Allowed

M.Mahesh v. Mrs Manni Jamunaa

DRAT20 Apr 2023REGULAR APPEAL/39/2022

Case brief

AI extract

What is this about?

An appeal was filed by an auction purchaser challenging the setting aside of a property sale. The trial tribunal held that the sale was invalid because the full balance consideration was not paid within 15 days, ignoring a period of extension granted by the secured creditor. The appellate court found the trial court erred in not recognizing the extended payment timeline agreed upon between the par

What did the court decide?

Appeal allowed; Order of the Debt Recovery Tribunal setting aside the sale is set aside with costs.

M.Mahesh versus Mrs Manni Jamunaa — Contract and Commercial Disputes | DRAT (2023)

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RA (SA) 39/2022

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IN THE DEBT RECOVERY APPELLATE TRIBUNAL AT CHENNAI

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Dated the 20^th of April, 2023

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

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CHAIRPERSON

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RA (SA) 39/2022

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[SA 67/2020 on the file of DRT-I, Chennai]

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Between

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M. Mahesh, S/o Mr. Mani, No.28, Kailaya Chetty Street, Old Washermenpet, Chennai – 600 021.

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……Appellant

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And

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Mrs. Manni Jamunaa, 25/1, Kailaya Chetty Street,

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Old Washermenpet, Chennai – 600 021.

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Mr. M. Lokanatham 25/1, Kailaya Chetty Street,

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Old Washermenpet, Chennai – 600 021.

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The Authorised Officer, HDB Financial Services Ltd., 4^th Floor, Loyal Towers,

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No. 68/2, Greams Road, Chennai 600 006.

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Mr. M. N. Vijayanathan, 2/515B, Sandeep Avenue, 2^nd Street, Neelangarai, Chennai 600 115.

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….. Respondents

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Counsel for Appellant : Mr. Menon Counsel for R 1 & R2 : Mr. K.A. Ramakrishnan Counsel for R4 : Mr. M. Ajmal Azzath

RA (SA) 39/2022

ORDER

1. This Appeal is against Order dated 06.01.2021 of DRT-I, Chennai, in SA 67/2020.

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2. Brief facts leading to this Appeal are as follows:-

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Respondents 1 and 2 herein, filed Securitisation Application SA 67/2020, with a relief to set aside Sale conducted by Respondent No.3 Financial Institution herein, on 27.01.2020, and for consequential reliefs. Respondents 1 and 2 herein, claimed said relief contending that Authorised Officer of Financial Institution not followed Rule 8(5), 8(6) and 8(7) of Security Interest (Enforcement) Rules, 2002, [hereinafter called the Rules], and Auction Purchaser failed to deposit 25% of Sale amount and 75% of balance amount, within 15 days from the date of auction; Financial Institution failed to obtain Valuation Report before issuance of Sale Notice and violated mandatory provisions of SARFAESI Act, 2002 and Rules made there under.

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RA (SA) 39/2022

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Both Financial Institution and Auction Purchaser

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resisted Application by filing their respective Counters. Financial Institution contended that it strictly followed all the provisions of the Act and Rules made there under, and violations alleged are incorrect, and not supported by any material.

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Auction Purchaser resisted Application contending that

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bid amount is paid within the time as per Rule 9(4) of Rules,

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2002, and objections raised by Respondents 1 and 2 herein, are not supported by any material.

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Tribunal below mainly considered Rule 9 and sub-Rules there under, and recorded a finding that Financial Institution committed breach of Rule 9(4) of Rules, 2002, and held that, Sale dated 27.01.2020 is liable to set aside, and consequentially, Sale Certificate issued in favour of Appellant herein (Respondent No.3 in Securitisation Application), is also

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RA (SA) 39/2022

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liable to be set aside; Recording so, Tribunal below, allowed Securitisation Application.

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Aggrieved by said Order, Auction Purchaser preferred present Appeal, contending that Tribunal below failed to appreciate timeline in Rule 9(4) of Rules, 2002, for payment, which is extendable upto three months, and the fact that Sale Certificate itself is dated 20.03.2020, which is within the period of three months. Appellant also contended that Tribunal below failed to appreciate that time for extension of payment of balance 75% of sale consideration is a matter between Secured Creditor and Auction Purchaser, and Borrowers have no role. It is further contended that, Tribunal below mis-applied decision of Hon’ble Supreme Court in Badrinath vs. State of Tamil Nadu And Ors ., reported in AIR 2000 SC 3243. It is also contended that Tribunal below mis-applied decision of Hon’ble High Court Andhra Pradesh in

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Smt. P. Sudha Lakshmi vs. Bank of India, in relation to Rule 9(4) of Rules, 2002. It is contended that Sale was set aside

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RA (SA) 39/2022

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only on the ground of non-compliance of Rule 9(4) of Rules,

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2002, but it was not set aside on the other grounds alleged.

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3. Heard Advocates of both sides.

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4. Advocate for Appellant submitted that Appellant is a third party, has nothing to do with compliance of other Rules namely Rule 8(5), 8(6) and 8(7) etc., of Rules, 2002. He submitted that even otherwise, as per Section 17 of SARFAESI Act, 2002, measures have to be questioned within 45 days from the date of taking measures, and objections with regard to service of Sale Notice, obtaining Valuation Certificate, affixture of Sale Notice etc., are long prior to the date of Sale, and those measures are not challenged within 45 days, and

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they are time barred. He further submitted that even otherwise, Sale is set aside only for non-compliance of Rule 9(4) of Rules, 2002, therefore, those objections are no way relevant. He submitted Auction Purchaser purchased property on 27.01.2020, and after payment of bid amount,

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Sale Certificate was issued on 20.03.2020, which is

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RA (SA) 39/2022

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subsequently registered as document No.893/2020, before Sub Registrar Office, Rayapuram. It is submitted, as per Rule 9(4) of Rules, 2002, after amendment, it is between Secured Creditor and Auction Purchaser, and Borrowers have no role. He further submitted that, even otherwise, as per Rule 9(4) of Rules, 2002, balance 75% of bid amount has to be paid within 15 days, and said time can be extended by Secured Creditor, not exceeding three months, and in this case, three months period will expire in the month of April, but entire process is completed in the month of March itself, therefore, finding of Tribunal below is completely wrong. He further submitted that Tribunal below mis-applied judgements of Hon’ble Supreme Court and Hon’ble High Court of Andhra Pradesh, which are already referred to in grounds of Appeal. It is submitted possession is also delivered to Auction Purchaser, considering these aspects, Appeal has to be allowed.

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RA (SA) 39/2022

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5. Advocate for Financial Institution, while adopting

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arguments of Appellant, submitted that, Auction Purchaser has not paid balance 75% of amount within 15 days, but paid within the time extended, which was before three months. He submitted that Tribunal below went wrong in applying Rule 9(4) of Rules, 2002, and Order of Tribunal below is liable to be set aside.

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6. Advocate for Borrowers submitted that as payment of 75% of money within time is mandatory, Tribunal below rightly recorded a finding that balance 75% of Sale Price not paid in compliance of Rule 9(4) of Rules, 2002. He submitted that Borrowers specifically pleaded under Ground (f) in Securitisation Application about this non-compliance, and as Financial Institution and Auction Purchaser having failed to rebut said allegation, it is not open now for them to contend

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that money is paid within extended period. He submitted that Tribunal below rightly set aside Sale dated 27.01.2020,

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and there are no grounds to interfere with the reasoned Order of Tribunal below.

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RA (SA) 39/2022

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7. From the submissions of both sides and on a perusal of

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material papers, the dispute is in respect of compliance of Rule 9(4) of Rules, 2002. Before considering contentions and rival contentions, it is necessary to read said provision for better appreciation. Rule 9(4) of Rules, 2002, is as follows:-

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“9. Time of sale, issues of sale certificate and delivery of possession, etc .—

………… (1)

…………… (2)

……………. (3)

(4) The balance amount of purchase price payable shall be paid by the purchaser to the authorised officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period [as may be agreed upon in writing between the purchaser and the secured creditor, in any case not exceeding three months].

(5) ……………………..

…………………………..”

RA (SA) 39/2022

From a plain reading of above Rule, it is crystal clear that

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Auction Purchaser shall deposit 75% of bid amount within 15 days from the date of confirmation, but Secured Creditor can extend this time as may be agreed upon in writing between purchaser and the Secured Creditor, not exceeding three months period. Now, it has to be examined, as to the material placed by Respondents 1 and 2 herein, i.e., Applicants before Tribunal below, to prove non-compliance of Rule 9(4) of Rules, 2002 . Before examining, it is also relevant to examine pleadings in Securitisation Application in respect of this objection. Advocate for Respondents 1 and 2 herein, specifically referred Ground (f) in Securitisation Application about non-compliance of Rule 9(4) of Rules, 2002. It may be

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relevant to extract said Ground (f), which is as follows:-

“ GROUNDS

a………….

b………

RA (SA) 39/2022

f. The auction purchaser have failed to deposit the entire sale consideration as per the terms and conditions of the sale notice. The auction purchasers have failed to deposit 25% of the sale amount on the date of sale and failed to pay the remaining 75% of the balance amount within 15 days from the date of auction. On this ground alone the sale conducted by the Respondent Bank on 27.01.2020 is liable to be set aside.

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g………………..”

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From a reading of above, the objection raised is that Auction Purchaser has failed to deposit 25% of sale amount on the date of Sale and failed to pay remaining 75% of balance amount within 15 days time from the date of auction. But, when Rule contemplates that 15 days time can be extended upto three months, nothing is whispered in the Ground as to this extension. When the fact remains that balance 75% is paid 15 days after confirmation and before expiry of three months period, it is for Borrowers to show that there was no extension in compliance of Rule 9(4) of Rules, 2002. But here,

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neither Borrowers pleaded anything nor produced any

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RA (SA) 39/2022

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material to show that there was no extension after 15 days period. Sale Certificate Proforma given under Appendix V, contains an acknowledgement for receipt of Sale Price in full.

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So, the very Sale Certificate denotes payment of entire Sale Price, and it is for party challenging Sale Certificate to place evidence showing that full money is not paid as indicated in Sale Certificate. Here, as rightly pointed out by Advocate for Appellant, Sale Certificate is dated 20.03.2020, which is far before the expiry of three months period indicated in Rule 9(4) of Rules, 2002. As rightly pointed out by Advocate for Appellant, very issue of Sale Certificate denotes compliance of Rule 9(4) of Rules, 2002, and it is for Respondents 1 and 2 to rebut said fact. Admittedly, no material is placed by Borrowers showing that there was no extension of time, particularly, when Financial Institution stated that time was extended to pay balance 75% of amount.

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8. Tribunal below referred to judgement of Hon’ble Supreme

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Court in Badrinath vs. State of Tamil Nadu and Ors ., reported in AIR 2000 SC 3243. When there is no dispute

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RA (SA) 39/2022

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from Secured Creditor with regard to extension of time for payment of 75% of Sale Price, the decision referred to by Tribunal below, has no application, because, there is no breach. Tribunal below also referred to judgement of Hon’ble High Court of Andhra Pradesh in Smt. P. Sudha Lakshmi vs.

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Bank Of India, but the facts of that case were prior to amendment to Rule 9(4) of Rules 2002, but, after amendment, extension of time is between Secured Creditor and Auction Purchaser. Prior to amendment, extension of time is a matter between Auction Purchaser, Secured Creditor and Borrower/Mortgagor, and in that case, as there was no consent from Borrower/Mortgagor, Hon’ble High Court of Andhra Pradesh rendered such decision, but, as there is no role of Borrower after amendment to Rule 9(4) of Rules, 2002, applying that decision by Tribunal below, is absolutely incorrect.

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9. Advocate for Appellant submitted that burden is on

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Borrowers to show that non-compliance of Rule 9(4) of Rules,

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2002, but they cannot shift it on Financial Institution or

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RA (SA) 39/2022

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Auction Purchaser. He submitted, in this case, Borrowers

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contended that it is for Financial Institution and Auction Purchaser to show that time was extended in compliance of Rule 9(4) of Rules, 2002, and that contention is accepted by Tribunal below, which is incorrect. To support his arguments, Learned Counsel for Appellant placed reliance on

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judgement of K. Sreedhar vs. M/s. Raus Constructions Pvt. Ltd. & Ors., reported in 2023, SCC OnLine SC 13. In that case, Borrowers raised contention that Secured Creditor cannot invoke provisions of SARFAESI Act, 2002, in view of bar under Section 31 (i), as Secured Asset is an agricultural

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property. While reverting Order of Hon’ble High Court, Hon’ble Supreme Court held that High Court materially erred in shifting the burden upon Secured Creditor to prove that properties were non-agricultural lands, when borrowers themselves pleaded, it is their burden to prove that secured assets were agricultural lands and actually being used as agricultural lands and/or agricultural activities were going on in those lands. Taking aid from that observation, Learned Advocate for Appellant submitted that when Sale Certificate

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RA (SA) 39/2022

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endorses acknowledgement of receipt of Sale Price, legal presumption is that all the Rules are complied with, and money is paid within time stipulated under Rule 9(4) of Rules, 2002, and when non-compliance of Rule 9(4) of Rules, 2002, is alleged, it is for Borrowers to rebut the same by producing substantial material. I find some force in submissions of Learned Advocate for Appellant. Borrowers, having failed to place any material, cannot throw burden on Financial Institution and Auction Purchaser. As there is no material to show that there was no extension of time for payment of 75% of Sale Price, Tribunal below is not justified in accepting contentions of Borrowers.

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One of the objections of Advocate for Appellant is that Tribunal below ordered forfeiture of amount deposited by Auction Purchaser, which is against the spirit of Rule 9(3), 9(4) of Rules, 2002. He submitted, right of forfeiture is given, only in cases where balance 75% is not paid within the time stipulated in Rule 9(4) of Rules, 2002, which means, 25% deposited, has to be forfeited, but, a reading of direction given

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RA (SA) 39/2022

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by Tribunal below, indicates that entire 100% of amount deposited by Auction Purchaser is ordered to be forfeited, which is contrary to Rules, 2002. Here, it may be relevant to read Rule 9(5) of Rules, 2002, which provides right of forfeiture, which is as follows:-

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“9. Time of sale, issues of sale certificate and

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delivery of possession, etc .—

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………… (1) …………… (2) ……………. (3) …….. (4) ( (5) In default of payment within the period

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mentioned in sub-rule (4), the deposit shall be forfeited [ to

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the secured creditor] and the property shall be resold and

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the defaulting purchaser shall forfeit all claims to the property or to any part of the sum for which it may be subsequently sold.

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…………..…………………………..”

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RA (SA) 39/2022

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From a reading of above Rule, it is clear that, when balance amount mentioned in Sub-rule (4) of Rule 9 of Rules, 2002, is not deposited within the period, deposit shall be forfeited, which means, deposit made under Sub-rule (3) of Rule 9 of Rules, 2002, which represents 25%. So, a combined reading of Rule 9(3), 9(4) and 9(5) of Rules, 2002, would only empowers for forfeiture of 25%, but not 100%. Unfortunately, Learned Presiding Officer, without looking at these Rules, simply carried away with submissions made on behalf of Borrowers, and Ordered for forfeiture of deposit made by Auction Purchaser, which means, the entire Sale Price. As rightly pointed out by Advocate for Appellant, it is completely in violation of Rule 9(5) of Rules, 2002, and such a direction has to be treated as perverse direction.

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11. On a scrutiny of entire material and on a consideration of submissions of both sides, and for the reasons recorded above, I have no hesitation in holding that Tribunal below committed error in setting aside Sale, and therefore, its Order is liable to be set aside.

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RA (SA) 39/2022

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12. In the result: Appeal R A (SA) 39/2022 is allowed with costs (costs to be borne by Respondents 1 and 2 herein). 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 20^th of April, 2023]

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[ Justice S. Ravi Kumar]

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CHAIRPERSON

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M.Mahesh v. Mrs Manni Jamunaa

Case brief

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M.Mahesh v. Mrs Manni Jamunaa

Case brief

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