Quashed

M S Shri Krishna Enterprises v. Punjab National Bank

DRT19 Jul 2022SA/197/2022

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal quashed a bank's demand notice, possession notice, and subsequent auction due to procedural defects including missing NPA dates, insufficient personal service on all borrowers, and failure to provide the mandatory 15-day clear notice for the sale.

What did the court decide?

The demand notice dated 24-05-21, possession notice dated 09-08-21, and the auction conducted on 24-03-22, along with all subsequent proceedings, were quashed. The applicant was directed to return the

M S Shri Krishna Enterprises versus Punjab National Bank — Specific Performance | DRT (2022)

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IN THE DEBTS RECOVERY TRIBLINAL LIJCKNOW

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Present: A. H. Khan, Presiding Officer

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Date of order 19-07-2022

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S.A. No.197 of 2022

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Present:-

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Counsel for the applicant Counsel for the bank

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Mr.Mohd.Yaqub BH of Mr.N.K.Tri

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Final arguments were heard on27-06-2022 and case was reserved for pronouncement of orders.

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The applicant has filed the present SA on tl-04-2022 prayingto quash the demand notice dtd.24-05-2r, possession notice dtd.09-0g-21 and proclamation of sale dtd.07-03-22 and auction scheduled on 24-03-22. Applicant has further prayed to quash the Sale certificate and its registration, if any and had also prayed to quash the entire securitization proceeding initiated by the bank against the applicant. Applicant has further prayed for a direction to bank not to debit in the loan account of applicant any charge & interest which is against the RBI guidelines and not to proceed in future under the Act, 2002 against the properties of the applicant as bank is not having any security interest in the said property.

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3' The case of the applicant, in brief, is that bank had sanctioned credit facility to Applicant No.l through its partners Applicant No.2 and 3 againsr the rnortgage of property of the applicant No.4 and personal guarantee of Applicant No.5. That bank without giving any proper opportunity, prior notice & intimation and without assigning any reason has illegally classified the account as NPA and proceeded with the recovery under SARFAESI 4ct,2002. That bank issued demand notice dtd.24-05-2l to a dead person and no date of NPA has been mentioned in the demand notice. Thereafter bank had issued defective possession notice dtd.09-08-21 in the name of firm which had lost is legal entity after the death of its proprietor and the said possession notice was affixed on the property of the applicant. Thar possession notice was never served on applicant and neither published in twcr newspapers. That bank had issued proclamation of sale dtd.07-03 -22 which was found affixed on 25-03-22 on the subject property fixing the auction on 24-03-22- That the action of the bank is in violation of mandatory provisions of SARFAESI Act and rules made thereunder. That bank is not having anv security interest in its favour and bank has also not served the sale notice to applicants and had also not published the same in two newspapers. That bank has not registered tlyg charge with Central Registry as required u/s 26-D of the SARFAESI Act.

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,l ,y',

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Res.No.l bank had filed its reply wherein it is contended that after classiflring the account as NPA bank had served the demand notice dtd. 24-05-21 to all borrowers including the applicant and that bank has security interest in its favour. That challange to possession notice is highly time barred and bank had complied with all the mandatory provisions with regard to possession notice. That sale notice dtd.07-03-22 was served on all borowers and was also affixed on secured asset and also published in two newspapers. That the property has been sold in the third auction held on 24-03-22 and Sale certificate dtd.07-04-22 has been issued to auction purchaser and before conducting the sale bank had also obtained proper valuation report.

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Res.No.1 bank had also filed affidavit on 27-06-22 for filing additional documents wherein it is stated that vide order dtd.l 7 -06-22, this Tribunal had condoned the delay in challenging the demand notice and possession notice and therefore bank is filing copy of possession notice dtd.09-08-21 alongwith postal receipts, photographs of affixation and publication made in newspaper.

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Duly considered submissions and perused the records. Applicants have also filed written arguments which are on record.

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As regards challenge to demand notice is concerned, the main contention of the Counsel for applicant is that account has been wrongly classified as NPA and that date of NPA has not been mentioned in the demand notice and therefore the same is not tenable in the eyes of lau,. In this regard, he has relied on judgment passed by Division Bench of Hon'ble Delhi High Court in the case of Urmila Kumari Vs. Om Prakash Jangra & Ors. WP(C) 5580 of 2011, judgment passed by Hon'ble Madras High Court in the case of IWs Signal Apparels Pvt. Ltd. Vs. Canara Bank and judgment passed by Hon'ble DRAT Delhi in the case of PNB Housing Finance Ltd. Vs. M.C.Gupta.

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In the case of Urmila Kumari Vs.Om Prakash Jangra & Ors. - WP(C) No.5580/2011, Hon'ble Delhi High Court in Para 48 of its judgement dtd. 20-03-2015, has observed as under:-

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"Para 48 - In allowing the application u/s 17 of SARFAESI Act of the first respondent, the DRT by its order dtd.30-l l-10 returned findings to the effect that the representation submitted by the first responded, under Sec.l3(3A) of SARFAESI Act had not been disposed of and that mandatory requirement of Rule 8(1X2) of the Security Interest (Enforcement) Rules, 2002 had not been complied with. It found fault with the classification of the account of first respondent as NPA observing that this had been done "without application of mind" and further that even the notice u/s I3(2) SARFAESI Act was deficient since the factum of the account having been declared or the date of NPA had not been indicated......." This finding of DRT /

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was upheld by DRAT and also by Hon'ble Delhi High Court as is evident from Para 49 and Para 60 of the said judgment.

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g. In the case of PNB Housing Finance Ltd. vs. M.c.Gupta - Appeal No.4l0 of 2014 decided on 15-02-16- III(2016)BC 91(DRAT), it is held that "Date of classification of account as NPA is crucial date for borrower to know if non-mention itself is enough to render notice u/s l3(2) defective". The appeal filed by PNB Housing Finance has been dismissed by Hon'ble DRAT by making an observation in Para 3 of its judgment that ".....The date on which the account was classified as NPA is not mentioned. This is one of the defects notices by the Tribunal below.....".

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In the case of IWs Signal Apparels Pvt. Ltd. vs. Canara Bank - wp No.5313/10, Hon'ble Madras High Court in Para 16 of its judgment dtd. 06-07 - 10 has held as under :-

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"Para 16........In the wake of the right of secured creditor to declare a debt as a non-performing asset, to show the application for mind for such determination, it may indicate the reasons thereof in the notice u./s 13(2) and the Section does not contemplate that in all cases such reasons should be indicated in the notice. The application of mind could be culled out frorn the materials that were existed on the date of such declaration."

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1 l. In the present case, perusal of demand notice dtd.24-05-21 (Annex.R-1 Page 8 to 13) filed by the bank alongwith its reply reveals that bank has not mentioned the date on which account of applicant was declared as NPA. Therefore, in view of the law settled by Hon'ble High Court and Hon'ble DRAT, it has to be held that the demand notice dtd.24-05-21 (Annex.R-l) issued by the bank is defective and cannot sustain in the eyes of law and is accordingly dismissed.

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As regards challenge to possession notice dtd.09-08-21 is concerned, perusal of Page 3 & 4 of the affidavit for filing additional documents filed by the bank reveals that possession notice dtd.09-08-21 was sent to applicants vide postal receipts dtd.l l-08-21 (Page 5) and the same was also published in newspapers (Page 6 & 7) and was also affixed on the secured asset (Page 8 & 9) of the additional affidavit.

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Rule 8(1) of Security Interest (Enforcement) Rules, 2002 provides that "Where the secured asset is an immovable property, the authorized fficer shall take or couse to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by ffixing the possession on the outer door or at such conspicuous place of the property.^"

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In the present case there are total five borrowers as per possession notice dtd.09-08-21but bank has filed only two postal receipts. Therefore, it has to be held that possession notice has not been served on all the borro*.1t,

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and thus the same cannot sustain in the eyes of law and is liable to be dismissed. Moreso, when the demand notice itself has been held to be bad and has been quashed (supra), any action pursuant to said demand notice also does not sustain in the eyes of law.

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As regards challange to proclamation of sale dtd.07-03-22 and auction scheduled on 24-03-22 is concerned, the main contention of the applicants is that bank has not served sale notice as required under Rule 8(6) and has affixed only proclamation of sale dtd.07-03-22. In the application u/s 340 Cr.P.C. read with Sec.l95(l)(b) Cr.P.C filed by the applicants on 28-06-22,,it is contended that the postal receipts by which bank is claiming to have send the sale notice is weighing only 10 gms which is not possible. Perusal of Annex.R-2 (Colly) reveals that bank had annexed Sale notice dtd.O7-03-22 alongwith proclamation of sale dtd.07-03-22 (page l6 to l8) of Annex.R-2 (Colly) and the same was sent to applicants vide postal receipt dtd.08-03-22 (Page 19). Perusal of postal receipt atPage 19 reveals thatthe same is only 10 gms weight and therefore the contention of the applicants appears to be true. Further, it is seen that sale notice was dispatched on 08-03-22 and the same rright have been received by the applicants on 09-03-22. Bank has conducted the auction on24-03-22 i.e. on the l5th day.

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Hon'ble Kerala High court in the case of E.K.Rajan Vs. Ao wp(c) No.27485 l2l vide its judgment dtd. 18-05-22 has held as under :-

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"Para 16 - In the instant case, on a perusal of Ext"R(d) acknowledgement card, it can be assimilated that the notice of sale was served on the petitioner only on 23-ll-21. The sale took place on 08- 12-21 was thus on 15th day of service of notice. The statutory requirement of 15 days clear notice or "notice of not less than 15 days" is not seen to be satisfied. The situation would be different if the delay in service of notice was on account of the petitioner's default or that the petitioner evaded the service of notice till 23-ll-21. There is no pleading in the counter affidavit of the respondent that the petitioner had evaded service of notice till 23-ll-21. It is also not pleaded by the respondent that notice was issued to the petitioner sufficiently early to satisff the statutory requirement of l5 days clear notice.

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Para 17- A reading of proviso to Rule 9(1) of the rules makes it explicit that authorised officer must serve, affix and publish the notice o1'sale of not less than 15 days to the borrower, for any subsequent sale. The word 'selve' relates to personal service of notice, affixture relates to the notice being affixed on the property and the publication relates to the publication of notice in the newspaper dailies. The conjunction 'and' employed in the provision also indicate the mandatory nature of all three methods of notice. Further, inspite of amendment to Sec.13(8) of the Act, the proviso to Rule 9(1) mandates the three methods of serve, affix and publish the notice to be carried out, with 15 days clear notice. In the instant case, there is a failure on

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the part of respondent to serye notice of not less than 15 days upon the petitioner. Therefore the notice of sale is bad in law. Exh.p3 and the consequent sale are therefore liable to be set aside."

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In the present case, it is apparent that bank has conducted the sale on the 15th day and therefore in view of the law settled (supra) the sale conducted by the bank on24-03-22 cannot sustain in the eyes of law.

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Applicants have also contended that bank had not affixed the sale notice dtd.07-03 -22 and in fact they have affixed proclamation of sale dtd. 07 -03-22 which is violation of Rule 8(7) of S.I. Rules , 2002. Perusal of Page 20 &. 2l of Annex.R-2 filed by the bank reveals that bank has affixed the proclamation of sale. Applicants have also filed enlarged copy of photographs (Page 20 & 21) alongwith their written arguments which clearly reveals that bank had affixed proclamation of sale dtd.07-03 -22 and not sale notice dtd.07-03-22.

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Rule 8(7) provides that "Every notice of Sale shall be affixed on the conspicuous part of the immovable property and the authorized officer shall upload the detailed terms and conditions of the sale on the website of the secured creditor, which shall include;......"

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Thus, it has to be held that bank has violated Rule 8(7) by not affixing the sale notice on the secured asset before proceeding for sale of the properly and therefore the auction held on 24-03-22 cannot sustain in the eyes of larv.

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17 . In view of above discussion, the demand notice dtd.24-05-21, possession notice dtd.09-08 -21 and sale conducted on 24-03-22 pursuant to sale notice dtd.07-03-22 are hereby quashed. A11 the proceeding pursuant to sale notice dtd.07-03-22 and sale conducted on 24-03-22 are also quashed. Bank is directed to return the money deposited by auction purchaser as per law and shall be at liberty to proceed afresh for recovery of its dues by following due process of law.

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There being no other issue for adjudication, the present SA stands finally disposed of. Interim applications, if any, are also disposed of accordingly. _.-:)

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_.-:) ' '"\ ' 4'l^{'t''7!'4'''''} /v,/r

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File be consigned to record room.

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(A.W.Khan) Presjding Officer

M S Shri Krishna Enterprises v. Punjab National Bank

Case brief

What is this about?

What did the court decide?

M S Shri Krishna Enterprises v. Punjab National Bank

Case brief

What is this about?

What did the court decide?

What the court decided

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