Partly allowed

State Bank of India v. Ms Mangalagiri Textile Mills Private Limited

DRAT12 Mar 2025REGULAR APPEAL/39/2021

Case brief

AI extract

What is this about?

The Debt Recovery Appeal Tribunal consolidated appeals by a secured creditor and an auction purchaser against a District Recovery Tribunal order setting aside a bank auction. The Tribunal held the auction was valid except for a violation of the 30-day mandatory notice gap under SARFAESI Rules. Consequently, the impugned order was upheld, but the bank was directed to refund the auction purchaser's

What did the court decide?

Impugned order confirmed. Bank directed to refund sale price to auction purchaser with simple interest at 7% per annum within 30 days. Auction purchaser to vacate possession.

State Bank of India versus Ms Mangalagiri Textile Mills… — Banking and Recovery | DRAT (2025)

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Reportable / Non-reportable

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IN THE DEBT RECOVERY APPELLATE TRIBUNAL - KOLKATA HON'BLE Justice Anil Kumar Srivastava, Chairperson

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APPEAL/39/2021

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(Arising out of S.A. No. 92 of 2021 – DRT-Visakhapatnam)

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12.03.2025

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The Authorised Officer, STATE BANK OF INDIA having registered office at SAMB II D NO 3 4 1013 A 1ST FLOOR CAC TS RTC BUS STATION, KACHIGUDA, HYD 500027

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... Appellant

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--Vs--

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Ms MANGALAGIRI TEXTILE MILLS PRIVATE LIMITED, Srinivasa Nagar, Baghamberpet, Hyderabad 500013.

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M. Lakshmi Narayana, 8-631, Mangalagiri, Guntur 522502.

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Vangara Lakshmi Rajyam, 1-474, SBI Colony, Mangalagiri, Guntur, 522503.

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4a. Pregada Ajay Kumar

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4b Smt. Siddabattula Asha Rani,

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... Respondents

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M/s Royal Wealth Co. H.no.12.10.58, Circars House, Convent Street, Vijayawada 520001.

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Appeal No. 52 of 2022

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(Arising out of S.A. 92 of 2021 – DRT Visakhapatnam)

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MS ROYAL WEALTH COMPANY H.no.12.10.58, Circars House, Convent Street, Vijayawada 520001.

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2.Chitturi Nagendra Kumar S/O. Ramachandra Rao, residing at 38-3-11, Indraneela, Opp. AIR Road, Punnamma Thota, Krishna District, Vijayawada - 520010

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3.Chitturi Uday Kiran S/O.Nagendra Kumar,, residing at 383-11, Indraneela, Opp. AIR Road, Punnamma Thota, Krishna District, Vijayawada - 520010

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... Appellant

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--Vs--

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The Authorised Officer, STATE BANK OF INDIA, Branch II,

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D No. 3-4-2023/A, 1^st floor, CAC TSRTC Bus station, Kachiguda, Hyderabad – 500027.

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2.Messers Mangaligiri Textile Mills Private Limited representated by Dr Goli Nagesaina Rao, S/O. Vishwanatham, Srinivasa Nagar, Beghamberpet, Hyderabad500013

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3.M Lakshmi Narayan residing at 8-631, Mangalagiri, Dist. Guntur - 522 503

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4.Vangara Lakshmi Rajyam residing at 1-474, S.B.I. Colony, Mangalagiri, Dist. Guntur-522503

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5.P Adisudarsana Sundara Rao residing at 2-40, Mangalagiri, Dist. Guntur-522503

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... Respondents

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For Appellant : Mr. Nemani Srinivas, ld. Counsel.

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For Respondent: Mr. Debasish Chakraborty, ld. Adv.

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The Appellate Tribunal

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Since both the appeal bearing No. 39 of 2021 and 52

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of 2022 are arising out of the same impugned order dated

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05.08.2021 passed by the learned DRT – Visakhapatnam in

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S.A. No. 92 of 2021 (M/s. Mangalagiri Textile Mills Pvt. Ltd.

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and four others Vs. Authorised Officer, State Bank of India

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and another), both the appeals are taken up together and

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dispose of by this common judgement.

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Appeal No. 39 of 2021 is filed by the secured creditor

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State Bank of India against the borrower and guarantors

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whereas Appeal No. 52 of 2022 is filed by the auction

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purchaser against the secured creditor bank and borrower

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as well as guarantors.

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For the sake convenience to refer in the body of the judgement,appellant in Appeal no. 39 of 2024 is hereinafter referred to as ‘Bank’ and respondent no.1 is hereinafter referred to as ‘borrower’ and respondent no. 2 to 3, 4(a) and 4(b), are hereinafter referred to as ‘guarantors’. Appellant in Appeal no. 52 of 2022 is hereinafter referred to as ‘auction purchaser’, who has filed the appeal against the bank as well as borrower and guarantors.

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Vide impugned order dated 05.08.2021 passed in S.A. 92 of 2021 learned DRT has allowed the S.A.by setting aside the sale notice dated 15.01.2025 and auction sale held on

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04.02.2021 as well as sale certificate registered on 01.03.2021 in favour of auction purchaser. Learned DRT has further directed bank to re-deliver the physical possession of the secured asset to the borrower.

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As would appear from the pleadings in S.A. 39 of 2021,

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crucks of the matter are that borrower has availed various credit facilities from the bank against security of the secured

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assets mentioned in the schedule of property in the S.A. There was default in repayment of loan. Loan account

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became irregular and has been classified as NPA on 28.10.2016. Bank authority initiated SARFAESI proceeding. Section 13(2) notice issued under SARFAESI Act, 2002 (hereinafter referred to as Act) on 04.11.2016 demandingthe debt due, which was not paid. Section 13(4) notice was also issued. Bank took physical possession on 09.09.2020. Applicant challenged both the notices by filing S.A. 337 of 2017. During pendency of the S.A., bank had issued auction sale notice dated 15.01.2021 fixing auction sale date on 04.02.2021. Auction sale was conducted successfully at the highest bid of Rs.5.03 crore and sale was confirmed in favour of the auction purchaser. Sale certificate was issued on 08.02.2021 and secured asset was delivered to the auction purchaser on 20.02.2021. Borrower had challenged the auction sale notice including the auction by filing I.A. 273 of 2021 in S.A. 337 of 2017, which was dismissed by the learned DRT by giving liberty to file separate application u/s 17 of the Act. Borrower filed S.A.

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92 of 2021 challenging Rule 8(6) notice issued under Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as Rule) on 15.01.2021; Notice u/s 9(1) of the Rule and auction sale held on 04.02.2021. Borrower has also sought declaration not to dispossess him. Learned DRT has allowed the S.A. by passing impugned judgement and order setting aside sale notice and sale certificate issued and registered in favour of the auction purchaser and further directed the bank to re-deliver the secured asset to

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the borrower. Hence the appeal filed by the bank.

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As far as fact of the case in Appeal no. 52 of 2022 is concerned, learned counsel for the auction purchaser candidly submits that bank has conducted the auction sale as per law and sale certificate was issued and registered in his favour and auction purchaser is in possession. However,

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if, for the sake of argument, prayers made in the appeal are not allowed, bank may be directed to refund of sale price along with interest and other charges to auction purchaser.

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I have heard learned counsel for the bank as well as

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auction purchaser and perused the records. Although,

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learned advocate, Mr. T. Lakshminarayana Linga Ravi

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Kumar, has filed Vakalatnama on behalf of the borrower, but none appeared on behalf of the borrower and guarantors on various dates.

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Learned counsel for the bank would submit that proceeding was initiated under the SARFAESI Act against the borrower and guarantors strictly following the procedures prescribed under the Act and Rules made thereunder and the SARFAESI proceedings came to its logical conclusion by auctioning the secured asset and confirming the sale in favour of the auction purchaser. Sale certificate was issued in favour of the auction purchaser and it was registered. Secured asset was delivered in favour of the auction purchaser. It is submitted that Rule 8(6) notice was issued on 15.01.2021 and served on 16.01.2021. Sale

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notice was published on 15.01.2021. Auction sale was conducted on 04.02.2021. Auction purchaser was the highest bidder and deposited bid amount within stipulated time as per law, sale was confirmed in his favour. Sale certificate was issued and it was registered in favour of the

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auction purchaser and possession was delivered in his favour. Right title interest over the property has accrued in favour of the auction purchaser. There is no illegality or infirmity in conducting the auction sale.

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Learned counsel for the auction purchaser submits auction purchaser has purchased the secured asset in public auction and paid the sale price within due time. Auction was confirmed, sale certificate was issued in is favour and property was registered. There is no illegality in the auction process. However, if the auction sale is proved to be invalid, sale price may be refunded to the auction purchaser along with interest and other charges.

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Learned DRT while allowing the S.A. recorded a finding that there is no proof produced by the bank that it had followed the procedures prescribed in Rule 8(5), 8(6) and 9(1) of the Rules and therefore, it is crystal clear that bank has not followed the Rules as stated above and therefore, auction sale in favour of auction purchaser pursuant to sale notice dated 15.01.2021 and auction conducted on

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04.02.2021 in respect of the schedule property is liable to

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be set aside and sale certificate so registered on 01.03.2021

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in favour of the auction purchaser is also liable to be set

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aside as a result thereof sale notice dated 15.01.2021 and

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auction sale held on 04.02.2021 was said to be illegal.

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In the present appeal issues to be resolved are

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(i) Whether provision of Rule 8(6) and 9(1) of the Rules are violated by the bank or not? And,

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(ii) Whether provision of Rule 8(5) of the Rules is violated or not?

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As far as compliance of Rule 8(6) and 9(1) of the Rules

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are concerned, admittedly auction sale notice dated

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15.01.2021 and published on newspapers on 15.01.2021

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and auction was conducted on 04.02.2021.

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We have to look into the issue regarding validity of the

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notice issued under Rule 8(6) and 9(1) of the Rules. For the

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sake of appropriate adjudication of the issue provisions of

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Rule 8(6) and 9(1) of the Rules are reproduced below :

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Rule 8(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

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locality. [Substituted by Notification No. G.S.R. 1040(E), dated 17.10.2018 (w.e.f. 20.9.2002).]

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Rule 9(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. [Substituted by Notification No. G.S.R. 1046 (E), dated 3.11.2016 (w.e.f. 20.9.2002).] [emphasis supplied]

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A bare reading of the sub-rules would reveal that

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there is disjunction between - (i) a public notice of sale is

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published in the newspapers as referred to in the proviso to

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sub-rule (6) of Rule 8 and (ii) a notice of sale served to the

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borrower, maintained in Rule 9(1) by the use of the word

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“or”.As explained in Mathew Varghese Vs. M. Amritha

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Kumar [(2014) 5 SCC 610] Hon’ble Apex Courtin

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paragraph-31 of the judgementhas held that this disjunction

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should be read as a conjunction. The Court said that the

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word “or” should be read as “and”.The moment the word

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“or” appearing in Rule 9(1) is read as “and”, there is no scope for concluding that Rule 9(1) requires one more

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notice to be served to the borrower, in addition to the notice

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served to the borrower under Rule 8(6).”

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15. For appropriate consideration of the issues (supra)

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amended provisions of Section 13(8) of the Act, which was

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amended in 01.09.2016 is required to be reproduced :

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13(8) [ Where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by him is tendered to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets,-

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(i)the secured assets shall not be transferred by way of lease assignment or sale by the secured creditor; and

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(ii)in case, any step has been taken by the secured creditor for transfer by way of lease or assignment or sale of the assets before tendering of such amount under this subsection, no further step shall be taken by such secured creditor for transfer by way of lease or assignment or sale of such secured assets.]

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Above amendment in Section 13(8) has changed the

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borrower's right of redemption. Before the amendment, the

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borrower had the right of redemption until the sale or

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transfer of the secured asset. After the amendment, the

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borrower's right of redemption is only available until the

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date of publication of the notice under Rule 9(1) of the Security Interest (Enforcement) Rules, 2002. In the present

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case auction sale was conducted in 2021.

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Hon’ble Apex Court in Mathew Varghese (supra) has also held that provisions of giving clear 30 days’ notice for

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first sale and for subsequent sale 15 days’ clear notice as

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provided in Rule 9(1) of the Rules are mandatory in nature.

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Hon’ble Apex Court has further held that when there was

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breach of the mandatory provision, the sale should be treated as null and void.

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Learned counsel for the bank submits that hyper technical approach in calculating time gap of 30 days in case of auction sale may be avoided. It is a well-settled salutary

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principle of law that if statute provides for a thing to be done in a particular manner, then it has to be done in that manner only and in no other manner. Hence, argument

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advanced by the learned counsel is of no avail.

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We are also conscious of the fact that in a recent judgment in CELIR LLP -vs- Bafna Motors (Mumbai) Private Limited & Others [(2024) 2 SCC 1]wherein ratio of the judgement passed by the Hon’ble High Court of Telangana at Hyderabad in Sri. Sai Annadhatha Polymers & Anr. Vs. Canara Bank rep. by its Branch Manager, Mandanapalle [2018 SCC OnLine Hyd 178]was said to be the

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good law and has upheld the ratio of the judgementat Para

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51 as under :

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The true purport and scope of the amended Section 13(8) of the SARFAESI Act was looked into by the Andhra Pradesh High Court in Sri. Sai Annadhatha Polymers

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&Anr. v. Canara Bank rep. by its Branch Manager, Mandanapalle reported in 2018 SCC OnLine Hyd 178. The court took the view that in accordance with the unamended Section 13(8) of the SARFAESI Act, the right of the borrower to redeem the secured asset was available till the sale or transfer of such secured asset.

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To sum up, the post-amendment scenario inevitably requires a clear thirty day notice period being maintained between issuance of the sale notice under Rule 8(6) of the Rules of 2002 and the publication of the sale notice under Rule 9(1) thereof, as the right of redemption available to the borrower in terms of Rule 8(6) of the Rules of 2002, as pointed out in MATHEW VARGHESE, stands extinguished upon publication of the sale notice under Rule 9(1).”

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[emphasis supplied]

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20. Hon’ble Apex Court has held at Para 37 as under:

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From the above provisions under Rule 8(6) it is clear that the authorised officer of the Bank shall serve on the borrower a notice of thirty days for sale of immovable property, and that if the sale of such secured assets is by way of public auction, the Bank/secured creditor, shall cause publication of such notice in two leading newspapers, one in vernacular, language having sufficient circulation in the locality by setting the out the terms of sale, mentioned in the said provision; and under sub-rule (1) of Rule 9, such sale of immovable of property under these Rules shall not 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), or notice of sale has been served to the borrower.

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In view of the law laid down by the Hon’ble Apex

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Court, now we have to scrutinize whether the procedure

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prescribed in Rules 8(6) and 9(1) of the Rules is followed by the secured creditor or not?

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Admittedly auction sale notice was issued on 15.01.2021 and Rule 9(1) notice was published on 15.01.2021 whereas auction sale was conducted on 04.02.2021.

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23. On the basis of the discussion made above, I am of the

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considered view that there is no clear 30 days’ time gap

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given by the bank in conducting the auction sale. In the present case,sale notice was issued on 15.01.2021 and publication of sale notice was made on 15.01.2021 and auction conducted on 04.02.2021. As has been held by the Hon’ble Apex Court, bank should issue 8(6) noticed by giving 30 days’ time gap for redemption of the secured asset and thereafter Rule 9(1) notice should be published for general public as well as borrower/guarantors for conducting the first auction sale. If the time between publication of sale notice i.e. 15.01.2021 and publication of sale notice on 15.01.2021 is computed, I find that there wasno clear 30 days gap. Hence, provision of Rule 8(6) and

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9(1) of the Rules was violated.

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24. Hon’ble Apex Court in Seth Kashi Ram Chemical (India) Vs. State of Haryana [AIR 1991 SC 478] has held that not following statutory provisions itself is a good ground for quashing the confirmed sale. In the case on hand, auction sale was confirmed and auction purchaser

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was in possession of the secured asset, but, since

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mandatory provision of Rule 8(6) and 9(1) of the Rules has

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been violated, in such circumstances, whole exercise in

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conducting the auction sale was vitiated.

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25. Before parting with the judgement, it is worthwhile to mention that learned DRT while setting aside the auction sale and further directing the bank to re-deliver the physical possession of the secured asset to the borrower, not considered the question of refunding the sale price to the auction purchaser, since auction purchaser was not at fault,

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he purchased the property in a public auction by depositing

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total bid amount within stipulated time as per law.Although,

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borrower filed I.A. 601 of 2021 for restoring possession of

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the secured asset, while allowing the prayer learned DRT should have considered refund of the sale price to the auction purchaser. Hence, I am of the view that auction purchaser should get refund of sale price which he deposited

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with the bank along with interest from the date of deposit till the date of refund.

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26. Accordingly, I am of the considered view that

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impugned judgement dated 05.08.2021 passed by learned

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DRT- Visakhapatnam does not suffer any illegality and

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irregularity except refund of the sale price to the auction

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purchaser. Both the appealsare liable to be dismissed.

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O R D E R

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Appeal no. 39 of 2021 and appeal no. 52 of 2022are dismissed. Impugned judgement dated 05.08.2021 passed by learned DRT in S.A. No. 92 of 2021 is confirmed. Bank is directed to refund the sale price to the auction purchaser along with interest at the rate of seven per cent simple from

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the date of deposit till the date of actual payment within 30 days from the date of uploading the judgement. Auction purchaser should hand over vacant possession of the secured asset to the bank on receipt of the consideration amount.However, bank would be at liberty to recover its dues in accordance with law. No order as to costs.

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File be consigned to record room.

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Copy of this judgement be placed in the file record of Appeal No. 52 of 2022.

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Copy of the order be supplied to the appellant and the respondents and a copy be also forwarded to the concerned DRT.

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Copy of the judgement/Final Order be uploaded in the Tribunal’s website.

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Order dictated, signed and pronounced by me in the open Court on this the 12^th day of March, 2024.

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