Dismissed

Navneeta Agarwal v. State Bank of India

DRAT3 Oct 2024REGULAR APPEAL/90/2024

Case brief

AI extract

What is this about?

Tribunal dismissed an appeal challenging a DRT order that upheld a bank's action to take possession of secured assets under Section 14 of the SARFAESI Act, holding that the appellant had no locus standi despite a pending civil suit for partition.

What did the court decide?

The appeal is dismissed; the impugned judgment and order of the DRT-I, Hyderabad, dismissing the earlier SARFAESI application, is affirmed.

Navneeta Agarwal versus State Bank of India — Banking and Recovery | DRAT (2024)

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Reportable/Non-Reportable

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Appeal No. 90 of 2024-DRAT-Kolkata

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IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT KOLKATA

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Appeal No. 90 of 2024

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(Arising out of S.A. 261 of 2022 in DRT-I, Hyderabad)

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THE HON’BLE MR. JUSTICE ANIL KUMAR SRIVASTAVA CHAIRPERSON

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Smt. Navneets Agarwal, Daughter of Shankar Lal Agarwal resident of M.no.8-2-293/82/PN/152 Plot no.152, Survey No.403, (T.S.No. 1, Ward no.9, Block No. P) Shaikpet Village, Golconda Mandal, presently temporarily residing at P/20/2 Officers Enclave, MILTI, Giri Nagar, Pune- 411025 represented by her Power of Attorney Mr. Kamal Kishore Mantri, son of Ram Niwas Mantri, R/o 6-3-247/238, Raj Nagar, BS Makhta, Hyderabad-500 082.

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… Appellant

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-Versus-

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State Bank of India , Represented by Authorised Officer, Stressed Assets Management Branch-II, Kachiguda Hyderabad-500 027;

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The Authorised Officer, State Bank of India, SME Branch, 3^rd Floor, Above West Side, Hyderabad-500 029.

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M/s. Navneeta Steels Private Limited, Represented by Sri Shankar Lal Agarwal, Resident of Plot no. 152,#8-2-293/82/PN/152 Prashasan Nagar, Road No.72, Jubilee Hills, Hyderabad-500 033

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… Respondents

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Counsel for Appellants … Mr. Nemani Srinivas Counsel for Respondents … Mr. Debasish Chakrabarti Mr. Snehashis Chakrabarti

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JUDGMENT : 3^rd October, 2024

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THE APPELLATE TRIBUNAL :

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Heard the Learned Counsel for the parties and perused the record.

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2. Instant appeal has arisen against judgment and order dated 26^th June, 2024, passed by Learned DRT-I, Hyderabad, dismissing S.A. 261 of 2022 (Smt. Navneet Agarwal -vsState Bank of India & Others). Feeling aggrieved, Appellant preferred the appeal.

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Appeal No. 90 of 2024-DRAT-Kolkata 3. At the very outset, as per pleadings of the parties, basically Appellant has challenged the measures taken by Respondents No. 1 and 2 under Section 14 of the SARFAESI Act (hereinafter referred to as the Act) for taking physical possession of the secured assets. Certain factual pleadings are made regarding share of the Appellant in the secured assets wherein it is stated that the Appellant’s father, namely Shankar Lal Agarwal, purchased the property on 18.3.2015. When the Appellant, being the daughter, demanded partition which was not done by her father, she filed a civil suit for partition before the Civil Court which is pending. The secured assets were purchased by Shankar Lal Agarwal with his son Anurag Agarwal on 18.3.2015. It appears both of them created equitable mortgage by depositing title deeds with the Respondent Bank. The loan account was classified as N.P.A. on 19.3.2021. Thereafter, Bank has undertaken the measures under the SARFAESI Act. An order, under Section 14 of the Act, was also obtained from the District Magistrate on 3.9.2022. 4. Appellant challenged the measures taken under Section 14 of the Act on the ground that she has a share in the property and a civil suit for partition is pending. Learned DRT framed the following issues :

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(i) Whether the Applicant is entitled to challenge the proceedings initiated by the Respondents No. 1 and 2 before the Collector and District Magistrate, Hyderabad under Section 14 of the SARFAESI Act, 2002 for taking physical possession of the schedule property?

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ii) To what relief?

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Appeal No. 90 of 2024-DRAT-Kolkata 5. Learned DRT, on issues No. (i) and (ii) arrived at a conclusion that undisputedly father of the Appellant purchased the property on 18.3.2015 which was purchased from the joint family funds but the same is yet to be decided by the Civil Court. Learned DRT recorded a finding that simply by filing a partition suit Appellant cannot contend that she has right on the secured assets. Learned DRT has also arrived at a finding that the Appellant, being a third part, has no locus standi to challenge the proceedings under Section 14 of the Act. Learned DRT accordingly, dismissed the SARFAESI Application.

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6. Learned Counsel for Appellant would submit that Appellant has filed a civil suit for partition which is pending. Her share is yet to be decided by the Civil Court. However, Learned DRT has recorded certain findings which are against the interest of the Appellant regarding her share in the property. Accordingly, the impugned judgment deserved to be set aside.

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7. Learned Counsel for Respondent Bank would submit that the Appellant has no share in the secured assets. The secured assets were mortgaged with the Bank by depositing title deeds. Loan account was rightly classified as N.P.A. and measures under Securitization Act was undertaken by the Bank. Order, under Section 14 of the Act, was obtained by the Bank. Appellant has no right to challenge the same. 8. As far as facts of the case are concerned, it is absolutely clear that the father of the Appellant purchased the property, which is the secured asset. It is also

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Appeal No. 90 of 2024-DRAT-Kolkata undisputed that Shankar Lal Agarwal, father of the Appellant, obtained loan from the Bank wherein mortgage was created by deposit of title deeds. It is also not in dispute that order under Section 14 of the Act was obtained by the Bank from the District Magistrate. Further, as far as share of the Appellant is concerned, it is yet to be decided by the Civil Court. Further as far as measures under Section 14 of the Act are concerned, they have to be looked into independently. Since the secured assets were mortgaged by the owner of the property with the Bank, Bank was within its right to proceed under the SARFAESI Act. The District Magistrate has passed the order under Section 14 of the Act in accordance with law.

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9. In Standard Chartered Bank -Vs- V. Nobel Kumar & Others [(2013) 9 SCC 620] Hon’ble Apex Court has held in Para 24 and 25 as under :

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“24. An analysis of the nine sub-clauses of the proviso which deal with the information that is required to be furnished in the affidavit filed by the secured creditor indicate in substance that “ 24.1.(i) there was a loan transaction under which a borrower is liable to repay the loan amount with interest,

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24.2 (ii) there is a security interest created in a secured asset belonging to the borrower,

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24.3(iii) that the borrower committed default in the repayment, 24.4(iv) that a notice contemplated u/s 13(2) was in fact issued, 24.5(v) in spite of such a notice the borrower did not make the repayment,

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24.6.(vi) the objections of the borrower had in fact been considered and rejected,

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24.7(vii) the reason for such rejection have been communicated to the borrower, etc.

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25. The satisfaction of the Magistrate contemplated under the second proviso to Section 14(1) of the Act necessarily requires a Magistrate to examine the factual correctness of the assertions made in such an affidavit but not the legal niceties of the transaction. It is only after recording of its satisfaction, the

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Appeal No. 90 of 2024-DRAT-Kolkata Magistrate can pass appropriate orders regarding taking of possession of the secured assets.”

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10. It was held by the Hon’ble Apex Court in R.D. Jain and Company Vs. Capital First Limited and others [(2023) 1 SCC 675] that –

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“18. Now so far as the powers exercisable by District Magistrate and CMM under Section 14 of the SARFAESI Act are concerned, Statement of Objects and Reasons for which the SARFAESI Act has been enacted reads as under:

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Statement of Objects and Reasons The financial sector has been one of the key drivers in India’s efforts to achieve success in rapidly developing its economy. While the banking industry in India is progressively complying with the international prudential norms and accounting practices there are certain areas in which the banking and financial sector do not have a level playing field as compared to other participants in the financial markets in the world. There is no legal provision for facilitating securitization of financial assets of banks and financial institutions. Further, unlike international banks, the banks and financial institutions in India do not have power to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This has resulted in slow pace of recovery of defaulting loans and mounting levels of non -performing assets of banks and financial institutions. Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms have considered the need for changes in the legal system in respect of these areas. These Committees, inter alia, have suggested enactment of a new legislation for securitization and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the Court. Acting on these suggestions, the Securitisation and Reconstruction of financial Assets and Enforcement of Security Interest Ordinance, 2002 was promulgated on 21-06-2002 to regulate securitization and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. The provisions of the Ordinance would enable banks and financial institutions to realise long-term assets, manage problem of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstructions.” 19. Thus, the underlying purpose of the SARFAESI Act is to empower the financial institutions in India to have similar

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Appeal No. 90 of 2024-DRAT-Kolkata powers as enjoyed by their counterparts, namely, international Banks in other countries. One such feature is to empower the financial institutions to take possession of securities and sell them. The same has been translated into provisions falling under Chapter III of the SARFAESI Act. Section 13 deals with enforcement of security interest. Sub-section (4) thereof envisages that in the event a default is committed by the borrower in discharging his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the measures provided in subsection (4). One of the measures is to take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset. That, they could do through their “authorized officer” as defined in Rule 2(a) of the Security Interest (Enforcement)Rules, 2002.

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20. After taking over possession of the secured assets, further steps to lease, assign or sell the same could also be taken by the secured creditor. However, Section 14 of the SARFAESI Act predicates that if the secured creditor intends to take possession of the secured assets, it must approach the CMM/DM by way of an application in writing, and on receipt of such request, the CMM/ DM must move into action in right earnest. After passing an order thereon, he/ she (CMM/DM) must proceed to take possession of the secured assets and documents relating thereto for being forwarded to the secured creditor in terms of Section 14(1) read with Section 14(2) of the SARFAESI Act. As noted earlier, Section 14(2) is an enabling provision and permits the CMM/DM to take such steps and use force, as may, in his opinion, be necessary.

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21. At this stage, it is required to be noted that along with insertion of sub-section (1-A), a proviso has also been inserted in sub-section (1) of Section 14 of the SARFAESI Act whereby the secured creditor is now required to comply with certain conditions and to disclose that by way of an application accompanied by affidavit duly affirmed by its authorized officer in that regard.”

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11. Accordingly, Hon’ble Apex Court held that the powers exercisable by the District Magistrate under Section 14 of the Act are ministerial steps and Section 14 of the Act does not involve any adjudication process qua points raised by the borrowers against secured creditor taking possession of the secured assets.

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12. District Magistrate has to perform a ministerial and he has no adjudicatory powers. Accordingly, Learned District

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Appeal No. 90 of 2024-DRAT-Kolkata Magistrate passed the impugned order after following the due process of law.

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13. I do not find any illegality in the impugned order passed by the Learned DRT. Accordingly, the appeal is liable to be dismissed. However, any findings recorded by the DRT will have no effect on the Civil Suit filed by the Appellant.

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O R D E R E D

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Appeal is dismissed. The impugned judgment and order dated 26^th June, 2024, passed by Learned DRT-I, Hyderabad, dismissing S.A. 261 of 2022 (Smt. Navneet Agarwal -vs- State Bank of India & Others), is affirmed.

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No order as to costs.

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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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File be consigned to Record room.

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Order dictated and pronounced in open Court.

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(Anil Kumar Srivastava,J) Chairperson

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Dated: 3^rd October, 2024 14/ac

Navneeta Agarwal v. State Bank of India

Case brief

What is this about?

What did the court decide?

Navneeta Agarwal v. State Bank of India

Case brief

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