Partly allowed

Arumugam v. M.Nallaih & Ors.

DRAT19 Feb 2025REGULAR APPEAL/123/2019

Case brief

AI extract

What is this about?

The Tribunal upheld a sale set aside due to lack of service of the second sale notice, restoring possession to the borrower. However, the Tribunal modified the order to award the auction purchaser interest at 12% p.a. instead of Fixed Deposit rates and granted refund of registration charges and stamp duty.

What did the court decide?

Set aside sale; restore possession; allow appeal for higher interest on sale consideration and recovery of registration charges and stamp duty.

Arumugam versus M.Nallaih & Ors. — Banking and Recovery | DRAT (2025)

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IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT CHENNAI

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Dated the 19^th of February, 2025

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PRESENT: Hon’ble Mr. Justice G. Chandrasekharan CHAIRPERSON

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R.A (SA): 123/2019

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(T.S.A. 5/2018 (SA No.426 of 2015 on the file of DRT – III, Chennai) on the file of DRT -I, )

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Between

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Arumugam, S/o Manickam, 3849, South 2^nd Street, Pudukkottai

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… Appellant

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And

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M. Nallaih S/o Mari Konar,

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No.8864/4, Sannathi Street,

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Thiruvappur,

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Pudukkottai, Puddukkottai District.

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The Authorised Officer,

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Canara Bank, Regional Office,

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42/14, Bishop Sundaram Complex, Pudukkottai Road, V.O.C. Nagar,

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Thanjavur-613 007.

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The Branch Manager, Canara Bank,

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T.S. No. 3068 Lakshmi Nivas,

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East Main Street, Pudukkottai - 622 001.

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… Respondents

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Counsel for Appellant : Mr. S. Mukunth Learned Sr. Advocate for Mr. N. Ravishankar Vallatharasu Counsel for R1 : Mr. P. Thirumahilmaran Counsel for R2 and R3 : Mr. N. C. Radhakrishnan

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ORDER

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This Appeal is filed against order passed in TSA 5/2018 on the file of DRT-I, Chennai, on 19.03.2019.

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The Appellant is an Auction Purchaser. The 1^st Respondent/Applicant, filed TSA 5/2018 (SA 426/2015 before DRT-III, Chennai) seeking the reliefs “to declare that the measures taken under Rules 8 and 9 of the Security Interest (Enforcement) Rules 2002, and sale held on 31.08.2015 on the basis of Sale Notice dated 25.04.2015 and issuance of Sale Certificate dated 15.09.2015, are illegal and void ab-initio . Among other grounds, the ground taken by the 1^st Respondent before the Tribunal below was that the 2^nd Sale Notice, which was impugned, was not served on him at all.

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Learned Presiding Officer, on a consideration of rival

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submissions, found in agreement with the submission of 1^st Respondent, and held that, the actions pursuant to the

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impugned Sale Notice, including Sale Certificate executed in favour of the Appellant, are invalid and set aside. There was also an order to restore the possession to 1^st Respondent, within a period of 30 days from the date of receipt of copy of the order and that the Bank shall return the sale consideration paid by the Appellant with interest at such rate as applicable to Fixed Deposits, within a period of four weeks from the date of receipt of copy of the order. Challenging this order, the Auction Purchaser filed this Appeal.

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Learned Senior Counsel for the Appellant, during the course of his submission, stated that the Bank had taken measures by following the procedures appropriately and rightly, starting from the issuance of Demand Notice, Possession Notice, first Sale Notice and second Sale Notice. Notices have been properly served. Appellant had

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participated in the auction and was declared as a successful bidder for the bid amount of Rs.83.30 Lakhs. Sale Certificate

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was issued in his name and sale had been registered. He was also put in possession of property, on 15.09.2015. It is

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not as though the 1^st Respondent had not known about the proceedings initiated against him under SARFAESI Act, 2002. The Demand Notice, Possession Notice and Sale Notice

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had been served on 1^st Respondent, and despite that, he was silent without taking any steps to challenge the earlier measures against Possession Notice and Sale Notice etc. In fact, after the sale had been over, 1^st Respondent visited the Bank on 03.09.2015 and gave a letter stating that he would pay the balance loan amount on 07.09.2015. This was followed by another Letter dated 12.09.2015, wherein he stated that he knew about the e-auction sale and he voluntarily surrendered the possession of the property on 12.09.2015. He had also undertaken to remove his movables on 14.09.2015 and if he failed to remove the things on that day, he agreed that the Bank can remove the same at his costs. These two Letters clearly indicate that the borrower had known about the Sale Notice and sale, and despite that, he claimed naïve, and challenges the sale. Thus, the conduct of the 1^st Respondent amounts to waiver. In support

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of his submission, Learned Senior Counsel for Appellant

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relied on the judgement of Hon’ble Supreme Court in the case

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of ARCE Polymers Private Limited Vs. Alphine

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Pharmaceuticals Private Limited and Ors. , reported in (2022) 2 SCC 221 , for the proposition that when a party knows the material facts and is cognizant of the legal rights in that matter, and yet for some consideration consciously abandons the existing legal right, advantage, benefit, claim or privilege, it would amount to waiver.

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In continuation of his submissions, Learned Senior Counsel for Appellant as a second line of argument, submitted that, the Appellant had invested a huge amount of Rs.83.30 Lakhs by borrowing from outside, and that amount is not returned to him along with interest, despite a specific direction by Learned Presiding Officer, DRT-I, Chennai. Apart from the sale price, the Appellant had to expend towards the registration charges of Rs.83,300/- and stamp duty charge at Rs.5,83,100/-. Learned Presiding Officer had

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not passed any order for refund of these amounts. By setting aside the order, the Appellant is put to great loss,

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especially, the monetary loss, thus, he prayed for setting aside the order of Learned Presiding Officer, by allowing this Appeal.

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The next submission of the Learned Senior Counsel for Appellant is that there is no specific prayer in the Securitisation Application seeking restoration of possession. When there is no specific prayer seeking restoration of possession, the order directing the possession to be handed over to the 1^st Respondent, is not in tune with the law.

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In response, Learned Counsel for Respondent No.1 submitted that a specific plea is taken in the pleadings in the Securitisation Application that the impugned Sale Notice had not been served. There is no clear-cut answer in the Counter as to the service of the impugned Sale Notice. First Respondent was not aware of the impugned Sale Notice. He issued a Legal Notice dated 21.09.2015 to the Bank through his Advocate seeking the details about the auction sale etc. A

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reply dated 30.09.2015 was sent to him by Bank giving the details of the e-auction sale. Only after receipt of said reply, he came to know about the e-auction. He reiterated that the impugned Sale Notice was not served on him. Had it been served on him, he would have challenged the same at the earlier point of time or he would have repaid the loan amount. The sale had been conducted without serving a notice on the 1^st Respondent, and thus, it was rightly set aside by Learned Presiding Officer.

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Learned Counsel for 1^st Respondent further submitted that if the possession is taken by the Bank, then, it should have been given to the Bank. However, the 1^st Respondent had voluntarily handed over the possession to the Bank. Therefore, Learned Presiding Officer rightly ordered to restore the possession to the 1^st Respondent.

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Learned Counsel for Respondent Bank supported the arguments of Leaned Counsel for Appellant/the Auction Purchaser, that the Bank had taken the measures in

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accordance with the provisions of the Act and Rules made there under, and thus, he prayed for dismissal of this Appeal.

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Considered the rival submissions and perused the records.

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From the records produced, it is seen that the Possession Notice dated 16.09.2011 was served on the 1^st Respondent. The Acknowledgement Card along with served notice was produced for my perusal. The affixture of the Possession Notice is also proved through photos taken at the time of affixture. Thus, there is no dispute with regard to the service of Possession Notice.

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The 1^st Sale Notice dated 22.04.2015 was taken to the 1^st Respondent. The sale was fixed on 28.05.2015. The postal receipt for sending this Notice and the affixture of this Notice are produced before this Tribunal. No sale had taken

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place in pursuance of 1^st Sale Notice necessitating the

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issuance of second Sale Notice dated 29.07.2015.

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It is true that the Learned Senior Counsel for Appellant produced copy of the 2^nd Sale Notice dated 29.07.2015 fixing the sale on 31.08.2015 along the affixture of Sale Notice and

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the newspaper publication issued in English and Tamil Newspapers, informing the sale fixed on 31.08.2015. The fact of the matter is whether the Sale Notice was served on

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the 1^st Respondent through post or not? Admittedly, no postal receipt or Acknowledgement Card is filed to show that the impugned Sale Notice dated 29.07.2015 was served on the 1^st Respondent.

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Service of Sale Notice is mandatory. It is pertinent to refer to Rules 8(6) and 9(1) of Security Interest (Enforcement) Rules, 2002, which reads as follows:

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“8. Sale of immovable secured assets.

(1)…….

(2)……

….. (6) The authorized officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5)

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[Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in the Form given in Appendix IV-A to be published in two leading newspapers including one in vernacular language having wide circulation in the locality.]”

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9. Time of sale, issue of sale certificate and delivery of possession, etc.

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(1) No sale of immovable property under these rules, in first instance shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) of rule 8 or notice of sale has been served to the borrower:

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Provided further that if sale of immovable property by any one of the methods specified by sub rule (5) of rule 8 fails and sale is required to be conducted again, the authorized officer shall serve, affix and publish notice of sale of not less than fifteen days to the borrower, for any subsequent sale.]”

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The combined reading of these Rules make it clear that the borrower should be served with 30 days’ notice for sale of immovable secured asset and no sale of immovable property should take place before the expiry of 30 days of service of notice to the borrower.

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Thus, primary requirement is the service of notice to the borrower for sale of immovable property by giving clear 30 days notice from the date of service of notice. The publication of Sale Notice one in English and another in vernacular newspapers and affixture should be followed by service of notice through post. Here in this case, there is no proof filed to show the service of Sale Notice through post to the 1^st Respondent. Therefore, this Tribunal finds that there is no service of impugned Sale Notice on the 1^st Respondent.

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As regards the submission of Learned Senior Counsel for Appellant that when there is no specific prayer in the Securitisation Application seeking restoration of possession, the order directing the possession to be restored back to the

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1^st Respondent, is not in tune with the law. Perusal of the records shows that the Bank has not taken any legal measures under Section 14 of SARFAESI Act, 2002, for taking possession. From the Letters of 1^st Respondent dated 03.09.2015 and 12.09.2015, it can be gathered that the 1^st Respondent himself voluntarily handed over possession to the Bank. That being the case, when the sale is set aside, it is quite natural and consequential that the person, who was in possession prior to the issuance of the Sale Notice, must get back the possession. Therefore, this Tribunal finds that there is no wrong in ordering restoration of possession to the borrower, i.e. 1^st Respondent.

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With regard to the submissions of the Learned Senior Counsel for Appellant that the Letters given by the 1^st Respondent dated 03.09.2015 and 12.09.2015 are of the indicative of the fact that 1^st Respondent knows about the sale and waived his right of challenging the sale, the reading of Letters dated 03.09.2015 and 12.09.2015 shows that there

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is no indication of sale of the property in the Letter dated

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03.09.2015. It just says that he would pay the balance loan amount on 07.09.2015. Of course, there is a mention about the e-auction sale in the Letter dated 12.09.2015, but there is no indication as to the fact that the 1^st Respondent knows about the sale prior to the sale. There is also no indication as to whether the 2^nd Sale Notice was served on him. He is a borrower, he is at the mercy of the Banker, and therefore, he is left with no other option, after sale. Prior to seeking any legal opinion, he would have given this Letter. This cannot be taken as waiver of his right to challenge the sale. Even in the judgement relied on by the Learned Senior Counsel for Appellant the waiver has taken place only when the person waiving the right gets some advantage, benefit and privilege. In the case before hand, there is no privilege as such offered to the 1^st Respondent, therefore, in essence, it cannot be considered as waiver of his right. Therefore, this Tribunal agrees and confirms the findings of Learned Presiding Officer for setting aside the sale, Sale Certificate and registration of Sale Certificate in pursuance of the impugned Sale Notice

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dated 29.07.2015 and restoration of possession to the 1^st Respondent. Appeal against this finding is dismissed.

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Coming to the next submission of Learned Senior Counsel for Appellant that despite a specific direction from the Tribunal to return the sale price along with interest as applicable in respect of a Fixed Deposit, the Bank has not chosen to return the amount, this Tribunal queried Learned Counsel appearing for the Bank as to why the sale price with interest was not refunded to the Appellant. He answered that the sale consideration was credited into the loan account, therefore, it could not be returned. Moreover, the Bank is waiting for the disposal of this Appeal. The fact that the Bank has not chosen to file the Appeal shows that it has admitted that the impugned Sale Notice was not served on the 1^st Respondent.

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There is an omission in the impugned order to consider

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the amount of expenses incurred by the Appellant towards the stamp duty and the registration charges. The Auction

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Purchaser, who, bonafidely believed that he purchased the property in a genuine auction, now put to loss, primarily by the Bank, for not taking proper measure and proper service of impugned Sale Notice. Therefore, this Tribunal is of the considered view that the Bank should be ordered to make good of the loss incurred to the Appellant, not only by the return of sale consideration, but the stamp duty of Rs.5,83,100/- and registration charges of Rs.83,300/-, with interest.

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In this view of the matter, the order of Learned Presiding Officer, DRT-I, Chennai, is modified in so far as the return of the sale consideration from the interest rate applicable in respect of the Fixed Deposit to 12% p.a. (simple) from the date of deposit till the date of payment. So also, the Appellant is entitled for registration charges of Rs.83,300/-

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and stamp duty of Rs.5,83,100/- with interest at 12% p.a. (simple) from the date of registration of sale deed till the date of payment.

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In the result, the following order is passed:-

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i. The Appeal in R.A (SA): 123/2019 is allowed in part modifying the order dated 19.03.2019 passed by Learned Presiding Officer, DRT-I, Chennai, in TSA 5/2018;

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ii. The order of the Learned Presiding Officer in so far as setting aside the sale, Sale Certificate and registration of Sale Certificate in pursuance of the impugned Sale Notice dated 29.07.2015 and restoration of possession to 1^st Respondent is upheld, by dismissing the Appeal.

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iii. The Appeal is allowed in so far as the claim of interest on the sale consideration from Fixed Deposit rate to 12% p.a. (simple), from the date of deposit till the date of payment, and for recovery of registration charges of Rs.83,300/and stamp duty of

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Rs.5,83,100/- with interest at 12% p.a. (simple) from

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the date of registration of sale deed till the date of payment.

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Accordingly, the Appeal is disposed of. Both parties shall bear their own costs. All pending IAs, if any, stand closed.

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[Dictated to Athistamani, PS, in open court, transcribed by her, corrected and signed by me this 19^th of February, 2025]

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[ Justice G. Chandrasekharan] CHAIRPERSON

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