Partly allowed

Ms Popular Luggage v. the Authorized Officer Indian Bank

DRAT12 Jun 2024IA/387/2024

Case brief

AI extract

What is this about?

The Tribunal considered an appeal challenging a SARFAESI action due to alleged valuation defects. Finding the appellants established a prima facie case of financial strain, it directed a partial pre-deposit of Rs 10 lakhs with deferred possession pending compliance.

What did the court decide?

Directed pre-deposit of Rs 10 lakhs; deferred handing over possession of secured asset until payment compliance.

Ms Popular Luggage versus the Authorized Officer Indian Bank — Company and Corporate | DRAT (2024)

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BEFORE THE DEBTS RECOVERY APPELLATE TRIBUNAL, AT: MUMBAI Present: Mr Justice Ashok Menon, Chairperson

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I.A. No. 387/2024(WoD) In Appeal on Diary No. 1129/2024

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Between

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M/s Popular Luggage & Anr. … Appellant/s V/s.

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The Authorised Officer, Indian Bank & Anr. …Respondent/s Mr Rajesh Nagory, i/b Ms Sanjana Ghogare, Advocate for Appellants. Mr Ajikumar, i/b M/s VNA Legal, Advocate for Respondent Bank.

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The appellants are in appeal impugning the order dated 14.05.2024 dismissing the Securitisation Application (S.A.) No. 87 of 2023 by the Debts Recovery Tribunal-I, Ahmedabad (D.R.T.) filed by them challenging the Sarfaesi action taken by the respondent bank for recovery of the amount allegedly due from them. The Sarfaesi action was challenged on various grounds including the challenge to the demand notice under Sec. 13(2) for the reason that there is no breakup of the demanded amount, and thus, violates sub-sec. 3 of Sec. 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act,” for short). It is further contended that the action taken under Sec. 14 is also improper and that the mandatory provisions of Rules 8 and 9 of the Security Interest (Enforcement) Rules have been violated while putting the property for sale. It is also contended that the valuation of

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the property was not properly done and that the valuation report relied upon by the bank is not acceptable because the property has not been properly valued. To counter the valuation report relied upon by the bank, the appellants have produced their valuation report which would indicate that the property was sold for only ₹31,30,000/- whereas it was worth more than ₹1 crore.

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Per contra, the Ld. Counsel appearing for the respondent bank argues that the appellants have no valid grounds to challenge the Sarfaesi measures. The subject property has been sold, the sale has been confirmed and the sale certificate issued. What remains is the handing over of possession of the secured asset to the auction purchaser. It is also pointed out that the property was attempted to be sold thrice and only on the third time, the sale was successful. On the previous two occasions, there were no bidders for the property. It is further pointed out that the appellants did not raise any objection regarding the valuation of the property at the time it was attempted to be sold earlier.

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The Ld. Counsel appearing for the appellants has pointed out some glaring defects in the valuation report. It is indicated that the valuation was done for only the landed property which was mortgaged. The mortgage deed indicates that the built-up structure measures 120.91 sq. mtrs. and the sale notice also describes the property which is put up for sale. However, the valuation report indicates that the property has four floors and has a larger extent than what is mentioned in the sale notice and the mortgage deed. The appellants would contend that the property has now a built-up area of 332 sq. mtrs

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which indicates that it has almost tripled.

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The Ld. Counsel appearing for the respondent bank would contend that any improvement made after the mortgaging of property enures to the benefit of the mortgagee and hence, the entire property inclusive of the additions made, could be sold. There is no dispute regarding that proposition, but it is pertinent to note that what is sold as per the auction sale notice and what is valued as per the valuation report is only a property with a built-up area of 120.91 sq. mtrs. The valuation report also indicates that the valuation at the rate of ₹800 per sq. ft is taken for a built-up area of 1300 sq. ft alone and that too was found as per the old valuation report. The valuation report indicates that the approved layout building plan was not made available to him to verify whether the construction was by the approved plan. Still, the valuation was done by the available documents and site measurements taken. Had the valuation been made after taking site measurements, it should have been mentioned that the constructed area was more than 120.91 sq. mtrs. which is conspicuously missing in the valuation report indicating the fact that the built-up area which was added subsequently has not been valid at all. The Ld. Counsel appearing for the respondent bank vehemently argues that in the absence of the approved plan it has to be assumed that later construction was illegal and therefore, it could not have been mentioned in the auction notice. If the mortgaged property had been subsequently improved after the creation of the mortgage, the improvement would inure to the benefit of the mortgagee, but at the same time, at the time of sale, the property which has been improved

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is put up for sale which has to be valued taking into consideration the value of the improvement made. Whether the improvement was made legally or illegally is none of the concern to the valuer, and it is apparent that the valuer did not value the subsequent improvement to the building, and therefore, prima facie, the valuation report appears to be flawed. If that is so, the sale of the entire property consisting of four floors should also be illegal. The respondent bank could only have sold two floors having a measurement of 120.91 sq.mtrs. Under the circumstances, the appellants have made a prima facie case for even setting aside the sale. The violation of Rules 8 and 9 of the Security Interest (Enforcement) Rules has been pointed out, but those arguments have been addressed by the Ld. Presiding Officer in the impugned judgment. I do not find prima facie there is any error in those findings.

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To entertain the appeal, the appellants will first have to comply with the mandatory provisions of making a pre-deposit under Sec. 18 (1) of the SARFAESI Act. Since the sale has taken place, the threshold amount for calculating the pre-deposit would be the amount of the debt due, inclusive of interest, as of the date. The Ld. Counsel appearing for the respondent bank points out that excluding the amount that has come up as sale consideration on auction sale, the outstanding dues would be around ₹25 lakhs, which is to be taken as the threshold amount for calculating the pre-deposit. The appellants have produced income tax returns. Income tax returns of the first appellant of the years 2020-2021 and 2023-2024 have been produced. The tax returns for the years 2021 & 2022 have not been produced

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whereas the income tax returns for all three years have been produced regarding the second appellant. The Ld. Counsel for the respondent bank vehemently argues that the account statement indicates that the appellants have paid the amount in cash for discharging their dues. The account statements from 2014 till date have been produced. The Ld. Counsel for the Respondent submits that the fact indicating payment of money in cash suggests that the appellants are not under any financial strain. It is pointed out that the income tax returns cannot be relied upon for the above reason.

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The income tax returns of both appellants would indicate that for the last three years, they were having income less than ₹5 lakhs which would not enable them to pay 50% of the debt due. The last payment of ₹2.50 lakhs was made only in February 2020 and therefore, it cannot be held that the income tax returns are defective. The financial situation of the appellants as of the date of filing of the appeal is what is to be considered. Because it is on the date of filing of the appeal that the appellants are to be called upon to make the pre-deposit and therefore, their financial condition for the years 2014 to 2018 is not of any relevance. Since the appellants have succeeded in establishing that they have a prima facie case, and since they have also succeeded in establishing that they are under financial strain, they are entitled to concessions in the matter of payment of pre-deposit. The appellants are, therefore, directed to deposit a sum of ₹10 lakhs as pre-deposit. The Ld. Counsel appearing for the appellants submits that a sum of ₹2.50 lakhs is being paid today by way of a demand draft. The balance of ₹7.50 lakhs shall be paid in two instalments within a gap of two

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weeks each as stated hereinunder.

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Number of Instalments	Payment on or before
1^stInstalment of₹3.00 lakhs	26.06.2024
2^ndInstalment of₹4.50 lakhs	10.07.2024

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Given the payment of ₹2.50 lakhs today, the handing over of possession of the secured asset to the auction purchaser shall stand deferred till the next date of hearing.

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Default in payment of any of the instalments/amount on time shall entail the dismissal of the appeal without any further reference to this Tribunal.

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The amount shall be deposited in the form of a Demand Draft/RTGS with the Registrar of this Tribunal.

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As and when the said amounts are deposited, they shall be invested in term deposits in the name of Registrar, DRAT, Mumbai, with any nationalised bank, initially for 13 months, and thereafter to be renewed periodically.

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With these observations, the I.A. is disposed of. The respondent is at liberty to file a reply in this appeal with an advance copy to the other side.

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Post on 27.06.2024 for reporting compliance regarding the payment of the first instalment.

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Chairperson

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mks-05.

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Ms Popular Luggage v. the Authorized Officer Indian Bank

Case brief

What is this about?

What did the court decide?

Ms Popular Luggage v. the Authorized Officer Indian Bank

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Statutes considered

Parties & counsel

Coram

Case details

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