Allowed

Sant Ram Yadav and Ors. v. Punjab National Bank and Ors.

DRAT19 Jul 2023

Case brief

AI extract

What is this about?

Appellants appealed against orders dismissing their challenge to the bank's enforcement proceedings. The tribunal held the bank failed to issue possession notice as required by the SARFAESI Act and Rules 8(1), 8(2) of Security Interest (Enforcement) Rules, 2002, and failed to provide 30-day notice for sale under Rules 8(6) and 9(1).

What did the court decide?

Possession notice dated 26.10.2017, sale notice dated 19.05.2018, auction dated 19.06.2018, and sale certificate dated 13.09.2018 are quashed. Bank must refund sale proceeds. Borrowers can repay dues

Sant Ram Yadav and Ors. versus Punjab National Bank and Ors. — Cheque Dishonour | DRAT (2023)

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IN DEBTS RECOVERY APPELLATE TRIBUNAL, ALLAHABAD

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Appeal Dy. No. 37/2022

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Sant Ram Yadav, S/o Sri Chauthi Ram Yadav, R/o House No. MM-2/115, Vinay Khand, Gomti Nagar, Lucknow 226010.

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Smt. Kalawati Yadav, W/o Shri Sant Ram Yadav, R/o House No.MM-2/115, Vinay Khand, Gomti Nagar, Lucknow 226010.

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……….....……………………...…………………………………………….Appellants Versus

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Punjab National Bank, Recovery Division, MCB, Ashok Marg, Lucknow through its Authorized Officer-226001.

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Neelima Singh, W/o Shri Ajay Singh, R/o 04/605, SectorH, Janakipuram, Lucknow-226021

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

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Advocates who appeared in this case

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For the Appellants-borrowers Shri S. K. Gupta, Advocate For the respondent-Bank Shri Maneesh Mehrotra, Advocate For the respondent-Auction In person Purchaser

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JUDGMENT

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Date of Decision: 19.07.2023

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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 the Financial Assets and Enforcement of the Security Interest against the order dated 09.11.2021 passed in S.A. No. 469/2018 and the order dated 04.02.2022 passed in R.A. No. 07/2021, by which the S.A. as well as the R.A. filed by the borrowers was dismissed.

¶15

The brief facts of the matter are that the appellants were granted a credit facility of Rs. 25.00 lacs by the respondent-Bank. In order to secure the said loan, the appellants created an equitable mortgage over their property in question. Since the appellants failed to maintain the financial discipline, therefore, the account

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was classified as NPA on 30/06/2017 and the demand notice dated 03.07.2017 was issued by the Bank under section 13(2) of the SARFAESI Act for a sum of Rs. 27,62,944.51 as on 30.06.2017. Since the appellants did not pay any heed to the demand raised by the Bank, therefore, possession notice dated 26.10.2017 under section 13(4) of the said Act was issued. Thereafter, a supplementary agreement was executed between the borrowers and the bank on 29/12/2017, by which it was agreed that an amount of Rs. 35,79,107/- was to be paid by the borrowers within 60 days. In para 4 of the said agreement, it is written that “Bank will be entitled to resume the process of taking possession/sale of the security from the point where it was held on”. The said compromise failed.

¶18

Subsequently, the respondent bank issued sale notice dated 19/05/2018, which was published in the newspapers on 20/05/2018, scheduling the auction of the property in question on 19/06/2018. The sale notice dated 19/05/2018 was dispatched to the appellants on 22/05/2018. The sale notice as well as the postal receipts are placed at page no. 177 & 178 of the paper book. The property was sold for a sum of Rs. 42,82,000/- in favour of the respondent no. 2-auction purchaser and sale certificate was issued on 13/09/2018 which is at page no 106 of the paper book. The physical possession of the property in question was handed over to auction purchaser on 15/12/2021.

¶19

It appears that the borrowers filed a Writ Petition No. 18738(MB) of 2018 before the Hon’ble High Court challenging the auction dated 19/06/2018, which was dismissed vide order dated 28/06/2018 stating that “it is

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always open to the petitioner to seek recourse of any other legal remedy, which is available to him”.

¶22

It transpires that the respondent-Bank moved an Application No. 506/2018 under section 14 of the SARFAESI Act before the District Magistrate, Lucknow on 02/07/2018. In the said proceedings, summon dated 06/07/2018 was issued, which was received by the borrowers on 08/08/2018.

¶23

Thereafter, the appellants filed the present S.A. along with an application for condonation of delay challenging the entire actions of the respondent bank on 16/10/2018. The Tribunal below vide order dated 19/11/2018 allowed the application for condonation of delay and the delay of about 4 months was condoned.

¶24

It is averred that in the pending S.A., the borrowers moved the applications for amendment with regard to the said sale and for impleadment of the auction purchaser, which were allowed by the Tribunal below vide order dated 15/01/2019 directing the appellants to carry out the amendment and provide an amended copy of the S.A. to the respondents.

¶25

The Tribunal below vide impugned order dated 09/11/2021 dismissed the S.A of the appellants holding that there is no illegality in the actions of the bank. The appellants filed a review application no. 07/2021 before the Tribunal below, which was also dismissed vide order dated 04/02/2022. Being aggrieved by the said orders, the present appeal has been filed by the appellants.

¶26

Learned counsel for the appellants submitted that he does not dispute the service of notice under section

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13(2) of the SARFAESI Act and the notice under section 13(4) of the said Act, but the learned counsel submitted that the possession notice, which is appended at page no. 97 of the paper book, does not specify, on which date possession of the property was taken and the same was published in the newsapeprs by the Bank, which is contrary to the provisions of appendix-IV and Rule 8(1) and Rule 8(2) of the Security Interest (Enforcement) Rules, 2002, as such the said notice is not in consonance with the Act and Rules made there under, therefore, the same is liable to be quashed.

¶29

Learned counsel for the appellant further submitted that the sale notice dated 19.05.2018, which is appended at page no. 177 of the paper book, was issued on 19.05.2018 and the same were published in five newspapers on 20.05.2018, which violates rules 8(6) of the Rules, 2002. The said Rules contemplates that a clear 30 days sale notice is required to be served upon the borrowers. It is further contended that the sale notice was issued on 19.05.2018 and the same was dispatched/sent on 22.05.2018 to the appellantsborrowers through registered post, which was served upon them on 24.05.2018, whereas the auction sale took place on 19.06.2018, as such property has been auctioned on 25^th day, which is against the Rule 8(6) of the Rules, 2002.

¶30

Learned counsel for the appellants has drawn attention of this Court to the section 13(8) of the SARFAESI Act and has argued that the sale notice of 30 days is required so that the borrower/mortgagor can exercise its right to redeem the property, which has not been done in the present case.

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The learned counsel for the appellants also submitted that the sale notice issued by the bank is predated because in the said notice it has been stated that “the e- auction sale of the secured asset has been published in five newspapers on 20.05.2018 and e-auction sale is fixed on 19.06.2018. Copy of the same is enclosed.” From this language, it is clear that the sale notice was published prior to issuance of the sale notice, which also violates Rule 8(6) of the Rules, 2002, therefore, it is argued that the said sale notice is predated.

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The learned counsel has also submitted that no public notice of sale has been given to the appellants in consonance with Rule 9(1) of the Rules, 2002, as there is difference between “the notice for sale” and “the notice of sale”,. It is therefore argued that the procedure adopted by the bank for auctioning the property is against the Act and Rules made thereunder.

¶34

Learned counsel for the appellants further submitted that the arguments raised on behalf of the respondentbank that the submissions made by the appellants is beyond the pleadings is incorrect, which is apparent from the relief clause of the S.A. filed before the Tribunal below. The learned counsel has drawn attention of this Court to the page no. 114 of the paper book, which is supplementary agreement dated 29.12.2017 between the bank and the borrower. It is contended that the loan was sanctioned against the property, but the supplementary agreement was got signed blank, which was subsequently filled up by the Bank, which includes the car loan also. It is further contended that without taking possession, notices under section 13(2) and 13(4) are bad in law. It was lastly contended that the

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appellants are ready to deposit the entire amount due. It is therefore prayed that the appeal may be allowed and the possession notice and the sale notice may be quashed.

¶37

Learned counsel for the respondent-Bank submitted that the arguments of the learned counsel for the appellants that the respondent-Bank has not followed the procedures laid down in the Act and Rules made thereunder are beyond the pleadings on record, as they have never taken the said pleadings either before the Tribunal or before this Appellate Tribunal. Therefore, the said arguments cannot be raised at this stage.

¶38

Ld. Counsel for the respondent-Bank submitted that after issuance of the notices under section 13(2) and 13(4) of the SARFAESI Act, the appellants entered into a Supplementary agreement dated 29.12.2027 with the Bank, which is appended at page No. 114 of the paper Book, wherein the borrowers have admitted the entire liability and agreed to pay the entire dues within 60 days from the date of the said agreement. It is thus argued that the argument raised by the appellants that Rules 8(1) and 8(2) have not been complied with by the Bank is incorrect. However, the appellants themselves have not complied with the terms of the said agreement.

¶39

The learned counsel further contented that as per the said agreement, the undertaking given by borrowers itself shows that till the stage of possession, they were stopped from raising any dispute. As such the borrowers have failed to comply with the terms of the said agreement and the Bank was entitled to resume the process for taking possession of the secured assets from the point where it was held up. It is therefore, argued

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that the appellants cannot agitate the matter till the stage of possession.

¶42

It was further submitted by the counsel for the respondent-Bank that pursuant to the said agreement, the amount was not deposited by the borrowers, therefore, the Bank resumed the recovery process from the stage, which was left without giving afresh possession notice. It is further submitted that the auction was done and sale was confirmed as well as the possession of the property in question has been handed over to the auction purchaser. Hence, there is no illegality or irregularity committed by the Bank in the present proceedings. Therefore, the appeal may be dismissed with heavy costs.

¶43

The husband of the auction purchaser in person has adopted the arguments as advanced on behalf of the respondent-Bank stating that his wife Smt. Neelima Singh is a bonafide purchaser of the property in question, which was auctioned on 19.06.2018. He further submitted that the entire sale proceeds have been deposited in time as stipulated in the Act and Rules made thereunder and after deposit of the auction amount, the sale certificate was issued and sale deed was executed as well as possession has also been handed over to the auction purchaser. It is, therefore, prayed that the appeal filed by the appellant may be dismissed.

¶44

Heard the learned counsels for the parties and perused the material available on record.

¶45

Undisputedly, after issuance of demand notice and possession notice, a supplementary agreement was

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executed between the borrowers and the respondentbank on 29/06/2012 and the same was not honored by the borrowers. In the present case, the main controversy is, as to whether the Rules 8(1), 8(2), 8(6), 8(7) and 9(1) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as “the Rules, 2002”) have been complied with by the respondentBank or not?

¶48

It is to be seen that the possession notice dated 26/10/207 was issued under section 13(4) of the SARFAESI Act by the Bank to the borrowers. The said notice is issued in the format as given in Appendix IV of the Rules, 2002, wherein in the last para of the same, it is written “the borrower’s attention is invited to provisions of sub section (8) of Section 13 of the Act in respect of time available to redeem the secured assets”, but the said para has not been mentioned in the said possession notice. As such no opportunity of exercising the right of redemption has been given to the borrowers while issuing the said possession notice. As such the possession notice was not issued in accordance with the Appendix IV of the Rules, 2002.

¶49

Besides above, the Bank has also not complied with the Rules 8(1) and 8(2) of the Rules 2002 while taking the symbolic possession of the property in question. As per Rule 8(1), the authorized officer shall take possession by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. In the present case, the Bank has not filed any documents, which may show that at any point of time, the

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possession notice was affixed on the conspicuous part of the property in question and even no postal receipts have been filed for sending the same to the borrowers, but only in the supplementary application, it has been stated that the same is issued. Rule 8(2) has also not been complied with by the Bank by not publishing the same in the newspapers, whereas Rule 8(2) states that “the possession notice as referred to in sub-rule(1) shall also be published as soon as possible but in any case not later than seven days from the date of taking possession, in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorized officer”, but there is nothing on record that the possession notice dated 26/10/2017 has ever been published by the Bank in the newspapers, as the Bank has neither placed any documents nor stated anything anywhere in this regard. With regard to it, the Bank has only referred to the supplementary agreement dated 29/12/2017 and has stated that in the said agreement, it was agreed that no fresh possession notice will be issued. But in the said notice it is also written that the Bank will resume the process of taking possession/sale of the security from the point it was held up.

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From the above, it is crystal clear that only the possession notice was issued, but the same was neither affixed nor published in the newspapers, which is mandatory not discretionary or directory in view of the Rules 8(1) and 8(2) of the Rules, 2002. Moreover, any agreement for compromise between the parties cannot have overriding effect on any statutory law, therefore, the Bank cannot be permitted to say that the said agreement fulfills the requirement of Rules 8(1) and

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8(2), which are mandatory in nature. It is also to be noted that the possession notice was issued on 26/10/2017 and supplementary agreement was executed on 29/12/2017, meaning thereby, the Bank had already violated the Rules 8(1) and 8(2) of the Rules, 2002. On 26.10.2017, when the possession notice was issued, then the Bank did not know that the said compromise would take place, therefore, the Bank cannot be permitted to take shelter of the said agreement with regard to compliance of Rules 8(1) and 8(2). Thus the possession notice is liable to be quashed.

¶55

So far as the compliance of Rules 8(5), 8(6), 8(7) and 9(1) of the Rules, 2002 is concerned, the sale notice under Rule 8(6) was issued on 19/05/2018 scheduling the auction for 19/06/2018. The said notice was dispatched on 22/05/2018, which was received by the borrowers on 24/05/2018 and the auction sale was conducted on 19/06/2018. As such the auction sale took place on 26^th day, whereas Rule 8(6) says that “the authorized officer shall serve to the borrower a notice of 30 days for sale of the immovable secured assets”. As such the Bank has failed to serve the same in view of the said rule.

¶56

With regard to compliance of Rule 8(7), it is to be seen that the sale notice dated 19/05/2018 was published in the newspapers on 20/05/2018, which was affixed on the conspicuous part of the property in question. The said affixation are at page no 174 and 175 of the paper book, which shows that the Bank has complied with the Rule 8(7) of the said Rules.

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Regarding compliance of Rule 9(1), it is stated that the sale notice was published on 20/05/2018 and auction

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was held on 19/06/2018, which is on 30^th day, whereas the said Rule says that “no sale of immovable property under these rules, in first instance shall take place before the expiry of 30 days from the date on which the public notice of sale is published in newspapers”. As such Rule 9(1) has also not been complied with by the Bank. Thus, on this count also, the sale is not sustainable.

¶60

Keeping in view the discussions as held above, it is observed that the Tribunal below has erred in holding that there is no illegality in the actions of the Bank with regard to the possession notice as well as the auction sale dated 19.06.2018.

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In view of the aforesaid, the possession notice dated 26.10.2017, sale notice dated 15.2018, auction dated 19.06.2018 and sale certificate dated 13.09.2018 are quashed and subsequent action thereof.

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Consequently, the appeal is allowed and the impugned orders dated 09.11.2021 and 04.02.2022 passed by the Tribunal below are set aside. No order as to costs.

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The respondent-Bank is directed to return the auction amount to the auction purchaser along with interest @ 8% per annum simple within 15 days from the date of this judgment.

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The respondent-Bank shall provide the statement of account to the appellants showing the total outstanding amount payable within 15 days from today. The appellants shall pay the same within two months thereafter. If the appellants deposit the same within the time as stipulated, the respondent-Bank shall hand-over

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the possession of the property in question to the appellants within one month thereafter.

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In case of non-compliance of the above direction, the respondent-Bank shall be free to proceed with the matter for recovery of its dues from the stage of issuing afresh possession notice in accordance with law.

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A copy of this judgment be forwarded to the parties concerned as well as 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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Sant Ram Yadav and Ors. v. Punjab National Bank and Ors.

Case brief

What is this about?

What did the court decide?

Sant Ram Yadav and Ors. v. Punjab National Bank and Ors.

Case brief

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What did the court decide?

What the court decided

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