Allowed

Mr S Murugan v. Jm Financial Products Ltd.

DRT17 Oct 2022SA/151/2022

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal allowed an application quashing a sale certificate issued under SARFAESI Act. The Tribunal held the Authorized Officer violated statutory procedures by failing to intimize the mortgagor, ignoring natural justice, and selling below the reserve price without consent, setting aside the sale and directing the financial institution not to recover expenses.

What did the court decide?

Sale certificate set aside as illegal and unlawful; 1st Respondent directed not to debit SARFAESI expenses to the borrower's account; liberty granted to parties for amicable settlement.

Mr S Murugan versus Jm Financial Products Ltd. — Banking and Recovery | DRT (2022)

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S.A. 151 of 2022 17.10.2022

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IN THE DEBTS RECOVERY TRIBUNAL-III, CHENNAI

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Dated this the 17^th day of October, 2022

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Present: Shri Ganapathi K.R.K. Presiding Officer

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SARFAESI APPLICATION No. 151 of 2022

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S.Murugan

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S/o.V.P.Sivasubramaniam No.38, Karpaga Vinayagar Kovil Street Alandur Chennai – 600 016

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….Applicant

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Vs.

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1. The Authorised Officer

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JM Financial products Ltd., Mortgage Loan Division No.3B, 3^rd Floor, Eldorado Building Nungambakkam High Road Nungambakkam

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Chennai – 600 034

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2. M/s Shabeel Construction Pvt Ltd.,

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Rep. by its Managing Director Mr.Shabeel Khan S/o Syed Hameed Khan No.4/65, Kamaraj Avenue 1^st Street Adyar Chennai – 600 020 ….Respondents

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Counsels on record / appeared:

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Counsel for Applicant : M/s. J.J.R.Edwin, C.Obed John & J.P.Joshua Counsel for 1^st Respondent : M/s. L.Vinoth, D.Prabhu & G.M.Gokul Ram Counsel for 2^nd respondent : M/s. J.Viswanathan & Uma

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S.A. 151 of 2022 17.10.2022

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ORDER

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This SA is filed challenging the Sale certificate dated 14.12.2020 under Section 14 of SARFAESI Act, issued by the Authorised Officer of the respondent financial institution.

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Heard the Ld.Counsel appearing for all the parties.

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It is the case of applicant that the respondent financial institution has not followed the procedure under SARFAESI as warranted under law. It is the further case of applicant that respondent financial institution did not follow the procedure under law even while issuing the possession notice, which of course was not challenged by the applicant herein. Ld.Counsel submitted that applicant is laying challenge to the issuance of a sale certificate dated 14.12.2020 consequent upon a sale purported to have been held in favour of 2^nd respondent, notice of which has not been caused on the applicant / mortgagor. It is the further case of applicant that the procedure adopted by the respondent financial institution right from the issuance of sale notice, to its conclusion by issuing a sale certificate, are all acts which are not in accordance to law. Ld.Counsel has demonstrated that the purported sale notice dated 26.11.2020 filed at Pg.No.15 of 1^st respondent typed set did not contain either date or time of sale and was more or less a letter of intimation with a veiled threat to selling the property for Rs.2.25 Crores to a lone bidder if the said amount is not paid by the borrowers within 7 days or in the alternative bring in a purchaser for higher price.

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It is contended that under no circumstances, can that letter be construed as a sale notice, since there are no terms and conditions of any sale or auction that are

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S.A. 151 of 2022 17.10.2022

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detailed therein and that threatening to conclude at a lesser price than the reserve price fixed at Rs.2.4 crores in the sale notice dated 27.02.2020 shall vitiate the actions of the Authorised Officer. It is not detailed anywhere as to how the Authorized Officer is entitled to address such a letter and threaten to conclude the sale in favour of a lone bidder without even informing the details of the bidder and that too for a price lower than the reserve price fixed in their notice issued in February 2020 while being aware of Covid pandemic situation prevailing in the country. Ld.Counsel for applicant further submits that respondent financial institution has issued a possession notice on 07.08.2019, but published the same only on 23.08.2019, which is beyond the statutory period of time allowed under the Act and hence their possession notice is also not valid in the eyes of law. Ld.Counsel further submits that the subsequent issuance of sale notice on 27.02.2020 followed by a letter dated 26.11.2020 with a threat to sell away the property for a price lesser than the reserve price and consequential act of issuance of a sale certificate thereupon are not valid in the eyes of law and therefore prayed to set aside the same.

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Whereas 1^st respondent financial institution has put up appearance and filed their counter and typed set of documents evidencing their actions. Ld.Counsel for 1^st respondent financial institution submits that 1^st respondent had followed the procedure as warranted under law and that the borrower is very much aware about their default as well as the actions being taken by the respondent financial institution / secured creditor under SARFAESI but did not raise any objections by approaching the Tribunal at the relevant point of time and it will not be open for the applicant to raise issues not under

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challenge now since the same amounts to waiver of their right. Ld.Counsel further

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S.A. 151 of 2022 17.10.2022

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submits that the challenge now with a delay of more than 120 days and that too challenge to an administrative act like the issuance of a sale certificate is not tenable and valid in the eyes of law and therefore the very challenge shall have to fail. Ld.Counsel further submits that 1^st respondent financial institution had intimated about their contemplated actions from time to time to the borrowers including the applicant herein, whereas applicant never chose to raise any objections nor had approached the Tribunal and sought for any resolution. It is not open for the applicant to raise frivolous issues and pray to set aside the sale certificate since setting aside the sale certificate would have a cascading impact on the recovery as well as on the mortgage available to the 1^st respondent financial institution since sale has already been concluded and sale certificate together with possession are handed over to the purchaser. It could have been within the realms of the 1^st respondent financial institution, if applicant would have challenged either the sale notice or the letter issued to them before concluding the sale in favour of the purchaser and now they are helpless with regard to the concluded sale for which a sale certificate dated 14.12.2020 has been issued. It is the further case of 1^st respondent financial institution that since they lost their saleable interest by determining their mortgage and 3^rd party interest being created accepting the prayer of applicant will totally disarray their recovery process.

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2^nd respondent, Auction purchaser submits that he was a genuine buyer for the price quoted by him and accepted by 1^st respondent and that in furtherance to depositing the sale consideration in a sum of Rs.2.25 crores, 2^nd respondent had incurred a further sum of Rs.1.3 crores and had put the land to further use for a building activity and submits that the action of the applicant is only an afterthought on seeing the

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S.A. 151 of 2022 17.10.2022

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2^nd respondent improve the property by incurring huge expenditure thereon. The present challenge, with a prayer to undo the actions of the 1^st respondent financial institution and seeking to set aside the sale certificate, is only a blatant attempt to dislodge the genuine buyer for unlawful gain. Applicant not challenging any of the earlier actions at the relevant point of time cannot now after a delay of more than 120 days raise issues detrimental to the interest of the purchaser. Ld.Counsel further submits that 2^nd respondent had already progressed further and made further substantial investments in the said land which would be impossible to be compensated in monitory terms and therefore prayed for an appropriate order.

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On the foregone submissions of respective parties, it is pertinent to examine the sale notice dated 27.02.2020 issued by the Authorised Officer of 1^st respondent financial institution which is filed at Pg.No.13 of the 1^st respondent’s typed set. It is only a paper publication that has been filed into the Tribunal and not the actual notice. On examination of the said notice, the reserve price is fixed at Rs.2.4 crores while the sale is being caused for recovery of Rs.4,07,90,775/- due as on 09.05.2019. It is mentioned therein that the date and time of e-auction is 27.03.2020 at 4 PM. It may be observed that February having 28 days only, the notice is short of 3 days for the statutory period of 30 days for bringing the property to sale. All parties concede that due to onset of Covid – 19 pandemic, national lockdown is implemented from 24.03.2020 instance and therefore it is obvious that no sale had taken place on the scheduled date being 27.03.2020.

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S.A. 151 of 2022 17.10.2022

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The next point for consideration is the purported letter dated 26.11.2020 filed at Pg.No.15 of the respondent’s typed set which states that it is a notice under Rule 9(2) of the Security Interest (Enforcement) rules, 2002.

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The notice reads as follows: “This is with reference to the Loan against property under Loan agreement dated 23^rd March 2018 executed by and between Sri Duraippa & Co. & 3 others (“Borrowers”) and JM Financial Products Limited (“Lender”) in connection with the term loan facility of an amount of Rs.3,75,00,000/- (“Facility”) granted by the lender to the borrower (“Loan Agreement”) ……….. ………” “ Whereas the lender had published the notice of sale in newspapers on 27.02.2020 with respect to the schedule mentioned property at a Reserve price of Rs.2,40,00,000/-. However in spite of receiving one lone offer the sale could not be finalised owing to the Covid-19 pandemic. Consequently another sole bid for Rs.2,25,00,000/- (Rupees Two Crore Twenty Five Lakhs only) was received and you are hereby informed that the secured creditor is constrained to sell the schedule property at the said revised bid of Rs.2,25,00,000/- to the bidding party. This notice is for your information and in the event of your failure to pay the outstanding loan dues or to bring a offer higher than the one received by the Authorised Officer within seven days of this notice your consent shall be presumed and the Authorised Officer shall proceed with the sale of the schedule property to the bidder as aforementioned”.

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From the reading of the above notice, it is clear that there is no other notice served on the borrowers of the purported sale notice dated 27.02.2020 nor was there any affixture on the scheduled property. It is also evident from the letter that the Authorized officer has not read nor even if read, did not follow the provisions of Rule 9(2) of the Act,

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S.A. 151 of 2022 17.10.2022

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for reference Rule 9(2) of the Security Interest Rules, “ Time of sale, issue of

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sale certificate and delivery of possession, etc …..…. (2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor:

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Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of [rule 8]

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Provided further that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price ”.

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Although the provision of Rule 9(2) is mentioned at the top of the notice as stated above, Authorized Officer has not followed any of its contents. In addition to the above, the Authorized officer also did not explain as to how yet another sole bid for Rs.2.25 crores has been accepted when the earlier reserve price was at Rs.2.4 crores, thus again contravening the provisions of the act. It is also not explained anywhere as to how the Authorized officer has derived any powers from any of the provisions of the act to bring the property to sale by his choice of a sole bidder and not through any of the modes prescribed under the act.

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Contrary to the contentions raised by the 1^st respondent, 2^nd respondent submits and admits that he had made a paper publication on 28.11.2020 of his intention of purchasing the above property while seeking any claim or objection in respect of the said property from general public and caused the same to be published in newspapers

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S.A. 151 of 2022 17.10.2022

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through his counsel, which is averred in Para 5 of the 2^nd respondent’s counter statement. Para 6 of the same counter statement reads that 1^st respondent financial institution had accepted the offer of the 2^nd respondent on 27.11.2020 and was directed to deposit the balance amount of Rs.1,68,75,000/- pursuant to his offer letter dated 03.10.2020 together with the Demand Draft of Rs.56,25,000/- for a bid amount of Rs.2,25,00,000/- for the scheduled property. Para 7 of the counter statement reads that on receipt of the entire sale price the 1^st respondent financial institution registered the sale certificate on 14.12.2020 vide Doc.No.7318/2020 before the SRO, Neelangarai and also handed over the possession of scheduled property.

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Thus from the sequence of events and intimations caused to the applicant it is prima facie evident that the Authorized officer had never acted in accordance to the rules of the act and has acted according to his whims and fancies and concluded the sale creating 3^rd party interest and the 3^rd party purchaser pursuant to such sale has caused improvements over the property estimated at about Rs.1.3 crores. It is the case of respondents that they had concluded upon the sale and that 1^st respondent had lost its saleable interest after conveying right and title in favour of 2^nd respondent and that 2^nd respondent pursuant to such conveyance has acted further and improved the property.

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In this matrix of situation this Tribunal is experienced with the piquant situation either to hold the actions of the Authorized officer as illegal and set aside his actions or on the other hand ignore the actions of respondents in conveying the property to auction purchaser.

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S.A. 151 of 2022 17.10.2022

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From a plain reading of the above, it is evident that the Authorised Officer has not followed the provisions of law and there are more violations to it than one. It is not explained as to how the sale can be concluded in favour of a third party by mere issuance of a letter to the mortgagor insisting to pay the money demanded within seven days failing which, to conclude the sale in favour of the lone bidder. Even assuming that the Authorised Officer contemplated a private treaty, the objectives and conditions warranted under private treaty are also not adhered to and thus the sale event cannot be construed as a private treaty between the secured creditor and the Auction purchaser. The Authorised Officer has not assigned any reason to reduce the reserve price or did not advertise any public notice as warranted under the provisions of the Act while bringing the property to sale. 1^st Respondent has not furnished any valuation report to substantiate the fixation of price at Rs.2.25 crores contrary to their earlier reserve price of Rs.2.4 crores. However a reading of the counter of 2^nd respondent, Auction purchaser, confirms that the offer has been made as early as on 03.10.2020 for an amount of Rs.2.25 crores, while the secured creditor has addressed a letter only 7 days before conclusion of sale on 26.11.2020 which is more than 50 days time, that the mortgagor, has been kept in dark with regard to the proposed sale.

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Respondent financial institution has not explained as to what prevented them to

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not inform their actions or offers that they received for the property with the borrower / mortgagor if they intend to bring the same to sale. The conclusion of sale without intimation to the borrower as contemplated under law is definitely violative of, if not any law, the principles of natural justice, especially when the whole country is reeling under covid and Hon’ble Supreme court has passed orders, not to precipitate coercive

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S.A. 151 of 2022 17.10.2022

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measures. Viewing the matter in any manner, there is violation of all the rules and provisions of the act and nothing is correct except recovery of Rs.2.25 crores by the secured creditor apart from creation of 3^rd party interest in the property, over which an additional investment of about Rs.1.3 crores has already been made to bring it into a better saleable extent by the 2^nd respondent / auction purchaser.

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1^st respondent miserably failed to establish an appropriate procedure as warranted under law while concluding the sale in favour of 2^nd respondent. Consequently the actions of the secured creditor through its Authorised Officer are hereby set aside as illegal and unlawful.

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However, since conveyance is already concluded and 3^rd party interest created and subsequent improvement also caused to the property, liberty be with all the parties concerned to enter into any amicable negotiated settlement if interested and contemplated so in terms of their submissions before the bench during the course of hearing. This Tribunal is not expressing any opinion with regard to such settlement between the parties outside this litigation.

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In the result, SA stands allowed. 1^st respondent is directed not to debit its purported SARFAESI expenses if any to the borrower’s loan account.

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Interim order, if any granted and subsisting till this day stands vacated and all other IAs, if any pending stand closed.

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With the above directions, this SA stands disposed.

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S.A. 151 of 2022 17.10.2022

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A copy of the order be communicated to the parties concerned as per extant

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guidelines.

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(Dictated to Stenographer (DD), transcribed by her, corrected, signed and processed through e-drt, on this the 17^th day of October, 2022)

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Sd/-

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(GANAPATHI K.R.K) PRESIDING OFFICER

Mr S Murugan v. Jm Financial Products Ltd.

Case brief

What is this about?

What did the court decide?

Mr S Murugan v. Jm Financial Products Ltd.

Case brief

What is this about?

What did the court decide?

What the court decided

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