Dismissed

Ms Krishnarjuna Paraboiled Rice Mills P Ltd. v. Andhra Pradesh State Financial Corporation

DRT19 Dec 2022SA/79/2022

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal considered an application to set aside an e-auction and sale certificate under the SARFAESI Act. The court examined claims regarding procedural violations, including payment delays and valuation discrepancies, finding no merit in the applicants' contentions and dismissing the application.

What did the court decide?

The application to set aside the auction conducted on 22.02.2022 and the subsequent Sale Certificate dated 20.07.2022 was dismissed.

Ms Krishnarjuna Paraboiled Rice Mills P Ltd. versus Andhra… — Banking and Recovery | DRT (2022)

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IN THE DEBTS RECOVERYTRIBUNAL.I AT HYDERABAD

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DATED THIS THE 1^gTH DAY OF DECEMBER,2022

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PRESENT: GUMMADI GOPICHAND, PRESIDING OFFICER

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sA.No.79./2022

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M/ s. Krishnarjuna Paraboiled Rice Mills (P) Ltd., Rep. by its Managing Director, Sri Guntur Satyam, S/o. Narasaiah,

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Aged: 58 years, Occ: Business,

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Rlo. # 4-2-16012, Srinivasa Nagar, Khammam.

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Guntur Venkateshwarlu, S/ o. Narsaiah, Aged: 60 years, Occ: Business,

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4-2-16012, Srinivasa Nagar, Khammam.

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Sri Guntur Satyam, S/o. Narasaiah, Aged: 58 years, Occ: Business,

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4-2-160l2, Srinivasa Nagar, Khammam.

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Applicants.

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Versus

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Andhra Pradesh State Financial Corporation, 2"d Floor, ERR Complex, Station Road, Khammam.

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Rep. by its Authorized Officer.

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Sri Mulla Kishore Kumar, S/o. Rangaiah, H.No. 10-4- 136, Mamillagudem, Khammam.

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Respondents.

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(Respondent No.2 is added as per Order dt.12.10.2022 in IA.No.1347/²⁰²²⁾

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Cou1-sqlfgr. Sri K. Buchi Babu.
Cepnsel fot Respo No.1 Sri M. Hamsa Raj.
.$iunsel ftE'Resco o.2 Si G. Dinesh Kumar.
T
ii * 19 ut[ NA
.\E] ORDER:-
'i s-
1. by the Applicants u/s. 17 of the SARFAESI
the action of the lst Respondent Corporation

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SA.No.79/2022

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in conducting e-auction of the application schedule property on 22.02.2022, in pursuance of the Sale Notice dt.19.01.2022 and also issuing of Sale Certificate dt.2O.O7 .2022 in favour of the 2nd Respondent is null and void and to set-aside all the measures taken by the 1"t Respondent Corporation under the SARFAESI Act.

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The averments made in the application, in brief, are as follows:-

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The Applicants availed Term Loan of Rs. 104.00 lakhs from the lst Respondent Corporation for setting-up parboiled rice mi1l and subsequently the Applicants also availed Working Capital Term Loan of Rs. 17.00 lakhs from the lst Respondent Corporation by creating mortgage over the application schedule property as security. As the Applicants could not repay the loans as per schedule, the loan account of the Applicants was declared as NPA and the 1"t Respondent Corporation initiated recovery proceedings uls.29 of the APSFC Act. Thereafter, the 1"t Respondent Corporation issued auction notices several times but the auction of the schedule property did not materialize. There was proposal for settlement of the dues under OTS but, however, the Applicants could not comply with the terms of OTS. Finally, the 1st Respondent Corporation issued e-Auction Notice dt.lg.Ol .2022 for conducting auction of the schedule property on 22.02.2022 under the SARFAESI Act, which was served on the Applicants but the said notice was not affixed on the schedule property as required under law.

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i0 The.1 ent Corporation fixed the Reserve Price of the '.,// Rs.6,47,76,000l-, which is not as per the

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i',,6Present^t fhe^{present market value of the propertyis}

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.: ,^{aroundRs. lO.5Ocr*r} . The 1"t Respondent Corporation failed to

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. 4 n r, 10 ^"? : i receivt ih& entire blll ount within the time stipulated under r-.] ARFAESI Act and the 2nd Respondent, who

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is the auction did not pay 7 5o/o of the bid amount !

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SA.No.79/2022

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within the stipulated time. So, the auction of the schedule property conducted by the 1"t Respondent Corporation on 22.02.2022 and the consequential Sale Certilicate dt.2O.O7.2022, issued in favour of the 2nd Respondent-auction purchaser are 1iable to be set-aside. Hence, the SA.

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J. The 1st Respondent Corporation filed its Reply Statement denying all the adverse allegations made in the application. The contentions of the 1st Respondent Corporation are as follows:-

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i) The 1"t Respondent Corporation has sanctioned Term Loan of Rs. 104.00 lakhs and Working Capital limit of Rs. 17.00 lakhs to the Applicants for setting-up of parboiled rice mill and to secure the said limits equitable mortgage was created in respect of the application schedule property by the Applicants. Later, the Applicants committed default in repayment of the loan amount and so the 1"t Respondent Corporation initiated recovery proceedings under the SFC Act and seized the unit. Thereafter, the unit was released from seizure after receiving part-payments from the Applicants.

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ii) The Applicants approached the 1"t Respondent Corporation for settling the account under OTS but, the Applicants failed to pay the amount and therefore the OTS proposal was cancelled. Initially the l^st Respondent Corporation initiated proceedings under the SFC Act but, subsequently withdrew the said proceedings and initiated the measures under the SARFAESI Act. Depgand Notice was issued on 31.08.2015 and later possession of tfi,{.$eduleproperty was taken on 23.11.2015. Finally, the Sale It :

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fllo-lice^{was issued by. the 1"t Respondent Corporation on} iig,il.zbD2[)6[d70m,. a[qtio. of the schedute properry was 22.A2,4 . In the said auction, the 2"d -9,-,.^.*j" ssful bidder for Rs.6,52,76,000/- and the 2"d Respondent deposited 25o/o of the

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SA.No.79/2022

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bid amount and thereafter he paid the balance 7 Syo of the bid amount. The Reserve Price of the schedule property was fixed as per the Valuation Report given by the approved valuer. The l"t Respondent Corporation has not violated any provisions of the SARFAESI Act and the present SA is liable to be dismissed.

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The 2"d Respondent filed his Reply stating that in the auction conducted by the lst Respondent Corporation on 22.02.2022, he became successful bidder and he paid 25o/o bid amount on the date of auction and thereafter upon issuance of Sale Confirmation letter dt.O7.O7.2022 by the 1st Respondent Corporation, he paid the balance 75oh bid amount on 2O.O7.2O22, after receipt of which the lst Respondent Corporation issued Sale Certilicate in his favour and delivered physical possession of the schedule property. The contention of the Applicants that there is a dely in payment of 7 5o/o bid amount is not correct-

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Heard Ld. Counsels appearing for respective parties. Ld. Counsels also Iiled their Written Arguments.

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Now, the points that arise for consideration are,-

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Whether the Applicants have established any grounds for setting aside the auction of the application schedule property conducted by the 1"t Respondent Bank on 22.O2.2022?

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ii) To what reliell2

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Polnt No.(l)t

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During the course of; ents, Ld. Counsel for the Applicants ..it.."tta E[ ?{ILio,' i Applicants as states supra and he further that the ndent Corporation took possession of the year 2OO7 as per the provisions of the SFC

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sA.No.79/2022

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Act and so, the lst Respondent corporation is not entitled to invoke the provisions of the SARFAESI Act. He further argued that the debt in question is much prior to the enactment of the SARFAESI Act so, the l"t Respondent Corporation ought to have recovered the amount by invoking the provisions under the sFC Act. He further argued that the 1st Respondent corporation cannot be treated as secured creditor as defined uls.2(zdl of the SARFAESI Act and the lst Respondent corporation also does not fail within the definition of Bank as defined u/s.2(c) of the SARFAESI Act. Thus, the 1st Respondent Corporation has no right to invoke the provisions of the SARFAESI Act. He further argued that after 2"d Respondent became successful bidder in the auction of the schedule property conducted on 22.02.2022, he is expected to deposit the balance 7 s%o of the bid amount within 15 days but, he deposited the said amount of 2O.OT.2O22 and so same is in violation of Rule 9(4) of the Security Interest (Enforcement) Rules, 2OO2. He further argued that the action initiated by the l"t Respondent Corporation in conducting auction of the schedule property is barred by limitation and hence the said sale conducted on 22.02.2022 is liable to be set-aside. In support of his contentions, Ld. Counsel for the Applicants has relied on the judgment of the Hon'ble High Court for the State of Telangana and for the State of Andhra Pradesh in WP.Nos.36652, 36625 and 38600 of 2015 - .Sidiar Enterprises Vs. Bank of Baroda, ARM Branch and Ors.", decided on 10 .02.2016 and another judgment of the same High Court in WP.No.38058 of 2077 - "Tinity Beuerages priuate Limited. Emplogees Union General Secretary Vs. State Bank of Ind.ia and. Ors.", decided on 20.12.2017.

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B. Per confra, lst Respondent Corporation argued that the lst ted as secured creditor as it is a Finan itution an s entitled to invoke the provisions of the /.. argued that when the 1st Respondent Corporation voke the provisions of the SARFAESI Act to

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SA.No.79/2022

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recover the debt from the Applicants, it has issued Demand Notice followed by Possession Notice and the said possession Notice was affixed on the schedule property and thereafter sale of the schedule property was conducted on 22.02.2022 and in the said sale, the 2nd Respondent became successful bidder. He further argued that the 2"d Respondent has paid 25%o of the bid amount on the date of auction and subsequently the sale of the schedule property was confirmed by the lst Respondent Corporation in favour of the 2"a Respondent on 07.O7.2O22 by addressing a letter and within 15 days thereafter, the 2"d Respondent deposited the balance T So/o bid. amount and thus, the 2od Respondent paid the amount strictly as per the Rules, 2002. He further argued that before fixing the reserve price of the schedule property, the lst Respondent has obtained Valuation Reports from the approved valuer and basing on the said Valuation Reports only the reserve price is fixed. He further argued that right from the beginning the Applicants have been filing SAs and writ petitions in order to stall the legitimate steps taken by the lst Respondent Corporation to recover its dues and so there are no merits in the SA and same is liable to be dismissed.

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Ld' counsel for the 2nd Respondent-auction purchaser reiterated the version of the 2"d Respondent as stated supra.

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The l"t Respondent Corporation has filed some material documents in order to substantiate its contentions that it has scrupulously followed the procedure laid down under the SARFAESI Act, in issuing Demand Notice, Possession Notice and in conducting auction of the schedule property. As pe;. the said documents, it is clear that on 31.0g.2015, loan rAr(rAraDr accountZ.t,rlJo8fifi /\et, to ,4" me pppf1i:1",. AppflFrfiJJft". becafre^?4{",t"." NPA^informing and demanded^themthat them^the to pay the outr dues of lEjpls,oo2/- ;1:S-// wit:nin 60 days from the date iHH" said notice was duly received by

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SA.No.79/2022

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the Applicants as evidenced from the postal receipts and postal acknowledgements filed by the 1st Respondent corporation. Thereafter, the lst Respondent corporation issued possession Notice dt.23.1 l-2ols a,d took symboric possession of the schedure property and the said Possession Notice was affixed on the schedule property as depicted from the copies of photographs fi1ed by the 1st Respondent Corporation.

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There is no dispute regarding the fact that the lst Respondent corporation issued sare Notice dt. 19.0 r.2022 to the Appricants and others informing that it is going to conduct e-auction of the schedule property and the said notice was admittedly received by the Applicants. The said sare Notice was arso affixed on the schedule property as depicted from the copy of photograph filed by the lst Respondent corporation. Thereafter, the 1st Respondent corporation published the said sale Notice dt.rg.o1.2022 in the newspapers fixing the e-auction of the schedure property on 22.02.2022. It is pertinent to note that prior to issuing sare Notice in respect of the schedule property, the lst Respondent Corporation has obtained Valuation Reports in respect of the schedule propert5r from two Valuers. In the Valuation Report given by M/s. pavnsai Associates, Chartered Engineers, it is mentioned that the Fair Market Value is Rs.8,09,70, 1231-; Realizable Value is Rs.6,88,24 ,604 /_ arrd Forced/ Distress Value is Rs.5,66,79,086/ -. Another Valuation Report is given by sri s. chakravarthy and in the said Report it is mentioned that the Fair Market Value is Rs.7,80, 1 l,600 I -; Realizable Value is Rs.6,63,09,860/- and Forced/ Distress Value is Rs.5,46,0g,120/_. Ba uation Reports, the 1st Respondent Corporation the schedule property as Rs.6,47,76,000/by the 1"t Respondent Corporation on t became the successful bidder for a is no dispute regarding the fact that th,e 25%o bid amount immediatelv after

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SA.No.79/2022

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The contention of the Applicants is that the 2"d Respondent has not deposited the balance 7 5y. bid amount within 15 days from the date of auction. Rule 9 of the Securit5z Interest (Enforcement) Rules, 2O02, deals with time of sale, issue of sale certificate and delivery of possession. Sub-rule (4) of Rule 9 deals with deposit of balance amount of purchase price, which reads as under:-

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"(4) The balance amount of purchase price pagabte shall bhe paid bg the purchaser to tLe authorized offtcer on or before the fifieenth dag of conjlrmation of sale of the immouable propertA or such ertended peiod as mag be agreed upon in tuiting betu.rcen the purchaser and tlre seanred creditor, in ang case not exceeding three monttts."

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So, as per sub-rule (4) of Rule 9 it is clear that the purchaser has to pay the balance amount of sale price on or before 15e day of conlirmation of sale of the immovable propert5r or such extended period and the secured creditor has discretion to extend the time, not exceeding three months.

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In the Rules, there is no mention as to within how many days the sale has to be conlirmed by the secured creditor. Sometimes confirmation of sale may be stated by the DRT or DRAT or the High Court and so when stay is in force, the secured creditor is not expected to confirm the sale. So, when there is no hurdle to confirm the sale, the secured creditor can confirm the sale and inform the Auction Purchaser to deposit the balance amount within 15 days from the date of conlirmation of sale. In the instant case, the 1st Respondent Corporation has addressed a letter dt.O7 .O7 .2022 to the 2nd informing the confirmation of sale of and advised him to deposit

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balance bid amount from the date of conlirmation of sale o7w.fw2wrc deposited the balance

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7 5o/o is within 15 days. In fact, the

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Sale the lst Respondent Corporation to

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SA.No.79/2022

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the 2"d Respondent on 2O.O7.2022 as evidenced from the documents filed by the 1st Respondent Corporation. So, the contention of the Ld. Counsel for the Applicants that there is a delay in payment of Z Soh of the bid amount by the !"a Respondent from the date of auction and so the sale conducted is liable to be set-aside, is not tenable. So, the ratio laid down by the Hon'ble High Court for the State of Telangana and for the State of Andhra Pradesh in the aforesaid decisions relied upon by the Ld. Counsel for the Applicants is not applicable to the facts of the case in hand.

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There is no doubt regarding the fact that the 1st Respondent Corporation is a Financial Institution. So, it can be termed as secured creditor as defined u/s.2(zd) of the SARFAESI Act. No material is placed by the Applicants as to how the action initiated by the 1"t Respondent Corporation under the SARFAESI Act, against the Applicants is barred by limitation.

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So, considering all the circumstances, I hold that the Applicants have failed to establish any ground to set-aside the auction of the schedule property conducted by the lst Respondent Bank on 22.02.2022. So, there are no merits in the SA and same is liable to be dismissed. Accordingly, this point is answered against the Applicants and in favour ofthe 1st Respondent Corporation.

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Polnt No.(lllr

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In the result, the present Securitization Application is dismissed. Consequently, the Interlocutory Applications, pending if any, shall No order as to costs.

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(Dicidted to bA him, conected, signed and pronowlced by me in the open court on this tje 19

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..4,.,})

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Sd^/- r.r{ye@v (G. GOPTCHAND) , Presiding Officer

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Eft+3:ir#'#e'^

Ms Krishnarjuna Paraboiled Rice Mills P Ltd. v. Andhra Pradesh State Financial Corporation

Case brief

What is this about?

What did the court decide?

Ms Krishnarjuna Paraboiled Rice Mills P Ltd. v. Andhra Pradesh State Financial Corporation

Case brief

What is this about?

What did the court decide?

What the court decided

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