Dismissed

Mahfooz Ali Khan and Anothers v. State Bank of India and Ors.

DRAT17 May 2023

Case brief

AI extract

What is this about?

The Appellate Tribunal dismissed the appeal challenging the DRT order in a SARFAESI matter. The court held that disclosing the NPA date in the demand notice is not mandatory. It rejected claims regarding possession notice time limits and upheld the validity of the valuation report. Procedural non-compliance on the second auction sale could not be adjudicated due to lack of specific pleadings.

What did the court decide?

Impugned order dismissing Section 22/2015 before the Debt Recovery Tribunal is upheld and appeal is dismissed.

Mahfooz Ali Khan and Anothers versus State Bank of India and… — Banking and Recovery | DRAT (2023)

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IN DEBTS RECOVERY APPELLATE TRIBUNAL, ALLAHABAD

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Appeal Dy. No. 211/2019

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Mahfooz Ali Khan & Anr.

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………........……………………...…………………………………………..Appellants

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Versus

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State Bank of India and Ors.

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……………….………….…….…………………………………………….Respondents Advocates who appeared in this case For the appellants- Borrowers Shri Arif Ikbal, Advocate For the respondent-Bank Shri P. K. Gupta, Advocate For the respondent- Auction Shri Rajeev Saran, Advocate Purchaser

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JUDGMENT

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Date of Decision: 17.05.2023

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JUSTICE R. D. KHARE, CHAIRPERSON

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The present appeal has been filed under section 18 of The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short “SARFAESI Act”) against the judgment dated 03/06/2019 passed by the Tribunal below, whereby the S.A No. 22/2015 filed by the appellants was dismissed.

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The facts in brief are that the appellants were granted a housing loan by the respondent-Bank and in order to secure the said loan, the appellants created an equitable mortgage over their property by depositing the title deed with the Bank. Since the appellants did not adhere to the terms of the loan agreement, therefore, the account was classified as NPA on 31/12/2004 and demand notice dated 17/09/2008 was issued u/s 13(2) of the SARFAESI Act for a sum of Rs. 5,52,228/- as on 31/08/2008. Since the appellants did not repay the amount as demanded by the respondent-Bank, therefore, symbolic possession of the property in

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question was taken by issuing possession notice u/s 13(4) of the said Act on 20/10/2009. After numerous correspondences being made between the borrower and the Bank, the sale notice dated 04/01/2015 was issued by the Bank scheduling the auction of the property in question for 06/02/2015.

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The appellants/borrowers filed S.A No. 22/2015 challenging the entire SARFAESI action including the auction sale notice dated 04/01/2015. Since the sale dated 06/02/2015 could not be materialized, therefore the respondent bank has again put the property for sale on 03/06/2017 and the property was sold for sum of Rs. 23,15,000. After deposition of entire sale proceeds, the sale certificate was issued and possession was handed over as well as sale deed has also been executed in favour of the respondent no. 3 -auction purchaser. The said sale was challenged by the borrowers before the Tribunal below by filing Amendment and Impleadment Application dated 03/08/2016 and 05/08/2016, which were allowed by the Tribunal below vide order dated 10/08/2016 and accordingly amendment was made in the S.A with regard to the sale conducted on 03/08/2016 and the auction purchaser was impleaded. The Tribunal below vide order impugned dismissed the S.A No. 22/2015 holding inter alia that mentioning of date of the loan account in question as NPA is not a mandatory requirement in view of section 13(2) of the SARFAESI Act, prayer with regard to possession taken on 20/10/2009 is barred by limitation and there is no pleadings in the S.A about the sale conducted on 03/06/2016, hence no finding is being given in this regard. Being aggrieved by the said order, the present appeal has been filed by the appellants.

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Learned counsel for the appellant submitted that the demand notice dated 17/09/2008 issued by the respondent bank has not been served upon the appellants and the respondent bank has failed to disclose the date of classification of the loan account as NPA in the said demand notice which is mandatory as per the Security Interest (Enforcement) Rules, 2002 (in short “Rules, 2002”).

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The learned counsel for the appellant further submitted that the possession notice dated 20/10/2009 was issued under section 13(4) of the SARFAESI Act by the respondent bank but the same was not served nor published in the newspapers, which is mandatory in view of Rules 8(1) and 8(2) of the Rules, 2002.

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The learned counsel for the appellant also submitted that the property in question has been sold on the basis of valuation report dated 25.07.2014, which is two years old, therefore, it is clear violation of Rule 8(5) of the Security Interest (Enforcement) Rules, 2002.

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Learned counsel for the appellant canvassed that a clear 30 days sale notice was not served upon the appellants nor published in the newspapers or affixed on the conspicuous part of the property in question which violate Rule 8(6) and 8(7) of the Rules, 2002 as the property was auctioned on 03/06/2016 pursuant to the impugned sale notice dated 28/04/2016.

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Learned counsel for the appellant has drawn attention of this court to the last page of the impugned order and has stated that it has been observed by the Tribunal below that the appellant has not challenged the sale dated 03.06.2016, as there is no pleading to that effect, hence, no finding is being recorded with regard to the

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sale conducted on 03.06.2016, whereas the amendment application dated 03.08.2016 was filed before the Tribunal below challenging the said sale dated 03.06.2016, but there is no finding with regard to the said amendment, which is an illegality in the order impugned.

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In the last the learned counsel for the appellant submitted that the property was sold for a sum of Rs. 23,15,000 on 03/06/2016, but 25% of the said amount was not deposited immediately nor balance 75% within 15 days thereafter. As such the Rules 9(3) and 9(4) have not been complied with. It is, therefore, prayed that the impugned order may be set aside and appeal may be allowed.

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Learned counsel for the respondent bank submitted that the demand notice u/s 13(2) dated 17/09/2008 was sent and served upon the appellants. In this regard, the learned counsel has referred to Annexure- A to the S.A filed by the appellants, which is the demand notice, stating that had it not been received by the appellants, the same would not have been filed with the S.A., therefore, the contention of the appellant that the demand notice was not served, is incorrect.

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Learned counsel for the respondent-Bank further submitted that there is no provision in the SARFAESI Act to disclose the date of NPA in the notice u/s 13(2), hence the classification of account as NPA is sufficient. As such there is no illegality in issuing the said demand notice.

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Learned counsel for the respondent-bank has also submitted that the possession notice u/s 13(4) of the SARFAESI Act was issued on 20/10/2009 and served

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upon the appellants affixing on the conspicuous part of the property in question as well as published in two newspapers. However, it is contended that the appellants had no right to challenge the possession notice because it was issued on 20/10/2009 and the same was challenged through S.A No. 22/2015 on 19/01/2015 which is highly barred by time.

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The learned counsel for the respondent-Bank also submitted that the property in question was got valued by the bank through its valuer and its report dated 25/07/2014 is at page no. 83 of the memo of appeal and according to it the reserve price was fixed. Therefore the contention of the appellant that the value of the property is Rs. 50 lakhs in view if the circle rate fixed by the D.M concerned is incorrect. As such the reserve price was fixed in accordance with the provisions of the Act and Rules made there under.

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Learned counsel for the respondent-Bank submitted that the sale notice was published on 04/01/2015 and the property was sold on 03/06/2016 in favour of the respondent no. 3 in transparent manner. However the S.A. No. 22/2015 was filed for setting aside the auction sale notice dated 04/01/2015 and after amendment it was dated 03/06/2016, but there are no pleadings in the S.A. with regard to it, hence without any pleading, no relief can be granted by any Court or Tribunal. Therefore. the Tribunal below has rightly observed that there is no pleadings in the S.A. about the sale conducted on 03/06/2016 and has not given any finding in this regard.

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It is contended that the property has been sold and possession of the same has been given to the auction

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purchaser. It is contended that the only controversy is with regard to the interest to be paid by the appellant and in this regard, he has referred to the page no. 32 of the reply filed by the respondent-Bank dated 23.09.2019. In support of his contention, he has referred to a judgment passed by the Hon’ble Supreme Court in the matter of Sadashiv Prasad Singh Vs Harender Singh and Others, 2014(2) Bankers’ Journal 9.

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Learned counsel for the respondent-Bank has further contended that the property has been auctioned and sale certificate has been issued as well as possession has also been handed over to the auction purchaser, as sale deed has also been executed. As such the right over the property in question has been accrued in favour of the auction purchaser. Hence, the Tribunal below has rightly passed the impugned order dismissing the S.A. filed by the appellants. It is, therefore, prayed that the appeal may be dismissed with heavy cost.

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Learned counsel for the respondent no. 3-Auction Purchaser adopted the arguments as advanced on behalf of the respondent-Bank adding further that 10% amount of the reserve price i.e. Rs. 2,30,000 was deposited on 30/05/2016 and Rs. 6,00,000 was deposited on 03/06/2016, which is date of auction through demand draft no. 067540 and remaining amount of Rs. 14,85,000 through demand draft no. 067536 dated 13/06/2016. As such the entire sale proceeds has been deposited by the auction purchaser within 10 days from the date of auction i.e. 03/06/2016, hence the contention of the appellant that Rules 9(3) and 9(4) have not been complied with is not sustainable. Further, the order impugned shows that the

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appellant has also challenged the sale dated 03.06.2016, but vehemently argued that apart from the relief clause, there was no pleadings for challenging the sale dated 03.06.2016. It is also contended that nothing has been stated with regard to the said sale in the S.A., which was conducted on 03/06/2016, therefore, there is no illegality in the order impugned passed by the Tribunal below and the auction sale was conducted by the respondent-Bank as per law and every procedure has been followed. Hence the appeal may be dismissed.

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Heard the learned counsels for the parties and perused the record.

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In the present case, the main dispute is with regard to non-disclosure of date of NPA in the demand notice, non-compliance of Rules 8(1), (2), (5), (6), 9(1) and 9(3) of the Rules, 2002.

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As regards non disclosure of date of NPA, the demand notice under section 13(2) of the SARFAESI Act was issued on 17.09.2008, which was appended as annexure No. 1 to the S.A. and has been annexed at page no. 76 of the memo of the appeal. In second para of the said notice, it is written that “operation of and conduct of the above the said financial assistance/credit facilities have become irregular and the debt has been classified as non-performing assets in accordance with the directive/guidelines relating to asset classifications issued by the Reserve Bank of India”. As such the account of the borrower was properly declared as NPA by the Bank. As per section 13(2) of the SARFAESI Act, disclosure of date of NPA in the demand notice is not mandatory because the said section does not say that the mentioning of date of NPA in the demand notice is

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mandatory requirement. Therefore, the contention of the appellant that the disclosure of date of NPA in demand notice is mandatory, is not sustainable.

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So far as non compliance of Rules 8(1) and 8(2) of the Rules 2002 is concerned, it is to be seen that the symbolic possession of the property was taken by the Bank on 20.10.2009 by issuing possession notice dated 20.09.2009 under section 13 (4) of the SARFAESI Act and the same was published in the newspapers, copy of which was filed by the Bank as annexure R/4 and R/5 to its reply of the S.A. It is observed that the said notice was challenged by the appellants with the S.A. No. 22/2015, which was filed before the Tribunal below on 19.01.2015. As such the prayer with regard to possession has rightly been held by the Tribunal below to be barred by time.

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So far as the contention of the appellant that the property has been sold on the basis of the two years old valuation report is concerned, Rule 8(5) of the Rules, 2002 is relevant and it says that before effecting the sale of the immovable property, the authorized Officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor fixe the reserve price of the property. Accordingly, the respondent-Bank had got the property valued from its valuer prior to the sale dated 03.06.2016 and report dated 25.07.2014 of the valuer is on record from page No. 83 to 89 of the paper book. As per the said report, the fair market value was assessed to be Rs. 21.00 lacs, Realizable value Rs. 18.00 lacs, Distress value Rs. 15.00 lacs and Registration value Rs. 18.00 lacs. Accordingly, the respondent-Bank fixed the reserve price Rs. 18.00 lacs, which is realizable value and the property was

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auction sold for Rs. 23.15 lacs. The contention of the appellant that the value of the property is Rs. 50.00 lacs is not supported by any documents. If the property was of the said value, it was open for the appellant to participate in the bid or to produce any prospective buyer who could have offered more than that of the present auction amount. As such the contention of the appellant that the property has been sold at throwaway price is liable to be rejected.

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So far as non compliance of Rules 8(6), (7), 9(1) and 9(3) of the Rules, 2002 is concerned, the first sale notice dated 4.1.2015 was issued scheduling the auction for 6.2.2015 and the same was challenged in the present S.A., but it appears that the same could not be materialized. Lastly, the sale notice dated 28.04.2016 was issued fixing the date of auction on 3.6.2016 and the same was challenged by the appellants by filing amendment application dated 23.08.2016, as impleadment was also filed. Both the applications were allowed and the S.A. was amended and the auction purchaser was impleaded. It is observed from the S.A., which is from page No. 15-65 of the memo, that there is no pleadings in the S.A. with regard to the sale dated 3.6.216 nor any copy of the said sale notice or the amendment application has been filed before this Appellate Tribunal. Therefore, it cannot be ascertained that whether the Rule 8(6), 8(7), 9(1) and 9(3) of the Rules, 2002 have been complied with or not by the respondent-Bank. As such the Tribunal below has rightly observed that without any pleadings, no finding is being given with regard to sale dated 3.6.2016.

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In view of the aforesaid, no interference is called for in the impugned order dated 03.06.2019 passed by the Tribunal below. Hence, the appeal is liable to be dismissed. Accordingly, the same is dismissed with no order as to costs.

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A copy of this judgment be forwarded to the parties as well as to the DRT concerned and be also uploaded on the e-DRT portal.

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CHAIRPERSON

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VN Giri

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Mahfooz Ali Khan and Anothers v. State Bank of India and Ors.

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Mahfooz Ali Khan and Anothers v. State Bank of India and Ors.

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