Appeal against DRT order upholding bank's recovery measures under SARFAESI Act. Tribunal allowed bank to sell resort assets as a whole, rejected claim for separate reserve prices per item, and confirmed auction sale to auction purchaser.
Appeal dismissed; bank measures confirmed; auction purchaser entitled to possession.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
RA (SA) 49/2023
IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT CHENNAI
Dated the 12th of June 2024
PRESENT: Hon’ble Mr. Justice S. Ravi Kumar
CHAIRPERSON
RA (SA) 49/2023
(SA 530/2022 on the file of DRT-II, Ernakulam)
Between
Mr. Prashanth Vasudevan,
VP II/326bm, Vayalar, Chertala, Alappuzha
Kerala – 688 536.
Noida, Uttar Pradesh – 201 303.
…… Appellants
Vs.
State Bank of India, Stressed Assets Management Branch, 1127, Raja Plaza, Avinashi Road, Coimbatore – 641 037.
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. ……Respondents
Counsel for Appellants. : Mr. Praveen K. Joy for M/s. Joy & Joy Associates Counsel for R1 and R2 Bank : M/s. M. L. Ganesh Counsel for R3 : Learned Sr. Counsel Mr. P.L. Narayanan for M/s. E. Hariharan
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O R D E R
1. This Appeal is against Order dated 07.07.2023 of DRT-
2. Brief facts leading to this Appeal are as follows:-
Appellants herein filed SA 530/2022 challenging the measures initiated by first Respondent under the provisions of SARFAESI Act, 2002, and to declare them as void, illegal
and unenforceable, contending that first Appellant is incorporated as a Private Limited Company under the provisions of Companies Act, 1956, and running a Five Star Resort at Cherthala in Alappuzha District, Kerala State, under the name and style “Vasundhara Resorts” and commenced its operations in the year 2012; contending further that Appellants approached State Bank of Travancore for financial assistance which subsequently merged with State Bank of India; first Respondent classified
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the loan account as Non-Performing Asset (NPA) in the year 2013 and issued Demand Notice under Section 13(2) of SARFAESI Act, 2002, on 12.02.2018 demanding a sum of Rs.55,02,30,564/-; Appellants submitted their Objection under Section 13 (3A) of SARFAESI Act, 2002, and in view of Objection, Bank recalled Demand Notice dated 12.02.2018, but again issued II Demand Notice on 18.08.2020 demanding a sum of Rs.72,13,29,826.37p; Bank has withdrawn that Notice also on Representation of Appellants and issued III Demand Notice on 07.12.2021 demanding a sum of Rs.82,76,71,281.45p; Appellants raised Objection to said Notice under Section 13 (3A) of SARFAESI Act, 2002, through Representation dated 10.02.2022; On receiving such Representation, Bank issued a Reply dated 21.02.2022; Thereafter, Bank initiated measures under Section 13(4) of SARFAESI Act, 2002, and took symbolic possession of secured asset, on 06.07.2022;
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Appellants herein filed Securitisation Application
challenging the measures under Section 13(4) of SARFAESI Act, 2002, contending, that Bank violated mandatory provisions of Section 13 (3A) of SARFAESI Act, 2002, and issued Possession Notice without following procedures and Rules made under SARAFESI Act, 2002; During pendency of Securitisation Application, Bank published Sale Notice dated 15.09.2022 for E-auction of item Nos. 1 to 6 of property No.1 in Part-II, described in Demand Notice; Sale did not fructify, therefore, Bank issued fresh Sale Notice on 29.10.2022, simultaneously, Bank filed Petition before Chief Judicial Magistrate (CJM)| Alappuzha, seeking assistance to take physical possession of secured assets; and Advocate Commissioner issued Notice to Applicants for taking physical possession of secured assets and Applicants amended the SA including those measures taken under Section 14 of SARFAESI Act, 2002; Applicants also amended the SA challenging the Sale Notice contending that there was no publication, no proper affixture and valuation taken by Bank is not in accordance with Rules;
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Appellants also contended that no separate or individual reserve price is fixed for each item, which vitiates the entire Sale proceedings; Appellants also challenged Sale confirmation issued in favour of successful bidder, who is also impleaded as third Respondent to SA, for proper adjudication and prayed for setting aside the measures.
Bank resisted the Application contending that there is no illegality in classifying loans as NPA; Bank issued Demand Notice as required under the Act and Rules made there under; thereafter issued Possession Notice and Sale Notice; in pursuance of Sale Notice dated 29.10.2022, Sale was conducted on 30.11.2022 in respect of properties in item Nos. 1 to 6, and valuation for six items was done as per Report of the approved Valuer and reserve price was fixed at Rs.42.30 Crores; third Respondent became successful bidder for a sum of Rs.42.31 Crores and deposited entire bid amount within time; Bank contended that there is no illegality in approaching CJM under Section 14 of SARFAESI
Act, 2002; Bank contended that selling the property at
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Rs.42.31 Crores, cannot be treated as illegal, particularly, in view of Letter of Appellants dated 22.11.2022, who agreed to settle the claim for Rs.40.50 Crores. Bank contended that more than Rs.90 Crores is outstanding and present SA is nothing but to cause delay for recovery measures and prayed for dismissal of SA.
Auction Purchaser supported the contention of Bank, and further contended that, it is a bonafide purchaser and deposited entire bid amount of Rs.42.31 Crores, but it is deprived of enjoying the property; it further contended that there is no illegality in conducting the Sale, and SA has to be dismissed and Auction Purchaser has to be put in possession of property purchased in auction.
On a consideration of contentions and rival contentions
of both parties, Tribunal below framed as many as five points and held all the five points against Appellants; aggrieved by which, present Appeal is preferred.
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3. Heard Advocate for Appellants, Advocate for Bank and
Learned Senior Advocate for Auction Purchaser.
4. After conclusion of arguments, matter is posted for orders to 08.05.2024. As Appellants filed a Memo into Office on 03.05.2024, along with Order of Hon’ble High Court of
Kerala in Writ Appeal No.489/2024, without disposing of the matter, case is adjourned for Orders to this date, directing parties to file their Written Submissions, if any, before 03.06.2024. Accordingly, Advocate for Appellants and Advocate for Auction Purchaser filed their Written Submissions, whereas, Advocate for Bank filed Reply Memo to the Memo filed by Appellants.
5. Originally, the Securitisation Application (SA) is filed challenging Possession Notice dated 06.07.2022, but
subsequently, SA is amended claiming further reliefs, such as, to set aside Sale Notices dated 15.09.2022 and
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29.10.2022; to set aside Resolution dated 08.10.2022; to set
aside Notice dated 28.11.2022 of Advocate Commissioner issued as per Orders of MC No.716/2022 of CJM, Allapuzha and set aside Sale Confirmation Advice dated 26.12.2022. Appellants contended that secured asset is an agricultural property thereby exempted under the provisions of Section 31 (i) of SARFAESI Act, 2002. This contention is resisted by
Bank stating that secured asset is a property used as Resort, and there may be some coconut and other trees in the Resort, but it is not used for agricultural purpose and it is used for commercial purpose. This objection of Bank is upheld by Tribunal below, and recorded a finding that, it is not an agricultural property. Though that finding was also challenged in this Appeal, nothing seriously argued on behalf of Appellants in respect of this plea. Tribunal below, on a consideration of Judgements of Hon’ble Supreme Court, recorded a specific finding that burden is on the Appellants to establish that at the time of availing loan, secured asset was used for agricultural purpose, and it was
the only source of income for Appellants. Tribunal below
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recorded, as Appellants failed to place any evidence to show that secured asset was used for agricultural purpose at the time of creating security interest and that income for Appellants was the only source of agriculture. I do not find any wrong in the findings of Tribunal below, particularly, when Appellants failed to place any material before DRT to substantiate that secured asset was used for agricultural purpose at the time of creating security interest. Therefore, contention of Appellants regarding Section 31 (i) of SARFAESI Act, 2002, is not tenable.
6. Other contention of Appellants is that classification of loan account as Non-Performing Asset (NPA) is not in accordance with Reserve Bank of India (RBI) guidelines. In fact, this objection is also raised before Tribunal below, and Tribunal below under point No.(i) has dealt with this aspect. According to Appellants, their account was classified as NPA on 26.09.2013, but Appellants executed fresh loan documents thereafter, therefore, loan was restructured,
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hence, Bank cannot proceed and avail provisions of SARFAESI Act, 2002. Advocate for Bank resisted this objection contending that classification of account as NPA is completely in accordance with Master Circular of RBI. He submitted that Regulation No. 17.1 of Master Circular of RBI, clarifies this aspect. Tribunal below, on a consideration of Master Circular of RBI, overruled objection of Appellants herein, and I do not find wrong in the findings of Tribunal below in respect of this aspect.
7. Next contention of Appellants is that Possession Notice dated 08.07.2022 is not in conformity with Security Interest (Enforcement) Rules, 2002 (herein after called Enforcement Rules). According to Appellants, there was no paper publication in two leading newspapers at the time of taking possession. Appellants also contended that there is no affixture of Possession Notice on the conspicuous part of property. This objection is resisted by Bank contending that they have published Possession Notice in two leading
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newspapers as required under Rule 8(2) of Enforcement Rules, 2002. Bank also contended that affixture was also done as required under Rules. To support its contention, Bank produced documents which are referred as Annexure B1 to B12 before DRT, and on an examination of these documents, Tribunal below held that, Bank followed SARFAESI Rules both for publication and affixture. No material is placed before this Tribunal to differ with findings of Tribunal below with regard to following Rule 8(2) of Enforcement Rules.
8. Now the next line of argument of Appellants is regarding Sale held on 30.11.2022. Advocate for Appellants raised many objections with regard to Sale dated 30.11.2022, which are duly resisted both by Advocate for Bank and Learned Senior Advocate for Auction Purchaser. I shall deal with those points one by one.
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9 (i) First point urged on behalf of Appellants is that there are six items of properties in the Sale Notice, but, for all items, only a single reserve price is indicated, and Bank is expected to notify reserve price for each item, thereby, it has not followed the Enforcement Rules, 2002. It is also the contention of Appellants that a separate procedure is contemplated for Sale of movables, but in the Sale Notice, Bank described as Sale of movable and immovable properties, which is also a violation of Enforcement Rules, 2002. Advocate for Appellants submitted, Rule 6 of Enforcement Rules, 2002, contemplates Sale of movable secured assets, whereas, Rule 8 of Enforcement Rules, 2002, contemplates Sale of immovable secured assets.
9 (ii) In reply to this, it is the argument of Advocate for Bank that Securitisation Rules independently deals with, set of Rules, for movable and immovable properties, and only when movables are separately sold, procedure contemplated under Rule 6 of Enforcement Rules, 2002, has to be followed. He submitted, here, the movables are part of the
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Resort, and they cannot be separated. He submitted that immovable property has to be treated along with movables, because they are only accessories for running the Resort, and no buyer will come forward to purchase them separately. He further submitted, in Sale Notice itself, it is clearly indicated that Sale for both movables and immovable property. He further submitted that no specific pleading is taken in the Securitisation Application regarding Sale of movables and immovable property together, in amended portion. It is submitted, only objection taken in the pleadings is that, there is no separate reserve price for six items of properties, and a single reserve price for all six items is not permissible.
9 (iii) Learned Senior Advocate for Auction Purchaser, while
adopting the arguments of Bank’s Advocate, contended that, Respondent No.3 is a bonafide purchaser, and only after verifying the details indicated in Sale Notice, it quoted the bid amount.
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9 (iv). I have perused the amended portion of Securitisation Application. In paras 28 and 29 of amended Securitisation Application, what is pleaded is, mentioning of separate reserve price for each item is mandatory, and as Bank did not give separate reserve price, that defect is non-curable, and on that ground, the process namely Sale Notice is to be set aside. Now, it may be relevant to examine Rule 8 of Enforcement Rules, 2002, which deals with Sale of immovable secured assets. According to this Rule, when an immovable property is put to Sale, before effecting Sale, the Authorised Officer shall obtain valuation of property from an approved Valuer and then fix the reserve price of property. It is also contemplated that Authorised Officer may sell the whole or any part of such immovable property. There is no mention in Rule 8 (5) of Enforcement Rules, 2002, about fixing of reserve price for each item. Only option given to Authorised Officer is either to sell the property in whole or any part of the property. As rightly pointed out by Advocate for Bank, if Authorised Officer is proceeding with Sale of any part of property, then, it is mandatory to fix reserve price to
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that part of the property. Here, admittedly, the property put
to Sale is a running Resort, consisting of six items of property which cannot be separated. Further, this option to put whole or any part of property for Sale, is only to see that, only required property to put for Sale to realize outstanding. For example, if outstanding of Secured Creditor, is Rs.1 Crore, and total value of six items of property, is Rs.10 Crore, there is no need to sell the whole property, and Authorised Officer has to go for Sale of any part of property, which would be sufficient for realization of outstanding. But, here in this case, as seen from record, the reserve price for all six items is Rs.42.30 Crores, whereas, outstanding as
per Section 13(2) Notice dated 07.12.2021, is Rs.82,76,71,181.45p. So, even all six items of property are put to Sale, it is not meeting the outstanding due from Appellants-Borrowers. Therefore, when a property put to Sale is a Resort attached with movables, which are part and parcel of immovable property, selling them separately, is definitely not practicable.
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9 (v). Advocate for Appellants referred to the Judgement of
Hon’ble High Court of Telangana in the case of M/s. Alpine
Pharmaceuticals Pvt. Ltd. and Anr. Vs. Andhra Bank and Ors. , in Writ Petition No. 13936/2019 dated 24.01.2020, for his proposition that Rules 6 and 8 of Enforcement Rules, 2002, cannot be clubbed, but that decision cannot be applied here, because, here the movables referred to by Advocate for Appellants, are all part and parcel of Resort and only accessories for running the Resort, and they cannot be treated separately. Therefore, objection of Appellants with regard to clubbing of movables and immovable property in one Sale, cannot be sustained. Further, as rightly pointed out by Advocate for Bank, no such pleadings is taken in the amended SA, and only objection is with regard to separate reserve price for each item. As already referred to above, Rule does not mandate such separate reserve price for each item, and it only refers obtaining valuation and fixing reserve price for property put to Sale. It only gives discretion
to Authorised Officer whether to put whole property for Sale
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or any part of the property, therefore, objection of Appellants, is not tenable.
10. In amended prayer, Appellants sought for setting aside Sale Notice dated 15.09.2022 and Sale Notice dated 29.10.2022. Admittedly, no Sale took place in pursuance of Sale Notice dated 15.09.2022, and only Sale Notice dated 29.10.2022 is acted upon. Appellants sought prayer to set aside these Notices only on the ground that these two Notices do not reflect separate reserve price for each item. As already referred to above, such an objection is not tenable; therefore, request of setting aside these Notices is rightly refused by Tribunal below.
11. Next contention of Appellants is that Bank has produced two Sale Certificates; one for movables and another for immovable property, and without conducting a separate Sale, issuing such Sale Certificates, is not contemplated. Advocate for Bank submitted, property was
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put to auction as a whole, and even the bid amount was for both movables and immovable property is the same, but, at the time of registration of Sale Certificate, an objection was taken with regard to collection of GST on movables, which made the Bank to split into two Sale Certificates. He further submitted, no such plea is taken in the Securitisation Application, therefore, there was no opportunity to Bank to explain the situation. He further submitted, there is no bar for issuing two Sale Certificates. Learned Senior Counsel for Auction Purchaser submitted that the argument that there cannot be two Sale Certificates is incorrect, and that law permits more than one Sale Certificate. To support his arguments, he referred to the Judgement of Hon’ble High Court of Andhra Pradesh in the case of A. Sriinivasa Rao &
Anr. Vs. State of AP and four Ors., reported in 2020 APHC 32592, wherein it is held that law permits issue of more than one Sale Certificate. I have perused the pleadings of Securitisation Application. As rightly pointed out by Advocate for Bank, there is no such objection taken in the Securitisation Application and it is only raised during the
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course of arguments, that too, at appellate stage. As already referred to above, Sale Notice was for both movables and immovable property and reserve price was fixed as a whole,
because it is a running Resort. Explanation of Bank for splitting into two Sale Certificates is quite convincing because, for taxation purpose, movables and immovable property was shown separately in the form of Sale Certificate. Further, from the additional documents produced here, it is clear that even a separate valuation is obtained for movables; therefore, objection of Appellants on this aspect is also not tenable.
12. Next point urged on behalf of Appellants is that as per Sale Notice, reserve price is Rs.42.30 Crores, but money shown in the Sale Certificate is Rs.39.91 Crores, therefore, it is contrary to Enforcement Rules, 2002. He submitted, no
Sale shall be confirmed if the amount offered by Sale is less than the reserve price. In reply to this argument, Advocate for Bank submitted, amount indicated in the Sale Certificate
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is after deducting the tax amount, but the bid amount is Rs.42.31 Crores, therefore, it is not below the reserve price. He further submitted that this aspect is also not pleaded in the Securitisation Application, therefore, there was no opportunity to the Bank to give any explanation for the discrepancies. Learned Senior Advocate for Auction Purchaser submitted that, Respondent No.3, bid the property for Rs.42.31 Crores and entire amount is paid to Authorised Officer within time, and only after payment, necessary Sale Certificates are issued. He further submitted that though such a huge amount is parted with, because of litigation, Auction Purchaser is not put in possession. As seen from records, bid amount is Rs.42.31 Crores, and same is paid by Auction Purchaser. As seen from records, when registration authority raised objection for registration of Sale Certificate, Bank and Auction Purchaser even approached Hon’ble High Court for a direction. When record shows that Auction Purchaser paid Rs.42.31 Crores, objection of Appellants that the same is below reserve price, cannot be accepted, because reserve price is Rs.42.30 Crores. Further,
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as rightly pointed out by Bank, no such pleadings or objection is taken in the Securitisation Application and any amount of argument without pleadings and evidence, is of no use. Had the Appellants raised objections in the Securitisation Application, Bank would have got an opportunity for explaining the same, then, objection and explanation can be assessed, on the basis of material evidence. But, when there is no such pleading, advancing argument and praying for setting aside the Sale, on that ground, is not permissible. Further, as seen from the amended prayer, there is no request from Appellants to set aside the Sale and their prayer is only to set aside Sale Notices dated 15.09.2022 and 29.10.2022, which aspect is already dealt with in the earlier paras. So, this objection of Appellants is also not tenable.
13. One of the contention of Appellants is that in view of Order of Division Bench of Hon’ble High Court of Kerala, in Writ Appeal No.489/2024, Notices of Section 13(2), 13(4) and proceedings under Section 14 of SARFAESI Act, 2002
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are declared as illegal, therefore, the proceedings initiated in pursuance of said Notices cannot be sustained. According to Bank, Order in Writ Appeal is to an extent of 2.02 Acres belonging to Vayalar Grama Panchayat, has been excluded from the proceedings, for which, both Bank and Auction Purchaser have agreed, therefore, the contention of Appellants is not correct. According to Bank, Appellants cannot take any undue advantage of said aspect and even
the Sale Certificate is issued excluding that 2.02 Acres, therefore, the Order of Division Bench is no way helpful to Appellants. I completely agree with the contention of Bank, because the Division Bench Order only clarifies apprehension of Panchayat, as 2.02 Acres is not excluded from Section 13(2), Section 13(4) and Section 14 proceedings, it may result prejudice to them, considering the same, Division Bench declared that 2.02 Acres has been excluded from all proceedings initiated under SARFAESI Act, 2002.
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14. One of the contentions of Advocate for Appellants is
that the property is sold for a very low price, and on that ground also, Sale dated 30.11.2022 has to be set aside. In reply to this, Advocate for Bank and Learned Senior Advocate for Auction Purchaser submitted that even according to Appellants, certain areas of Resort property is under CRZ purview and Appellants received Notices from local authorities, and for that reason, previous investor has backed out, and that Appellant got a new investor for the proposed amount of Rs.35 Crores, which clarifies and even according to Appellants, the value of property is only Rs.35 Crores, but the bid amount is for Rs.42.31 Crores. In support of their arguments, both Advocate for Bank and Learned Senior Advocate for Auction Purchaser referred to Letter dated 22.11.2022 of Appellants, which is in Annexure A30 in the lower court. Both have drawn my attention to Letter dated 22.11.2022, and on a perusal of said Letter, it is clear that Appellants addressed DGM of Bank stating that it is the second proposal for settlement wherein it is referred
that a new investor proposed for Rs.35 Crores and requested
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Bank to consider the same. So, from this Letter, it is very
clear that, even as per Appellants’ valuation, this property is worth of Rs.35 Crores. So, the contention of Appellants that the property was sold for lesser price, cannot be accepted, particularly, when the bid amount is Rs.42.31 Crores, which is Rs.7.31 Crores more than the amount indicated by Appellants in its Letter dated 22.11.2022.
15. Next prayer of Appellants is to set aside Annexure No.26. As seen from record, Annexure 26 is a Resolution dated 08.10.2022 at the meeting of Board of Directors of Appellant Company, but under Securitisation Application, such a relief is not provided. This Resolution is an internal aspect of Appellant Company, and such a relief is not permissible.
16. Next relief claimed is to set aside Annexure 28. This Annexure 28, is a copy of Notice issued by Advocate Commissioner in pursuance of Orders in MC No.716/2022.
Section 17 of SARFAESI Act, 2002, provides remedy to the
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aggrieved party, to challenge the measures. Issuance of Notice by Advocate Commissioner in pursuance of Orders of CJM, is not a ‘measure’ attracting Section 17 of SARFAESI Act, 2002. As seen from pleadings, according to Appellants, this Notice of Advocate Commissioner, is illegal. It is not explained as to how it is illegal. Only point raised is when entire procedure is challenged and pending adjudication, issuing such Notice is not legal, but that objection is not tenable, and contention of Appellants that this Notice is illegal, arbitrary and against law, cannot be accepted at any stretch of imagination.
17. Last prayer of Appellants is to set aside Annexure 31. As seen from records, Annexure 31 is a Sale Confirmation Advice dated 26.12.2022, addressed to Auction Purchaser, that is, Respondent No.3 herein, requesting Auction Purchaser to remit the balance amount within 15 days from the date of said Letter, that is, on or before 10.01.2023. According to pleadings in the Securitisation Application, issue of such Sale Confirmation Advice is illegal when SA is
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pending, but that contention of Appellants is not tenable; simply because SA is pending adjudication, further process cannot be stalled. Only if SA is allowed, then, all the process, including this Sale Confirmation Advice, would automatically be set aside, and therefore, questioning Sale Confirmation Advice is not contemplated. Further, the Sale Confirmation Advice is also questioned mainly on the ground that there is no separate Notice for all items of property, and there is no separate reserve price for all items. As already referred to above, this objection of Appellants is already negatived, therefore, the grounds on which the Sale Confirmation Advice is challenged, are not tenable.
18. Tribunal below has framed five points on the basis of pleadings, and dealt with all those five points separately. On a scrutiny of Order of DRT, which is challenged here, I do not find any wrong in appreciating the material on record. In fact, Learned Presiding Officer elaborately considered each and every aspect of the case and came to a right conclusion. I do not find any grounds to interfere with the
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well reasoned Order of Tribunal below. In fact, the very
same grounds which are urged before Tribunal below, are reiterated here, and as already discussed above, all the objections raised by Appellants are not tenable.
19. In view of my foregoing discussion and observations, I am of the considered view that the Appeal is devoid of merits and liable to be dismissed.
20. In the result , the Appeal in R A (SA) 49/2023 is
dismissed. Both parties shall bear their own costs. All pending IAs, if any, stand closed.
[Dictated to Athistamani, PS, transcribed by her, corrected, signed and pronounced by me in open court, this 12th of June, 2024]
[ Justice S. Ravi Kumar]
CHAIRPERSON
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3 issues framed by the court
Whether separate reserve price for each item of property is mandatory under Rule 8 of Enforcement Rules, 2002 when a resort with accessories is sold as a whole.
Whether splitting the Sale Certificate into two (movables and immovables) violates statutory provisions when the property forms a running business.
Whether the auction price of Rs.42.31 Crores is legally valid despite the reserve price being Rs.42.30 Crores due to tax deductions.
6 provisions across 2 enactments
M/s. Vasu Coco Resorts Pvt. Ltd.
Mr. Prashanth Vasudevan
The Authorised Officer, State Bank of India
Deputy General Manager, State Bank of India
M/s. Everspace Reality LLP.
S. Ravi Kumar
As recorded by the court registry
13 orders share this CNR
Judgements on the same questions, provisions and authorities, from every court
