Disposed

M/S Ram Charan and Sons and 4 Others v. Punjab National Bank and 3 Others

Allahabad HC13 Aug 2018WRIC/26255/2018

Case brief

AI extract

What is this about?

The High Court criticized the DRTA dismissing an appeal based on non-disclosure of prior proceedings, noting the bank inactivated those proceedings. It remanded the matter for a merits-based decision on the auction sale challenge.

What did the court decide?

Writ petition disposed; DRTA directed to decide Appeal No. 113 of 2015 on merits of the auction challenge within two months.

M/S Ram Charan and Sons and 4 Others Vs Punjab National… — Narcotics (NDPS) | Allahabad HC (2018)

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Court No. - 36 Case :- WRIT - C No. - 26255 of 2018 Petitioner :- M/S Ram Charan And Sons And 4 Others Respondent :- Punjab National Bank And 3 Others Counsel for Petitioner :- Udayan Nandan Counsel for Respondent :- Anil Kumar,Pranjal Mehrotra

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Hon'ble Mrs. Sunita Agarwal,J.

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Supplementary affidavit filed today is taken on record.

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Heard Sri Udayan Nandan and Sri Ankur Gupta, learned counsels for the petitioners, Sri Ashok Bhatnagar learned Advocate and Sri Anil Kumar learned counsels for respondent nos. 1, 2 and 3 and Sri Anurag Khanna learned Senior Advocate assisted by Sri Pranjal Mehrotra, learned Advocate appearing for respondent no. 4.

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The present writ petition is directed against the order dated 23.7.2018 passed by the Debt Recovery Appellate Tribunal, Allahabad in Appeal No. 113 of 2015 filed under Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (hereinafter referred to as "the SARFAESI Act, 2002").

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By means of the said order, the appeal filed by the petitioner/borrower has been dismissed on the ground of non-disclosure of the fact of filing of earlier securitisation application challenging the auction sale of the secured assets. The appellate authority has come to the conclusion that the appellants/petitioners did not approach the Tribunal with clean hands, inasmuch as, they filed a Securitisation Application No. 30 of 2010 challenging the possession notice dated 5.2.2010 which is pending before the Debt Recovery Tribunal. Another application namely S.A. No. 337 of 2012 was filed by the petitioners/appellants challenging the sale notice dated 9.10.2012 wherein an interim order dated 7.11.2012 was passed by the Debt Recovery Tribunal directing the petitioners/appellants to deposit an amount of Rs. 7,00,000/- prior to the date and time of sale. The said order has not been complied with by the petitioner and the fate of the aforesaid two securitisation applications has not been disclosed in the 3^rd application moved by the petitioners/appellants filed before the Debt Recovery Tribunal.

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The order dated 20.12.2013 passed by the Presiding Officer in dismissing the S.A. No. 342 of 2013 with cost of Rs. 20,000/- on the aforesaid ground has been upheld by the appellate tribunal with the conclusion that non-disclosure of the essential facts amounts to concealment of the material facts.

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These orders are under challenge in the present writ petition with the specific assertion by learned counsel for the petitioners that pendency of previous applications under Section 17(1) of the SARFAESI Act, 2002 would not come in the way of the petitioner, inasmuch as, S.A. No. 342 of 2013 was filed challenging the sale notice dated 13.11.2013.

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It is contended that the previous applications namely S.A. No. 30 of 2010 and S.A. No. 337 of 2012 have lost their efficacy, inasmuch as, the said applications were filed against the notices dated 5.2.2010, 9.2.2010 and 9.10.2012 under Section 13(4) of the SARFAESI Act, 2002 readwith Rule 8(6) & 9 of the Security Interest (Enforcement) Rules, 2002.

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On both the occasions, neither the bank had taken possession nor any sale took place. The interim order dated 7.11.2012 passed by the Debt Recovery Tribunal in S.A. No. 337 of 2012 could not be complied by the petitioner on account of unforeseen circumstances.

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No bid was submitted on the dates fixed in the notices dated 5.2.2010, 9.2.2010 and 7.11.2012 and as such, there was no occasion for the petitioners to press the said applications. After a period of approximately one year, when the petitioners received fresh notice dated 13.11.2013 issued under Section 13(4) of the SARFAESI Act, 2002, the securitisation application was filed before the Debt Recovery Tribunal seeking quashing of the said notice which was registered as S.A. No. 342 of 2013.

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With the issuance of the fresh notice under Section 13(4) of the SARFAESI Act, 2002 dated 13.11.2013 intending to auction the secured interest on 16.12.2013, a fresh cause of action arose with the petitioner to file the securitisation application. The Debt Recovery Tribunal as also the appellate tribunal, both had erred in rejecting the S.A. No. 342 of 2013 on the ground of concealment of fact of filing of two previous securitisation

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application namely S.A. Nos. 30 of 2010 and 337 of 2012.

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Even otherwise, an effort was made by the petitioners for redemption of debt by offering the entire outstanding dues with interest by moving application under Section 13(8) of the SARFAESI Act, 2002 before the Debt Recovery Tribunal on 23.12.2013. Four demand drafts dated 18.12.2013, totaling Rs. 4,00,000/- were submitted alongwith the said application. The request of the petitioners was rejected vide order dated 24.12.2013 on the ground that the secured assets had already been sold through competitive bid and sale proceeds have been appropriated in the loan account of the petitioners, offer given by him for redemption of debt could not be accepted.

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The said order dated 24.12.2013 was challenged in Writ-C No. 519 of 2014 (M/s. Ram Charan & Sons Thru' Prop. Kanhaiya Lal Gupta & 3 others vs. Punjab National Bank Thru' Regional Manager and 2 others) wherein an interim order dated 7.1.2014 was passed staying issuance of the sale certificate and taking of physical possession of the secured assets. The said writ petition has been finally disposed of vide judgment and order dated 25.5.2015 with the observation that the petitioner has an alternative remedy of filing appeal under Section 17 of the Act against the order passed by the Debt Recovery Tribunal. An observation was made therein that in case of filing of appeal within six weeks from the date of the order, the appellate authority shall entertain the same without going into the question of limitation. Consequently, the Appeal Serial No. 113 of 2015 was filed challenging both the order dated 20.12.2013 of dismissal of S.A. No. 342 of 2013 and order dated 24.12.2013 refusing to entertain the offer of the petitioner for redemption of the mortgage under Section 13(8) of the Act.

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A copy of the memo of S.A. No. 342 of 2013 has been brought on record with the supplementary affidavit filed on 13.8.2018 to demonstrate that the entire securitisation process leading to auction sale dated 13.11.2013 and the auction held on 16.12.2013 has been challenged by the petitioner.

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Submission of learned counsel for the petitioners is that after first notice of possession under Section 13(4) of the SARFAESI Act, 2002 was

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issued on 5.2.2010, the said proceeding had not been taken further. The second notice dated 9.10.2012 had also not been given effect to by the bank. Both the notices, therefore, lost their efficacy with the issuance of fresh notice dated 13.11.2013 which was challenged in Securitisation Application No. 342 of 2013.

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The Debt Recovery Tribunal had, therefore, erred in dismissing the said application vide order dated 20.12.2013 on the ground of concealment.

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It is further submitted that the Appeal Serial No. 113 of 2015 was filed pursuant to the aforesaid directions dated 25.5.2015 issued by this Court. In the said appeal, initially an interim order dated 23.6.2015 was passed directing the parties to maintain status quo and finally the said appeal was allowed vide order dated 22.9.2017 with the direction to the Debt Recovery Tribunal to decide the matter afresh.

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The objections taken by the auction purchaser with regard to the maintainability of the Securitisation Application No. 342 of 2013 was directed to be dealt with by the Debt Recovery Tribunal by examining as to whether non-disclosure of the fact of filing of two S.As. has a material bearing on the third securitisation application filed by the petitioners.

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It is contended that the auction purchaser filed Writ-C No. 62114 of 2017 (Bhola Nath Shukla vs. The Debts Recovery Appellate Tribunal & 7 others) against the order dated 22.9.2017 passed by the Debt Recovery Appellate Tribunal. The said writ petition was party allowed vide judgment and order dated 29.1.2018 with the observation that since the entire material was on record of the appellate tribunal, it was under obligation to decide the appeal on merits instead of remanding the matter to the Debt Recovery Tribunal.

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The order of remittal dated 22.9.2017 was, accordingly, set aside and the appellate tribunal was directed to decide the entire controversy raised by the parties on merits, in accordance with law.

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After disposal of the aforesaid writ petition filed by the auction purchaser, the appeal was decided vide order dated 23.7.2018.

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It may not be out of place to mention here that during the pendency

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of the Writ-C No. 62114 of 2017, the auction purchaser filed another WritC No. 62534 of 2017 (Bhola Nath Shukla vs. State of U.P. and 10 others) seeking writ of mandamus commanding the respondents to hand over physical possession of the secured interest pursuant to the auction held on 16.12.2013.

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This Court having recorded directions contained in the order dated 29.1.2018 passed in Writ-C No. 62114 of 2017 had disposed of the said writ petition with the observation that it would be open for the auction purchaser to take steps for retrieving actual physical possession in the event, the auction in favour of auction purchaser is sustained in Appeal Serial No. 113 of 2015.

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With the aid of the directions of this Court noted above, it is vehemently contended by the learned counsel for the petitioners that there was no option before the Debt Recovery Appellate Tribunal but to examine the merits of the auction held on 16.12.2013, pursuant to the notice dated 13.11.2013 under Section 13(4) of the Act. At no point of time, the securitisation application namely S.A. No. 342 of 2013 filed by the petitioner challenging the process undertaken by the bank for enforcement of secured interest has been decided on merits. The petitioner has illegally been non-suited on technical grounds of non-disclosure of previous two securitisation applications.

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Sri Anurag Khanna, learned Senior Advocate appearing for the auction purchaser, on the other hand, submits that the Debt Recovery Appellate Tribunal had remitted the matter back vide order dated 22.9.2017 with the direction that the question as to whether nondisclosure of filing of earlier two S.As. would amount to material concealment or not.

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The petitioner did not comply with the interim order dated 7.11.2012 passed in S.A. No. 337 of 2012 directing him to deposit Rs. 7,00,000/prior to the date and time of the sale. Instead of complying with the said directions, the petitioner choose to remain absent and got the said application dismissed for non-prosecution so as to avoid compliance of the said directions.

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Taking note of non-compliance of the directions of the Debt Recovery Tribunal, the appellate tribunal vide order dated 22.9.2017 has left open for the Debt Recovery Tribunal to examine this issue. While setting aside the order dated 22.9.2017 vide judgment and order dated 29.1.2018, this Court had also left open all issues to be examined by the appellate tribunal.

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It was incumbent upon him to disclose the fact of dismissal of S.A. No. 337 of 2012 and pendency of S.A. No. 30 of 2010 in 3^rd securitisation application namely S.A. No. 342 of 2013.

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The appellate tribunal, therefore, cannot be said to have erred in examining the issue of concealment of the fact of filing of earlier two S.As. and coming to the conclusion that the act of the petitioner in non-disclosure of the said fact amounts to concealment of material fact. The order impugned dated 23.7.2018, therefore, cannot be said to suffer from any illegality, inasmuch as, the petitioner was under obligation to disclose correct and complete facts.

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Having heard learned counsel for the parties and perused the record, for dealing with the controversy in hand, it would be appropriate to first examine the contents of application dated 18.12.2013 which was registered as S.A. No. 342 of 2013. The said application has been filed by the petitioner challenging the auction sale held on 16.12.2013 pursuant to the notice dated 13.11.2013 issued under Section 13(4) of the SARFAESI Act, 2002. A further perusal of the said notice appended with the application shows that it was issued in pursuance of the notice under Section 13(2) readwith Rules 6(2) and 8(6) of the Security Interest (Enforcement) Rules, 2002 with the assertion that the said notice was issued consequent upon failure of the borrower to repay the dues of the bank. There is no mention of previous notices dated 5.2.2010 and 9.10.2012 under Section 13(4) of the Act, 2002.

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Thus, it appears that the bank had given up the process initiated by it under the notices issued in the years 2010 and 2012 which were challenged in previous two securitisation applications namely S.A. No. 30 of 2010 and 337 of 2012.

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There cannot be a dispute to the fact that the borrower is entitled to approach the Debt Recovery Tribunal only after the notice under Section 13(4) of the Act, 2002 is issued i.e. the bank proceeds to take steps or measures for redemption of the secured interest.

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Prior to the said stage i.e. uptill the stage of Section 13(2), there was no occasion for the petitioners to challenge the process inasmuch as, the bank did not proceed for a period of three years from the date of the first notices dated 5.2.2010 and 9.2.2010 and one year from the date of the second notice dated 9.10.2012.

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Non-disclosure of filing of the previous applications, therefore, cannot be said to be concealment of the facts which would have material bearing on the merits of the S. A. No. 342 of 2013.

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The averments in S.A. No. 342 of 2013 dated 18.12.2013 indicates that the petitioners had challenged the entire process undertaken by the bank under the SARFAESI Act, 2002 i.e. from the stage of recovery proceedings by issuance of the demand notice under Section 13(2) of the Act uptill the stage of auction held on 16.12.2013. There are allegations of non-service of notice under Section 13(2) and 13(4) of the SARFAESI Act, 2002 so as to assert that the auction sale held on 16.12.2013 is liable to be set aside for non-compliance of the statutory provisions.

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The Apex Court in the case of Mardia Chemicals Ltd. Etc. vs. U.O.I. & Ors. Etc. reported in 2004 (4) SCC 311 has held that the provisions of SARFAESI Act, 2002 are stringent in nature and, therefore, strict compliance thereof on the part of the Secured Creditor namely the bank is needed.

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The observations of the Apex court in Mardia Chemicals (supra) are relevant to be quoted as under:-

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77. It is also true that till the stage of making of the demand and notice under Section 13(2) of the Act, no hearing can be claimed for by the borrower. But looking to the stringent nature of measures to be taken without intervention of court with a bar to approach the court or any other forum at that stage, it becomes only reasonable that the secured creditor must bear in mind the say of the borrower before such a process of recovery is initiated. So as to demonstrate that the reply of the borrower to the notice under Section 13(2) of the Act has been considered applying mind to it. The reasons howsoever brief that may be for not accepting the

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objections, if raised in the reply, must be communicated to the borrower. True, presumption is in favour of validity of an enactment and a legislation may not be declared unconstitutional lightly more so, in the matters relating to fiscal and economic policies resorted to in the public interest, but while resorting to such legislation it would be necessary to see that the persons aggrieved get a fair deal at the hands of those who have been vested with the powers to enforce drastic steps to make recovery.

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The question as to whether the bank has proceeded strictly in accordance with the provisions of Act, 2002 in realization of debts against the borrower was required to be examined by the Debt Recovery Tribunal as also the appellate tribunal. Both the tribunals have lost this aspect of the matter and have misdirected themselves from refusing to enter into merits of the challenge raised by the petitioners.

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In view of the above discussions, this Court is of the considered view that the securitisation application namely S.A. No. 342 of 2013 was dismissed by the Debt Recovery Tribunal vide order dated 20.12.2013 on wholly technical grounds. The previous securitisation applications for the act of the bank in not pursuing the notices issued by it under Section 13(4) of the Act, 2002 have lost their efficacy.

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For the aforesaid reasoning, this Court does not find any justification to sustain the order dated 23.7.2018 passed by the Debt Recovery Appellate Tribunal, Allahabad in Appeal No. 113 of 2015 affirming the order dated 20.12.2013 passed by the Debt Recovery Tribunal, Allahabad in S.A. No. 342 of 2013. However, noticing the fact that the matter has travelled to this Court and a direction was given on 29.1.2018 to decide the appeal on merits instead of remitting the matter back to the Debt Recovery Tribunal, the present writ petition is being disposed of with the observations that the Debt Recovery Appellate Tribunal, Allahabad shall decide the Appeal No. 113 of 2015 on merits of the claim of the petitioners/appellants challenging the notice dated 13.11.2013 and the auction sale held on 16.12.2013, by giving due opportunity to all the contesting parties, expeditiously, preferably, within a period of two months from the date of submission of certified copy of this order.

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It goes without saying that no unnecessary adjournments would be

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granted by the Tribunal to either of the parties.

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In view of the directions of this Court dated 16.4.2018 passed in Writ-C No. 62534 of 2017 (Bhola Nath Shukla vs. State of U.P. and 10 others) filed by the auction purchaser (respondent no. 4 herein), it is observed that the respondents shall not interfere in the physical possession of the petitioner over the property in question i.e. secured assets, till final disposal of the Appeal No. 113 of 2015 by the Debt Recovery Appellate Tribunal, Allahabad

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Order Date :- 13.8.2018 Brijesh

M/S Ram Charan and Sons and 4 Others v. Punjab National Bank and 3 Others

Case brief

What is this about?

What did the court decide?

M/S Ram Charan and Sons and 4 Others v. Punjab National Bank and 3 Others

Case brief

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