Partly allowed

Central Bank of India v. Dinesh Chand and Anr.

DRAT19 May 2023REGULAR APPEAL/8/2023

Case brief

AI extract

What is this about?

An appeal challenging the setting aside of a secured asset auction. The Tribunal held that the Bank wrongly proceeded with the auction after publication of the sale notice despite the borrower depositing redemption dues the day before. The Bank's appeal was dismissed regarding validity, but costs and interest were modified.

What did the court decide?

Impugned order affirmed regarding setting aside the auction sale; costs waived; interest rate reduced to 8% p.a.

Central Bank of India versus Dinesh Chand and Anr. — Contract and Commercial Disputes | DRAT (2023)

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IN DEBTS RECOVERY APPELLATE TRIBUNAL, ALLAHABAD

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Appeal Dy. No. 8/2023

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Authorized Officer, Central Bank of India, Pandu Nagar, District Kanpur (U.P)

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……….....……………………...………………………………………………..Appellant

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Versus

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Dinesh Chandra, S/o Late Babu Lal, R/o 1148, Surya Nagar, Charari Lal Bangla, Kanpur Nagar-208001.

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Smt. Suman Singh, W/o Shri Mukesh Singh, R/o 27-A Rajeev Nagar, Harjinder Nagar, Kanpur-208007.

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……….….………….…….………………………………………………….Respondents

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Advocates who appeared in this case

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For the appellant-Bank Shri A.K Pal, Advocate For the respondent No.1Shri V.K Shukla, Advocate Borrower For respondent No. 2- Auction Shri O.P Sharma, Advocate Purchaser

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JUDGMENT

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Date of Decision:19.05.2023

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JUSTICE R. D. KHARE, CHAIRPERSON

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The present appeal has been filed by the appellant-Bank under section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short “SARFAESI Act”) against the order dated 09/12/2019 passed by the DRT, Allahabad, whereby the S.A. No. 196/2017 filed by the respondent no. 1-borrower was allowed.

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The brief facts of the case are that the appellant-Bank granted a cash credit facility of Rs. 80,000 to M/s Om Shri Sai Trading Company, to which the respondent no. 1 stood as guarantor in his personal capacity and also created mortgage over his immovable property with the Bank. Since the borrower could not adhere to the terms and conditions of the loan agreement, therefore, the loan account of the

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borrower was classified as NPA and after issuance of demand notice u/s 13(2) and possession notice u/s 13(4) of the SARFAESI Act, the appellant-Bank issued sale notice dated 06/02/2017 and also published it in the newspapers scheduling the auction to be held on 17/03/2017. Accordingly, the property was sold and the sale was confirmed and after deposit of entire sale proceeds, the sale certificate was issued on 01/04/2017 in favour of the respondent no. 2-auction purchaser.

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The respondent no. 1 filed Securitization Application No. 196/2017 challenging the sale notice dated 06/02/2017, auction dated 17/03/2017 and sale certificate dated 01/04/2017 on the ground that the entire debt liability has already been discharged by the borrower on 16.03.2017, which is prior to the date fixed for sale i.e. 17/03/2017. The Tribunal below vide order impugned allowed the S.A holding that once the applicant has deposited the entire amount due before the date of auction and in the absence of knowledge, the Bank might have received the bid, but should have not proceeded with the auction in terms of section 13(8) of the SARFAESI Act. It has further been held that the Bank has not discloosed this fact and once the applicant has liquidated the entire dues, there was no occasion for the Bank to proceed further with the auction sale. Lastly cost of Rs. 20,000 was imposed on the Bank and was directed to refund the auction money to the auction purchaser within 15 days along with 12% p.a. interest from the date of deposit of amount till return of money. Being aggrieved by the said order, the present appeal has been filed by the Bank.

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Learned counsel for the appellant-Bank submitted that the notices u/s 13(2) and 13(4) of the SARFAESI Act were issued and the same were duly received by the borrower,

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but the borrower failed to respond the same and liquidate the dues. Thereafter, the sale notice was published and date of auction was fixed. It is contended that by the date of auction, the bid was received. Therefore, the Bank proceeded with the auction and sold the property in favour of the respondent no. 2-auction purchaser and sale certificate was also issued. Learned counsel further submitted that the borrower did not exercise its right of redemption as contained u/s 13(8) of the SARFAESI Act before the date of publication of notice for public auction. Learned counsel also submitted that the borrower deposited the amount due in different branch of the appellant-Bank prior to one day of sale i.e. 17.03.2023 and the said fact was not brought to the notice of the authorized officer of the bank, hence the auction took place.

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The learned counsel further contended that there is no illegality whatsoever in the process adopted by the Bank for auctioning the assets in question, therefore, imposition of cost upon the Bank and granting of rate of interest upon the amount of sale on higher side is not sustainable. Thus, the order impugned is not sustainable and is liable to be quashed.

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The learned counsel for the respondent no. 1 submitted that the borrower has deposited the entire amount due a day before the sale, but the said fact was not considered by the Bank and proceeded to auction the property. Accordingly, the property was sold and sale was confirmed and after receiving of sale price, the sale certificate was issued, which is bad in law. The learned counsel for the appellant further submitted that u/s 13(8) of the SARFAESI Act, the borrower retains his full right to redeem the property by depositing all the dues, costs, charges and expenses to the secured creditor at any time before the date fixed for sale or

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transfer. In support of his contention, the learned counsel has relied upon a judgment passed by the Hon’ble Punjab and Haryana High Court in CWP No. 6402/2019 (O&M)-M/s Pal Alloys & Metal India Pvt. Ltd & Ors. Vs. Allahabad Bank Vs. Ors., decided on 23/12/2021.

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Learned counsel for the respondent no. 1-borrower has drawn attention of this Tribunal to page no. 68 of the paper book, which is sale notice dated 06/02/2017 and has referred to Para 2 of the said notice, wherein it has been stated by the Bank that notice of 30 days regarding sale of immovable property was published in the newspaper on 05/02/2017 i.e. before issuing the sale notice to the borrower, therefore, right of the borrower to redeem the property subsisted. Hence, the Tribunal below has rightly set aside the auction sale of the appellant-Bank by passing order impugned.

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Learned counsel for the respondent no. 2-auction purchaser submitted that the secured asset was put for auction, in which the respondent no. 2 participated and was declared a successful bidder and has deposited the entire auction money with the Bank. After deposit of entire sale proceeds, the sale certificate has been issued in favour of the auction purchaser. Therefore, the auction sale conducted by the Bank may not be interfered by this Tribunal at this stage.

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Having heard the learned counsels for the parties and considering the material available on record, it is not disputed that the demand notice, possession notice and sale notice were issued by the bank, but no amount had ever been deposited by the borrower. The main controversy in the present case is, as to whether the borrower could exercise its right to redeem the property u/s 13(8) of the

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SARFAESI Act after publication of the sale notice by the Bank?

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The appellant-Bank issued sale notice dated 06/02/2017 scheduling the auction of the property in question on 17/03/2017. Accordingly, the property was sold and sale certificate was issued on 01/04/2017 in favour of respondent no. 2- Auction Purchaser. It is contended that the respondent no. 1-borrower has deposited the entire amount due in different Branch of the Bank on 16.03.2017 i.e. a day before the auction i.e. 17/03/2017. There is no doubt that under Section 13(8) of the SARFAESI Act, right of redemption is provided to the party but prior to publication of sale notice. In this regard, Rules 8(6) of the Security Interest (Enforcement) Rules, 2002 is relevant. Rule 8(6) stipulates that the Authorized Officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets and section 13(8) says that the borrower can redeem the property before publication of sale notice, meaning thereby, the borrower should be given 30 days time prior to publication of sale notice either to redeem the property or to produce a prospective buyer who could offer better price of the property to be auctioned. In the instant case, the sale notice was published in the newspapers on 05.02.2017 and sale notice under Rule 8(6) was issued to the borrower on 06.02.2017, which is after publication of sale notice and the appellant-Bank has also not stated anywhere that on which date the sale notice was served upon the respondent no. 1-borrower. As such it is observed that the Bank has deliberately curtailed the valuable right of the borrower, which is against principle of law as well as the purpose of the Act. As such the contention of the appellant that the borrower cannot redeem the property after publication of sale notice is not

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tenable. Hence, the Tribunal below has rightly set-aside the auction sale dated 17.03.2017 and subsequent proceedings thereof. Thus, no interference is called for in the order impugned and the appeal is liable to dismissed to this extent.

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So far as the cost of Rs. 20000/- imposed upon the Bank and granting of rate of interest @ 12% per annum on the auction amount are concerned, I am of the view that the same are unreasonable, therefore, the cost imposed on the Bank is completely waived and the interest @ 12% granted by the Tribunal below is reduced to 8% per annum simple, which is approximately the rate of FDR.

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In view of the aforesaid, the impugned order dated 09.12.2019 passed by the Tribunal below is affirmed to the extent of setting aside the auction sale dated 17.03.2017 and subsequent proceedings thereof and the same is set aside to the extent of imposing the cost of Rs. 20,000/- and is modified to the extent of granting the rate of interest as stated above.

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In the above terms, the appeal filed by the Bank stands disposed off.

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

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CHAIRPERSON

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Date: 19.05.2023 VN Giri

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Central Bank of India v. Dinesh Chand and Anr.

Case brief

What is this about?

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Central Bank of India v. Dinesh Chand and Anr.

Case brief

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