Dismissed

Messers Sri International v. Central Bank of India

DRAT24 Nov 2022REGULAR APPEAL/18/2022

Case brief

AI extract

What is this about?

Two appeal cases filed by borrowers against the Debt Recovery Tribunal for setting aside a sale notice and E-auction under the SARFAESI Act. The Appellants contended violations regarding procedural compliance, valuation, and tenant notifications. The Tribunal found no merits in the challenges, clarified the timeline for payment amidst stay orders, and dismissed the appeals.

What did the court decide?

Both appeals RA (SA) 17/2022 and RA (SA) 18/2022 are dismissed. Each party to bear their own costs.

Messers Sri International versus Central Bank of India — Company and Corporate | DRAT (2022)

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RA 17/2022 a nd RA 18/2022

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IN THE DEBT RECOVERY APPELLATE TRIBUNAL AT CHENNAI

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Dated the 24^th of November, 2022

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PRESENT: Hon’ble Mr. Justice S. Ravi Kumar

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CHAIRPERSON

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RA (SA) : 17/2022

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[SA 263/2020 on the file of DRT, Coimbatore)

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and

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RA (SA) : 18/2022

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[SA 382/2021 on the file of DRT, Coimbatore)

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Between

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M/s. Sri International,

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Rep. by its Partner, Mr. N. Ramalingam, Doing Business at, No.6/A, Gayathri Nagar, 1^st Street, Palayakkadu North, Uthukuli Road,

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Tirupur – 641 601.

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Mr. N. Ramalingam, Partner of M/s. Sri International, No.9, Gayathri Nagar, 1^st Street, Palayakkadu North, Uthukuli Road, Tirupur – 641 601.

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Mrs. R. Valarmathi, Partner of M/s. Sri International, W/o N. Ramalingam, No.9, Gayathri Nagar, 1^st Street, Palayakkadu North, Uthukuli Road, Tirupur – 641 601.

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¶18

RA 17/2022 a nd RA 18/2022

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Mrs. R. Arukkani, W/o R. Ramasamy, Gayathri Nagar, 1^st Street, Palayakkadu North, Uthukuli Road, Tirupur- 641 601.

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……Appellants in both RA :17/2022 a nd RA : 18/2022

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And

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M/s. Central Bank of India, No.2, Court Street, Tirupur – 641 601.

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E. Muthurathinasabapathy, S/o Easwaran, D.No. 99, Karumarampalayam Main Road, Mannarai Village, Tirupur – 641 607.

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R. Umarani, S/o Ravindranathan, D/No.5-223, M.G. Layout, Gandhi Nagar, Udumalpet, Tirupur – 642 154.

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K. Anitha, W/o Karunanidhi, No.40, Sathya Colony, Main Road, Mannarai, Tiruppur - 641 607.

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……Respondents in both RA :17/2022 a nd RA : 18/2022

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Counsel for Appellant : Mr. Jayesh Dolia and Mr. M. S. Shanmugasundaram Counsel for R1 : Mr. M. L. Ganesh

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RA 17/2022 a nd RA 18/2022

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COMMON ORDER

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1. These two Appeals are preferred against impugned Order dated 31.03.2022 in SA No. 263/2020 and SA No. 382/2021. Appeal RA (SA) 17/2022 is against Orders in SA 263/2020 and Appeal RA (SA) 18/2022 is against Orders in SA 382/2021.

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Both parties submitted their arguments in common to both Appeals, and as impugned Order is also a common Order, these Appeals are disposed of through a common Order.

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2. Appellants herein filed SA 263/2020 to set aside Sale Notice dated 31.07.2020 through which 1^st Respondent Bank fixed E-auction of secured asset on 04.09.2020.

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Appellants filed SA 382/2021 to set aside E-auction Sale conducted on 04.09.2020 against Schedule mentioned

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properties and declare the same as bad in law.

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RA 17/2022 a nd RA 18/2022

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3. Securitisation Application SA 263/2020 is filed against 1^st

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Respondent Bank alone, and thereafter, Auction Purchasers, who purchased properties in auction held on 04.09.2020, are impleaded as Respondent Nos.2 to 4 as per orders in IA 164/2021 dated 25.01.2021. Securitisation Application SA 382/2021 is filed against 1^st Respondent Bank and also Auction Purchasers.

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Respondents in both Securitisation Applications resisted on several grounds.

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On a consideration of contentions and rival contentions of both parties, Tribunal below dismissed both the Applications, and aggrieved by which, these two Appeals are preferred.

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4. All parties filed their Written Submissions and reiterated

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the same at the time of oral submissions.

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RA 17/2022 a nd RA 18/2022

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5. Appellants challenged Sale Notice dated 31.07.2020 contending that Authorised Officer of 1^st Respondent Bank not followed the procedure prescribed under SARFAESI Act and Rules made thereunder, particularly, Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 (hereinafter called the Rules). Appellants also contended that Authorised Officer of 1^st Respondent Bank has not obtained proper valuation as required under law, and on these grounds, prayed to set aside Sale Notice dated 31.07.2020.

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Appellants prayed to set aside E-Auction Sale dated 04.09.2020 again on the ground that Authorised Officer of 1^st Respondent Bank has not followed Rule 8(6) of the Rules, 2002; Authorised Officer of 1^st Respondent Bank failed to follow Rules 8 and 9 of Rules, 2002; Authorised Officer of 1^st Respondent Bank failed to take proper valuation in fixing upset price as required under Rule 8(5) of Rules, 2002; Authorised Officer of 1^st Respondent Bank failed to mention about Lessees/Tenants,

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who are in possession of property since 2007-2008 in Sale

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RA 17/2022 a nd RA 18/2022

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Notice and Auction Purchaser failed to pay bid amount within the time as mandated in Rule 9 of Rules, 2002. Broadly, these are the grounds on which Appellants questioned the action of 1^st Respondent Bank.

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6. On the other hand, it is the contention of 1^st Respondent Bank that it followed strictly provisions of SARFAESI Act and Rules made thereunder, and there is absolutely no violation. First Respondent Bank further contended that though sale was conducted on 04.09.2020, due to stay orders, sale could not be confirmed till 31.03.2022, the date on which DRT disposed of SA 263/2020 and SA 382/2021, and confirmation letters to successful bidders were issued at 3.30 p.m. on 31.03.2022, and thereafter, Fixed Deposits standing in the name of Auction Purchasers were encashed and proceeds are appropriated towards balance sale consideration amount; thus, 75% of balance sale consideration is paid within the period stipulated after confirmation of sale.

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RA 17/2022 a nd RA 18/2022

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7. Now, I shall examine these contentions one by one, in

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order to judge whether Tribunal below committed any error in dismissing Securitisation Applications.

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8. One of the contentions of Appellants is that Reply sent by Appellants to Authorised Officer of 1^st Respondent Bank in answer to Demand Notice issued under Section 13(2) of SARFAESI Act, 2002, was not considered before invoking Section 13(4) of SARFAESI Act, 2002.

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According to 1^st Respondent Bank, they have issued Demand Notice under Section 13(2) of SARFAESI Act, 2002, on 10.02.2020, giving 60 days time for payment, and Appellants never raised any objection and 1^st Respondent Bank has not received any Reply from Appellants nor Appellants paid any amount in compliance of Demand Notice issued under Section 13(2) of SARFAESI Act, 2002.

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RA 17/2022 a nd RA 18/2022

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When such a specific plea is taken by 1^st Respondent Bank, it is for Appellants to substantiate that they have issued Reply to Demand Notice issued under Section 13(2) of SARFAESI Act, 2002, but no material is placed on behalf of Appellants in support of this contention. Further, explanation to Section 17 of SARFAESI Act, 2002, makes it clear that communication of reasons to the borrower by the Secured Creditor for not having accepted the Representation or objection or the likely action of the Secured Creditor at the stage of communication of reasons, shall not entitle the borrower to make an Application under Section 17 to DRT. So, this objection of Appellants is not tenable.

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9. Next contention of Appellants is that Authorised Officer of 1^st Respondent Bank failed to follow Rules 8 and 9 of the Rules, 2002. It is the contention of Appellants that Authorised Officer of 1^st Respondent Bank has erred in publishing Sale Notice before expiry of mandatory 30 days.

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RA 17/2022 a nd RA 18/2022

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In reply to this objection, 1^st Respondent Bank contended that Authorised Officer of 1^st Respondent Bank issued Possession Notice under Section 13(4) of SARFAESI Act, 2002, on 21.04.2020 and affixed Notice in all four secured properties, and also published in two daily newspapers, and 1^st Respondent Bank has not received any kind of objection from any quarters including Appellants. First Respondent Bank also contended that Authorised Officer of 1^st Respondent Bank has issued Sale Notice on 31.07.2020 and published said Sale Notice in two daily newspapers dated 02.08.2020, and handed over the same to Appellants on 03.08.2020. First Respondent Bank also contended that they pasted Sale Notice in all four secured properties and E-auction is fixed on 04.09.2020, therefore, there is a clear 30 days Notice as required under Rules, 2002, therefore, objection of Appellants is not tenable. Advocate for 1^st Respondent Bank submitted that 30 days Sale Notice is intended to give an opportunity to borrower to exercise the right of redemption by invoking Section 13(8) of SARFAESI Act, 2002, and after completion of 30 days clear Notice, there is no need

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RA 17/2022 a nd RA 18/2022

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for Bank to wait or again to give any 30 days Notice to borrower separately, which is the verdict of Hon’ble Supreme Court in Canara Bank Vs. M. Amarender Reddy reported in (2017) 4 SCC 735 .

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Advocate for 1^st Respondent Bank has drawn my attention to paras 1, 15 and 16 of said judgement. In this judgement, Hon’ble Supreme Court clarified that 30 clear days is required in between Notice and Sale. In our case, Sale Notice is dated 31.07.2020 and Sale was on 04.09.2020 and publication in newspaper was on 02.08.2020, therefore, on both counts, there is clear 30 days, and in view of Hon’ble Supreme Court decision, which is subsequently followed in the case of Hindon Forge Private Limited and Anr. Vs. State of Uttar Pradesh reported in ( 2019) 2 SCC 198 , contention of Appellants with regard to 30 days Notice cannot be accepted and decisions relied on by Appellants are not applicable in view of above referred decisions of Hon’ble Supreme Court.

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RA 17/2022 a nd RA 18/2022

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10. Next contention of Appellants is that Authorised Officer of 1^st Respondent Bank failed to take proper valuation to fix upset price before issuing Sale Notice.

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According to 1^st Respondent Bank, Authorised Officer of 1^st Respondent Bank obtained Valuation Report for properties at item Nos. 2 and 4 on 15.07.2020 and for properties at item Nos.1 and 3 on 21.10.2019, which are within 10 months from the date of E-auction. According to 1^st Respondent Bank, as per Reserve Bank of India (RBI) Circular dated 04.01.2007, Board of Directors of Bank formulated Rule which indicated that valuation of security at the time of E-auction, which is older than 12 months, cannot be taken into consideration. But here, the Valuation Report are 10 months old, therefore, objection of Appellants is not tenable.

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Though Appellants contended that Authorised Officer of 1^st Respondent Bank failed to take proper valuation, they have not substantiated the same with details, either in their

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RA 17/2022 a nd RA 18/2022

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Securitisation Applications or in any of documents relied on by them. In the absence of the same, objection of Appellants with regard to obtaining Valuation Report, cannot be accepted, particularly, when 1^st Respondent Bank relies on RBI Circular and instructions given by their Board of Directors as per RBI Circular.

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11. Next contention of Appellants is that Authorised Officer of 1^st Respondent Bank failed to mention about Lessees/ Tenants in occupation of property in Sale Notice.

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Advocate for 1^st Respondent Bank submitted that no such plea is taken by Appellants in Securitisation Applications, and it is for the first time Appellants raised it at the time of arguments, and same cannot be accepted.

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I have perused both Securitisation Applications. As rightly pointed out by Learned Advocate for 1^st Respondent Bank,

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RA 17/2022 a nd RA 18/2022

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nowhere in Securitisation Applications, it is pleaded that there are Lessees/Tenants in secured asset. Further, when Possession Notice is issued and objections are called for, 1^st Respondent Bank has not received any objection, and if really, there were Lessees/Tenants, they would not have kept quiet without raising any objection, particularly, when Section 17 of SARFAESI Act, 2002, also provides a right to Tenants to approach DRT, and no Lessees/Tenants filed any Securitisation Application before DRT in respect of these properties, therefore, contention of Appellants is without any material, hence, same cannot be entertained.

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12. Next contention of Appellants is that Auction Purchasers

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failed to pay bid amount as per terms and conditions of Sale. According to Appellants, Respondent Nos. 2 to 4 failed to pay balance 75% of bid amount in time, and observations of Tribunal below that 75% of bid amount is deposited in accordance with Rules, is absolutely incorrect, and that finding has to be set aside, and consequently Sale held on 04.09.2020

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RA 17/2022 a nd RA 18/2022

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is required to be set aside for non compliance of Rule 9 (5) of Rules, 2002.

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13. Now, it may be relevant to examine Rule 9(5) of Rules, 2002, for better appreciation. According to this Rule, if payment within the period mentioned in sub-rule (4) is not made, Authorised Officer has to forfeit 25% deposit, and put property for re-auction. According to sub-rule 4 of Rule 9 of Rules, 2002, balance amount of purchase price shall be paid by purchaser to Authorised Officer on or before the 15^th day of confirmation of Sale of immovable property. According to subrule 3 of Rule 9 of Rules, 2002, purchaser shall immediately or not later than next working day, deposit 25% of sale price, which means, the day on which his bid was accepted, Auction Purchaser has to deposit 25%, and thereafter, within 15 days of confirmation of sale, balance 75% of amount is to be deposited.

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14. In this case, the crucial point that has to be examined is whether the balance 75% amount is deposited within 15 days

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RA 17/2022 a nd RA 18/2022

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from confirmation of sale. Before that, as per Rule 9(2) of Rules, 2002, Authorised Officer has to confirm sale in favour of highest bidder and that shall be subject to confirmation by Secured Creditor.

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15. According to 1^st Respondent Bank, confirmation of sale in this case was only on 31.03.2022, the date on which Securitisation Applications are disposed of by DRT, and 1^st Respondent Bank could not confirm sale because of stay orders. It is not in dispute that interim Orders are passed by Tribunal

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below, against which the matter is carried upto Hon’ble High Court, and ultimately, there is prohibition for confirmation of sale, till disposal of Securitisation Applications. It is clear from record that Respondent Nos. 2 to 4 have submitted Letters to 1^st Respondent Bank on 17.09.2020 showing their willingness to make payment of 75% of balance amount for which 1^st Respondent Bank given reply stating that, since there is stay Order, Bank is not in a position to confirm the sale, and requested Auction Purchasers to pay balance sale consideration

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RA 17/2022 a nd RA 18/2022

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after confirmation of sale. So, these Letters clarify that there is no fault on the part of Auction Purchasers, and immediately after confirmation of sale, 1^st Respondent Bank received money by cancelling Fixed Deposit Receipts (FDRs) of Auction Purchasers, which are lying with 1^st Respondent Bank and appropriated the proceeds towards balance sale consideration.

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16. Advocate for Appellants contended that appropriation of FDRs cannot be treated as payment, therefore, there is no compliance of Rule 9(4) of Rules, 2002, but I am not in agreement with submissions of Learned Advocate for

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Appellants, because Rule 9(4) of Rules, 2002, only contemplates payment of balance sale consideration, and it does not indicate mode of payment. What is required under this Rule is Secured Creditor should receive balance sale consideration before expiry of 15 days from the date of confirmation of sale. As rightly contended by Learned Advocate for 1^st Respondent Bank, there is no delay in payment of balance sale consideration as required under Rule 9 (4) of Rules, 2002, since 1^st Respondent Bank

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¶102

RA 17/2022 a nd RA 18/2022

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received it within stipulated period from the date of

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confirmation of sale. Therefore, objection of Appellants with regard to non compliance of Rules 9(4) and 9(5) of Rules, 2002, is not tenable.

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17. Advocate for Appellants relied on the judgement of Hon’ble Supreme Court in Divya Manufacturing Company (P) Ltd. & Ors., Vs. Union Bank of India & Ors., reported in ( 2000) 6 SCC

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69 , but, this decision is for the proposition that, Court, as custodian of property, has to see that adequate price is fetched in the auction, therefore, this decision is not applicable to the case on hand.

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18. Advocate for Appellants also relied on the judgement of Hon’ble Supreme Court in Mathew Varghese Vs. M. Amritha

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Kumar and Ors., reported in (2014) 5 SCC 610, but this decision is for the proposition that recovery of public money should be made expeditiously, in accordance with the procedure

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prescribed by law, and error in the procedure, entitles to set

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RA 17/2022 a nd RA 18/2022

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aside the sale. But, this decision is also not applicable, as there

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is no violation of rules or provisions, which are as already indicated above.

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19. Advocate for Appellants further relied on the decision of Hon’ble Supreme Court in Vasu P. Shetty Vs. Hotel Vandana

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Palace and Ors., reported in (2014) 5 SCC 660 . In that case, Auction Purchaser did not make remaining 75% of bid amount within 15 days of confirmation of sale, therefore, Hon’ble Supreme Court held, when mandatory requirements of rules are not followed, the consequences of law have to follow. But here,

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in this case, as already referred to above, balance sale consideration is paid within 15 days from the date of confirmation of sale, therefore, this decision is in no way applicable to the case on hand.

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20. Advocate for Appellants relied on the judgement of Hon’ble High Court of Andhra Pradesh in M/s. Sridhar Enterprises Vs. Bank of Baroda , reported in (2016) 4 ALD 337, but, said

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¶119

RA 17/2022 a nd RA 18/2022

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decision has no application to the case on hand, because in that

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case, sale was set aside due to contravention of Rule 9(3) and 9(4) of Rules, 2002. But, in our case, as already referred to above, there is no such violation.

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21. Advocate for Appellants also relied on the judgement of Hon’ble High Court of Andhra Pradesh in M/s. Pochiraju Industries Ltd. Vs. Punjab National Bank and Ors., reported in (2018) 2 ALD 543 . In that decision, Hon’ble High Court observed that there is violation of Rule 8(5) of Rules, 2002, as in that case, Bank, without obtaining Valuation Report as required

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under Rule 8(5) of Rules, 2002, relied upon an in-house valuation done by its own Officer, but that decision has no application here in this case, in view of Valuation Report obtained from approved valuer.

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22. Advocate for Appellants further relied on the judgement of Hon’ble High Court of Andhra Pradesh in Sri. Sai Annadhatha Polymers and Anr. Vs. The Canara Bank , reported in (2018) 5

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¶126

RA 17/2022 a nd RA 18/2022

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ALD 180 , but, said decision is also not applicable, because in that case, Hon’ble High Court interpreted the situation about post amendment of Section 13(8) of SARFAESI Act, 2002, as to the right of redemption, but that is not applicable here in this case, in view of decision of Hon’ble Supreme Court relied on by 1^st Respondent Bank in Canara Bank Vs. M. Amarender Reddy reported in (2017) 4 SCC 735.

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23. Advocate for Appellants relied on the judgement of Hon’ble Supreme Court in Swastik Agency and Ors. Vs. State Bank of India , reported in 2009 SCC onLine Ori 3 , for the proposition that when initial action is not in consonance with law, subsequent proceedings would not sanctify the same, applying the legal maxim “ sublato fundamento cedit opus ”, but that maxim is not applicable here in this case, as there is no violation of any initial action, therefore, that decision is also not applicable.

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¶130

RA 17/2022 a nd RA 18/2022

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24 On a overall consideration of contentions and rival

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contentions of both parties, and in view of my observations made above, I am of the considered view that, Tribunal below has not committed any error in dismissing both Securitisation Applications, and there are absolutely no grounds to interfere with common Order dated 31.03.2022.

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25. In view of my foregoing observations and discussions, I am of the considered view that, both the Appeals are devoid of merits and are liable to be dismissed.

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26. In the result ; both the Appeals RA (SA): 17/2022 and RA (SA): 18/2022 are dismissed. Parties shall bear their own costs. All pending IAs, if any, stand closed.

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[Dictated to Athistamani, PS transcribed by her, corrected, signed and pronounced by me in open court, this 24^th of November, 2022]

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Sd/-

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CHAIRPERSON

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Messers Sri International v. Central Bank of India

Case brief

What is this about?

What did the court decide?

Messers Sri International v. Central Bank of India

Case brief

What is this about?

What did the court decide?

What the court decided

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