Sandeep Dogra versus State Bank of India and Anr.

IN DEBTS RECOVERY APPELLATE TRIBUNAL, ALLAHABAD

Appeal Dy. No. 637/2022

Sandeep Dogra, S/o Shri Hardeep Dogra, R/o 6-B/402, Gopesh Kunj, Virindavan Yojna-1, Raebareilly Road, Lucknow-226029. ……….....……………………...………………………………………………..Appellant

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Versus

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State Bank of India, SME Centre, Habibullah Estate, Hazratganj, Lucknow through its Authorized Officer and another. ……….….………….…….………………………………………………….Respondents Advocates who appeared in this case

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For the appellant Shri G. S. Mishra, Advocate For the respondent no. 1- Shri Sandeep Arora, Advocate Bank For the respondent no. 2 None

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JUDGMENT

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Date of Decision: 04.07.2023

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JUSTICE R. D. KHARE, CHAIRPERSON

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This appeal has been preferred by the appellant under section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short “the SARFAESI Act”) against the order dated 26.08.2022 passed by the Presiding Officer, DRT, Lucknow, whereby the Securitization application No. 227/2021 filed by the appellant was dismissed.

¶11

The brief facts of the matter are, that the respondent no. 1-Bank had granted some financial assistance to M/s Yash Medicals through its proprietor respondent no. 2. In order to secure the said loan, the appellant stood as guarantor by creating mortgage over his property in question with the respondent-Bank and also executed various loan documents in favour of the Bank.

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The borrower did not maintain the financial discipline, therefore, account was classified as Non Performing Assets

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(NPA) on 28.11.2019 and the respondent no. 1-Bank issued demand notice dated 17.02.2020 under section 13(2) of the SARFAESI Act demanding a sum of Rs. 15,81,808/-. Since no amount was paid by the borrower, therefore, the possession notice dated 04.02.2021 was issued under section 13(4) of the SARFAESI Act. Thereafter, the auction sale notice dated 10.03.2021 was published in two newspapers on 11.03.2021 scheduling the auction of the property in question on 13.04.2021. The property was sold for Rs. 25,59,000/- and the sale certificate has also been issued in favour of the auction purchaser namely Smt. Rekha Devi on 15.06.2022.

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The appellant challenged the recovery proceedings of the Bank before the Tribunal below by filing the S.A. No. 227/2021, which was dismissed vide impugned order dated 26.08.2022 holding that there is no illegality in the action taken by the Bank. Being aggrieved by the said order, the appellant has filed the present appeal.

¶16

Learned counsel for the appellant submitted that only possession notice was issued to the appellant, copy of which has been appended at page no. 51 of the paper book. The said notice was undated and the same was challenged by the appellant by filing S.A. No. 05 of 2021, which was allowed vide order dated 01.02.2021 setting aside the possession notice dated nil and the Bank was directed to proceed afresh from the stage of demand notice. Copy of the said order has been appended at page no. 52 of the paper book. Accordingly, the fresh possession notice dated 04.02.2021 was issued under section 13(4) of the SARFAESI Act, but the same was addressed to the borrower and not to the appellant, as such the possession notice was never served upon the appellant, which violates the Rule 8(1) of the Security Interest (Enforcement) Rules,

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2002 (hereinafter referred to as “ the Rules, 2002”). It is further contended that the possession dated 04.02.2021 was published on 04.02.2021 itself which is not possible. Hence, the Rule 8(2) of the said Rule has also not been complied with by the Bank.

¶19

The learned counsel for the appellant further submitted that the valuation of the property was conducted by the valuer of the Bank and the value of the same was fixed at Rs. 37.50 lacs, as indicated in the valuation report dated 26.12.2017, which is annexure 15 at page no. 106 of the paper book. The learned counsel has drawn attention of this Tribunal to page no. 113 of the paper book, which is the valuation report dated 09.12.2020. According to the said report, the valuation of the property was shown to be Rs. 44.60 lacs and the distress value Rs. 35.00 lacs, but the property has been sold for a sum of Rs. 25.59 lacs, which is not permissible.

¶20

Learned counsel for the appellant has also drawn attention of this Tribunal to the page no. 158 (annexure-17 of the paper book), which is statement of account. As per the said statement, the appellant being a guarantor had deposited Rs. 3.00 lacs in the loan account on 28.12.2020 and thereafter total outstanding was shown to be Rs. 12,35,662.26. It is contended on behalf of the appellant that the secured asset has been sold below the distress value at the very first instance, which is not permissible under the law, therefore, the sale is not sustainable.

¶21

Learned counsel for the appellant also submitted that the respondent-Bank has not complied with the Rules 8(6), (6A), (7) and 9(1) of the Rules, 2002, as the notice for sale under Rule 8(6) of the said Rules was issued on 19.03.2021 in the name of M/s Yash Medicals and the same was dispatched on 20.03.2021, which was received

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on 21.03.2021, whereas the property was auctioned on 13.04.2021. The postal receipts of the same have also been appended at page no. 33 of the memo, which shows that the same was sent only to the borrower and not to the appellant. As such the property was sold on 23^rd day, which violates Rule 8(6) and 9(1) of the Rules 2002. Copy of the sale notice is at page no. 31, 32 & 33 of the memo. It is also submitted that the sale notice was published on 11.03.2021 scheduling the auction on 13.04.2021, which is prior to the date of issuance of sale notice under Rule 8(6) of the Rules and the same was neither served upon the appellant nor affixed on a conspicuous part of the property in question, which violates Rule 8(7) of the Rules, 2002.

¶24

The learned counsel for the appellant further submitted that the appellant issued a cheque of Rs. 12,35,662.26, but he was directed to bring the demand draft in lieu of cheque. It is contended that the demand draft was also not being accepted repeatedly by the Bank. The appellant being a guarantor was ready to deposit the entire amount, as to this effect, he had moved an application, but the Bank did not consider the same. It is contended that the appellant intended to invoke their rights of subrogation before the Tribunal below, but the same has not been considered. The next argument is that the Bank has only proceeded against the appellant, who is guarantor and not against the borrower. The said act of the Bank itself is arbitrary and self-explanatory.

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It is also contended on behalf of the appellant that information was sought under the RTI Act vide letter dated 26.07.2022 with regard to the amount, in which the property was sold, a copy of which has been appended at page no. 98 of the memo (annexure no. 13). The learned counsel has drawn attention of this Tribunal to page no.

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99, which is reply of the Bank to the application of the appellant under the RTI Act. The learned counsel stated that the information sought by the appellant was denied by the Bank, which shows malafide intention of the Bank.

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The learned counsel has lastly drawn attention of this Tribunal to the page no. 43 of the paper book, which is a notice dated 30.07.2022 issued by the Nayab Tehsildar to the Prabhari Nirikshak, Thana PGI, Lucknow. It is contended that the said notice was also addressed to M/s Yash Medicals and not to the appellant and pursuant to the same, the possession of the property of the appellant was taken, therefore, it is prayed that the appeal may be allowed setting aside the same.

¶29

Learned counsel for the respondent-Bank submits that the arguments as raised by the appellant are totally misconceived and incorrect. It is contended that as to how the notices, which were not sent to the appellant, came into the possession of the appellant. The learned counsel has drawn attention of this Tribunal to annexure 3 of the paper book, which is notice dated 17.02.2020 issued under section 13(2) of the SARFAESI Act, which is addressed to the appellant and copy of the postal receipts is also there. The learned counsel has also drawn attention of this Tribunal to annexure no. 6, which is possession notice dated 04.02.2021. The said notice is addressed to the appellant and the same was sent to him and the postal receipts are on record. Therefore, the contention of the appellant that Rule 8(1) of the Rules, 2002 has not been complied with, is not tenable.

¶30

Learned counsel for the respondent-Bank further contended that the contention of the appellant that he is not borrower, is incorrect, as he has drawn attention to annexure no. 3 at page no. 45 of the reply, which is

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guarantee agreement duly signed by the appellant. A reference has also been given by the respondent-Bank to page no. 53 of the reply, which is letter of confirmation for creation of mortgage by deposit of title deed by the appellant. Next attention was drawn to the definition of the borrower contending that the definition of borrower and guarantor is the same and section 2(f) of the SARFAESI Act says that borrower means “any person who has been granted financial assistance by any Bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any Bank or financial institution”.

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Learned counsel for the respondent-Bank also submitted that the application moved by the appellant for taking right of subrogation was not legally maintainable in view of section 13(8) of the SARFAESI Act, which stipulates all necessary requirements and it is contended that no amount along with all costs, charges and expenses incurred were tendered by the appellant, therefore, the application for rights of subrogation was not maintainable. It is also contended that the appellant was not even entitled for redemption as per the judgment passed by the Hon’ble Apex Court in the matter of Dwarika Prasad, therefore, the impugned order passed by the Tribunal below does not suffer from any illegality in the eye of law as is apparent from the reading of paras 13 and 15 of the said judgment.

¶34

It is further contended that the order passed by the D.M. under section 14 of the SARFAESI Act, cannot directly be challenged under section 18 of the said Act, for which the statutory proceedings can be initiated under section 17 of the said Act. The appellant was aware of the proceedings at the point of time, but he has not taken any action

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timely. In support of the contention, the learned counsel for the Bank has referred to a judgment passed by the Hon’ble Madhya Pradesh High Court in the matter of Authorized Officer Vs. Prafull Kumar.

¶37

The learned counsel for the respondent-Bank has drawn attention of this Tribunal to annexure no. 2 at page 35 of its reply, which is sale notice dated 10.03.2021. It is contended that the sale notice was issued on 10.03.2021 and published in the newspapers on 11.03.2021 scheduling the auction of the property on 13.04.2021 and the property was sold for Rs. 25.59 lacs. The service of the said notice is uthenticated by a letter dated 13.05.2021 issued by the postal department, which is at page no. 44 of the reply of the Bank, which shows that notice was delivered on 12.03.2021. As such there was no violation of Rule 8(6) as contended by the appellant.

¶38

Having heard the learned counsels for the parties and considering the material available on record, it is undisputed that the demand notice, undated possession notice and the earlier sale notice were challenged by the appellant by filing the S.A. No. 05/2021 before the Tribunal below, which was allowed vide order dated 01.02.2021 and the possession notice dated NIL and subsequent steps thereof including sale notice were set aside and the Bank was directed to proceed afresh from the stage of the demand notice and the said order has never been challenged by either of the parties, therefore, the same attained finality, hence any action of the respondent-Bank upto the stage of demand notice cannot be permitted to be agitated again in the present case.

¶39

So far as the compliance of the Rules 8(1) and 8(2) of the Rules, 2002 is concerned, it is to be seen that the possession notice was issued on 04.02.2021 under section

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13(4) of the SARFAESI Act in the name of the borrower and guarantor separately, which were dispatched vide post on 04.02.2021 itself, copies of the possession notice and postal receipts are placed at page no. 61, 62, 120 & 121 of the reply of the Bank, but no tracking report has been filed by the bank to authenticate the service of the same upon the appellant. The said notice was affixed on conspicuous part of the property in question, which is placed at page no. 123 of the reply of the Bank. The said notice was also published in the newspapers namely Business Standard (Hindi & English) dated 04.02.2021. From perusal of the copy of the publication made in Hindi, it is found that at the bottom of the said publication, it is written “published on 05.02.2021”, but just below it in different writing it is written “Business Standard (Hindi) dated 04.02.2021”, whereas the publication made in English version contains in handwriting “Business Standard (English) dated 04.02.2021”. As such both the publications contain the date as 04.02.2021, as the respondent-Bank has never disclosed the date of publication of possession notice in its reply filed before the Tribunal below or in reply filed before this Appellate Tribunal. If the possession notice is stated to have been issued on 04.02.2021, then it is practically not possible that the possession notice was published on 04.02.2021 itself, meaning thereby the possession notice was published prior to the date of issuance of the sale, which violates Rule 8(2) of the Rules, 2002. Even if it is presumed that the possession notice was served upon the borrower/guarantor, there was no publication of the possession notice dated 04.02.2021, which is mandatory and not directory in view of the Rule 8(2) of the Rules, 2002. Thus, it is clear that the respondent-bank has failed to comply with the Rule 8(2) of the Rules, 2002. As such

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on this ground alone, the possession notice is liable to be set aside and consequently, all the actions thereof.

¶44

With regard to the valuation of the property, the appellant has referred to the page no. 103 of the paper book, which is valuation report dated 26.12.2017 given by Engineer Gaurav Vikas Singh, who is a panel valuer of the respondent-Bank. As per the said report, the market value of the property in question was assessed to be Rs. 37,50,000/- and the distress sale value Rs. 30.00 lacs, as realizable value of Rs. 33.75 lacs. Another valuation report of the same valuer, which is dated 09.12.2020, has been placed from page nos. 108 to 113. As per the said report, the fair market value of the property in question was Rs. 44.60 lacs, realizable value Rs. 40.00 lacs and distress value of Rs. 35.00 lacs. On the contrary, the respondentbank has placed a valuation report dated 11.11.2020 of Engineer Manvendra Kumar Gupta on the query being made by this Appellate Tribunal vide order dated 17.02.2023. The said valuer is a registered valuer of the Income Tax Department and is not of the respondentBank, but the aforesaid two valuation reports have been given by the panel valuer of the respondent-Bank, therefore, the authenticity of the same is more than that of the report of the non paneled valuer. It is also important to note that if the Bank had got the valuation report dated 11.11.2020 from a private valuer, then what was the need of the Bank to get the property valued again from its approved valuer on 09.12.2020, who has assessed the value of the property in question more than that, but the Bank has relied upon the earlier valuation report dated 11.11.2020 of the non-impaneled valuer and ignored the latest valuation report dated 09.12.2020 of the impaneled valuer. As such the valuation report dated 11.11.2020, which has been given by the non-paneled valuer is not

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justifiable to be considered. The respondent-Bank cannot sell the property below the distress value at the very first instance. The value of the property can be reduced gradually in case of not turning of prospective bidder. Rule 8(5) says that “before effecting sale of immovable property, the authorized officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property”. Hence, the contention of the respondent-Bank that the property has been sold at the realizable value and not below the distress value given by the non-paneled valuer, is not sustainable. On this ground alone, the auction sale dated 13.03.2021 is liable to set aside.

¶47

So far as the contention of the respondent-Bank that the present sale is a third sale, is concerned, the present sale notice was issued pursuant to the fresh possession notice dated 04.02.2021, as the earlier possession notice was quashed by the Tribunal below, therefore, this sale would be treated as the first sale.

¶48

It is contended on behalf of the appellant that the respondent-Bank has not complied with the Rules 8(6), (7) and Rule 9(1) of the Rules, 2002. In this regard, it is to be seen that the sale notice was prepared in appendix 6-A on 10.03.2021, which was published by the Bank in the newspapers on 11.03.2021, whereas sale notice was issued on 19.03.2021, which was got done much prior to issuance of the sale notice under Rule 8(6). The said act of the Bank curtails the right of the borrower/guarantor provided under section 13(8) of the SARFAESI Act. The sale notice under Rule 8(6) was issued on 19.03.2021 scheduling the auction of the property in question for 13.04.2021. The said notice was issued to the borrower and the guarantor separately, one in the name of M/s Yash

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Medicals, proprietor Shri Dilip Vidyarthi and another in the name of M/s Yash Medicals, guarantor : Shri Sandeep Dogra, which were sent to them through India Post. Copies of both the notices along with postal receipts are placed at page nos. 127, 128 & 129 of the reply of the Bank. The notice dated 19.03.2021 placed at page no. 128 of the Bank’s reply is addressed to M/s Yash Medicals, Guarantor Shri Sandeep Dongra, S/o Shri Hardeep Dongra, R./o House No. 6B/402, Sector-6, Pocket-B, Vrindavan Yojana, Raibarelly Road, Lucknow and the same was sent to the Vrindavan Colony on 20.03.2021, which is evident from the consignment no. RU661035353IN, but track consignment, which is placed at page no. 130 of the Bank’s reply, shows that the said item was dispatched from Lucknow RMS CRC on 21.03.2021, but the same does not authenticate the service of the consignment upon the appellant. In this regard, the respondent-Bank itself has admitted in his written arguments that no document/evidence is available with the Bank with regard to delivery of the sale notice dated 19.03.2021. It is further observed that the sale notice under section 8(6) of the Rules, 2002 was issued on 19.03.2021, which was dispatched on 20.03.2021, whereas the property was auctioned on 13.04.2021. Thus, the said auction sale was conducted on 23^rd day from the date of sale notice, which is clear violation of Rule 8(6) of the Rules, 2002. As such the auction sale conducted by the Bank on 13.04.2021 is not sustainable.

¶51

The record further reveals that as per the statement of account (annexure 17 at page no. 158 of the paper book), the appellant was shown to be a guarantor, who had deposited Rs. 3.00 lacs in the loan account on 28.12.2020 and total outstanding was shown to be Rs. 12,35,662.26, for which initially a cheque and thereafter the demand

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draft was given to the respondent-Bank, but the same was not accepted by the Bank, as has been mentioned in the memo of appeal.

¶54

In view of the discussions held in the preceding paragraphs of this judgment, the possession notice date 04.02.2021, sale notice dated 10/19.03.2021 as well as auction dated 13.04.2021 are set-aside and subsequent actions thereof. Consequently, the appeal is allowed and the order impugned is quashed.

¶55

The respondent-Bank is directed to return the auction amount to the auction purchaser along with interest @ 8% per annum simple from the date of deposit till the date of payment.

¶56

The respondent-Bank is further directed to give the outstanding amount to the appellant within 15 days from the date of this order, who shall deposit the same within thirty days thereafter, failing which the Bank shall be free to proceed with the matter for recovery of its amount due from the stage of issuing the possession notice afresh in accordance with law. If the appellant deposits the amount within the stipulated period, the possession of the property in question shall be handed over by the Bank to the appellant within a week from the date of deposit of the amount.

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A copy of this judgment be forwarded to the parties as well as to the DRT concerned.

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CHAIRPERSON

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VN Giri

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Sandeep Dogra v. State Bank of India and Anr.

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Sandeep Dogra v. State Bank of India and Anr.

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