Allowed

Maduri Sampath Kumar v. Union Bank of India (Andhra Bank)

DRAT3 Oct 2024REGULAR APPEAL/123/2023

Case brief

AI extract

What is this about?

The Debt Recovery Appellate Tribunal allowed the appeal filed by an auction purchaser against the DRT's order setting aside an auction sale. The Tribunal remanded the matter to the DRT for a fresh hearing because the bank's authorized officer failed to produce mandatory valuation and notice affixation documents during the trial, despite the bank possessing them.

What did the court decide?

The impugned judgment and order dated 05.09.2023 is set aside. The matter is remanded to the DRT-I Hyderabad for a fresh hearing after the parties are afforded an opportunity to place the missing docu

Maduri Sampath Kumar versus Union Bank of India (Andhra Bank) — Company and Corporate | DRAT (2024)

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Reportable / Non-reportable

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IN THE DEBT RECOVERY APPELLATE TRIBUNAL - KOLKATA HON'BLE Justice Anil Kumar Srivastava, Chairperson

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APPEAL 123 OF 2023

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(Arising out of S.A. No. 93 of 2022 – DRT-I Hyderabad)

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03.10.2024

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Maduri Sampath Kumar residing at H.No. 8-12-80, Pinnavari Street, PNB Lane, JPN Road, Warangal, 506002.

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... Appellant

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--Vs--

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UNION BANK OF INDIA (ANDHRA BANK) having office at Fathima Nagar, L. catholic, Warangal 506004.

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2.M/s. Chelpuru Brothers Cloth Stores office at H.No. 8- 10-16, Beside Ashok Electronic, JPN Road, Warangal, 506002

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3.Mr Chelpuru Harish Kumar residing at H.No. 15-7-48, Ramannapet, Warangal, 506002

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4.Mr Chelpuru Sashi Kiran, residing at H.No. 15-7-48. Ramannapet, Warangal, 506002

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... Respondents

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For Appellant : Mr. G.K.Deshpande, ld. Adv. on virtual mode Mr. S. B. Dasgupta ld. Adv.

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For Respondent: Ms. Aparajita Rao, ld. Adv. for bank

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Mr. V.Ravinder, ld. Adv. for resp. 2.

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The Appellate Tribunal

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Instant appeal has been preferred against the judgement

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and order dated 05.09.2023 passed by learned DRT-I Hyderabad

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in S.A. No. 93 of 2022 (M/s Chelpuru Brothers Cloth Stores &

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Ors. Vs. Andhra Bank, merged with Union Bank of India) whereby

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learned DRT allowed the S.A. and set aside the auction sale held

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on 22.01.2022 and consequential sale certificate dated 16.05.2022 issued in favour of the second respondent. Feeling aggrieved by the judgement and order, appellant herein, who is auction purchaser, preferred the appeal.

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As per pleadings of the parties, S.A. No. 93 of 2022 was filed by the SARFAESI applicants (hereinafter referred to as

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applicants) seeking relief for declaring the action of the bank in furtherance of classification of account as NPA as illegal. Further, relief is sought to declare the notice dated 02.11.2019 issued under Rules 8(6) and 9(1) of the Security Interest (Enforcement Rules, 2022 (hereinafter referred to as Rules) and auction held on 22.01.2020 as illegal.

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Respondent No.1 namely M/s. Cehlpuru Brothers Cloth

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Stores availed loan facility from the respondent no.1 Andhra

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Bank, subsequently merged in Union Bank of India. Equitable mortgage was created in favour of the bank. Repayment became irregular due to COVID 2019 pandemic. Notice u/s 13(2) of the SARFAESI ACT, 2022 (hereinafter referred to as Act) was issued

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by the bank on 01.08.2019 calling upon the borrower to pay an

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amount of Rs.1,18,90,082/-. Notice was served upon the

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applicants. SARFAESI applicants made a request for OTS.

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Request was not accepted by the bank.

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On 08.11.2019 notice dated 02.11.2019 for the auction of the scheduled properties to be held on 22.01.2020 was served. Applicants made a request for postponement of the same, but the request was not acceded to. Applicants intended to make

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payment to the bank, but could not arrange fund.

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Writ Petition No. 1134 of 2020 was filed before the Hon’ble

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High Court for the State of Telangana at Hyderabad. It was disposed of with liberty to the applicants to approach the DRT u/s

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17 of the Act with an interim order of stay for 30 days.

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S.A. was filed on the ground that notices under Rule 8(6)

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and 9(1) of the Rules are illegal and against the law. Account

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was wrongly classified as NPA as the applicants were prepared for One Time Settlement. Applicants are not wilful defaulters. Proposed auction is against the law. If time is granted, appellants can make the payment. Accordingly, S.A. was filed by the applicants.

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Main grounds in the S.A. that there is violation of Rule 8(6)

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and 9(1) of the Rules and loan account was wrongly classified as

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NPA. In case sufficient time would have been granted, payment

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could have been made by the applicants. Details of valuation report was not furnished. Reserved price was not fixed on the basis of valuation report. There is violation of Rule 8(5) of the Rules. Sale notice was not affixed on conspicuous part of the secured asset. There is violation of Rule 8(7) of the Rules.

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Opposition is filed by the respondent before the learned DRT stating that applicants represented through its Managing Partners availed OCC loan of Rs.80.00 lakhs and Term Loan of Rs.40.00 lakhs by creating equitable mortgage of secured asset. Repayment of loan became irregular. Loan account became NPA on 22.06.2019. Demand notice was issued on 01.08.2019. Possession notice was issued on 15.10.2019 and it was published in two leading newspapers. First sale notice dated 17.12.2019 was issued fixing sale date on 22.01.2020.

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Writ Petition No. 1134 of 2020 was filed before the Hon’ble High Court for the State of Telangana challenging the sale notice dated 17.12.2019 wherein Hon’ble High Court granted stay of

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confirmation of sale proposed to be held on 22.01.2020 subject to

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the petitioner depositing 25% of the amount mentioned in the

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sale notice within four weeks from the date of order, which was

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not complied rather applicants mislead the Hon’ble Court that they have deposited the amount. Further, writ petition was disposed of on 21.03.2022 with liberty to the applicant to approach the DRT u/s 17 of the Act.

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S.A. 93 of 2022 was filed by the applicants by making false

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representation that they have deposited 25% of the reserve price. After perusing the order of the Hon’ble High Court in writ petition no. 1134 of 2020, learned DRT passed an order of interim

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stay of all further proceeding including registration of sale certificate. However, auction sale was confirmed by the bank in favour of the auction purchaser and sale certificate was issued in

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favour of the auction purchaser on 16.05.2022.

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Respondent no.2 in S.A., auction purchaser, did not file any reply before the learned DRT.

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At this stage it would be appropriate to mention that another

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S.A. No. 276 of 2022 was filed by the applicants challenging the

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order passed u/s 14 of the Act, which was dismissed by the

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learned DRT. This order is not challenged by either of the

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parties.

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Learned DRT framed following two issued for determination :

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(i) Whether the applicants have established any valid grounds for setting aside the auction sale of the application schedule property by the 1^st respondent bank on 22.01.2022 pursuant to the sale notice dated 17.12.2019 which is under challenge in S.A. 93 of 2022?

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(ii) Whether the applicants have established any valid grounds for setting aside the action of the 1^st respondent bank to take physical possession of the application schedule property in pursuant of the order dated 18.10.2022, passed by the learned CJM, Warangal in Crl.M.P.No. 20 of 2022, which is under challenge in S.A. No. 176 of 2022?

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(iii) To what relief ?

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As far as issue no.1 is concerned, learned DRT recorded a

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finding that undisputedly applicants are borrower and guarantor of the secured creditor. This is also not in dispute that secured interest was created by depositing title deed as equitable mortgage. Regular payment of instalments not made by the

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applicants. Accordingly, learned DRT recorded a finding that there is no illegality in classification of loan account as NPA.

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Another finding is recorded by the learned DRT that

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possession notice dated 15.10.2019 was duly served upon the applicants. There is no violation of Rule 8(1) of the Rules.

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Newspaper publication of the possession notice was made in two

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leading newspapers on 15.10.2019. Accordingly, Rule 8(2) of the

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Rules was duly complied with.

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As far as service of notice under Rule 8(6) is concerned

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learned DRT arrived at a conclusion that notice dated 02.11.2019 was duly served upon the applicants.

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Learned DRT arrived at a finding that secured creditor bank has not filed property valuation report showing details of inspection of the property conducted by the Valuer and its corresponding details. Accordingly, learned DRT arrived at a finding that there is violation of Rule 8(5) of the Rules.

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Further, it is held that the secured creditor could not affix

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the sale notice on the conspicuous part of the secured asset. Accordingly, provision of Rule 9(7) of the Rules was violated.

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On the basis of these two grounds learned DRT allowed the

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S.A. 93 of 2022 by setting aside the auction sale and consequently sale certificate dated 16.05.2022 issued in favour of the auction purchaser.

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Feeling aggrieved by the finding auction purchaser preferred

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the appeal. However, no appeal is filed by the secured creditor bank.

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I have heard learned counsel for the parties and perused the

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records.

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I have also perused the records of DRT which are summoned

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by this Appellate Tribunal to ascertain as to whether any valuation report was filed by the secured creditor before the learned DRT or not?

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Perusal of the record of learned DRT reveals that secured

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creditor has placed reliance upon a letter, which reads as under :

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Date : 15.10.2019.

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To The Branch Manager, Andhra Bank, Fathima Nagar Branch, Kazipet, Warangal Urban Dist. Respected Sir, Sub : For the Fee Payment of Revaluation report – reg. I am hereby submitting Revaluation report of the property. The property details given below with Fee details.

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Existing building bearing Mpl. H. NO.8-10-16, Beside Ashok Electricals, J.P.N. Road, Warangal Urban City & Dist. Belongs to 1) Sri Chelpuru Harish S/o, Sri Hem Kumar

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1. Sri Celpuru Shashikiran S/o Sri Anand

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Rs. 1,07,80,000.00 Value Rs. 5,000.00 Fee.

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Kindly pay my fee Rs.5,000/- credit in my SB A/c. No. 020610100093016 of Hanamlonda Main Brnach. Thanking you,

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Yours faithfully, Sd/ (Jogu Umapathi)

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This letter was annexed with the affidavit of one Banoth

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Nanu, Chief Manager and Authorised Officer of the respondent

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bank on 17.06.2022 which is in the form of reply filed by the

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respondent. Except this letter no other document was filed by

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the secured creditor bank to prove compliance of Rule 8(5) of the

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Rules. Rule 8(5) of the Rules reads as under :

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“8(5)Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, 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 and may sell the whole or any part of such immovable secured asset by any of the following methods:- (a)by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or

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(b)by inviting tenders from the public;

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(c)by holding public auction including through e-auction mode; or

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(d)by private treaty.”

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Bare reading of the sub-rule reflects that it is a mandatory

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provision which provides that authorised officer is bound to obtain

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a valuation of the property from the approved Valuer and to fix

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reserve price of the property.

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Pending appeal, appellant herein, the auction purchaser,

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sought leave of this Appellate Tribunal to file additional evidence by filing I.A. 263 of 2024 wherein it is stated that the valuation report was duly obtained by the secured creditor on 15.10.2019 from Mr. Jogu Umapathi, Valuer, wherein market value shown as Rs.1,07,80,000/-; Realizable sale value shown as Rs.97,02,000/and Distress value shown as Rs.86,24,000/-. Copy of the

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valuation report was obtained by the appellant from the bank. In

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the reply/opposition filed by the bank against the I.A. 263 of

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2024 it is admitted that valuation of the secured asset was made

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by the said Valuer on 15.10.2019 and reserve price was fixed

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according to the valuation report as Rs.97.02 Lakh.

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In I.A. 263 of 2024 appellant annexed documents to show

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the letter inviting for inspection of the secured asset by the valuer, which too is not denied by the bank.

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It is typical case wherein auction sale conducted by the

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secured creditor was set aside by the learned DRT on two counts

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– (i) violation of Rule 8(5) of the Rules and (ii) violation of Rule 8(7) of the Rules. Appellant auction purchaser deposited the documents in accordance with law. She was not at fault at any

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point of time.

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Secured creditor Bank has not challenged the finding that

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valuation report was not obtained from the approved valuer and

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sale notice was not affixed on the conspicuous part of the secured asset. Bank did not challenge the judgement and order passed by the learned DRT. Further, auction purchaser has challenged

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the judgement passed by the DRT by filing copies of the documents which were obtained by the bank after following due procedure of law. Learned DRT passed the impugned judgement

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for want of material documents which were not brought on

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record. Secured creditor bank has not filed the same before the

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learned DRT. There cannot be two opinions to come to a finding

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that these documents were not placed before the learned DRT by the bank pending disposal of the S.A. When the documents were

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in possession of the authorised officer of the bank then what prevented him to bring those documents on record before the learned DRT? Why those documents were not filed by the authorised officer before the learned DRT? Authorised officer cannot act against the law. Wide powers have been given to the authorised officer under SARFAESI Act, but at the same time heavy duty has been cast upon him by the statute to comply the provisions of the law in its true spirit. Whether the authorised officer intentionally or malafidely did not produce the documents

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is to be determined after inquiring into the matter? Authorised Officer cannot be left scot-free. He has to face the consequences. In such circumstances, it is duly recommended to the competent authority of the Union Bank of India to hold an inquiry to ascertain as to why the documents relating to the valuation

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report submitted by the approved Valuer as well as documents

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relating to affixation of notice under Rule 8(6) of the rules on conspicuous part of the secured asset were not produced by the

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authorised officer before the learned DRT? It is expected that competent authority to hold detail inquiry in accordance with law and should also pass appropriate order with an intimation to this Appellate Tribunal. It is expected that the competent authority of

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the Bank should fix the responsibility for the lapse and take appropriate disciplinary action in accordance with law. It is more

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so important when huge amount is involved in the matter. Bank is required to again contest the matter before the DRT. Bank has to incur expenses on litigation. Since the matter is being remanded due to the wilful default of the authorised officer, Bank is directed to assess the loss incurred by the bank and should take appropriate steps for recovering the same from the Authorised Officer. Needless to mention that opportunity of hearing should be accorded to the authorised officer in the proceedings by the competent officer.

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As far as merits of the matter are concerned, since the valuation report as well as documents relating to affixation of

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notice u/r 8(7) of the Rules on the conspicuous part of the

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secured asset were not before the learned DRT, S.A. was allowed

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on these two counts. These two documents are filed by the

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appellant auction purchaser. Now it is to be looked into by the learned DRT as to whether compliance of Rule 8(5) and 8(7) were duly made by the secured creditor or not? Thereafter learned

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DRT should decide the matter afresh.

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On the basis of the discussion made above, I am of the

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considered opinion that the matter is to be re-heard and decide

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again by the learned DRT after considering the documents placed

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by the auction purchaser on record, that is, valuation report as

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well as material containing affixation of the sale notice on the conspicuous part of the secured asset. Learned DRT should decide the matter afresh after affording opportunity of hearing to

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the parties. Appeal deserves to be allowed and matter is liable to

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be remanded back to learned DRT for hearing afresh.

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ORDER

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Appeal is allowed. Judgement and order dated 05.09.2023

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is set aside. Matter is remanded back to learned DRT to decide

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afresh on the observation made in the body of the judgement in

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accordance with law. Opportunity of hearing should be accorded

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to the parties. Parties would be at liberty to place the matter

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before the learned DRT on 06.11.2024.

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Let a copy of the judgement be forwarded to the Chief

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General Manager of the respondent bank for necessary action as

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per direction made in the body of the judgement.

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File be consigned to record room.

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Copy of the order be supplied to the appellant and the respondents and a copy be also forwarded to the concerned DRT.

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Copy of the judgement/Final Order be uploaded in the Tribunal’s website.

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Order dictated, signed and pronounced by me in the open Court on this the 3. 10. 2024.

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(Anil Kumar Srivastava, J) Chairperson

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Dated : 03.10.2024 /pkb

Maduri Sampath Kumar v. Union Bank of India (Andhra Bank)

Case brief

What is this about?

What did the court decide?

Maduri Sampath Kumar v. Union Bank of India (Andhra Bank)

Case brief

What is this about?

What did the court decide?

What the court decided

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Issues for consideration

Statutes considered

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