Partly allowed

Union Bank of India v. M/s Jagityala Warehousing Pvt. Ltd.

DRAT16 Jan 2024REGULAR APPEAL/128/2023

Case brief

AI extract

What is this about?

The Tribunal partly allowed the bank's appeal challenging interest awarded to an auction purchaser. While upholding the liability to refund, the Court modified the interest rate from 9% to 7% per annum, directing the bank to pay within six weeks.

What did the court decide?

The impugned order was modified; the bank must refund the auction purchaser's deposit plus interest at 7% per annum simple within six weeks.

Union Bank of India versus M/s Jagityala… — Contract and Commercial Disputes | DRAT (2024)

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IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT KOLKATA

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(Appeal No. 128 of 2023)

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(Arising out of S.A. No. 251 of 2019 in DRT-I Hyderabad)

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THE HON’BLE MR. JUSTICE ANIL KUMAR SRIVASTAVA

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CHAIRPERSON

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Union Bank of India, erstwhile Andhra Bank, Zonal Office NRR Bhavan, Hanamkonda, Warangal District, PIN 506001 represented by its Authorised Officer.

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…Appellants

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-Versus-

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M/s Jagityala Warehousing Pvt. Ltd., Jagityala, Jagityala District, Rep by its Managing Director Mr. Rangineni Naveen Rao.

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Smt. Vardhineni Savithri, H. No. 2-33 Block No. 2, Nallabelly Village Wardhannapet Mandal, Warangal District.

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… Respondents

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With

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Counsel for the parties		Ms. Aparajita Rao, Learned Counsel, for the Appellant
		None for the Respondent.
JUDGMENT	: On	16^thJanuary, 2024

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THE APPELLATE TRIBUNAL :

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Instant Appeal has arisen against a judgment and order dated 22^nd May, 2023 passed by Learned DRT-1 Hyderabad in S.A. No. 251 of 2019 Smt. Vardhineni Savithri Vs Union

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Bank of India and others wherein S.A. application was allowed. Appellant Bank was directed to refund the entire bid amount deposited by the auction purchaser with interest at the rate of 9% p.a. simple from the date of deposit till the date of actual payment.

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2. As per pleadings of the parties facts of the case are that the Respondent No. 2 namely Smt. Vardhineni Savithri filed an application under Section 17 of the SARFAESI Act (hereinafter referred to as the Act) against Appellant Union Bank of India and Respondent No. 1 M/s Jagitayala Warehousing Pvt. Ltd. (auction purchaser). As per pleadings of the parties, SARFAESI applicant availed a loan of Rs.240.00 lacs from the Appellant Bank which was not regularly paid up. Accordingly, notice under Section 13(4) of the SARFAESI Act was issued on 27.09.2017. SARFAESI action was initiated by the Bank. Auction notice was issued on 30^th July, 2019 fixing the auction date as on 20.08.2019. Auction was conducted on 20^th August, 2019 wherein the Respondent No. 1 M/s Jagityala was the successful purchaser. Application under Section 17 of the SARFAESI Act was filed by the SARFAESI Applicant challenging the SARFAESI action initiated by the Bank and the auction sale. 3. Appellant Bank filed the written statement challenging the assertions made by the SARFAESI applicant. It is stated that all the actions were taken in accordance with law. Auction sale was conducted in accordance with Security Interest (Enforcement) Rules, 2002. The Respondent No. 1

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M/s Jagityala was the successful auction purchaser who deposited 25% of the bid amount on the date of auction i.e. on 20^th August, 2019. Sale was confirmed on 21^st August, 2019. Balance 75% amount was deposited on 18^th November, 2019. It is further submitted that SARFAESI applicant deposited the total amount towards discharge of loan. Accordingly, Bank prayed for passing appropriate orders in the SARFAESI application. Respondent No. 1 i.e. auction purchaser filed separate written statement wherein it is stated that he was the successful auction purchaser in the auction held on 20^th August, 2019 who had deposited 25% of the bid amount i.e. Rs. 45,10,000/- on 20^th August, 2019. Balance amount of Rs.1,35,00,000/- was deposited on 15^th November, 2019. Accordingly, SARFAESI Application is liable to be dismissed.

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4. Learned DRT framed the following issue for consideration:

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(i) Whether the Applicant has established that the auction of the schedule property conducted by the 1^st Respondent Bank on 20.08.2019 is not as per the procedure laid down under the SARFAESI Act and the Rules made thereunder and if so, whether the said action conducted by the 1^st Respondent Bank is liable to be set- aside?

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(ii) To what relief?

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5. Learned DRT arrived at a conclusion that there are deficiencies in the SARFAESI action initiated by the Bank.

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However, since the SARFAESI applicant had paid the entire amount to the Respondent Bank and the Bank duly accepted the same, hence, no cause of action survives and the SARFAESI application is liable to be allowed. However, since the auction purchaser had deposited the total bid amount in accordance with the auction conducted by the Bank, auction purchaser is entitled for interest at the rate of 9% simple from the date of deposit till the date of payment.

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6. Feeling aggrieved by the award of interest on the amount of deposit made by the auction purchaser, Appellant Bank preferred the Appeal. 7. Notices were issued to the Respondents in the Appeal which were duly served but none appeared on behalf of the Respondents to contest the Appeal. 8. I have heard the Learned Counsel for the Appellant and perused the record. 9. There are certain admitted facts in the Appeal. SARFAESI applicant filed the SARFAESI application under Section 17 of the SARFAESI Act against the secured creditor i.e. the Bank and the auction purchaser. 10. It is not in dispute that the SARFAESI applicant contested the SARFAESI application on various grounds for violation of the mandatory provisions of SARFAESI Act as well as Security Interest (Enforcement) Rules, 2002. It is also not in dispute that the Learned DRT arrived at the conclusion that there are deficiencies in the SARFAESI action initiated by the Bank. However, Learned DRT was

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persuaded by the fact that the SARFAESI applicant had paid the entire dues to the Bank and the Bank had accepted the same. The SARFAESI actions initiated by the Bank are liable to be set aside. However, since the auction purchaser had deposited the entire bid amount in accordance with law, hence, he is entitled to be compensated by way of interest at the rate of 9% simple on the amount deposited by him from the date of deposit till the date of actual payment.

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11. Learned Counsel for the Appellant would submit that the Learned DRT had exceeded its jurisdiction in awarding interest at the rate of 9% p.a. in favour of auction purchaser. It is further submitted that no reasons have been assigned for awarding the interest to the auction purchaser. The amount deposited by the auction purchaser was not kept by the Bank in any interest bearing account, rather, it was kept in the sundry account because SARFAESI application was pending. It is further submitted that the rate of interest in savings Bank account from 2022 to 2023 were ranging between 3% to 3.1%. Hence, the award of interest at the rate of 9% is excessive.

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12. I could not find any force made by the Learned Counsel for the Appellant. Admittedly, no cross appeal is filed by the auction purchaser or the SARFAESI applicant. Appeal filed by the Appellant Bank is also limited to the extent of award of interest in favour of the auction purchaser by the DRT. Hence, as far as all other findings recorded by the Learned

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DRT are concerned, since they are not under challenge and attained finality, hence, they are not being discussed. 13. As far as issue of award of interest is concerned, when the SARFAESI applicant deposited the amount with the Bank, an Application was filed by the Bank before the Learned DRT communicating this fact to the DRT. It is submitted that the Learned DRT should have disposed of the SARFAESI Application on that date. But the same was not done. Hence, the liability cannot be imposed upon the Bank for payment of interest.

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14. It is settled legal proposition of law that the state is liable for the acts or omission of its officers. Principles of Master and Servant liability would apply as has been held in State of Maharashtra Vs. Kanchanmal Vijaysing Shirke (1995) 2 SCC 659 that-

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“It is a rule that an employer, though guilty of no fault himself, is liable for the damage done by the fault or negligence of his servant acting in the course of his employment. In some case, it can be found that an employee was doing an authorized act in an unauthorized but not a prohibited way. The employer shall be liable for such act, because such employee was acting within the scope of his employment and in so acting did something negligent or wrongful. A master is liable even for acts which he has been so authorized.”

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15. It was further held by the Constitution Bench of the Hon’ble Apex Court in Kasturi Lal Ralia Ram Jain Versus State of Uttar Pradesh AIR 1965 SC 1039 in Para 26 and 27 that-

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“Reverting then to the decision of this Court in the case of State of Rajasthan it would be recalled that the negligent act which gave rise to the claim for damages against the State of Rajasthan in that case, was committed by the employee of the State of Rajasthan while he was driving the jeep car from the repair shop to the Collector’s residence, and the question which arose for decision was did the negligent act committed by the Government employee during the journey of the jeep car from the workshop to the Collector’s residence for the Collector’s use give rise to a valid claim for damages against the State of Rajasthan or not? With respect, we may point out that this aspect of the matter has not been clear or emphatically brought out in discussing the point of law which was decided by this Court in that case. But when we consider the principal facts on which the claim for damages was based, it is obvious that when the Government employee was driving the jeep car from the workshop to the Collector’s residence for the Collector’s use, he was employed on a task or an undertaking which cannot be said to be referable to, or ultimately based on, the delegation of sovereign or governmental powers of the State. In dealing with such cases, it must be borne in mind that when the State leads immunity against claims for damages resulting from injury caused by negligent acts of its servants, the area of employment referable to sovereign powers must be strictly determined. Before such a plea is upheld, the Court must always find that the impugned act was committed in the course of an undertaking or employment which is referable to the exercise of sovereign power, or to the exercise of delegated sovereign power; and in the case of the State of Rajasthan, this Court took the view that the negligent act in driving the jeep car from the workshop to the Collector’s bungalow for the Collector’s use could not claim such a status. In fact, the employment of a driver to drive the jeep car for the use of a Civil servant is itself an activity which is not connected in any manner with the sovereign power of the State at all. That is the basis on which the decision must be deemed to have been founded; aid it is this basis which is absent in the case before us. 27. It is not difficult to realize the significance and importance of making such a distinction particularly at the

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present time when, in pursuit of their welfare ideal; the Government of the States as well as the Government of India naturally and legitimately enter into may commercial and other undertakings and activities which have no relation with the traditional concept of governmental activities in which the exercise of sovereign power is involved. It is necessary to limit the area of these affairs of the State in relation to the exercise of sovereign power, so that if acts are committed by government employees in relation to other activities which may be conveniently described as non governmental or non-sovereign, citizens who have a cause of action for damages should not be precluded from making their claim against the State. That is the basis on which the area of the State immunity against such claims must be limited; and this is exactly what has been done by this Court in its decision in the case of State of Rajasthan.”

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16. Appellant Bank is an instrumentality of state under Article 12 of the Constitution of India. Bank would be responsible for the acts or omissions committed by its officers/ officials during the course of employment if they relate to their nature of employment. Bank cannot absolve itself from its liability to pay the interest merely by submitting that since Bank has moved an application before the DRT to the effect that matter has been settled with the borrower, hence, now Bank is not liable to make any payments to the auction purchaser.

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17. When dispute between the Bank and the borrower was settled by the borrower by depositing the entire amount due with the Bank, then obviously the Bank impliedly accepted the offer made by the borrower and a contract entered between the borrower and the Bank settling the dispute.

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Now we have to look into the rights of the auction purchaser who had deposited the amount in accordance with law? As soon as the dispute was settled between the borrower and the Bank it was the responsibility of the Bank or its Authorised officer to immediately refund the amount received from the auction purchaser as the sale certificate was not issued by the Bank. It will not make any difference as to whether Bank deposited the amount in some interest bearing account or sundry account because amount was lying with the Bank. It was the responsibility of the Bank to make payment of the interest earned by the auction purchaser on the deposits made by him with the Bank. Money cannot be kept in isolation. Rather, it needs circulation to maintain the economy of the nation. When the amount was lying with the Bank, definitely this amount would have been circulated by the Bank. 18. When the account was settled between the Bank and application was moved before the Learned DRT communicating the same, it does not absolve the Bank and its authorized Officer from their responsibilities to refund the amount deposited by the auction purchaser. If they have moved any application before the Learned DRT, then it was the duty of the Bank to press the same before the Learned DRT if the orders of the DRT were required for refund of the amount. Importantly, there was no restraint order from the DRT in the matter. Bank was at liberty to refund the amount deposited by the auction purchaser as

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soon as the matter was settled with the borrower. As has been held by the Hon’ble Apex Court in a catena of judgment Authorised officer owes a high degree of responsibilities under the SARFAESI Act. When the law provides ample powers to the authorized officer under the SARFAESI act to recover the dues, then a high degree of responsibility is also expected from the authorized officer in exercising its powers. Any deviation, negligence or callousness on the part of the Bank officers is not acceptable.

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19. When it was the duty of the Bank to refund the amount of the auction purchaser as soon as the matter was settled, then its officers were under an obligation to refund the amount failing which they are responsible for payment of the compensation in the form of interest to the auction purchaser. Auction purchaser had deposited the amount and he is entitled for the interest on the amount deposited by him. Although Bank would be at liberty to recover the same from its officers held responsible for the same after due enquiry, if the Bank so desires. It is within the jurisdiction of the competent authority of the Bank to initiate an appropriate enquiry and to recover the amount from the officer held responsible for the lapse. But in any case, Bank is liable to make payment of the interest to the auction purchaser.

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20. As far as rate of interest is concerned, Learned DRT has awarded interest at the rate of 9% p.a. simple on the

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amount deposited from the date of deposit till the date of actual realization. Learned Counsel for the Appellant Bank has placed reliance upon the date of rate of interest on savings Bank from 2022 to 2023. The rate of interest on the savings Bank would not be applicable in this case. It is a case wherein the auction purchaser would be entitled for exemplary interest. However, having considered the submissions I am of the view that the auction purchaser would be entitled for interest at the rate of 7 % simple per annum from the date of deposit till the date of actual payment from the Bank. Accordingly, Appeal is liable to be partly allowed.

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ORDER

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The appeal being Appeal No. 128 of 2023 is partly allowed. Impugned order and judgment of the Learned DRT-1 Hyderabad is modified to the extent that the auction purchaser is entitled for interest at the rate of 7% simple from the date of deposit till the date of actual payment. Amount shall be paid within a period of six weeks.

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No Order as to costs.

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File be consigned to Record Room.

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Copy of the order be supplied to Appellant and the Respondents and a copy be also forwarded to the concerned DRT.

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Registrar is directed to send a copy of the judgment to the Chief General Manager and Zonal Manager of the

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Appellant Bank at their appropriate addresses for information and necessary action.

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