Kenwood Marketing Inc. /S v. Hdfc Bank Ltd. And Others /S.

BEFORE THE DEBTS RECOVERY

APPELLATE TRIBUNAL, AT: MUMBAI

Present : Mr. Justice Ashok Menon, Chairperson Appeal No. 106/2016

Between

M/s Kenwood Marketing INC. … Appellant/s V/s.

HDFC Bank Ltd. & Ors. …Respondent/s Ms. Sandeep Shereger, a/w Mr. Amod, Advocate for Appellant. Mr. Sharath Pai, a/w Mr Fenil S & Ms. Tejashree Chuadhari, i/b M/s. Intralegal, Advocate for Respondent No.1.

-: Order dated: 20/06/2022:-

1. This Appeal is directed against a judgment of the Presiding Officer, Debt Recovery Tribunal No.III at Mumbai, dated 10.03.2016 in Securitization Application (S.A.) No 110/2012. The facts, in brief, can be encapsulated thus.

2. The Appellant is a sole proprietorship represented by its proprietor Mr. Rajan K. Mehrotra. He was involved in the catering business and used to supply food materials to several agencies including M/s. R. K. Associates and other group companies in Mumbai headed by the Respondent Nos.2 to 4 herein. Default in payment from M/s. R. K. Associates resulted in financial trouble for the Appellant and he was forced to approach First Respondent bank for a Cash Credit facility. The Appellant would contend that he signed several papers without understanding what they contained. The title deeds about his flats in the Oshiwara Silver

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Sands CHSL at Jogeshwari (West) Mumbai, were also handed over to the bank for verification of his title and valuation. The Appellant was repaying the amount regularly. However, Respondents Nos. 2 to 4 did not pay their dues to the Appellant causing further financial strain to him. To realize his amount from Respondent Nos. 2 to 4, the Appellant had even visited Delhi from where he was kidnapped, assaulted, and threatened. The Appellant defaulted payments of the Cash Credit Facility availed from First Respondent Bank. His account was declared as Non-Performing Assets (NPA for short). On 20th January 2011 but Bank issued a notice under section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Act, 2002 ('SARFAESI Act' for short) demanding payment of Rs.95,61,032.66 from the Appellant within 60 days on receipt of the notice. The Appellant raised objections to the claim vide letter dated 19.04.2011. He received a reply from the Bank on 23.05.2011. The said reply by the bank was not within the time stipulated u/s 13(3A) of the SARFAESI Act. Even though the Appellant approached the First Respondent Bank several times appraising them about his financial problems and making a proposal to settle the loan account, it all fell on deaf ears. On 30.08.2011 Officers of the Bank visited the flats belonging to the Appellant intending to take physical possession and also prepared a panchnama on which the Appellant was made to sign. No possession was handed over to the bank. Although the Appellant continued making concerted efforts to settle the dues, the First

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Respondent Bank did respond positively to the proposals made. The First Respondent Bank approached the Chief Metropolitan Magistrate with an application u/s 14 of the SARFAESI Act and on 26.03.2012 the Ld. C.M.M. allowed the application directing the Assistant Registrar of the Court to take physical possession of the flats. The Appellant is not a willful defaulter. He defaulted the payment of the amount owing to genuine reasons as detailed above. The Bank is attempting to take physical possession of the Appellant's flats and put them up for sale at throwaway prices.

3. Aggrieved by the measures taken under the SARFAESI Act against him, the Appellant approached the D.R.T.-III, Mumbai, with the above-mentioned application u/s 17 of the SARFAESI Act. On 19.04.2012 Hon'ble P.O. of the D.R.T. was pleased to grant interim relief to the Appellant restraining further actions about the flats on condition that the Appellant deposits a sum of Rs.20 Lacs, and the Appellant complied with that order. Subsequently, the Appellant was directed to pay the sum of Rs.10 Lacs more on 03.09.2014, and that too complied and the interim relief was extended. On 08.01.2015, he was asked to pay a further sum of Rs.15 Lacs as a condition for the extension of the interim order. The Appellant did not have the financial capacity to pay that amount and hence the defaulted payment. He approached this Appellate Tribunal by filing Appeal and in consequence of this an order dated 08.01.2015 to deposit a further sum of Rs.15 Lakhs for extension of interim orders was reversed and the S.A. No.

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110/2012 was directed to be disposed of.

4. The notice received by the Appellant does not give a break up of the amount demanded. Hence it is not a valid one. S.A. No. 110/2012 for appropriate directions from the DRT was dismissed vide impugned order dated 10.03.2016 and the Appellant has come on Appeal.

5. The Appellant seeks reversal of the dismissal mainly on the following grounds: 1. The mortgage was created by the Appellant unknowingly and hence invalid. The title deeds were submitted merely for verification and valuation and not to create a mortgage. Ld P.O. erred in observing that the appellant did not object to the notice u/s 13(2) within the statutory period of 60 days and that the bank did not infringe any provision by not responding to the objections filed by the Appellant within the stipulated time.

6. The impugned judgment also has not properly considered the defects pointed out by the Appellant in the Securitization measures taken by first Respondent Bank u/s 13(3A) and 14(1)(of the SARFAESI Act. The precedents have not been properly relied upon by the Ld. P.O. while determining the S.A. It is also an error on the part of the Ld. P.O. to hold that the S.A. is not maintainable u/s 17 of the SARFAESI Act given the fact that neither symbolic nor physical possession of the secured property is being taken over by the creditor. The Ld. P.O. has also not appreciated attempts made by the Appellant to repay the debt and has not interfered with the illegal realization of the penal interest

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by the Respondent Bank. Apart from Rupees Thirty Lakhs deposited by the Appellant under the direction of the Ld. P.O. for interim relief and extension, he has also deposited a further amount of Rs.5 Lakhs as a token towards the OTS proposal which was not considered. The Respondent Bank is claiming a sum of more than Rs.1.12 Crores from the Appellant. The statement of account relied upon by the Respondent Bank is not correct. Even by a rough estimate made by the Appellant, a sum of Rs.95,73,380/- alone would be due. Although the Appellant had sought production of a statement of account about the Bank and also circulars issued by the R.B.I. about the charging of interest, the Respondent Bank has not paid any heed to it. No specific direction is also given by the Ld. P.O. to the Bank. The SARFAESI action taken by the Respondent Bank is premature as no intimation whatsoever was received by the Appellant regarding his account being declared as N.P.A. The Appellant, therefore, prays that the impugned order may be set aside and his application u/s 17 of the SARFAESI Act be allowed as prayed for.

7. The First Respondent Bank has opposed all the allegations made against the SARAFESI measures by the Appellant. The objection is raised regarding notice u/s 13 (2) of the SARFAESI Act, as also the subsequent measures taken by the Bank have been challenged by the Appellant without any sound or sustainable ground. The Appellant has been consistently filing applications under some pretext or the other to protract the proceedings. Ten

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years have passed since the orders were made by the Ld. C.M.M. on 26.03.2012 which permitted the Respondent Bank to take over physical possession of the secured assets and the Appellant has succeeded in thwarting all those attempts by misusing the legal remedies available to him. It is stated that he is a habitual and vexatious litigant and has raised all sorts of untenable contentions. He also filed applications for the production of documents, most of which were available in the public domain like the Circulars of the R.B.I. The statement of account has been furnished by the Respondent Bank and there is no sustainable challenge against that statement of account. It is also pointed out that the Appellant who is the sole proprietor of Kenwood Marketing INC did not willfully implead his wife Harsha Mehrotra, and his son Karan Mehrotra who are guarantors and co-mortgagors. Flat No.64 referred to in the S.A. belongs to Karan Mehrotra and not to the Appellant. The Appellant has no authority to represent Mr. Karan Mehrotra concerning Flat No. 64. As of 31.03.2018, there were outstanding dues of Rs.2,66,12,035/- together with further interest @ 18% p.a. The prayers put forth by the Appellant are all inconsistent and, therefore, the Appellant's case has no legs to stand on and, therefore, needs to be dismissed.

8. Heard both sides. Records perused.

9. The only point that arises for consideration in this appeal is whether the Ld. P.O. has gone wrong in dismissing the S.A. No. 110/2012 for the reasons stated in the impugned Judgment.

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10. The main objection that is raised by the Appellant concerning the SARFAESI measures is that the notice u/s 13 (2) of the SARFAESI Act is not proper and the subsequent measures adopted by the Bank also are not proper, therefore, the entire proceedings need to fail.

11. The Appellant relied on certain decisions in support of his argument. He relied upon A.V. Papayya Shastri & Ors. Vs. Govt. of A.P. & Ors. (2007) 4 SCC 221 in support of the argument that fraud vitiates all judicial acts, whether in rem or persona, and the judgment, decree, or order obtained by fraud has to be treated non-est and nullity. It is submitted that the order of dismissal of S.A. No. 110/2012 by the D.R.T. is a fraudulent act since there has been suppression of material facts purported by the Respondent Bank upon the D.R.T. The importance of the RBI circular under the provisions of the Banking Regulator Act, 1949, was attempted to be impressed upon and for that purpose, the Appellant also relied upon the decision of the High Court of the Punjab and Haryana at Chandigarh in Amar Alloys Pvt. Ltd. Vs State Bank of India 2019 SCC OnLine P&H 571 to argue that before declaring the account as N.P.A. notice was required to be issued to the debtor under the provisions of the SARFAESI Act. In support of the argument that in a demand notice u/s 13 (2) of the SARFAESI Act the Bank is obliged to give complete details of the amount due and the details of the secure assets, the Appellant relies on the decision of the Hon'ble High Court of Gujarat in

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Ajay Hargovindas Jobanputa Vs. The Authorized Officer, Rajkot Nagrik Sahakari Bank C/SCA/5416/ 2022. Under the circumstances, the Appellant prays that the impugned order may be reversed and the S.A allowed as prayed for.

12. Having considered the submissions made on both sides, I find that the main contention raised by the Appellant is regarding the insufficiency of the notice u/s 13(2) of the SARFAESI Act which did not give the details of the amount that is claimed due from the Borrower. The Gujarat High Court has been very categorical in interpreting the provisions of Section 13(2) of the SARFAESI Act. The Hon'ble High Court has observed that the necessity to give the details of the amount becomes more important even though the agreement was entered into and maybe that the Respondent Borrower was aware of the rates of interest that were needed to be charged, the terms, and conditions of the agreement make it abundantly clear that the rate of interest with the base rate is subject to change by the bank from time to time and the revised rate of interest shall accordingly be charged from time to time in said account. These stands would obliviously make it incumbent upon the bank while issuing notice under Section 13(2) of the Act to give details of the amount payable under a notice under Section 13(2). The word 'details' used by the legislature before the words 'the amount payable' is, in the opinion of the Hon'ble High Court of Gujarat very significant, and it intends that the notice u/s 13(2) of the SARFAESI Act are

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provided, the details of calculation of principal amount and interest, including all debits and credits are essential to be mentioned. Apart from the decision relied upon by the Appellant, I also find that Punjab National Bank vs. Telstar Industries Pvt. Ltd.

2019 SCC OnLine Guj 4467, Punjab National Bank vs. Mithilanchal Industries Pvt. Ltd. MANU/GJ/1069/2020(DB), and Bhavdipbhai Arunbhai Dave vs. Kotak Mahindra Bank Ltd. MANU/GJ/0273/2022 are also precedents on this point favouring the Appellant. In Mithilanchal Industries (supra), the division bench of the Hon'ble Gujarat High Court observes thus:

"30. There is another reason for incorporating Sub-Section (3). Sub-Section 3(A) gives the right to the borrower to make a representation or raise an objection against the notice under sub-Section(2), Unless the borrower has details of the amount found due and payable by the secured creditor, and being demanded as such under a notice under Sub-Section (2), the borrower would not be in a position to make any representation or raise any objection. It is only when the amounts under different heads are provided to the borrower that it could raise an objection under any of the heads where the borrower finds that the amount quantified is not correct. Without there being any details mentioned in the notice, the very purpose of Sub-Section 3(A) would be lost to a large extent."

13. Coming to the case in hand, the impugned notice u/s 13(2) of the SARFAESI Act which is page 35 gives the details of the Cash Credit Facility availed by the Appellant and the amount outstanding together with interest and other charges as of 20.01.2011, and then gives the details regarding the security that was furnished. There is also a demand for the total amount that is due together with applicable future interest. The notice does not

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give the break up of the dues required to be paid u/s 13(2) of the SARFAESI Act. When the amount of outstanding is claimed it includes interest and any other dues payable by the borrower to the secured creditor in respect of secured assets as per the book of account of the secured creditor. Sub-Section 3 to Section 13 of the SARFAESI Act makes it clear that a notice referred to in Sub-Section (2) shall give 'details of the account' payable by the borrower which includes the rate of interest from time to time. In the instant cases, the notice does not contain any such details which are required to be mentioned in Sub-Section 3 of Section 13 of the SARFAESI Act, which is not in dispute. The Ld P.O. of D.R.T. has observed that despite having received notice for u/s 13(2) calling upon the Appellant to make payment within 60 days of the receipt of the notice, he does not respond to the notice or raise any objection under Sub-Section (3A) of Section 13 and, therefore, it is assumed that he has no objection to the amount claimed. Hence the fact that the break-up or details of the amount claimed are not given, is inconsequential.

14. Ld P.O. D.R.T. has observed that the Appellant did not respond to the notice u/s 13 of the SARFAESI Act within the time stipulated. Hence it has to be assumed that he does not have any objection regarding the sufficiency of notice u/s 13(2) of the SARFAESI Act. The Appellant had sent a reply to the notice u/s 13(2) but it was not within the sixty days mentioned in Sub-Section (2). But the response by the bank was also not within the

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stipulated time of 15 days as mentioned in Sub-Section 3A of Section 13 of the SARFAESI Act. The submission of the Respondent Bank is that since the notice was not objected to within 60 days, the Appellant loses his right to object, and any objection made thereafter need not be responded to within the time stipulated u/s 13 (3A) of the SARFAESI Act.

15. The Appellant would submit that requirement to furnish the details of the account is mandatory as per the provisions of Section 13(2) and (3) of the SARFAESI Act. Non-compliance with that would render the notice void and under such circumstances, the Appellant is not liable to respond to that. The notice being ab initio void, it has to be taken in that it was not in existence. Moreover, there is no stipulation in the SARFAESI Act that the objection referred to in subsection (3A) to Section 13 is to be raised within 60 days mentioned in subsection (2) of Section 13.

16. The sub-section (2) to Section 13 refers to a period of 60 days for the secured borrower to pay the amount. In case he has not to pay within that time, the consequence is that the secured creditor is at liberty to proceed under sub-section (4) of Section

13. The contention that the borrower has to respond under Sub-Section 3A within 60 days does not seem to be sustainable. Hence no adverse inference can be drawn in case the borrower does not respond under Sub-Section 3A. The only stipulation in sub-Section 3A is that the secured creditor has to reply to the objections of the borrower within 15 days. In the instant case, the

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borrower was not allowed to object to the correctness of the dues as the secured creditor did not give the details of the amount enabling the borrower to respond.

17. The notice under Section 13(2) is defective, and hence, no further securitisation can be initiated based on such a defective notice. The Appeal is allowed, the impugned judgment is set aside and the S.A. No. 110 of 2012 stands allowed. All measures taken by the Respondent Bank in consequence to the defective notice are set aside. The secured creditor is at liberty to proceed afresh, complying with all formalities.

18. All Miscellaneous Applications, if any, are dismissed as infructuous.

Sd/-

Chairperson

dpj

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