Allowed

M Muralidhara Kumar v. South Indian Bank

DRT17 Nov 2022SA/9/2022

Case brief

AI extract

What is this about?

The Tribunal allowed an application challenged a bank's possession notice. Relying on ITC Ltd., the court held that the bank's failure to consider borrower objections under S.13(3A) rendered proceedings illegal. The demand and possession notices were set aside, and possession restored.

What did the court decide?

The demand notices dated 16.08.2021 and possession notice dated 25.11.2021 are set aside. Possession of the secured asset is restored to the borrower forthwith.

M Muralidhara Kumar versus South Indian Bank — Banking and Recovery | DRT (2022)

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IN THE DEBTS RECOVERY TRIBUNAL-2, KERALA AT ERNAKULAM

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PRESENT: SRI.SOVAN KUMAR DASH PRESIDING OFFICER

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Dated this the 17^th day of November, 2022

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SECURITIZATION APPLICATION No.9/2022

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Between

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M.Muralidhara Kumar, S/o.Madhavan Pilla, Proprietor of M/s.Thottuvayil Agencies, Chirakadavu, NH – 220,

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Residing at Thottuvayil House, Thambalakkad.P.O., Ponkunnam,

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Kottayam – 686 506.

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Sudha Murali, W/o.M.Muralidhara Kumar, Proprietor of M/s.Thottuvayil Associates, Chirakadavu, Residing at Thottuvayil House, Thambalakkad.P.O.,

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Ponkunnam, Kottayam – 686 506.

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Balu Murali Krishna, S/o.M.Muralidhara Kumar, Residing at Thottuvayil House, Thambalakkad.P.O., Ponkunnam, Kottayam – 686 506. …Applicants

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And 1. South Indian Bank Ltd., Represented by Chief Manager, Ponkunnam Branch, Kerala – 686 507.

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The Authorised Officer & Chief Manager, South Indian Bank Ltd., Regional Office, Kottayam, First Floor, Regency Square, Collectorate.P.O., Kottayam – 686 002, Kerala State. …Defendants

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SA 9/2022

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This Securitization Application having been heard on 27.10.2022 in the presence of Advocate Sri.R.Surendran for the applicants and Advocates M/s.Sunil Shankar and Devayani Nair for the defendants, and stood over to this day for consideration, the Tribunal delivered the following:

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F I N A L O R D E R

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This securitization application is filed by the borrowers under S.17(1) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘the SARFAESI Act’) challenging the possession notice issued under S.13(4) of the SARFAESI Act for taking possession of the secured assets. Brief facts of the case:

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The factual aspects leading to the filing of this SA are that the 1^st applicant had availed an overdraft facility and ECLGS loan facility with an upper limit of Rs.2 crores and another loan of Rs.40 lakhs respectively on 16.11.2018 and 08.06.2020. The applicants 1 to 3 signed and delivered an agreement form with the 1^st defendant bank agreeing to repay the loan amount. The 2^nd applicant had also availed a CCOL of Rs.1 crore and ECLGS loan facility with an upper limit of Rs.20 lakhs from the 1^st defendant respectively on 09.07.2019 and 08.06.2020. The 1^st and 2^nd applicants signed and delivered agreement forms with the 1^st defendant bank agreeing to repay the loan amount. On 12.06.2020, an additional loan facility of Rs.50 lakhs was also given to 1^st and 2^nd applicants on signing the loan agreement forms. It is claimed by the applicants that agricultural property of the 1^st applicant having an extent of 1.4340 Hectares comprised in Re-

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SA 9/2022

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Sy.Nos.171/1 and 170/2 of Kanjirappally Village, Kottayam District was given as security for repayment of the aforementioned loans.

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It is contended that even though the bank obtained possession of original title deed of the property, there was no creation of mortgage by deposit of title deed in respect of the same as the applicants are not ordinary residents of any of the notified towns and the 1^st defendant’s branch was outside the limits of towns notified under S.58(f) of the Transfer of Property Act. Consequent to classification of the loan accounts as NPA, the 2^nd defendant issued notices to the applicants purportedly under S.13(2) of the SARFAESI Act, marked as Annexures-A1 and A2, requiring them to pay the entire outstanding amount within 60 days. The applicants received the notices on 20.08.2021.

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The applicants sent their representation/objection dated 06.10.2021 to the 2^nd defendant denying the existence of any mortgage and correctness of the amount claimed in the notice in respect of M/s.Thottuvayil Agencies vide Annexures-A3, A3(a) and A3(b). Annexures-A4 and A4(a) are the copies of representation/objection dated 06.10.2021 submitted by 1^st and 2^nd applicants to the 2^nd defendant in respect of M/s.Thottuvayil Associates. These representations were sent to the 2^nd defendant by registered post on 07.10.2021 vide Annexure-A5 postal receipts and the 2^nd defendant received the aforesaid representations on 08.10.2021 vide Annexure-A6 postal acknowledgments. However, the 2^nd defendant did not issue any reply to the applicants and hence there is gross violation of S.13(3A) of the SARFAESI Act r/w R.3-A of the Security Interest (Enforcement) Rules.

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SA 9/2022

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Subsequently, the 2^nd defendant issued possession notice dated 25.11.2021 marked as Annexure-A7 and took symbolic possession of the property. The possession notice was also published in Deepika and Indian Express dailies on 30.11.2021. The leaned counsel for applicants would contend that the requirement in S.13(3A) of the SARFAESI Act is mandatory and it is obligatory on the part of the 2^nd defendant to consider the representation/objection submitted by them before proceeding under S.13(4) of the SARFAESI Act and non-compliance of the same would render the entire proceedings illegal and the same are liable to be set aside.

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The learned counsel for the defendants contended that as the contentions in the IA and SA are similar for the interest of justice the SA may be taken into hearing and their counter affidavit in the IA may be treated as Written Statement in the main SA. The other side has no objection for the same. Accordingly, the SA was taken up for hearing. The defendants claimed that the 1^st applicant availed an overdraft facility of Rs.200 lakhs and ECLGS facility of Rs.40 lakhs, the 2^nd applicant availed a cash credit limit of Rs.100 lakhs and ECLGS facility of Rs.20 lakhs and the 1^st and 2^nd applicants jointly availed KCC OD facility of Rs.50 lakhs from the defendant bank. The aforesaid facilities were inter alia secured by equitable mortgage of two items of properties belonging to the 1^st and 2^nd applicants. Due to default in repayment, the credit facilities availed by the applicants were classified as NPA and the Authorised Officer initiated securitization measures against the property having an extent of 143.40 Ares with a building therein having a plinth area of 306.69 sq.mtr. as per Annexure-A1 demand notice in respect of the facilities availed by the 1^st applicant

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SA 9/2022

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and Annexure-A2 demand notice was issued in respect of the facilities availed by the 2^nd applicant and KCC limit availed by the 1^st and 2^nd applicants.

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As the liability was not discharged, the 2^nd defendant issued Annexure-A7 possession notice dated 25.11.2021, which was received by the applicants. The possession notice was published in Deepika and New Indian Express dailies on 30.11.2021 and the same was also affixed on the conspicuous part of the secured asset. Subsequently, they initiated proceedings under S.14 of the SARFAESI Act by filing MC No.328/2022 before the learned CJM, Kottayam and the said court appointed an Advocate Commissioner who issued notice dated 08.07.2022 informing that possession of the property will be taken on 22.07.2022. It is contended that there is no illegality or irregularity in the SARFAESI measures initiated by them. Hence the SA, being devoid of any merit, may be dismissed with costs.

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From the respective case of the applicants and the defendants the following points are emerged for adjudication:

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i. Whether the securitization measures taken by the defendants for recovery of the outstanding dues from the applicants under S.13(4) of the SARFAESI Act suffers from any illegality and irregularity to intervene with the same?

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ii. Whether non-compliance of S.13(3A) of the SARFAESI Act would render the entire proceedings initiated by the defendant bank illegal and liable to be set aside?

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For the sake of convenience, both the points arise for

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adjudication are taken up together. It is contended by the learned counsel for the applicants that after receipt of demand notices marked

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SA 9/2022

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Annexures-A1 and A2, the applicants submitted their representations/objections under Sec.13(A) of the SARFAESI Act. True copy of the representations/objections dated 06.10.2021 are filed in this case and marked as Annexures-A3, A3(a), A3(b), A4 and A4(a). The postal receipts are marked as Annexure-A5 and acknowledgment cards are marked as Annexure-A6. Non receipt of the same is not disputed by the defendants.

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For proper appreciation of the contentions, it is necessary to reproduce S.13(3-A) of the SARFAESI Act, which reads as follows:

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S.13(3-A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within fifteen days of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower.

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The aforesaid statutory provision would make it amply clear that issuance of notice under S.13(2) of the SARFAESI Act enables the borrower to file a representation or objection and it is obligatory on the part of the bank to consider such representation/objection and pass a reasoned order and communicate the same to the borrower within the statutory period of 15 days of receipt of the same.

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In the instant case, evidently, the

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representations/objections submitted by the applicants were received by the Authorised Officer of the defendant bank on 08.10.2021, but he did not give any reply to the applicants within 15 days of receipt of such representations as mandated under law. The defendants failed to produce any material to substantiate their case that representations submitted by the applicants were duly considered by them and reply under S.13(3-A) of the SARFAESI Act was given to the applicants.

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SA 9/2022

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The Hon'ble Apex Court in the judgment rendered in the case titled ITC Limited vs. Blue Coast Hotels Ltd. & others , reported in 2018 (4) SCC 793 held as follows:

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“25. The question that arises for consideration before us is whether the Parliament intended for a total invalidity to result from the failure to reply and give reasons for the non-acceptance of the borrower’s representation. In other words, whether sub-section (3A) of Section 13 is mandatory or directory in nature.

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26. xxxxxxxxxxxxx

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27. xxxxxxxxxxxxx

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28 . We find the language of sub-section (3A) to be clearly impulsive. It states that the secured creditor “shall consider such representation or objection and further, if such representation or objection is not acceptable or tenable, he shall communicate the reasons for nonacceptance” thereof. We see no reason to marginalize or dilute the impact of the use of the imperative ‘shall’ by reading it as ‘may’. The word ‘shall’ invariably raises a presumption that the particular provision is imperative.

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29. There is nothing in the legislative scheme of Section 13 (3A) which requires the Court to consider whether or not, the word ‘shall’ is to be treated as directory in the provision. As the Section stood originally, there was no provision for the above mentioned requirement of a debtor to make a representation or raise any objection to the notice issued by the creditor under Section 13(2). As it was introduced via sub-section (3A), it could not be the intention of the Parliament for the provision to be futile and for the discretion to ignore the objection/representation and proceed to take measures, be left with the creditor. There is a clear intendment to provide for a locus poenitentiae which requires an active consideration by the creditor and a reasoned order as to why the debtor’s representation has not been accepted.

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30. Moreover, this provision provides for communication of the reasons for not accepting the representation/objection and the requirement to furnish reasons for the same. A provision which requires reasons to be furnished must be considered as mandatory. Such a provision is an integral part of the duty to act fairly and reasonably and not fancifully. We are not prepared in such circumstances to interpret the silence of the Parliament in not providing for any consequence for noncompliance with a duty to furnish reasons. The provision must nonetheless be treated as ‘mandatory’.

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The Hon'ble Apex Court would make it clear that the provision contained under S.13(3-A) is mandatory. Hence it is held that the SARFAESI proceedings initiated by the defendants under Sec.13(4) marked Annexure-A7 is not in conformity with the statutory mandate and the law declared by the Hon'ble Apex Court. As statutory

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SA 9/2022

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mandates are not followed, the Tribunal feels that the defendants shall proceed afresh in accordance with the law from the stage of issuance of demand notices instead of proceeding further with the earlier demand notices.

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In the above circumstance, the SA deserves to be allowed. Annexure-A7 possession notice dated 25.11.2021 including the demand notices marked Annexures-A1 and A2 issued by the defendant bank are hereby set aside. By virtue of the powers conferred under S.17(3) of the SARFAESI Act, the Tribunal directs the 2^nd defendant to restore possession of the secured asset to the borrower immediately without any further delay. The defendants shall be at liberty to proceed afresh with their SARFAESI measures from the stage of issuance of fresh demand notices in accordance with the law. Since the SARFAESI measures initiated by the defendants resulted in debiting of huge expenses in the account of the applicants, this Tribunal directs the defendants to give proper credits of such expenses in the applicants’ account forthwith.

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Hence it is ordered:-

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ORDER

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In view of the foregoing reason, the SA is allowed to the extent of setting aside Annexures-A1 and A2 demand notices dated 16.08.2021 and Annexure-A7 possession notice dated 25.11.2021 issued by the defendant bank.

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(Dictated to my PA, corrected and pronounced by me in the open Tribunal on this the 17^th day of November, 2022)

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[SOVAN KUMAR DASH] PRESIDING OFFICER

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SA 9/2022

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Documents on the part of the applicants

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Annexures	Date	Particulars of documents
Annexure-A1	16.08.2021	True copy of demand notice issued to the applicants.
Annexure-A2	16.08.2021	True copy of demand notice issued to applicants 1 and 2.
Annexure-A3	06.10.2021	True copy of the representation/objection submitted that by the 1^stapplicant to the 2^nddefendant.
Annexure-	06.10.2021	True copy of the representation/objection
A3(a)		submitted that by the 2^ndapplicant to the 2^nddefendant.
Annexure-	06.10.2021	True copy of the representation/objection
A3(b)		submitted that by the 3^rdapplicant to the 2^nddefendant.
Annexure-A4	06.10.2021	True copy of the representation/objection submitted that by the 1^stapplicant to the 2^nddefendant.
Annexure- A4(a)	06.10.2021	True copy of the representation/objection submitted that by the 2^ndapplicant to the 2^nddefendant.
Annexure-A5	07.10.2021	True copy of postal receipts.
Annexure-A6	08.10.2021	True copy of postal acknowledgment cards.
Annexure-A7	25.11.2021	True copy of possession notice issued to the applicants.
Annexure-A8	31.12.2004	Copy of gift deed.
Annexure-A9	31.08.2021	True copy of receipt issued by the Village Officer, Kanjirappally Village.
Annexure- A10	02.01.2022	True copy of search result obtained from the website of CERSAI.

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Documents on the part of the defendants

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Nil

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PRESIDING OFFICER

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IN THE DEBTS RECOVERY TRIBUNAL-2, KERALA AT ERNAKULAM

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PRESENT: SRI.SOVAN KUMAR DASH PRESIDING OFFICER

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Dated the 17^th November, 2022

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SA No.9/2022

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Between

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M.Muralidhara Kumar, S/o.Madhavan Pilla, Proprietor of M/s.Thottuvayil Agencies, Chirakadavu, NH – 220, Residing at Thottuvayil House, Thambalakkad.P.O., Ponkunnam, Kottayam – 686 506 & 2 others. …Applicants

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…Applicants

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And

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South Indian Bank Ltd., Represented by Chief Manager, Ponkunnam Branch, Kerala – 686 507 & another. …Defendants

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F I N A L O R D E R

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SA 9/2022 17.11.2022

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………………… In view of the foregoing reason, the SA is allowed (vide separate final order) to the extent of setting aside Annexures-A1 and A2 demand notices dated 16.08.2021 and Annexure-A7 possession notice dated 25.11.2021 issued by the defendant bank.

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Presiding Officer

M Muralidhara Kumar v. South Indian Bank

Case brief

What is this about?

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M Muralidhara Kumar v. South Indian Bank

Case brief

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