Allowed

State Bank of India v. The Official Liquidator High Court Bambay

DRAT8 May 2024REGULAR APPEAL/76/2013

Case brief

AI extract

What is this about?

The Tribunal upheld the appeal, holding the dispute order erred in finding Section 13(9) consent requirements violated due to valid consortium sanction and the debt share of assignees being low. It found notice service valid via newspaper publication under Rule 8(1) and rejected the BIFR stay claim due to SICA abatement and Section 35's overriding effect.

What did the court decide?

Impugned order dated 16/01/2013 quashed and set aside; S.A. No. 27 of 2011 stands dismissed.

State Bank of India versus The Official… — Contract and Commercial Disputes | DRAT (2024)

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

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Appeal No. 76/2013

Between

State Bank of India

… Appellant/s

V/s.

The Official Liquidator, High Court Bombay &

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Ors.

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…Respondent/s

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Mr Bidan C. along with Ms Mittal Parikh, i/b M/s. M. V. Kini & Co., Advocate for Appellant Bank.

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Ms Sonali Jain, Advocate for Respondents Nos. 2 to 8.

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The State Bank of India (SBI) is in appeal challenging the order dated 16/01/2013 allowing Securitisation Application (S.A.) No. 27 of 2011 on the files of the Debts Recovery Tribunal-I, Mumbai (D.R.T.) which was filed under Sec. 17 (1) of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (“SARFAESI Act”, for short) by the Respondents herein challenging the Sarfaesi measures initiated by the SBI for recovery of debt due to them from the Respondents.

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The facts can be encapsulated thus:

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The 1^st Respondent company, which is now under liquidation and represented by the Official Liquidator, High Court of Bombay borrowed money to the tune of ₹127.70 crores from a consortium of eight banks led by the SBI with the rest of the Respondents as

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guarantors. Respondent Nos. 2 to 4 were also the directors of the 1^st Respondent company. The debt was secured by the creation of a mortgage and by execution of a hypothecation agreement concerning movables. Repayment was defaulted and the consortium members conducted a meeting on 27/10/2010 and entrusted the SBI to issue a demand notice. Accordingly, the SBI issued a demand notice under Sec. 13 (2) on 19/11/2010 demanding a sum of ₹148,16,90,340.01. Symbolic possession of the secured assets was taken on 06/05/2011 after serving notice under Sec. 13 (4). Thereafter, physical possession of the property was also taken.

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The Respondents filed the aforesaid S.A. challenging the Sarfaesi measures under various counts. It was contended that the SBI had initiated measures without getting any sanction from the members of the consortium representing not less than ¾ in value of the amount outstanding as on the record date as required under Sec. 13 (9) of the SARFAESI Act. It was also contended that the demand notice is invalid for the reason that it does not indicate the date on which the account was classified as non-performing assets (NPA) or the rate of interest at which the amount due is calculated. It was further contended that the mortgage and the security were not properly created and the documents about the mortgage have not been produced. Respondent Nos. 4 and 5 deny having executed any deed of guarantee and therefore challenged the liability cast on them. It is also contended that the 1^st Respondent has filed a reference before the BIFR creating an embargo in proceeding with the Sarfaesi measures. The Respondents would also contend that the subject property is

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agricultural land and therefore, no Sarfaesi action could be taken given the bar under Sec. 31(i) of the SARFAESI Act. The action under Sec. 13 (4) is alleged to be invalid for want of proper notice in compliance with Rules 8 (1) & (2) of the Security Interest (Enforcement) Rules,2002. The Respondents also raised the contention that they had sent their objections to the demand notice under Sec. 13 (2), but the bank did not send any reply, as required under Sec. 13 (3-A). Hence it was prayed that the demand notice dated 09/11/2010 and the subsequent action taken under Sec. 13 (4) including the notice dated 06/05/2011 be quashed and set aside.

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After considering the rival submissions and the records produced, the D.R.T. found most of the averments raised in the S.A. unsustainable. But allowed the S.A. on the ground that there was noncompliance of Sec. 13 (9) as the sanction of J.M Financial Assets Reconstruction Company Pvt. Ltd., the assignee of the debt due to Indian Overseas Bank had not consented to the Sarfaesi action. The D.R.T. also found that there is non-compliance with the mandatory provisions under Rule 8 (1) of the Security Interest (Enforcement) Rules, 2002. It is also found by the D.R.T. that though the provisions of SICA provide that a reference pending before BIFR stands awaited, the Appellant Bank has not produced any material that the proceedings initiated under the SARFAESI Act have been brought to the notice of BIFR. It was observed that the bank has taken steps under Sec. 13(4) during the operation of the stay of the proceedings before the BIFR. Hence, it was concluded that the demand notice under Sec. 13 (2) and the subsequent action under Sec. 13 (4) are not

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sustainable and need to be quashed and set aside. The S.A. was allowed. SBI is aggrieved and hence in appeal.

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Heard both sides. Records perused.

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The first point on which the S.A. was allowed is that the Appellant bank failed to obtain the consent of all consortium members as contemplated under Sec. 13(9) of the SARFAESI Act. It is pertinent to note that in the meeting of the consortium members held on 27.10.2010, all the members of the consortium had given consent to the SBI to proceed with the Sarfaesi action. The D.R.T. also has agreed with this submission. But it was observed that IOB had transferred the debt to JM Financial and specific consent from JM Financial was not obtained. It is seen from the records that specific consent of IOB was obtained on 25.05.2010 and the consent of Central Bank of India was also obtained on 01.11.2010. Under the circumstances, there will be no embargo under Sec. 13(9) because the debt share of IOB was ₹20 crores and that of Central Bank was ₹8 crores. The SBI also had lent substantial amounts and they would account for a total of ₹33 crores. The balance would not be more than ¾ requiring sanction. Moreover, JM Financial is only an assignee of IOB which has already granted sanction. Moreover, it is also to be observed that the debt transferred to JM Financial alone would be less than 20% of the total value of the dues. Further, sanction of the assignee may not be required. That apart, the observation that fresh sanction is to be obtained for proceeding under Sec. 13(4) may not be required as Sec. 13(2) demand notice was issued after the consortium meeting. For subsequent action under Sec. 13(4) further consent may not be

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required. Hence, the finding of the D.R.T. concerning violation of Sec. 13(9) is erroneous.

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The other ground which the D.R.T. found against the Appellant is that Rule 8(1) has not been complied with. It is pertinent to note that the Appellant could not serve notice under Sec.13(2) on all the Respondents. That is the reason why the notice was published in the newspapers. Similarly, the notice under Sec. 13(4) for taking possession was also published in newspapers. The proviso to Rule 3(1) makes it clear that where the authorised officer has reason to believe that the borrower or his agent is avoiding the service of notice or that for any other reason, the service cannot be made as aforesaid, the service shall be effected by affixing a copy of demand notice on the outer door or some other conspicuous part of the house or building in which the borrower or his agent ordinarily resides or carries on business or personally works for gain and also by publishing the contents of the demand notice in two leading newspapers, one in vernacular language, having sufficient circulation in that locality. Annexure C to the S.A. indicates that a Xerox copy of the photograph in respect of pasting of the possession notice and thereby complying with Rule 8(1). Hence, the finding of the D.R.T about non-compliance of Rule 8(1) is also erroneous.

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Coming to the proceedings before the BIFR, it has to be observed that there was no material to indicate that there was any order of stay. The D.R.T. has also failed to appreciate the provision under Sec. 35 of the SARFAESI Act which has an overriding effect over the SICA Act and reference filed in BIFR. There is also no

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embargo against the bank in proceeding to recover the amount. It is also pertinent to note that the BIFR has abated the reference by its order dated 08.06.2011.

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Under the circumstance, it has to be held that the impugned order is erroneous to the extent of allowing the S.A. Hence, the appeal is allowed and the impugned order of the D.R.T. dated 16.01.2013 is quashed and set aside, and the S.A. No. 27 of 2011 stands dismissed.

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Sd/-
Chairperson

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mks-01

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State Bank of India v. The Official Liquidator High Court Bambay

Case brief

What is this about?

What did the court decide?

State Bank of India v. The Official Liquidator High Court Bambay

Case brief

What is this about?

What did the court decide?

What the court decided

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Issues for consideration

Statutes considered

Parties & counsel

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