorded the findings against a person, in a proceeding under section 17, such person would fall within the expression any person aggrieved to file the appeal under section 18. Thus, the ratio laid down in the judgment supports the case of the auction purchaser.
17. In Axis Bank Vs. SBS Organics Private Limited(Supra), the issue before the Honble Supreme Court was, as to what should be the fate of deposit made under section 18 as pre-deposit on disposal of the appeal, in which it was held that pre-deposit is neither a secured asset nor the secured debt and is liable to be returned to the appellant. As such none of the citations renders any the assistance of the borrowers. Thus both the appeals filed by the auction purchaser are entertainable.
18. Coming to the merits of the case, a perusal of the impugned order reveals that the Tribunal below has recorded the findings in favour of the Bank with regard to
9 of 12 the service of demand notice, sale notice, valuation report and issuance of sale certificate and no infirmity was found in such proceedings. However, the entire proceedings were quashed on the ground that the compliance of Rules 8(1) and (2) of the Rules, 2002 qua the service of the possession notice was not complied with.
19. In this context, it is settle proposition of law that every measure taken by the bank under section 13(4) of the SARFAESI Act is challengeable before the DRT and no action of the Bank prior to taking symbolic possession gives rise any cause of action for filing S.A. The measures under section 13(4) including the issuance of the possession notice, sale notice or auction of the property give rise independent & separate cause of action at the relevant time and may be challenged separately or by filing common S.A., but within the stipulated period of limitation of 45 days from the accrual of cause of action. If the possession notice has been served or is admitted to have been served by the borrowers/guarantors, then it is to be challenged within 45 days and in case of delay, the same is required to be condoned by showing a plausible reason. Further, no relief can be granted without any specific pleading on that issue, because it prejudicialy affects the right of the opposite party, who has no occasion to explain the unpleaded issue.
20. In the instant case, both the S.As. were filed being aggrieved by the sale notice dated 28.08.2015 and thereafter the sale notice dated 06.02.2017 and nowhere it was mentioned that they were having any grievance qua the possession notice dated 30.07.2013 and accordingly, the limitation was taken from the date of issuance of the sale notice(s). Thus, there was no specific pleading that
10 of 12 the possession notice was not duly served. As such the Tribunal below has entertained the issue without specific pleading and without affording opportunity to the Bank to substantiate its case in this regard.
21. Secondly, in S.A. No. 596/2015, the S.A.-applicant had admitted at para 5.13 that the possession notice was served upon the S.A.-applicant on 03.08.2013. Similarly, in SA NO. 178/2017, it was admitted at para 5.13 by the S.A.-applicant that the applicant came to know of the notice dated 30.07.2013 from his parent i.e. guarantor- Gyan Prakash Shahi, who is father of the S.A.-applicant. Thus, it is clear that the possession notice was duly served to both the S.A.-applicants and no proof was required to be filed by the Bank, when the S.A.-applicants have admitted the service of the possession notice.
22. Needless to mention that the possession notice is not required to be served prior to taking symbolic possession, as stated by the S.A.-applicants, but the same may be delivered on the spot, simultaneously, while taking the symbolic possession or may be sent by post at the earliest after taking the symbolic possession, if it could not be served or received on the spot. The Bank had dispatched the possession notice, which was admitted to have been received by the S.A.-applicants on 03.08.2013, so there was substantial compliance of the Rule 8(1). Further the possession notice was published in two newspapers, therefore, compliance of Rule 8(2) has also been made as prescribed under the Rules.
23. The S.A.-applicants have admitted at para 5.14 and 5.15 of the S.As. that after symbolic possession, they have made bonafide efforts to clear the loan and have deposited Rs. 50.00 lacs on 12.07.2014 and Rs. 40.00 lacs on
11 of 12 16.07.2014. This averment further fortifies the fact that the borrowers have been served the possession notice. Since the possession notice was not challenged within 45 days nor was there any application for condonation of delay, therefore, the issue of service of possession notice was time barred and the Tribunal has pondered over the time barred issue, that too, without condonation of delay and without any pleading on this aspect.
24. There is no dispute on the point that the Tribunal below may restore the status quo ante as laid down by the Honble Supreme Court in Indian Overseas Bank Vs. Ashok Saw Mill, 2009(8) SCC 366, but for that purpose, the measure would have been challenged within stipulated period and cannot be treated to have been condoned on the basis that the term to quash the entire proceedings of the Bank was used in the relief clause. The Tribunal below has not appreciated the said judgment in right perspective.
25. Besides, the possession notice was duly served and it was admitted by the S.A. applicants that they were having knowledge of the symbolic possession, yet they have not challenged the same till issuance of the sale notice, which is sufficient to infer that they have waived their right to challenge such issue. As such the principle of waiver also applies on the present set and circumstance of the matter. Thus, the finding recorded by the Tribunal on this aspect is not sustainable.
26. The argument that the Bank had proceeded during the currency of the OTS proposal, is also not tenable. The S.A.-applicants have admitted at para 5.16 and 5.17 that in pursuance of the OTS settlement, they have deposited Rs. 90.00 lacs, but were not able to manage further amount, therefore, the Bank had recalled the OTS proposal
12 of 12 vide its letter dated 15.04.2015. Thus, it is evident that the OTS has been frustrated and it was recalled on 15.4.2015 before issuance of sale notice on 28.08.2015. Thus, it cannot be said that any OTS proposal was alive at the time of issuance of sale notice or the Bank has proceeded during the currency of OTS proposal. After recalling the OTS proposal, the Bank was free to proceed further for auction of the property.
27. In view of the above, all the appeals are allowed and the impugned order dated 13.08.2019 is set aside. No order as to costs.
28. A copy of this judgment be placed in all the appeals and forwarded to the parties along with the DRT concerned as well as uploaded on the e-DRT portal. CHAIRPERSON Date: 16.02.2021 VN Giri