Allowed

Sri Naseer Udegal v. State Bank of India

DRT23 Aug 2023SA/104/2022

Case brief

AI extract

What is this about?

Tribunal held that bank's enforcement of security interest under S.13 of the SRA Act was invalid because the creditor initiated proceedings before securing asset was registered with CERSAI, violating the mandatory bar under S.26D.

What did the court decide?

Recourse under S.13 set aside; possession of secured asset to be restored to borrower within seven days; costs reversed.

Sri Naseer Udegal versus State Bank of India — Company and Corporate | DRT (2023)

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IN THE DEBTS RECOVERY TRIBIJNAL^- I, KARNATAKA ATBENGALURU

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PRESENT: SRI IMTIAZ ALI PRESIDING OFFICER

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Dated the 23'd day of August, 2023

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SECURITISATION APPLICATION NO. IO4 OF 2022

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Between

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Naseer Udegal, S/o late Gouse Sab, (Proprietor, Shri Alfa Traders), 73, (Old No.1/335, 404), Ass No.74, Ward No.12, Bangar Oni, Chittawadagi, Hosapete, Kamataka- 583121. ...Applicant

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And

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l. The Authorised Officer, State Bank of Indi4 Main Bazar Branch, Regional Business Offi ce, l't Floor, Station Road, Hospete, Kamataka - 583201. 2. State Bank of India, having its head office at Mumbai and branch among other Places^at Taluk Office, Opp KSRTC Bus Stand, Defendants Hospet, Ballary, Kamataka - 583201.

¶9

This Securitisation Application having been^heard on^{03.02.2023in the presence} of Advocate Shri E Devaraja for the applicant,^{andAdvocate Shri Nandish N J for the} defendants, and stood over to this day^{for consideration,the Tribunal deliveredthe} following:-

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FINAL ORDER

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The applicant filed the above Securitisation^{Application (SA)on 07.03.2022} \,. under S.l7(1) of the Securitisation and^{Reconstruction} of^{FinancialAssetsand} q Enforcement of Security^Interest Act,^{2002as amended from time to time} -^hereinafter

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sA t04/2022

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referred to as 'the Act' - praying to set aside Annexure Al possession notice dated 23.02.2022 and further proceedings thereto. The applicant is none other than the borrower ofa cash credit and housing loan availed from the 2nd defendant bank.

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The case set out by the applicant in the SA in brief is as follows:- The applicant availed a cash credit loan of {9.60 lakhs in the name of }v{/s Alfa Traders from the 2'd respondent bank in the year 2015 on due execution of loan security documents in its favour. His mother also availed a housing loan of t10 lakhs in the year 2013 from the 2'd defendant bank and the repayment thereof was collaterally secured by the mortgage created over her immovable property. The applicant was prompt and regular in repayments. This applicant has repaid a substantial sum of t18 lakhs towards the amounts due under the housing loan, which has not been declared as non-performing asset till now. The 2nd defendant bank failed to mention the date when the account has been declared as non-perfonning asset before initiating the recovery proceedings. Also, this applicant has deposited amounts from time to time as per the request of the 2nd defendant bank for regularisation of the account but the bank failed to consider such repayments and issued possession notice dated 23.02.2022 by way of affixture but no demand notice had been issued so far. The 2nd defendant bank has not followed the mandatory provisions of the Act in issuing notices under S.l3(2) and l3(4) of the Act. The 2nd defendant bank issued another possession notice dated 23.02.2022 in respect of another loan account in the name of B.K Engineering Works and mentioned different names of the owners of tle same secured ,rsset. The 2nd defendant bank has no valid security interest in terms of S.2(zf) ofthe Act. The secured asset has not been registered with the CERSAI and, therefore, the bank is not entitled to enforce its security interest over the secured asset. The 2nd defendant bank claimed exorbitant and excess interest towards the loan account. The entire secured asset is not standing in the name of the applicant alone. Hence, possession notice is liable to be set aside. The applicant has not been given

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sA 10412022

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suflicient time to repay the debt due. Now, the 2nd defendant bank through its 1'r defendant authorised ofiicer is trying to take physical^possession of the secured asset and to sell away the same and hence the SA.

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The 2nd defendant bank through its l't defendant authorised officer filed a statement of objection. The statement of objection reads as below:- The application is not maintainable. The applicant availed a housing loan of {9.70 lakhs from the 2nd defendant bank on 28.09.2013 on due execution of necessary loan security documents in favour of the bank, which was to be repaid in equal monthly instalments of t10,000/- each and the repayment thereof was collaterally secured by the mortgage created over the schedule immovable property. But after availing the loan, the applicant defaulted in the repayment and committed default in complying with the terms and conditions of the sanction. The operation of the account in respect of the aforesaid facility has become irregular and, therefore, the 2nd defendant bank was constrained to classify the account as nonperforming asset on 30.04.2017 in accordance with the directives and guidelines issued by the Reserve Bank of India. Thereafter, the 2nd defendant through its I't defendant authorised officer issued a demand notice dated 13.08.2021 under S.l3(2) of the Act calling upon the applicant to^pay a sum of t10,64,7211- x on 26.07.2021 within sixty days from the date of receipt of such notice, which was duly served on 20.08.2021. As the applicant did not discharge the debt due to the bank, a^possession notice dated 23.02.2022 was issued on 23.02.2022 which was duly served on the applicant on 24.02.2022. The 2nd defendant bank registered its secured^asset with the^{Central Registry.} The 2nd defendant barik has given due credit to the remittances made by the^applicant towards the amounts due under the^housing loan^account. On the^{above contentions, the} defendants prayed for dismissal of the application.

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The applicant produced one document along with the SA. For convenience, it is referred to as^Arurexures A1.^{Though AnnexuresA2and A3 have been}

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sA 104t2022

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referred to in the application no such documents have been produced along with the SA. Similarly, the defendant bank produced ten documents along with the statement of objection, which are for convenience referred to as Annexures Bl to Bl0.

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On the appreciation of the rival contentions, the only point arises for consideration is as to whether the applicant is entitled to the reliefprayed for?

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The Point:- One of the contentions raised by the applicant in the SA was regarding the non-registration of the security interest created on the secured asset with CERSAI. According to the applicant, the 2nd defendant bank has no valid security interest in terms of S.2(zf) of the Act and the secured asset has not been registered with the CERSAI by paying the requisite fee and, therefore, the bank is not entifled to enforce its security interest over the secured asset. The defendants in their statement of objection have submitted that the 2nd defendant bank registered its secured asset with the Central Registry.

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Annexure 89 is the photocopy of the addition of security interest acknowledgement report generated from the website of the CERSAI in respect of security interest by way of equitable mortgage created on l9.ll.2}l9 in favour of the 2'd defendant bank by the applicant, which has been registered on 20.11.2019 by paying a fee of {100/-. However, the defendants filed a memo on 03.02.2023 submitting that by mistake CERSAI copy of another mortgage property was produced along with the statement of objection and producing the correct copy thereof to be taken as Annexure 89. The revised copy of Annexure 89 is a computer generated report of the registration of security interest acknowledgement in respect of the schedule immovable property and the same shows that the applicant has created first charge equitable mortgage over such property on 28.09.2013 in favour of the 2nd defendant bank as collateral security for the housing loan availed from it and the same has been registered with CERSAI on 13.10.2022 by paying a fee of tl00/-.

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sA to4/2022

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Admittedly, mortgage has been created over the SA schedule immovable

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property to collaterally secure the repayment ofthe amounts due under the housing loan availed by the applicant from the 2nd defendant bank. According to the 2nd defendant bank there is a valid mortgage created over the SA schedule immovable property. According to the 2nd defendant bank, it being the secured creditor can recover its secured debt by enforcing its security interest over the secured asset. Clause (zf) of sub-section

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(1) of S.2 of the Act defines'security interest' and it reads as below:-

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"'searity interest' means fight, litle or interest of any kind, olher than those specified in 5.31, upon property created infavour of any secared creditor and includes-

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(i) any mortgage, charge, hypothecation, assignment or ony right, title or interest of any kind, on tangible osset, retained blt lhe secured creditor as an ou)ner of the property, given on hire or financial lease or conditional sale or under any other contract which secures the obligation to pqy sny unpaid portion of the purchase price of the dsset or an obligation inctrred or credit provided to enable the borrower to acquire lhe langible asset; or

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(ii) such right, ti e or interest in any intangible asset or assignment or licence of such intqngible asset which seares the obligdlion to pay ary) unpaid portion of the purchaser price of the intangible asset or the obligation incrrred or any^qedil provided to enable the borrower to acquire the intangible asset or licence o/ inlangible asset.^"

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The Hon'ble High Court of Kerala in Rqier Mathew v South Indian Bank Ltd [reported in 2017^(I) KLT 5721 has held that the banks and financial institutions are not only entitled, but are also duty bound to recover the debts by adopting all legally permissible methods, since the bank is a trustee of the public flrnds. Except vaguely contending that the 2nd defendant bank has no valid security interest in terms of S.2(zf) of the Act, the applicant has not explained as to why the bank has no such security interest. He has no case that the schedule immovable property is not the secured asset and he has not created a security interest over the same in favour of the 2nd defendant bank, who is the secured creditor. Security interest is a form of interest in property which^provides that the property may be sold on default in order to satisff the obligation for which the security interest is given. It is an interest in^personal property or fixtures which secures payment or performance of an obligation, including the interest of an assignee of the proceeds of a letter of credit. 'Secured asset' is the property on which the said interest is :1?t".1.

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sA 104t2022

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S.l3 of the Act deals with enforcement of security interest and the subsection (1) thereto says that notwithstanding anything contained in 5.69 or 5.69A of the Transfer of Property Act, 1882, any security interest created in favour of any secured creditor may be enforced, without the intervention of court or tribunal, by such creditor in accordance with the provisions of the Act. Chapter IVA [Ss26B to 26E] deals with registration by secured creditors and other creditors. The Central Registry under Chapter IV ofthe Act is defined as the Registry set up or caused to be set up under S.20(l) ofthe Act by the Central Govemment vide notification No.GSR 277(E) dated 31.03.2011 for the purposes of registration of transaction of securitisation and reconstruction of financial assets and creation of security interest under the Act. Any provisions of the Act specified in 5.20(4) or any other law requiring registration of charges are in addition to the registration with the Central Registry. The Central Govemment vide the Enforcement of Security lnterest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act,2016 r/w the notification No.SO 4619(E) dated 26.12.2019 inserted Chapter IV A [Registration by secured creditors and other creditors - Ss.26B to 26E] applicable with effect from 24.01.2020. Sub-section (2) to 5.268 says that from the date of notification under sub-section (1), any creditor including the secured creditor may file particulars of transactions of creation, modification or satisfaction of any security interest with the Central Registry in such form and manner as may be prescribed. Sub-section (3) thereof says that a creditor other than the secured creditor filing particulars of transactions of creation, modification and satisfaction of security interest over properties created in its favour shall not be entitled to exercise any right of enforcement of securities under this Act. In sub-section 26D under the head 'right.of enforcement of secwities', it is specifically stated that notwithstanding anything contained in any other law for the time being in force, from the date of commencement of the provisions of this Chapter, no secured creditor shall be entitled to exercise the rights of enforcement of securities under

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sA 10412022

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Chapter III unless the security interest created in its favour by the borrower has been registered with the Central Registry. The 2nd defendant bank vide Annexure Bl has shown that the demand notice under 5.13(2) of the Act has been issued on 13.08.2021 (which was received by the applicant on 20.08.2021 as could be inferred from Annexure 83) and vide Annexure Al (Annexure 84) that the possession notice under S.13(4) ofthe Act has been issued on 23.08.2022 (which also was received by the applicant on 24.02.2022 as could be infened from Annexure B5). The defendant bank also produced photocopies of the extract of publications made in two leading dailies, namely, the Deccan Herald and the Prajavani dailies dated 27.02.2022 of Annexure 84 possession notice as per Annexures B7 and B8. Annexure 84 possession notice has been affrxed on the outer door of the secured asset on 23.02.2022 as per Annexure 86. According to the 2nd defendant bank, the security interest created in its favour by the borrower has been registered with the Central Registry and Annexure 89 is a copy of the security interest id based search report with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), which reveals that the defendant bank on 13.102022 registered in CERSAI portal the security interest created by way of equitable mortgage with it by the borrower on 28.09.2013.

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Notwithstanding anything contained in this Act, admittedly there is an equitable mortgage created over the secured asset under the provisions of the Transfer of Properties Act, 1881, which has already been registered with CERSAI also. Obviously, it is made known from revised Annexure 89 produced along with memo filed on 03.02.2023 that the 2nd defendant bank registered the security interest created on 28.09.2013 over the secured asset in its favour by the applicant with the Central Registry only on 13.10.2022 whereas it had commenced and initiated its^proceedings invoking^the provisions under the Act to exercise its rights of enforcement of securities under Chapter Act by issuing Annexure B1 demand notice on 13.08.2021 itself. To^put it ::-"^""

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sA t04t2022

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differently, the 2nd defendant bank was not entitled to commence the action of exercising its rights of enforcement of securities under Chapter III without registering such security interest with the Central Registry in view of the bar under S.26D of the Act which came into effect with effect from 24.01.2020 vide SO 4619 (E) dated 26.12.2019 eroding and deemed to be omitting the 'offences and penalties' under Chapter V r/w S.23 of the Act with effect from the same date. S.26D of the Act deals with right of enforcement of securities in respect ofa secured creditor and the same reads as below:-

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"Notwithstanding anything contained in any other low for the time being inforce, from the date of commencemenl ofthe provisions of rhis Chapter, no sec'ured ueditor shall be entitled to exercise the rights of enforcement of sec'urities under Chapter lll mless the security interest created in its favour by the bonower has been registered with lhe Central Registry.^"

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The provision under S.26D of the Act has been couched in a negative language making it imperative and mandatory to be complied with by the obligants even though no penalty is provided thereto, which means that the right of enforcement of security is taken away unless the same is registered with CERSAI. In the above circumstances, the net result of the discussion is that the action of the 2nd defendant bank through its I't defendant authorised officer to enforce its security interest over the secured asset by invoking the provisions under S.13 of the Act was not in accordance, much more precluded, with the provisions under S.26D of the Act and thus require restoration of the possession of the secured asset to the borrower. The recourse taken by the 2'd defendant bank through its l't defendant authorised officer under S.13 ofthe Act is thus invalid. In the above circumstances, no other contention raised by the applicant needs to be addressed by this Tribunal.

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This Tribunal vide order dated 11.03.2022 in IA No.499l2002 stayed the operation of Annexure A1^(Annexure 84)^possession notice^issued by the l't defendant authorised offrcer of the 2nd defendant bank subject to condition that the applicant shall pay a sum of t3 lakhs on or before 23.03.2022. The applicant in the affrdavit accompanying lA No.71712022 submitted that he^paid the sum of t1.50 lakhs on

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sA 104t2022

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20.03.2022. The 2nd defendant bank is liable to credit the same towards the debt due to it if found correct on verification.

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In the above circumstances and in view of the discussion as above, the SA is liable to be allowed with libeny to the defendants to invoke the provisions under the Act for enforcement of security interest over the secured asset afresh in accordance with the provisions of the Act and the Rules made thereunder meticulously.

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In the result, IA Nos. 499/2022 afi717/2022 are closed and SA 10412022 is allowed with the following declarationVdirections:-

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(i) this Tribunal declares that the recourse and measures taken by the 2nd defendant bank through its I't defendant authorised officer under S.l3 of the Act is invalid and thus set aside;

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(ii) the 2nd defendant bank through its I't defendant authorised officer is directed to restore the^possession ofthe secured^asset to^the borrower^{or the mortgagor,as} the case may be, within seven days from today;

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(iii) the 2nd defendant bank shall reverse all costs, charges and expenses incurred by it or any expenses incidental thereto in connection with the^{impugned action} taken against the borrowers under the^provisions of S.l3 of the Act^and shall^{not claim} them as legally recoverable deb by operation of law;

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(iv) the defendants are granted liberty to invoke the provisions under the Act for enforcement of security interest over the secured^{asset afresh} in^{accordance withthe} provisions ofthe Act and the Rules made thereunder meticulously;

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(v) the 2nd defendant bank shall veri$ and^give due credit to^{the sumof} {1,50,000/- (Rupees one lakh fifty thousand only) remitted on^{21.03.2022 and any other} sum, ifpaid, towards the debt^due to it;^and

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(vi) the parties shall suffer their respective costs.

sA 104D022

Communicate copy of this final order to both parties as provided in sub-

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section (7) of S.17 of the Act r/w R.l6 of the Debs Recovery Tribunal (Procedure) Rules,

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1993 (as amended from time to time).

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[Diclated^{to my PAdiecrlyon the computer,cotecredandpronou\ced} by me in the open Tribunal on this the 2!d day ofAugust, 20231

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,,,*' I^IMTIAZALI ] PRESIDING OFFICER

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Appendix to SA 10412022

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APPENDIX

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Applicant's Exhibits

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Witnessforthe	applicant	Nil
Witnessfordef	endant	Nil
ExhibitNo.		Particularsofdocuments
Annexure-A	l23.02.2022	Photocopyofthepossessionnoticeissuedby theI't defendantauthorisedofficerofthe2nddefendantbankin respectofthescheduleimmovable property Defendant'sExhibits
Annexure-B	l13.08.2021	PhotocopyofdemandnoticeissuedunderS.l3(2)ofthe Securitisation and ReconstructionofFinancialAssetsand EnforcementofSecurityInterestAct,2002bythe1" defendantauthorisedofficerofthe2nddefendantbank to theapplicantcallinguponhimtodischargethedebtof <10,64,721l-ason 26.07.2021
Annexure-B	213.08.2021	Photocopyofdemandnoticeissuedunder 5.13(2)ofthe Securitisation and ReconstructionofFinancialAssetsand EnforcementofSecurityInterestAct,2002bythe I't defendantauthorisedofficerofthe2'odefendantbank to theguarantorcallinguponhimtodischargethedebtof <10,64,721l-ason 26.07.2021
Annexure-B	320.08.2021	Photocopyofthepostal acknowledgementcards
Annexure84	23.02.2022	PhotocopyofthepossessionnoticeissuedbytheI't defendantauthorisedofficerofthe2nddefendantbankin
		respectofthescheduleimmovable property
Annexure85	24.02.2022	Photocopyofthepostal acknowledgementcards
Annexure86	23.02.2022	Photocopyofthe photographofaffixtureofAnnexure84 possessionnotice
Annexure87	27.02.2022	Photocopyofthe extractofthepublicationofAnnexure84 possessionnoticeinDeccanHeralddaily
AnnexureB8	27.02.2022	Photocopyofthe extractofthepublicationofAnnexure84 possessionnoticeinPrajavanidaily
Annexure89	13.10.2022	Computergeneratedreportofregistrationofsecurity interest acknowledgementofequitable mortgagecreatedon 28.09.2013andregisteredintheCERSAIportalon 13.10.2022.
AnnexureB10		Photocopyofthestatementofaccountinthenameofthe applicant underaccount No.64127324073fortheperiod from 05.04.2021to15.06.2022.\|

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\ <sup>q'' ^^s'vb PRESIDING OFFICER

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Schedule to SA 10412022

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Scheduled ProPertY

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All that part and of^{parcelof residentialproperty bearingpropertyOld} no.t/33S,+04, New Door^{No. 73, AssessmentNo. 13666,335,New} Assessment No. 74, Measuring^{East to west 48 fts, and Northto South} 27.5 fts, total 1320 sq fts,^{sitr"ratedat Old Ward no.l and NewWard} East by: Road, West by^{: Lane aftermoaque House,NorIP$E$[DING} Road, South by:^Sub-Road,

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IN THE DEBTS RECOVERY TRIBLTNAL. I, KARNATAKA AT BANGALORE

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PRESENT: SRI IMTIAZ ALI PRESIDING OFFICER

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Dated the 23'd day ofAugust,2023

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SECURITISATION APPLICATION NO. IO4 OF 2022

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Between Naseer Udegal, S/o late Gouse Sab, (Proprietor, Shri Alfa Traders), 73, (Old No.1/335, 404), Ass No.74, Ward No.l2, Bangar Oni, Chittawadagi, Hosapete, Kamataka - 583 121 .

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...Applicant

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And The Authorised Officer, State Bank of Indi4 Main Bazar Branch, Regional Business Office, l't Floor, Station Road, Hospete, Kamataka - 583201 and another.

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Defendants

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F'INAL ORDER

Sri Naseer Udegal v. State Bank of India

Case brief

What is this about?

What did the court decide?

Sri Naseer Udegal v. State Bank of India

Case brief

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