MS NYKA STEEL PVT LTD v. UCO BANK

defendant classified the borrowers' account as NPA. On 18^thOctober 2019, defendant issued a recall notice calling upon the borrowers and the guarantors to liquidate the entire outstanding. On 18^thJanuary 2020, the defendant once again issued the notice to the borrowers informing that the account was classified as NPA on 30^th September 2019. The defendant called upon the applicants to repay the aggregate outstanding of Rs.36.48 crores. On 29^thJanuary 2020, the defendant, through its authorised officer, issued a 13(2) notice calling upon the applicants to repay the aggregate outstanding of Rs.35.93 crores within sixty days. On 24^thMarch 2020, the applicants objected to the 13(2) notice and also made representation to the defendant. The applicants placed on record that the principal borrower is an MSME under the Micro, Small and Medium Enterprises Development Act, 2006 and therefore, it is entitled for all the benefits available under the said Act. It also recorded by relying on the RBI Circulars applicable to MSME. The applicants' main contention is the wrongful declaration of the NPA on 30^thSeptember 2019 as the defendant bank permitted the principal borrower to operate cash credit account fully up to 31^stDecember 2019 and even thereafter. The applicants raised serious challenge to the non-

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registration or non-compliance of Section 26-D of the SARFAESI Act. On 9^thApril 2020, the defendant responded to the applicants' objection- cum-representation by rejecting it. On 20^thAugust 2020, the defendant's authorised officer issued possession intimation informing them to take the symbolic possession of the secured assets, that is,

(i) hypothecation charge on all the stock of raw materials such as HR Coil/SLIT, HR Slits, MS BL Tubes, finished goods such as HR Strips/SLIT, MS BL Tubes, G.I. Tubes and scraps & book debts entire book debts of the company; (ii) EM charge over the property of land admeasuring 300 sq. mtrs. Factory shed at C-17/16, MIDC, Taloja, Dist. Raigad (Exclusive); (iii) EM charge over the Land and building plot no.E-4, Taloja Industrial Estate, Village Pendhar, Dist. Raigad, Dist. Raigad, admeasuring 8810 sq. mts. Standing in the name of M/s. Nyka Engg. Co (exclusive); and

(iv) hypothecation of Plant and Machinery of M/s. Nyka Engineering Co. On that day, that is, 20^th August 2020, the defendant's authorised officer took symbolic possession of the mortgaged properties. On 11 ^thNovember 2020, the defendant applied under Section 14 before the learned District Magistrate, Alibag to grant assistance for taking physical possession of the secured assets. On 11^thNovember 2020, the defendant's

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authorized officer filed nine-pointer affidavit under Section 14. On 8^thMarch 2021, the learned District Magistrate, Raigad-Alibag passed an order under Section 14 granting assistance to the defendant to take physical control of the immovable properties, that is, Plot No.C-176 and Plot No.E-4 (together with the factory building and other structure standing), Taloja Industrial Area, Village Pendhar, Tal. Panvel, Dist. Raigad.

(3) Based on the aforesaid facts, the applicants filed the Securitisation Application and prayed for the following orders and reliefs:

(a) That the Hon'ble Tribunal be pleased to hold and declare that, the order dated 08/03/2021 obtained under S.14 of SARFAESI Act is not in consonance with the law hence cannot be implemented.

(b) That the Hon'ble Tribunal be pleased to quash and set aside purported demand notice dated 29^th January 2020 (Exhibit-"E" hereto) as well as all consequential action in respect of the said assets or any part thereof;

(c) The Hon'ble Tribunal be pleased to order and direct the Respondent to restore the possession of the assets to the Applicants;

(d) The Hon'ble Tribunal may be pleased to award the compensation under Section 19 of the SARFAESI Act, 2002 and/or in the alternative be

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pleased to allow the compensation in terms of the litigation expenses, compensation in terms of the litigation expenses, compensation for mental agony, harassment and also for defaming the goodwill and image of Applicant;

(e) For costs; and

(f) For such other and further orders as this Hon'ble Tribunal may deem fit and proper as the circumstances of the case may require.

(4) The defendant opposes the Securitisation Application by filing the affidavit of Suman Kumar, Chief Manager of the defendant bank. It is stated that the applicants availed the financial assistance in 2003. The defendant granted fund based and non-fund based facility to the tune of Rs.40 crores vide sanction letter dated 10^thApril 2013. On 11^thDecember 2017, the 1^stapplicant passed a Board Resolution to renew/review existing credit facility of Rs.40 crores. The 5^th applicant was authorised to sign and execute the loan and security documents. Accordingly, on 12^th September 2017, the applicants executed the loan and security documents as set out in paragraph 9(c) of the reply affidavit (exhibit-11). The 1^stand 5^thapplicants also signed and executed the hypothecation agreement on 15^thJuly 2013 and supplemental hypothecation deed on 12^th December 2017. To secure the aggregate credit

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facilities of Rs.40 crores, the 1^stand 5^th applicants extended the mortgage of Plot No.C- 17/6 and Plot No.E-4, Taloja Industrial Area, Village Pendhar, Panvel, Raigad.

(5) The defendant recorded the mortgage by way of memorandum of entry dated 15^thJuly 2013. The 1^stand 5^thapplicants executed re-alignment letter dated 15^thJuly 2015. The 1^stapplicant also signed and executed the letter of acknowledgement of debt on 12^thDecember 2017. The defendant declared the 1^stapplicant's account as NPA as recommended by the statutory auditors on 8^thJanuary 2020 with effect from 30^th September 2019. The defendant's authorised officer issued 13(2) notice on 29^thJanuary 2020 calling upon the applicants to liquidate the entire outstanding within sixty days. On 24^thMarch 2020, the applicants objected to the 13(2) and also made representation. On 9^thApril 2020, the defendant rejected the objection-cum- representation made by the applicants. On 20^th August 2020, the defendant took symbolic possession of immovable and movable assets. The authorised officer pasted the possession notice and published in the Free Press Journal (English) and Navshakti (Marathi) on 26^thAugust 2020. The defendant filed Section 14 application before the learned District Magistrate, Alibag to take

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physical possession of the mortgaged property. On 8^thMarch 2021, the learned District Magistrate passed an order under Section 14. Upon receipt of the possession notice, on 20^thAugust 2020, the applicants applied under Section 17(1) before DRT, Pune in Securitisation Application No.147 of 2020. The defendant deny that there is any alleged violation of Section 13(2), 13(3-A), 13(4) and 14 of the SARFAESI Act. The restructuring proposal made by the applicants on 25^thNovember 2019 was not tenable. The applicants therefore, submitted proposal for holding operation vide letter dated 12 ^thDecember 2019. The defendant seeks dismissal of the Securitisation Application. Applicants' submission:

(6) Mr Gogad commenced his arguments stating that the defendant's act of classifying the account as NPA is wrong or illegal and therefore, it is required to be declared as illegal. To support his arguments, Mr Gogad drew the Tribunal's attention to paragraph nos.8 to 10 to the applicants' objection dated 24^thMarch 2020, reproduced below:

"(8) My clients vehemently challenging and objecting the mode and manner of classif ication of the accounts as NPA. As per your demand notice, you have classif ied all the accounts (CC, LOC, Non fund -ILC/FLC) as NPA with effect from

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30/09/2019. My clients state that it is absolutely illegal, incorrect and impossible classification of NPA on 30/09/2019 for following reasons;

a. Cash credit account was in full operation till 31/12/2019 and thereafter too.

b. Cash credit limit of Rs.20 crores has never exceeded its limit during or within 90 days from 30/06/2019 till 30/09/2019 and thereafter too. Cash Credit account was within limit as reflects in statement of account.

c. 3^rdClaim under Non fund based (ILC/FLC) facility is out of the scope and purview of present demand notice which has been issued for the dues upto 30/09/2019. As on 30/09/2019 the said claim is not maintainable and notice is premature to that effect.

My clients now explain and offer his objections all the points (a), (v) and (c) as under.

(9) Point (a)- It is matter of record that account was in full operation till 31/12/2019. It is fundamental principle that moment account is classified as NPA, borrower is debarred from operating his loan accounts more precisely he cannot use the limits, nor his cheques and payments will be cleared as limits are stopped unless account is permitted to be used as holding on operation. In these accounts, undisputedly till

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31/12/2019 both the accounts (CC and LOC) were in operations without any lawful restrictions. Perusal of the statement of account will clearly prove several debits and credit entries after 30/09/2019 till 31/12/2019. It is also matter of concern that from 01/01/2020 your bank has abruptly and arbitrarily freezed the accounts without any notice to our clients. Statement of accounts after 31/12/2019 will also reflects the further credits in the account. If account would have been classif ied as NPA on 30/09/2019 (rightly or wrongly), the Bank ought not to have permitted my clients to operate account in normal manner, nor Bank would have cleared the cheques/payments to parties. Thus, above facts clearly proves beyond doubt that the back dated classification of NPA on 30/09/2019 is abuse of process of law and illegal and incorrect.

(10) Point (b)- My clients state that it is your case that Bank has granted Cash Credit limit of Rs.20 crores under CC A/c. For the purposes of declaring cash credit account as NPA, RBI guidelines requires "account remains "out of order" for a period of more than 90 days in respect of OD/CC". In this case, bare perusal of the statement of account, it is apparent that the cash credit account of the borrower company is

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well within limit of Rs.20 crores and borrower has also served the regular interest upto December, 2019. Thus, there is no question of declaring cash credit account as NPA on 30/09/2019 when the account is within limit and interest is being served. Thus, NPA on 30/09/2019 is defective. Entire process followed is dehors to the RBI guidelines and becomes produce of afterthought. Declaration of NPA leads to the coercive measures and drastic consequences, thus strictness is the essence of the entire process. Slight negligence or carelessness of the banker in an action cannot penalize the borrower as law always gives benefit of doubt to accuse. Thus, back dated process of declaration of NPA is highly objectionable and illegal."

(7) Mr Gogad then drew the Tribunal's attention to the bank's reply to the objection-cum- representation.

(8) The applicant requests the Tribunal to quash and set aside the 13(2) notice on the ground that the authorised officer has failed to reveal his name and designation. The authorised officer has failed to give bifurcation or breakup of the principal and interest outstanding. The claim made in Schedule- A to the 13(2) notice is for an aggregate outstanding of Rs.35.93 crores, which is inclusive

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of interest up to 30^thSeptember 2019. Since the authorised officer failed to disclose his name and designation, Mr Gogad was prompt in relying upon the judgment in IDFC First Bank Ltd. Versus Tristar Cars Private Limited,

MANU/DM/0018/2019 and drew the Tribunal's attention to the law laid down in paragraph no.15, reproduced below:

"15. Now, it may be relevant to examine notice issued under Section 13(2) of the SARFAESI Act to appreciate the contentions and rival contentions of both parties so as to understand whether it is in compliance of the above referred section and rules. This notice is dated 17.7.2017 consisting of four pages and on the last page one person signed above the designation Authorised Officer. It is not known whether there is any post in this Bank with designation of Authorised Officer. When the rule contemplates that officer must not be below the rank of Chief Manager or a person authorised by Board of Directors of Trustees, the person signing such notice shall possess such designation. Form a bare look at the notice, (scanned copy of which is reproduced above) one cannot satisfy that it is in compliance of the above referred provision and the Rules. The Bank has not produced any material, either before the Tribunal below or before me, to show

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that the person who signed the notice is authorised to do so in accordance with provisions of the SARFAESI Act. It is not even referred to the name of the office who is designated. Therefore, the Tribunal below rightly declared it as a defective notice and I do not find any wrong in the order of the Tribunal below."

(9) Mr Gogad would submit that since there is failure on the authorised officer's part to disclose his name and designation, the Tribunal must declare the notice is defective as held by the Hon'ble DRAT, Mumbai in IDFC First Bank Ltd.'s case.

(10) Mr Gogad then challenges the demand notice requesting the Tribunal to declare it as bad and illegal and placed reliance upon the ruling in M/s Kenwood Marketing INC versus HDFC Bank Ltd. & Ors., DRAT Mumbai Appeal No.106 of 2016, dated 20^thJune 2022. Mr Gogad read out the law laid down in paragraph nos.12, 13 and 15, reproduced below:

"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

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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 signif icant, and it intends that the notice u/s 13(2) of the SARFAESI Act are 9 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

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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 f inds that the amount quantif ied 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

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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 10 give the breakup 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

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claimed are not given, is inconsequential.

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 i t 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."

(11) Mr Gogad would submit that the Hon'ble DRAT, Mumbai in M/s. Kenwood Marketing relied upon Punjab National Bank Versus Mithilanchal Industries Pvt. Ltd., MANU/GJ/1069/2020 for the ruling concerning test for the validity of the 13(2) notice as held in paragraph nos.40 and 41, reproduced below:

"40. A reading of Section 13(4) of the SARFAESI Act gives power to the Secured Creditor to take recourse to one or more of the measures provided in Clauses (a) to (d) to recover his secured debt only where the borrower fails to discharge his liability in full within the period specif ied in Sub- Section (2) thereof. Thus, there has to be a failure on the part of the borrower to comply with the

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terms mentioned in Sub-Section (2). Failure to comply with Sub-Section (2) would entail a prior duty/obligation on the part of the Secured Creditor to strictly comply with the terms mentioned therein, that is a valid notice. The notice would be valid only upon complying with the conditions of Sub-Section (3). Once the action taken at the stage of Section 13(4) of the SARFAESI Act is questioned under Section 17 thereof, then the f irst and foremost thing to be tested would be the valid action by the Secured Creditor under Sub-Section (2) of giving a valid notice and therefore, there is failure on the part of the borrower to discharge his liability. Now in the present case, if the liability itself is not validly communicated by the Secured Creditor, there could not be a failure on the part of the borrower. The Tribunal, therefore, would be well within its powers to test the validity of the notice under Section 13(2) of the SARFAESI Act.

FURTER ANALYSIS ON BOTH THE POINTS:

41. The action/recourse taken under Section 13(4) by the Secured Creditor would be dependent upon its validity and legally justif ied action having been taken in the previous sub-section i.e. sub-section (1), (2), (3), and (3A). If the procedure prescribed or the requirement provided under the aforesaid sub-sections are not fulf illed by the

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secured creditor the action/recourse under sub- section (4) of Section 13 would fall. The recourse/action under Section 13(4) of the SARFAESI Act is based upon due compliance in accordance with law of the previous sub-sections of Section 13of the SARFAESI Act. Whenever it is found that the Secured Creditor has not discharged its obligations strictly in accordance to the provisions of sub-sections, in particular the fulf ilment of conditions under sub-section (3) and sub-section (3A), the action/recourse under subsection (4) would fall and fall to the ground. The action/recourse under sub-section (4) stand on the pillars of the valid action under sub- sections (2), (3) and (3A). If any of those pillars is found to be shaky/defective, the action/recourse under sub-section (4) must necessarily fall."

(12) He submits that there is no ambiguity that the defendant's authorised officer stated aggregate outstanding without giving bifurcation of segregation of the principal and interest. The defendant breached the provisions contained in Section 13(3) so also the law laid down in (i) Punjab National Bank Versus Mithilanchal Industries Pvt. Ltd.; and (ii) M/s Kenwood Marketing INC versus HDFC Bank Ltd. & Ors. The Tribunal must therefore, quash and set aside the 13(2) notice.

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(13) Mr Gogad then progressed his arguments by demonstrating the bank's reply to the objection- cum-representation made by the applicants. In response to the applicants' objection concerning the wrongful classification as stated in paragraph no.8, he drew the Tribunal's attention to the paragraph no.8(a) to 8(f) which is not satisfactory. Mr Gogad then drew the Tribunal's attention to paragraph no.21 of the applicants' objection and paragraph no.18 of the bank's reply. The authorised officer conveniently ignored to answer the nine issues raised in paragraph no.21. The defendant bank gave selective response by dealing paragraph no.21(a) to 21(d). He would submit that the applicants' objection in paragraph nos.3 and

4. The bank chose not to respond the applicants' eligibility of the benefits under the MSME Act. He presents that the authorised officer's reply to the applicants' objection-cum-representation is unmindful and refused to give details. He submits that the Hon'ble Supreme Court has laid down the law in ITC Limited versus Blue Coast Hotels Limited, (2018) 15 SCC 99 and relied upon paragraph nos.23, 24, 26 to 28, reproduced below:

"23. The question that arises for consideration before us is whether Parliament intended for a total invalidity to result from the failure to reply

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and give reasons for the non-acceptance of the borrower's representation. In other words, whether sub-section (3-A) of Section 13 is mandatory or directory in nature.

24. There is no doubt that if a reply with reasons is an integral and indispensable part of the statutory scheme, the courts would not excuse a departure from it. But, on the other hand, if the reply is merely a direction and not of substance to the scheme, the non-compliance may be excused.

26. We find the language of sub-section (3-A) to be clearly impulsive. It states that the secured creditor "shall consider such representation or objection and further, if such representation or objection is not acceptable or tenable, he shall communicate the reasons for non-acceptance"

thereof. We see no reason to marginalise or dilute the impact of the use of the imperative "shall" by reading it as "may". The word "shall" invariably raises a presumption that the particular provision is imperative.

27. There is nothing in the legislative scheme of Section 13(3-A) which requires the Court to consider whether or not, the word "shall" is to be treated as directory in the provision. As the section stood originally, there was no provision for the abovementioned requirement of a debtor

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to make a representation or raise any objection to the notice issued by the creditor under Section 13(2). As it was introduced via sub-section (3-A), it could not be the intention of Parliament for the provision to be futile and for the discretion to ignore the objection /representation and proceed to take measures, be left with the creditor. There is a clear intendment to provide for a locus poenitentiae which requires an active consideration by the creditor and a reasoned order as to why the debtor's representation has not been accepted.

28. Moreover, this provision provides for communication of the reasons for not accepting the representation/objection and the requirement to furnish reasons for the same. A provision which requires to be furnished must be considered as mandatory. Such a provision is an integral part of the duty to act fairly and reasonably and not fancifully. We are not prepared in such circumstances to interpret the silence of Parliament in not providing for any consequence for non-compliance with a duty to furnish reasons. The provision must nonetheless be treated as "mandatory". We agree with the view of this Court in this regard in Mardia Chemicals Ltd. v. Union of India. SCC paras 45, 47, 77 and 80; Transcore v. Union of India and

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Keshavlal Khemchand & Sons (P) Ltd. v. Union of India. We also approve of the view of several High Courts in this regard."

(14) Mr Gogad submits that the authorised officer failed to apply his mind while rejecting the applicants' objection. He acted arbitrarily in breach of the provisions contained in Section 13(3-A). The defendant's authorised officer probably has no reason to explain the breach committed by him. He submits by applying the law laid down ITC Limited (supra), the Tribunal considered the applicants' request that even the reply to the applicants' objection-cum- representation is not meaningful.

(15) Mr Gogad then drew the Tribunal's attention to paragraph no.9 of the Section 14 application and paragraph no.11 to the nine-pointer affidavit to show that the authorised officer made false or untrue statement before the learned District Magistrate merely to procure order under Section

14. He states that the defendant or its authorised officer made false statement that save and except 1^stapplicant, no other respondent raised any objection to the statutory demand notice. To demonstrate the authorised officer's false statement, Mr Gogad drew the Tribunal's attention to the objection dated 24^thMarch 2020 (page 51) to show that it is responded by the

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applicants and not only the 1^stapplicant. As falsely stated by the defendant in Section 14 application and nine-pointer affidavit. He states that the consequences of making the false statement is fraud and therefore, looks at the law laid down in S.P. Chengalvaraya Naidu versus Jagannath and others, (1994) 1 SCC 1 and relied upon paragraph no.5, reproduced below:

"5. The High Court, in our view, fell into patent error. The short question before the High Court was whether in the facts and circumstances of this case, Jagannath obtained the preliminary decree by playing fraud on court The High Court, however, went haywire and made observations which are wholly perverse. We do not agree with the High Court that "there is no legal duty case upon the plaintiff to come to court with a true case and prove it by true evidence". The principle of "f inality of litigation" cannot be pressed to the extent of such an absurdity that it becomes an engine of fraud in the hands of dishonest litigants. The courts of law are meant for imparting justice between the parties. One who comes to the court, must come with clean hands. We are constrained to say that more often than not, process of the court is being abused. Property-grabbers, tax-evaders, bank-loan- dodgers and other unscrupulous persons from all

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walks of life finds the court-process a convenient lever to retain the illegal-gains indefinitely. We have no hesitation to say that a person, who's case is based on falsehood, has no right to approach the court. He can be summarily thrown out at any stage of the litigation."

(16) By placing reliance concerning the law laid down on fraud, Mr Gogad submits that the defendant's case be rejected and be thrown out from this Tribunal.

(17) He then relies upon the judicial precedent in Satishkumar Surendra Shetty versus District Collector and others, 2022 SCC OnLine Bom 2847 for the proposition that the Section 14 application is ex-parte in nature and therefore, the higher onus is placed on the secured creditor. He relies upon paragraph nos.16-B, reproduced below:

"16-B. Additionally, even both the other contentions raised by Petitioners (a) that the ti tle documents in respect of the said flats were retained with the Borrowers and (b) that there was nothing to demonstrate that Borrowers had deposited the title documents "with intent to create a security thereon" are also beyond the scope of the jurisdiction of Respondent No.2 under Section 14 of the SARFAESI Act. It is well settled that the jurisdiction of Respondent No.4 when considering an Application under Section

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14 of the SARFAESI Act is purely ministerial in nature and Respondent No.2 does not have the jurisdiction "to decide" any issues or for that matter even hear a Borrower and/or Third Party. The scope of the jurisdiction under Section 14 of the SARFAESI Act as has been reiterated by this Hon'ble Court in the case of Phoenix ARC Private Limited V. State Bank of Maharashtra. Petitioner has accepted this position in the Petition as also in the course of arguments advanced. Proceedings under Section 14 of the SARFAESI Act being ex-parte in nature would necessarily put a higher onus on the Applicant to ensure strict compliance with both content (i.e., truth thereof) and form of the said application and procedure contemplated under Section 14 of the SARFAESI Act. If there is even the slightest hint of an applicant being untruthful in either the content or form prescribed under Section 14 of the SARFAESI Act, the same would render the Application susceptible to challenge by way of Writ Petition. In any event, in the present case we find it most curious that the Petitioner having on the One hand questioned the very creation of a valid mortgage has on the other hand failed and neglected to join as respondents the parties between whom the mortgage was created, namely the Borrowers and ICICI. Having said

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that, we f ind Petitioner Contention that Borrowers had retained possession of the original title deeds of the said f lats to also be entirely misplaced and untenable and contrary to a proper reading of the loan agreement and the declaration in any event, the same has been belied by Petitioner's Advocate being given an taking inspection of the original title documents produced by Respondent No.5. Insofar as Petitioner's contention that there was nothing to show and/or demonstrate the intention of creating a mortgage by Borrowers we f ind that the same is also beyond the scope of the jurisdiction of Respondent No.2 under Section 14 of the SARFAESI Act."

(18) Mr Gogad presents that the secured creditor or its authorised officer failed to mention the claim as on the date of Section 14 application. He relies upon the judgment in Adhya Industries and Ors versus Vijaya bank and Ors, MANU/TL/0049/2020 for the proposition that it is the secured creditor's duty to place the correct facts truthfully in the nine-pointer affidavit. He relied upon paragraph nos.26 and 27, reproduced below:

"26. This Court in an order passed by it on 28.10.2019 in WP No.18734 of 2019 had set aside the action taken under Section 14 of the Act by the Chief Judicial Magistrate of

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Cyberabad when the details required by the proviso to sub-section (1) of Section 14 of the Act were not mentioned in the aff idavit f iled in support of its application under Section 14(1) of the Act by the Bank observing that it is the duty of the Bank as a secured creditor to place correct facts truthfully in the aff idavit f iled by its representative before the said Magistrate and it cannot suppress the facts.

27. Also, the application f iled by the Bank before the District Magistrate, which is supposed to mention the claim of the Bank as on the date of filing the application i.e., 28.6.2018, does not mention the said details and only mentions the amount due as on 28.2.2015."

(19) He further relies upon the judgment in Kotak Mahindra Bank Ltd. versus The State of Maharashtra and others, 2018 SCC OnLine Bom 933 for the proposition that it is the duty of the learned District Magistrate to ascertain the statement and declarations made by the secured creditor in the Section 14 application and the nine-pointer affidavit and to look into the documentary evidence. He relies upon paragraph nos.20 and 26, reproduced below:

"20. We are therefore of the view that the Magistrate is required to ascertain whether the statements are made by the bank under the nine

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clauses below Section 14(1) and once he is satisf ied that the statements as required in those nine clauses have been made by the banks in its aff idavit, the Magistrate/DM would proceed to grant the application under Section 14(3).

26. Keeping in view the law laid down in Noble Kumar (supra), Hari Trading (supra), Capital First (supra) and Bank of Maharashtra (supra), the CMM was empowered to ascertain whether all the declarations under the nine clauses of Section 14(1) had been made or not and whether such statements/declarations are supported with documents."

(20) Mr Gogad requests the Tribunal to allow the Securitisation Application with costs. Defendant's Submission:

(21) Mr Bhavesh Poojary, representing the secured creditor, would submit that his client has correctly classified the 1^stapplicants' account as NPA and drew the Tribunal's attention to paragraph nos.8 (a) to 8 (f) of the Bank's reply to the representation. Paragraph nos.8(a) to 8(f) are reproduced below:

8(a) M/s Nyka Steels Pvt Ltd enjoyed working capital limits from us. These limits expired on 31/03/2019 and were required to be reviewed on before the expiry of the grace period of six months from the date of expiry. The grace period

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also expired on 30/09/2019 but M/s Nyka Steels Pvt Ltd did not send required papers for reasons best known to them.

8(b) We allowed M/s Nyka Steels Pvt Ltd to enjoy the limits for the next six months till 30/09/2019. M/s. Nyka Steels Pvt Ltd delayed sending the necessary papers for reasons best known to itself. When an application was made sometime in November 2019 it was found to be defective as required information was not given and all necessary documents were not attached. We could not process the review application. 8(c) Despite such lapses we permitted M/s Nyka Steels Pvt Ltd as a matter of indulgence to avail of the limits. As and when LCs devolved we made the payments to its suppliers in good faith, hoping that M/s Nyka Steels Pvt Ltd shall repay the amount by depositing the necessary monies. But M/s Nyka Steels Pvt Ltd did not repay the entire dues.

8(d) In the meanwhile we also sent a legal notice through our advocate as a warning hoping after receiving it M/s Nyka Steels Pvt Ltd will take the working of its account more seriously. 8(e) In good faith we did not disallow M/s Nyka Steels Pvt Ltd from using the facility immediately and as a matter of indulgence we permitted it to avail of the same till December 2019. Some LCs

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had devolved in September 2019 and October 2019 and we had made the payments to its suppliers, expecting that M/s Nyka Steels Pvt Ltd would repay the monies. However M/s Nyka Steels Pvt Ltd did not make any payment after December 2019 and an amount of Rs. 2,50,19,256.00 was outstanding for the Non Fund Based limit, Rs. 14,79,37,770.00 were outstanding for the devolved LC and Rs. 19,18,49,060.20 for the Fund Based Limit. 8(f ) In January 2020 the Bank's Statutory Auditor visited and audited the books. They audited some customer accounts including that of M/s Nyka Steels Pvt Ltd. The auditor found that despite the expiry of the grace period the account of M/s Nyka Steels Pvt Ltd has not been reviewed. He also found that M/s Nyka Steels Pvt Ltd is not making repayments regularly. He therefore directed that the account should be treated as NPA from 30/09/2019 as per RBI guidelines. Such direction coming from a statutory auditor is binding on the bank and hence the account became NPA with effect from 30/09/2019. In view of the same we made modifications in our records to show the account is NPA from 30/09/2019. We say that such a state of affairs occurred due to lapses and negligence of M/s Nyka Steels Pvt Ltd for which

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it alone is responsible.

(22) He submits that in 2020, the statutory auditor directed the secured creditor to classify the 1^st applicant's account as NPA as of 30^thSeptember 2019. Therefore, the advocate's legal notice which is prior in point of time, NPA date has not been stated therein. He submits that the secured creditor granted the principal borrower an opportunity to renew and regularize the account which it failed. As far as the applicants' request to sell the mortgaged properties is concerned, he would submit that unless there is a proper valuation, it cannot be sold. Be that as it may, MIDC's permission was necessary to sell the mortgaged property. As far as the applicants' challenge to the 13(2) notice concerning no designation of the authorized officer, he submits that the information is given in the reply. The secured creditor has not withheld any information as monthly statement is provided to the 1^st applicant. He concedes that the amount in the advocate's notice and 13(2) notice are different stating it is a typographical error but was unable to demonstrate any pleading in this regard.

(23) Mr Gogad, in his rejoinder agreements, would submit that the statement of account cannot substitute and the authorized officer cannot avoid giving the details as required under Section 13(3).

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He submits that Mr Poojary admitted an error in advocate's notice and 13(2) notice. There is no rebuttal to the applicants' case or the judgments cited by the applicants and therefore, the Securitisation Application be allowed. Findings:

(24) NPA: The applicants challenged the NPA classification that it is improper. The applicants led no evidence or failed to demonstrate from the entries posted in the statement of account that the account was regular. In the absence of the evidence, the Tribunal cannot consider the applicants' request. Be that as it may, the defendant's answer to the NPA finds force as set out in paragraph no.8 (a) to 8(f) of the reply dated 9^thApril 2020. Therefore, based on the facts and the material placed on record by the parties would reveal that the applicants' challenge to the NPA is misconceived and not tenable.

(25) 13(2) Notice: On 29^thJanuary 2020, the defendant's authorized officer issued statutory demand notice. On page no.45 of the paper book, the authorized officer merely endorses his signature. Admittedly, the authorised officer failed to reveal his name and designation. Therefore, Mr Gogad is right in placing reliance on the law laid down by the Hon'ble DRAT in IDFC First Bank Ltd. (supra). On this ground, the defendant's 13(2)

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notice required to be quashed and set aside.

(26) The 13(2) is also required to be quashed and set aside as it does not give any bifurcation or breakup of the outstanding principal and interest amount. On page no.46 of the paper book, the authorized officer merely chose to mention aggregate outstanding of Rs.35.93 crores inclusive of interest up to 30^thSeptember 2019. The law laid down by the Hon'ble Gujrat High Court in Mithilanchal Industries Pvt. Ltd. (supra) and by the Hon'ble DRAT in M/s. Kenwood Marketing (supra) is clear that if the secured creditor has failed to give the details as contemplated under Section 13(3), such notice is void or defective or liable to be quashed and set aside.

(27) 13(3-A): Mr Gogad successfully demonstrated that the authorized officer failed to give meaningful reply to the borrowers' objection-cum- representation. The authorized officer was selective in answering those objections or representation which was favouring him. He failed and neglected to respond to those objections which go against the secured creditor. Therefore, the law laid down in Hon'ble Supreme Court in ITC Ltd. (supra) would apply to the facts and circumstances of the present case.

(28) Section 13(4): In the 13(2) notice, the defendant gave no detail or description of the movable

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hypothecated assets. In paragraph 10 of the Section 14 application, the secured creditor states that it took symbolic possession of the mortgaged property but does not say the authorised officer took symbolic possession of the movables on 20^th August 2020 and vide paragraph no.9(l) of the reply affidavit (exhibit-11). The statement they made in paragraph 9(n) of the reply affidavit (exhibit-11) contradicts the authorised officer's narratives of taking symbolic possession. The evidence by way of letter dated 25^thSeptember 2020 on pages 107/108 exposes the defendant. The Section 14 application and the nine-pointer affidavit were filed on 11^thNovember 2020. It was the secured creditor's obligation to place true and correct fact as well as material before the learned District Magistrate. The secured creditor is responsible for suppression of fact, withholding vital documents and information.

(29) Section 14 application: The applicants demonstrated the authorized officer making false or untrue statement in the Section 14 application and the nine-pointer affidavit. Admittedly, the applicants responded to the demand notice. However, the defendant or its authorized officer made untrue statement that only 1^stapplicant replied to the demand notice and no other borrowers or guarantors responded to it.

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Therefore, reliance placed by Mr Gogad concerning the law laid down by the Hon'ble Bombay High Court in Satishkumar Surendra Shetty (supra) would apply to the facts and circumstances of the present case. The secured creditor or its authorized officer is duty-bound to give correct information to the learned District Magistrate as held by the Hon'ble Bombay High Court in Kotak Mahindra Bank Ltd.'s case. The authorised officer is also duty-bound to inform the claim laid as on the date of the Section 14 application and nine- pointer affidavit. It is his duty to place the true and correct fact and not to make any false or untrue statement. Therefore, the law laid down by the Hon'ble Telangana High Court in Adhya Industries (supra) shall apply to the facts and circumstances of the present case.

(30) Mr Poojary conceded that there is no name or designation given in the 13(2) notice by the authorized officer. He also conceded that the amount in the advocate's recall notice and 13(2) notice are different. Mr Gogad presented the comparison of the difference in the claim in the legal notice and demand notice as per the table below:

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(31) After examining the Securitization Application and the material placed on record by the parties, the Tribunal concludes that the action and measure initiated by the defendant under Section 13(4) of the SARFAESI Act read with the Rules are not in accordance with the law. Therefore, the 13(2) notice, the measure of taking the symbolic possession and the Section 14 order are quashed and set aside.

(32) The defendant is therefore, directed to restore the possession of the secured assets to the applicants within eight weeks. Mr Gogad did not advance any arguments concerning relief in terms of prayer clause

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6(d) and therefore, the question of granting any benefit arising there from does not arise. Thus, the Tribunal passes the following order:

ORDER

Securitization Application No.21 of 2022 is allowed in terms of prayer clause 6(a) to 6(c). Parties to bear their respective costs.

Sd/-

(Deepak M. Thakkar)

Presiding Officer,

DRT-2, Mumbai

Dhawale

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