Partly allowed

Arulvel v. Bank of Baroda

DRT11 May 2023SA/10/2023

Case brief

AI extract

What is this about?

This application challenged the E-auction sale notice and possession notice under the SARFAESI Act. The Tribunal allowed the application to set aside the sale notice due to lack of proof of affixture, citing violation of procedural rules. However, the challenge regarding the possession notice was dismissed due to delay beyond the 45-day limit specified in Section 17, applying the principle of esto

What did the court decide?

The sale notice dated 05.12.2022 is set aside. The challenge to the possession notice is rejected. Costs are imposed on the respondent to be adjusted against the account.

Arulvel versus Bank of Baroda — Contract and Commercial Disputes | DRT (2023)

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BEFORE THE DEBTS RECOVERY TRIBUNAL – II AT CHENNAI

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Dated this 11^th day of May, 2023

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PRESENT : SHRI T.RAJESH PRESIDING OFFICER

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SA No.10/2023

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Mr.Arulvel.K.,

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S/o.Mr.Kuppusamy.

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Mrs.B.Selvi,

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W/o.Balu.

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Both are residing at No.1197/3, Vazhpandal Road, Ethiraj Nagar, Paiyur Village, Pudukamoor Road, Arni Taluk, Tiruvannamalai District. … Applicants. Vs.

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The Authorised Officer, Bank of Baroda, No.33, Gandhi Road, Opp.Old Bus Stand, Arni Town, Tiruvannamalai District. … Respondent. Counsel for Applicants : M/s.Suresh Law Associates. Counsel for Respondent : M/s.K.Radhakrishnamurthy. …..

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O R D E R

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This application is filed by the applicants under section 17(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (herein after called SARFAESI Act or the ‘Act’, as the case be), with a prayer to set aside the E-auction sale notice as published on 06.12.2022 by the Respondent.

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The case of the applicants are as follows :

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The 1^st applicant as the borrower and the 2^nd applicant as the guarantor admitted to have availed cash credit facility of Rs.15 lakhs and housing loan of Rs.20 lakhs from the respondent. It is also stated that after the receipt of demand notice, the 1^st applicant had altogether made remittances of Rs.2,50,000/- to the account, which was not duly given credit to in the sale notice dt.06.12.2022. It is also the contention of the applicants that the applicants had been remitting the amounts in accordance with the agreement and there is no default in this regard. Hence, on the basis of above, the applicants have put forth a case that even the classification of account as NPA is not in accordance with the statute. The applicants had also taken a contention that the respondent had deliberately failed to serve notice to the guarantors as required under Rules 8(5), 8(6) and 8(7) of Security Interest (Enforcement) Rules, 2002 and there is failure of issuance of clear ‘30 day’s’ notice in respect to the sale notice. It is also contended in the SA that the 1^st applicant alone was served with the demand notice and the same was not served on guarantors. In regard to the possession notice also, the applicants have put forward a contention that the same was not served on 2^nd applicant and not published in two leading newspapers. It is also admitted that the actual possession of property, which is a dwelling house had been taken. It is further stated that the applicants were approaching the respondent to regularize the business loan and the respondent without giving any opportunity to the applicant to regularize

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the same had continued with the measures. In regard to the sale notice also it is the case of the applicants that the sale notice is not affixed at conspicuous place in the property and the respondent had violated the rules as contemplated under the Act.

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In the grounds to the SA, the applicants have reiterated the contention that the proceeding of the respondent is per se illegal and non-est in the eyes of law. It is also alleged that the sale notice was not issued in accordance with the statute and that the respondent had blatantly violated Rule 8(6) of Security Interest (Enforcement) Rules, 2002. Apart from contending as to non affixture of sale notice, the applicants also putting forward a contention that the respondent failed to procure the valuation of the property. On the basis of above contentions, applicants seek to set aside the measures leading up to the issuance of impugned sale notice. Along with SA, the applicants had produced the sale notice published in The New Indian Express, Villupuram Edition dt.06.12.2022 and payment receipts dt.11.07.2022, 10.08.2022, 28.09.2022 and 30.11.2022.

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The respondent entered appearance and filed their counter affidavit denying the contentions of the applicants and stating that the applicants are estopped from challenging the measures taken u/s.13(2) and 13(4) as they had full knowledge of the entire proceedings. It is also stated that the respondent had scrupulously followed the procedure as

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envisaged in the statute. The availment of facility and the disbursement of the loan in pursuant to execution of security interest as admitted by the applicants are reiterated by the respondent. The respondent further contends that the classification of account as NPA is done as the accounts were irregular. It is also stated by the respondent that the account has been classified as NPA on 01.05.2021 pursuant to the defaults occurred in the account. In consequential to the classification of account as NPA, a demand notice dt.12.08.2021 was issued. The demand notice was followed by issuance of possession notice dt.12.01.2022 which was duly served on the borrowers. In regard to the impugned sale notice also, it is the case of the respondent that they had followed the procedure as required under the statute. The typed set of documents filed by the respondent also substantiates the legality of the measures they had taken leading up to issuance of impugned sale notice. Along with counter, the respondent had produced the following documents:

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(a) 13(2) SAFAESI notice by Respondent (Acknowledgement cards) dt.12.08.2021.

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(b) 13(4) SAFAESI notice by Respondent (Acknowledgement cards) dt.12.01.2022.

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(d) P.P. of Dinamani Tamil Version dt.18.01.2022.

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(e) P.P. of Indian Express English Version dt.18.01.2022.

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(f) Valuation Report dt.03.09.2022.

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(g) Sale Notice by Respondent (Ack.Cards) dt.05.12.2022.

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(h) P.P. of Indian Express English Version dt.06.12.2022. (i) P.P. of Dinamani Tamil Version dt.06.12.2022.

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(j) Statement of Accounts.

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Heard the Ld. Counsels for both sides and considered the contentions as taken by the applicants in the SA and also rebuttal as made in the counter affidavit, in the light of the pleadings and documents produced by both parties. The following issues arise for consideration in this matter:

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(i) Whether the measures taken by the respondent leading up to the issuance of impugned sale notice are in accordance with the statute?

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(ii) Whether the applicants are entitled to maintain this section 17 application challenging the possession notice which is issued as early as on 12.01.2022?

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In order to avoid repetition of facts both these issues are gone into and decided together.

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The main challenge as put forth by the applicants is regarding the measures followed by the respondent leading up to the issuance of impugned sale notice. Even though the applicants are contending that the classification of account as NPA is done when the account was regularly servicing, the respondent had produced the statement of account pertaining to the loan account which itself evidences the nature of the loan and that the account was in default entitling it to be classified as NPA. The applicants do not have a case that any of the remittances made by them had evaded the statement of accounts as produced by the applicants. In the light of statement of account as produced by the

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respondent it can be safely concluded that the classification of account as NPA is done in accordance with the Master Circular of RBI. The applicants claim that they had made remittances of Rs.2,50,000/- after the receipt of demand notice. In this regard it is to be noted that even the applicants do not have a case that by the remittances of the said amount the entire liability is wiped off or that the facility has come out of NPA status. In the light of above discussions, the contention of the applicants as to the classification of account as NPA is liable to be rejected.

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In regard to the challenge as to the measures in issuance of demand notice and possession notice, it is to be noted that despite specific contention of the applicants that the demand notice is not served on all the borrowers, the respondent had not produced the proof of service of demand notice on all the borrowers and only the postal receipts evidencing the dispatch of demand notice is produced by the respondent. In the absence of any evidence proving the service of demand notice on the borrowers, it is obligatory on the respondent to produce proof of affixture and publication of demand notice as proviso to Rule 3 of Security Interest (Enforcement) Rules, 2002 mandates the publication and affixture of demand notice in the event of same could not be served. Hence the documents produced by the respondent are hardly sufficient to prove the compliance of Rule 3 of the Security Interest (Enforcement) Rules, 2002.

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As far as the possession notice is concerned, the applicants had contended that that the same is not published as required under the statute. The paper publication of the possession notice is produced by the respondent as the same is published in Dinamani and The New Indian Express on 18.01.2022. The proof of affixture of possession notice is also produced by the respondent. Hence other than proving compliance of Rule 3 of Security Interest (Enforcement) Rules, 2002 the respondent had produced evidence as to the proper service of possession notice.

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In their challenge as to the impugned sale notice, the applicants had a case that the same is not affixed as required under the statute and valuation of the property is not obtained before issuing the sale notice. The respondent had produced the valuation procured by them which evidences the compliance of mandate to take valuation of the property. Despite specific contention that there is no affixture of sale notice no proof of affixture of the same is produced by the respondent which leads this Tribunal to accept the contention of the applicant that the sale notice is not affixed as required under the statute.

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In the nutshell, the case put forth by both sides and documents produced by both sides reveals the following:

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(i) There is no proof for proper service of demand notice to all the

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borrowers.

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(ii) The respondent had managed to prove proper compliance of

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mandatory provision in issuance of possession notice.

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(iii)Though the sale notice is dispatched and published there is no proof of affixture of sale notice as required under Rule 8(7) of Security Interest (Enforcement) Rules, 2002.

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In view of the above conclusions arrived at by this Tribunal, second issue has to be addressed as to whether the applicants can maintain their challenge against the possession notice beyond the period of limitation as prescribed u/s.17 of the Act. Section 17(i) of the Act reads as follows:

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“ 17. Application against measures to recover secured debts – (1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorized officer under this Chapter, may make an application along with such fee, as may be prescribed, to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measures had been taken”.

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Hence statute permits the aggrieved person including the borrower to make an application to this Tribunal “within 45 days from the date of

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measures had been taken” . Hence the plain reading to section 17 mandates that the person aggrieved by any of the measures is having a remedy to approach this Tribunal within 45 days from the date of such measures and it is already settled that this Tribunal has no power to condone the delay. Even though the cause of action is a continuous one the plain reading of section 17 makes it clear that the challenge of the possession notice dt.12.01.2022 is beyond the time limit as prescribed u/s.17 of the Act. This is more so, as there is enough evidence available

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on record to prove that the possession notice is duly served on the

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borrowers. Hence by their conduct in not challenging the possession

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notice within time as prescribed u/s.17, now the applicants are estopped from impugning the possession which they were duly served. This view is taken considering the conduct of the applicant. The Hon’ble Supreme

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Court in ARCE Polymers (P) Ltd., Vs. Alphine Pharmaceuticals (P)

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Ltd., reported in (2022) 2 SCC 221 held as follows:

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“ 17. It is correct that waiver being an intentional relinquishment is not to be inferred by mere failure to take auction, but the present case is of repeated positive acts post the notices under Sections 13(2) and (4) of the SARFAESI Act. Not only did the borrower not question or object to the auction of the Bank, but it by express and deliberate conduct had asked the Bank to compromise its position and alter the contractual terms. The borrower wrote repeated request letters for restructuring of loans, which prayers were considered by the Bank by giving indulgence, time and opportunities. The borrower, aware and conscious of its rights, chose to abandon the statutory claim and took its chance and even procured favourable decisions. Even if we are to assume that the borrower did not waive the remedy, its conduct had put the Bank in a position where they have lost time, and suffered on account of delay and laches, which aspects are material. Auction on the subject property was delayed by more than a year as at the behest of the borrower, the Bank gave them a long rope to regularize the account. To ignore the conduct of the borrower would not be reasonable to the Bank once third-party rights have been created. In this background, the principle of equitable estoppels as a rule of evidence bars the borrower from complaining of violation.

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In view of the above discussions and findings entered as above, this Tribunal is of the view that SA can be disposed of as follows:

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(i) SA No.10/2023 stands allowed and the impugned sale notice dt.05.12.2022 issued by the respondent is set aside.

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(ii) The prayer of the applicant as to the challenge of possession notice dt.12.01.2022 is rejected.

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(iii) The respondent is directed not to mulct the cost of the proceedings leading up to issuance of impugned sale notice and also the cost of this litigation on the applicant. If any debit had already been made in this regard, necessary reversal had to be made forthwith.

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(iv) In view of the facts and circumstances of the case, considering that the applicant is compelled to approach this Tribunal, a cost of Rs.25,000/- is imposed on the respondent which is to be adjusted at the time of settlement or closure of the account, as the case be.

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All pending IAs stands closed. Issue copies in accordance with Rule 16 of the Debt Recovery Tribunal (Procedure) Rules, 1983.

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( Dictated to PA, transcribed by him, corrected, signed and pronounced by me in the Open Court, this 11^th day of May, 2023 )

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Sd./(T.RAJESH) PRESIDING OFFICER DRT-II, CHENNAI

Arulvel v. Bank of Baroda

Case brief

What is this about?

What did the court decide?

Arulvel v. Bank of Baroda

Case brief

What is this about?

What did the court decide?

What the court decided

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Issues for consideration

Cases cited

Statutes considered

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