Dismissed

Sri Brunda Infrastructure Private Limited v. Canara Bank

DRAT14 Jul 2023REGULAR APPEAL/70/2023

Case brief

AI extract

What is this about?

The Debts Recovery Appellate Tribunal dismissed an appeal challenging the dismissal of a Section 17(1) SARFAESI application. The Tribunal held that the appellant, a third party not party to any MOU with borrowers, lacked locus standi and was barred by Section 13(13) of the Act, leading to dismissal of the appeal.

What did the court decide?

The appeal filed by the company challenging the auction sale is dismissed as the company lacks locus standi.

Sri Brunda Infrastructure Private Limited versus Canara Bank — Banking and Recovery | DRAT (2023)

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IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT KOLKATA

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Appeal No. 70 of 2023 (Arising out of I.A. 1822 of 2021 in SAIR 946 of 2021 in DRT-II Hyderabad)

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THE HON’BLE MR. JUSTICE ANIL KUMAR SRIVASTAVA CHAIRPERSON

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14.07.2023

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M/s. Sri Brunda Infrastructure Pvt. Ltd. having registered office at 43-14-16, TSN Colony, Visakhapatnam – 530016, Andhra Pradesh.

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… Appellant

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-Vs-

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Canara Bank, having office at ARM-II, 3^rd floor, Circle Office Building, MCH No. 10-3-163 and 10-3-163/A, Plot No. 85, Sy. No. 625, Besidse Rail Nilayam, Secunderabad.

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M/s. Satya Prakash Hotels Pvt. Ltd., having registered office at D. No. 14-42, P&T Colony, Gandhinagar, Dilsikhanagar, Hyderabad – 500060, Telengana. 3. M. Surya Prakash, residing at 8- 24/16A, Madhavarao Street, Gandhinagar, Kakinada, East Godavari Dist. AP 533004. 4. M. Gopala Krishna, residing at 8- 24/1-6A, Madhavarao Street, Gandhi Nagar, Kakinada, East Godavari Dist. Andhra Pradesh – 533004. 5. Mrs. Padmavathi Devi residing at 8- 24/1-dA, Madhavarao Street, Gandhinagar, Kakinada, East Godavari Dist. AP 533004.

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Mrs. Satyavathi (deceased)

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M/s. Sri Mahalakshmi Enterprises, having office at D No.13-5-3, Ramasomayajulu street, Suryaraopeta, Kakinada, East Godavari Dist. AP 533004.

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Mrs. Dwarampudi Mahalakshmi, residing at D No. 2-46-7/1, Villa Vari Veedhi, Venkat Nagar, Kakinada, East Godavari Dist. AP 533004. … Respondents

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For Appellant : Mr. Sandip Mondal, Learned counsel. Mr. Prabir Kr. Banerjee, learned counsel. For Respondent : Mr. Onkar Ganguly, Ld. Counsel for res.1 Mr. Kandhika Karunakar, ld. Counsel for res. 2 to 5. Mr. Ambadipudi Satyanarayana, Ld. Sr. Counsel Alongwith Sri Pankaj Kumar Mukherjee For res. 7 and 8.

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THE APPELLATE TRIBUNAL :

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Instant appeal has arisen against the judgement and order dated 27.02.2023 passed by learned DRT-II Hyderabad in I.A. No. 1822 of 2021 arising out of SA No. 946 of 2021. Learned DRT has dismissed the I.A. 1822 of 2021 being not maintainable and dismissed the S.A. filed u/s 17(1) of the SARFAESI Act. as barred by limitation. Feeling aggrieved S.A. applicant has preferred this appeal.

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Appellant herein filed the S.A. before DRT for quashing the auction sale conducted by the respondent no. 1 bank in respect of the secured asset. Respondent no.2 to 6 are borrower/guarantor, but respondent no.6 died pending S.A. Respondents no. 7 and 8 are auction purchaser. 3. Pleadings of the parties in the S.A. application was that two MOUs were entered into on 04.06.2015 and 05.06.2015 between respondent no. 2 to 6 and Managing Director of appellant company in compliance of the order passed by learned DRT. As per terms and conditions of the MOU an amount of Rs. 6.67 crore including Rs.1.50 crore deposited in the loan account of 2^nd respondent with the 1^st respondent bank. In spite of that bank conducted auction sale on 26.03.2021 in favour of respondent no. 7 and 8 for an amount of Rs.32,44,50,000/- with reduced reserve price. The appellant herein alleges that the company has invested more than Rs.10 crore of rupees. The appellant being a third party had no knowledge about the SARFAESI proceeding

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initiated by the respondent bank and came to know about it during Dassera vacation. Immediately thereafter SA was filed, however, with the delay of 214 days. During the course of hearing before the learned DRT a plea was taken for seeking benefit of the Suo Motu Writ Petition No. 03 of 2020 passed by the Hon’ble Supreme Court extending the limitation period till 28.02.2022.

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After hearing learned counsel for the parties, learned DRT recorded its finding that the applicant has no locus standi to file the S.A., accordingly, S.A. is not maintainable. Further, S.A. was found to be barred by time.

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I have heard learned counsel for the appellant Mr. Sandip Mondal, and Mr. Kandhika Karunakar, ld. Counsel for respondent no. 2 to 5 and Mr. Ambadipudi Satyanarayana, ld. Senior advocate for respondent no. 7 and 8 alongwith Mr. Pankaj Kumar Mukherjee. Heard Mr. Onkar Ganguly, ld. Counsel for respondent no. 1 bank. 6. At the very outset learned counsel for the appellant submits that the finding recorded by learned DRT in the impugned order is against the law. It is submitted that MOU was entered into in compliance of the order of the learned DRT. Hence, appellant has entered into a private treaty as provided under Rule 8(5)(d) of the Security Interest (Enforcement) Rules, 2002. It is further submitted that as per the terms and conditions of the MOU appellant has invested more than Rs.10 crore in spite of that

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Respondent bank has illegally auctioned the secured asset on reduced valuation of the secured property.

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It is further submitted by the appellant that S.A. was filed well within time considering the benefit of the Suo Motu judgement (supra). Further it is submitted that auction sale proceeding was initiated during Dassera vacation and it came to the knowledge of the appellant during the Covid Pandemic period. 8. Per contra, learned counsel for the respondent No. 7 and 8 submits that applicant has no locus standi to prefer the S.A. filed u/s 17(1) of the SARFAESI Act. It is submitted that the MOU dated 04.06.2015 and 05.06.2015 was entered into between S/Shri Satyaprakash Hotels Pvt. Ltd; Mr. M. Surya Prakash; Sri M. Gopalakrishna; Smt. M. Satyavathi; Smt. M Padmavathi AND KJD Srinivas. It is further submitted that S.A. was filed by M/s. Sri Brunda Infrastructure Pvt. Ltd. through its Managing Director KJD Srinivas. It is also submitted that applicant has no locus standi to file the S.A. MOU was entered into between the parties (supra) wherein applicant was not a party. S.A. was filed by a Company.

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It is further submitted that notice u/s 13(2) was issued on 21.09.2013 while the MOU was entered into on 04.06.2015 and 05.06.2015. Hence any transfer of security interest subsequent to issuance of demand notice is barred under Sec. 13(13) of the SARFAESI, Act. It is further submitted that applicant has no right to claim redemption since auction sale was confirmed, sale certificate was issued and possession was delivered to respondent

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no. 7 and 8. Further it is submitted that appellant cannot take advantage of the suo motu judgement of Hon’ble Supreme Court after filing the S.A. during Covid period.

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Learned counsel for the respondent No. 2 to 5 submits that appellant has no locus standi. MOU was entered into between respondent 2 to 6 and Sri KJD Srinivas, Managing Director of the appellant company in compliance of the order of DRT, but appellant was not party to the MOU. 11. As far as issue of locus standi is concerned, it is on record that two MOUs were signed on 04.06.2015 and 05.06.2016 between respondent no. 2 to 6 and Managing Director of the appellant Company, however, appellant herein M/s. Sri Brunda Infrastructure Pvt. Ltd. was not a party to the MOU. Even if the Managing Director of the company was the signatory of the MOU, it does not create right in favour of the appellant company to file an application u/s 17(1) of the SARFAESI Act. Learned DRT has came to a right conclusion that S.A. was filed by the company who was not the signatory of the MOU, Even if it is accepted that MOU was executed in compliance of the order passed by learned

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DRT then also appellant does not have right to file S.A. Accordingly, I am of the view that learned DRT has rightly concluded that appellant has no locus standi to file application u/s 17(1) of the SARFAESI Act. At this stage it would be appropriate to mention that although Section 17(1) of the Act provides that any person including borrower aggrieved by any of the measures taken u/s 13(4) of the Act may make an application, appellant

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being a third party is not entitled to file application u/s 17(1) of the Act.

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As far as period of limitation is concerned learned DRT has rightly concluded that S.A. is time barred. Perusal of the S.A. application will show that applicant had filed the S.A. during the Covid Pandemic period and pursued the case, then how can they take advantage of the Suo Motu judgement passed by Hon’ble Supreme Court which is in the nature of extending the period of limitation. It was not the case of the appellant that they were prevented in filing the matter due to Covid Pandemic. Hence, appellant cannot take advantage of the Suo Motu judgement passed by Hon’ble Apex Court.

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As far as provision of Section 13(13) of the SARFAESI Act is concerned admittedly MOU was entered between respondent no.2 to 6 and Managing Director of the appellant company by virtue of which auction sale was conducted. Learned counsel for respondent no. 7 and 8 has relied on the judgement of Hon’ble High Court of judicature, Telangana and Andhra Pradesh in Dommati Prashanthi Vs. Indian Bank, Warangal & Ors. [2018(3) ALD 92 (DB) wherein provision of Section 13(13) is considered by the Hon’ble High Court. At Para 34 and 35 of the judgement Hon’ble High Court has held that :

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“34. Allowing such a person to do so, in our considered opinion, would be nothing short of dignifying and validating the unlawful transfer in his favour. When the very transaction under which such person claims rights is unlawful, giving it even a modicum of sanctity or legality, so as to permit such person to approach any forum assailing the measures taken by the secured creditor under Section 13(4) of the SARFAESI Act, would amount to

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making a mockery of Section 13(13) of the SARFAESI Act. Affording an opportunity of hearing to an unlawful transferee before the jurisdictional Debts Recovery Tribunal, by bringing such a transferee within the ambit of any person aggrieved in Section 17(1) would practically make the bar envisioned by Section 13(13) of the SARFAESI Act otiose. The words any person aggrieved in Section 17(1) must therefore be construed to mean any person who, prima facie, has a legally founded tangible grievance. A person, such as the petitioner, who at the very threshold fails to meet this standard, as she admittedly claims rights under a document hit by Section 13(13) of the SARFAESI Act, cannot be said to be a person aggrieved, as the very foundation of her grievance is rooted in the illegality of the transfer under which she is claiming rights. In K.RAJU8, the Madras High Court also held to this effect.

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On the above analysis, we find that the petitioner cannot be categorised as any person aggrieved so as to entitle her to maintain an application under Section 17 of the SARFAESI Act in relation to the sale of the subject house property by the bank. This is so as her claim over the said property stems from the registered gift settlement deed dated 03.11.2007 which is clearly hit by the bar under Section 13(13) of the SARFAESI Act. As the said deed would not vest any right or title in the petitioner against the bank, owing to the statutory bar under Section 13(13) of the SARFAESI Act, the question of lending sanctity to such a blatantly illegal transfer by the borrower in favour of the petitioner, even to the limited extent of permitting her to raise an attack against the subsequent sale of the subject house property by the bank, would not arise. As pointed out supra, the words any person aggrieved in Section 17(1) of the SARFAESI Act must necessarily be construed to mean any person who is in a position to show, prima facie, that he or she has a legally founded tangible grievance and not a person whose claim is mired in illegality at the very roots. The petitioner therefore had no locus standi to maintain an application under Section 17 of the SARFAESI Act. We find no error whatsoever in both the tribunals below holding to this effect and non-suiting her on that ground.”

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Accordingly, I am of the view that whole proceedings are

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barred by the provision of Sec. 13(13) of the Act.

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Although plea was taken at this stage for consideration of appellant’s right to redemption, it is on record that S.A. was filed beyond the limitation period mandated in Section 17(1) and after auction sale was confirmed and scheduled property was handed over to the auction purchaser. Further, appellant has no locus standi to file the application u/s 17 of the SARFAESI Act. He is

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neither a borrower nor guarantor who can claim redemption u/s 13(8) of the Act.

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On the basis of the discussion made above, I am of the view that learned DRT has rightly arrived at the conclusion dismissing the SARFAESI application u/s 17 of the Act. Appeal lacks merit and is liable to be dismissed.

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O R D E R

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