Allowed

Sri Garudappa Mudappa v. Can Fin Homes Ltd.

DRT20 Sept 2023SA/113/2022

Case brief

AI extract

What is this about?

The Debt Recovery Tribunal set aside proceedings initiated by Can Fin Homes Ltd under the SARFAESI Act. The court held that an individual acting merely as an authorised signatory under a general power of attorney, without a specific appointment as an authorised officer of requisite rank, lacked the jurisdiction to issue notices or take possession, rendering the actions void.

What did the court decide?

Proceedings set aside; possession of secured asset restored to borrowers within seven days; costs and charges reversed.

Sri Garudappa Mudappa versus Can Fin Homes Ltd. — Banking and Recovery | DRT (2023)

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IN THE DEBTS RECOVERY TRIBUNAL - I, KARNATAKA AT BENGALURU

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PRESENT: SRI IMTI AZ ALT

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PRESIDING OFFICER

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Dated the 20th day of September ,2023

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SECURITISATION APPLICATION NO. 113 OF 2022

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Between

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l. Garudappa Mudappa, S/o Mudappa Garudappa, 362, New Municipal No.72, 2nd Main,2nd Stage, EWS KHB Colony, Agrahara Dasarahalli, Basaveshwaranagata, Bangalore, Karnataka - 560079.

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P.M Sujatha,

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Wo Garudappa Mudappa, 362, New Municipal No.72, 2nd Main, 2nd Stage, EWS KHB Colony, Agrahara Dasarahalli, Basaveshwarafiagara, Bangalore, Karnataka - 560079. ...Applicants

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And

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The authorised officer, Can Fin Homes Ltd, 106 and 108, Ground Floor, Vrjay Icon Apartments, Huskur Gate, Anantha Nagar Road, Electronic City, Bangalore, Karnataka - 560100. Defendant

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This Securitisation Application having been heard on25.08.2022 in the^presence of Advocates M/s Anil Shekar K.S, Manjula N.C and Chaya J for the applicants, and Advocate Shd D Narayana Swamy for the defendant, and stood over to this day for

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consideration, the Tribunal delivered the following:-

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sA 113t2022

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FINAL OBDER

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The applicants filed the above Securitisation Application (SA) on 09.03.2022 under S.l7(l) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 as amended from time to time - hereinafter referred to as 'the Act'- praying to set aside the order dated 14.01.2022 passed by the III Addl Chief Metropolitan Magistrate, Bengaluru City in C Misc No.5476/2021. The applicants are none other than the borrowers of a financial assistance of t60 lakhs availed from M/s Can Fin Homes Limited.

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The case set out by the applicants in the SA in brief is as follows:- The l't applicant has availed a loan of {60 lakhs for purchase and construction of the schedule immovable property from M/s Can Fin Homes Limited. The applicants were regularly paying the instalments till March 2020. While being so, the defendant issued possession notice dated 22.10.2018 and tried to take physical possession of the schedule immovable property vide the impugned order dated 14.01.2022. No notice under sub-sections (2) and (a) of S.l3 of the Act has been issued to the applicants as contemplated under the Act and the Rules made thereunder. The alleged notices have not been issued by the authorised officer and, therefore, the said notices are bad in the eye of law and hence the SA.

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The defendant f,rled a statement of objection contending as follows:- The defendant is a^juristic person incorporated under the Companies Act and is represented by its authorised officer, Chetan Kumar, who knows about the transaction between the applicants and the defendant as per records available in the bank. This defendant issued the notices under sub-sections (2) and (a) of S.l3 of the Act in accordance with the provisions under the Act and the Rules made thereunder only. The authorised officer has issued all statutory notices. On the above contentions, the defendant prayed for dismissal of the SA.

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The applicants produced three documents along with the SA. For convenience, they are referred to as Annexures A1 to ,A.3. Similarly, the defendant

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sA lL3t2022

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produced nine documents along with the statement of objection, which are for convenience referred to as Annexures Bl to 89.

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On the appreciation of the rival contentions, the only issue arises for consideration is as to whether the applicants are entitled to the relief prayed for?

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The Issue:- Admittedly, the l't applicant has availed a loan of {60 lakhs for purchase and construction of the schedule immovable property from M/s Can Fin Homes Limited. According to the applicants, no notice under sub-sections (2) and (a) of S.l3 of the Act has been issued to them as contemplated under the Act and the Rules made thereunder. It is the specific case of the applicants that the alleged notices have not been issued by the authorised officer and, therefore, the said notices are bad in the eye of law. Per contra, according to the defendant, M/s Can Fin Homes Limited is a^juristic person incorporated under the Companies Act and is represented by its authorised officer, Chetan Kumar, who knows about the transaction between the applicants and the defendant as per records available in the institution. It is submitted by the defendant that he in the capacity of the authorised officer issued the notices under sub-sections (2) and (a) of S.l3 of the Act in accordance with the provisions under the Act and the Rules made thereunder.

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The core issue relating to the SA is the issuance of notices under subsections (2) and (a) of S.l3 of the Act. But before going to examine the same, a vital contention has been raised by the applicants that the notices claimed to be issued by the defendant have not been issued by him in his capacity as authorised officer as contemplated under the provisions of the Act and the Rules made thereunder. But the defendant has taken a stern view that all notices have been issued by him in the capacity of authorised officer only.

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Now, the point arises for discussion is the status of an authorised officer under the Act. This is the preliminary and primary issue to be decided in this matter. The pre_-requirements for enforcement of security interest by a secured creditor are

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sA 11312022

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classification of secured debt as non-performing asset and issuance of a demand notice in writing to discharge the debt in full within sixty days from the date of receipt of such notice. In the event of default the secured creditor is entitled to enforce its security interest over the secured assets. For this purpose, the secured creditor may take recourse

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to one or more of the measures referred to sub-section (4) of S.l3 of the Act, namely:-

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"(i) take possession of the secured assets of the borrower including the right to transfer by ,oy oflease, assignment or salefor reolising the secured asset;

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(ii) take over mqnagement of the business of the borrower including the right to transfer by *ay oflease, assignment or salefor realising the secured asset:

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PROVIDED that the right to transfer by woy of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrowers is held as securityfor the debt;

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PROVIDED FURTHER that where the management of whole of the business or part of the business is severable, the secured creditor shall take over lhe manogement ofsuch business ofthe borrower which is relatable to the security or the debt.

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(iii) appoint any person (hereofter refeted to as the manager), to manage the secured assets the possession ofwhich has been tqken over by the secured creditor:

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(iv) require al any time by notice in writing, any person who has acquired any of the secured assets from the borrower andfrom whom any money is due or may become due to the borrower, to poy the secured creditor, so much of the money as is sfficient to pqy the secured debt.^"

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As per the further provisions, the secured creditor is entitled to transfer the

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secured assets by way of lease, assignment or sale for recovery of the secured debts from the secured debtors. Sub-section (12) of S.l3 of the Act says that the rights of a secured creditor under the Act may be exercised by one or more of his officers authorised in this behalf in such manner as may be prescribed. As per S.2(1)(zd), a secured creditor includes any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause (l). The 'authorised officer' as defined under R.2(a) of the Security Interest (Enforcement) rules, 2002 (as amended from time to time) - for short 'the Rules' - means an officer not less than a Chief Manager of a public sector bank or equivalent, as specified by the Board of Directors or Board of Trustees of the secured creditor, or any other person or authority exercising powers of superintendence, direction and control of the business or affairs of the secured creditor, as the case may be, to exercise the rights of a secured creditor under the Act. Therefore, the authorised officer of

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sA 113t2022

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a secured creditor must be a chief superior officer having sufficient knowledge in law and wisdom in handling the matters and coordinating his team. Going by the aforesaid definitions, there exist two kinds of officers within its ambit in a secured creditor, namely, the officers who are authorised to exercise its rights under the Act and any other officers.

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From the above it is very clear that an authorised officer is an officer of the secured creditor not below the rank of Chief Manager of a public sector bank or equivalent, who is empowered to exercise the rights of the secured creditor conferred under the Act, as specified by the competent authority prescribed under the Rules. Therefore, the power, authority and^jurisdiction of an authorised officer under the Act and the Rules are very vast and as good as an executing court. The authorised officer can be considered as a persona designata under the Act. Inefragably, the authorised officer under the Act is effecting a compulsory sale by operation of law for recovery of the secured debt from the secured debtors by enforcing the security interest over the secured asset in lieu of the Civil Court for want of^{jurisdiction.} Therefore, the sale certificate issued by an authorised officer under the Act is in lieu of a certificate of sale that may issue from a civil court or a revenue court in exercise of statutory power to sell.

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I l. Going by the above provisions, to be an authorised officer, a person must be an officer of the secured creditor not below the rank of a Chief Manager of a^public sector bank or an officer of equivalent rank. Secondly, such officer shall have to be specified by the competent authority exercising powers of superintendence, direction and control of the business or affairs of the secured creditor to be authorised officer for the purpose of exercising the powers under Chapter III of the Act. As per R.2(b) of the Rules, a demand notice under 5.13(2) of the Act can be issued by the secured creditor or^its authorised officer. A conjoint reading of S.13( 12) of the Act r/w^{R.2(a) of the Rules} will make it ample clear that an authorised officer through whom the secured creditor^can exercise its rights under the Act can only be an officer falls within^{the ambit of R.2(a)} of

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sA t13t2022

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the Rules. Anybody else, even if entrusted by the competent authority of the secured creditor cannot be treated as an authorised officer of the secured creditor and the same will be ultra vires of the provisions of the Act. In the above premises, a demand notice under S.l3(2) of the Act can be issued by such officer as authorised under R.2(a) of the Rules only and not by any other officer of the secured creditor.

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It is the specific case of the applicants that the notices issued under subsections (2) and (a) of the Act are not by the authorised officer as defined under the Rules. Relying on Annexure Bl general power of attomey the defendant has claimed that he is the authorised officer of M/s Can Fin Homes Limited. A perusal of Annexure Bl shows that the Managing Director of M/s Can Fin Homes Limited by virtue of the powers conferred upon him by its Board of Directors nominated and appointed Shri Hemanth Kumar N as an attorney for the company to do and transact the acts mentioned therein. As per clause (13) he is entitled to sell the property belonging to the company and/or the property secured to the company or property in which the company becomes interested in the ordinary course of business and to realise sale proceeds. Nowhere in the terms is there a clause stating that he is entrusted to do the work of authorised officer in terms of S.13(12) of the Act r/w R.2(a) of the Rules to exercise the rights of the company under the Act. As per the certificate appended to the statement of objections, the designation of Shri Hemanth Kumar N under Can Fin Homes Ltd even as on 25.04.2022 is Manager and not Chief Manager. The defendant has no case that the designation of Manager in Can Fin Homes is equivalent to the post of Chief Manager in a public sector bank. Though he claimed to be the authorised officer he has signed in all the documents in the capacity of authorised signatory only. Annexure 85 demand notice dated 18.05.2018 is seen signed by one Madhu Shetty. But his designation is not shown. The defendant has no case that he had been appointed as authorised officer of M/s Can Fin Homes Ltd. However, the defendant has a different version in the statement of objection claiming that M/s Can Fin Ltd is represented by its authorised officer Shri Chetan Kumar. Even the ::":.r

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sA 11312022

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vakalathnama has been signed on 11.03.2022 by^{the said HemanthKumar N in his} capacity as authorised signatory only. Application^underS.14 of^{the Act before the III} Addl Chief Metropolitan Magistrate, Bengaluru^{is seen filed by authorisedofficer,Shri} Manoj K Badal. No doubt, a secured creditor^{is entitled to appointone or more authorised} officers to exercise its rights under the^{Act. Butwhen the applicants have questioned the} status and eligibility of such authorised officer,^{the burden of proof lies on the defendant.} No valid appointment in terms of S.13(12) of^{the Act r/w R.2(a)of the Rules in respect of} any of the aforesaid authorised officers by^{M/s Can Fin HomesLtd has beenproduced in} this case before this Tribunal. What^{produced is onlya general powerof attomey.}

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There is much difference between an^authorised signatory^andan authorised officer. An authorised signatory is^{a person who signs or act on behalf of} another person as his representative.^{He is an individual(and need not be an officer to a} certain rank) acting as an agent of the company with^{its expressor implied authorityfor} all functions of the company and on behalf of the company.^{He may execute a document} as an authorised signatory on behalf of^{the company but cannot perform the statutory} functions of an officer unless and until he is delegated^{to do so in accordance with law.} An authorised officer is a^person who is authorised^{to exercisethe power, authorityand} jurisdiction conferred upon him under a statute and to sign documents in evidence on behalf of the competent appointing authority while^{exercising his rights.Authorised} officers shall use their name and designation^{along with the designated statuswhile} signing such documents. An authorised^{signatory can neveract as an authorisedofficer} and perform his statutory duties.^{An authorisedofficeris a specialstatusto be appointed} in accordance with the^{provisions under a special statuteto perform the statutory duty} conferred upon him thereunder^{and it can never be happened in termsof a generalpower} of attomey and that too to a^{person in a lower rank than whatis designatedin the Rule.} The only requirement is that such^power of^{attorney holdershouldhold the rank} equivalent to a Chief Manager^{and specially be authorisedto exercisethe rights of the}

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sA 113t2022

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secured creditor under the Act. The person who authorised in that behalf only can be considered as an authorised officer empowered to act under the Act. Therefore, this Tribunal is of the view that M/s Can Fin Homes Ltd has not appointed a suitable authorised officer in accordance with law to enforce its rights under the Act if other authorised officers also have been appointed in a similar way based on a general power of attorney. Suffice it to say that all actions taken by such ineligible person commencing from the issuance of demand notice under S.l3(2) of the Act have become bad in the eye of law and thus liable to be set aside.

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In the above facts and circumstances of the case and in view of the discussion as above, entertaining such actions made by the defendant as in this case by this Tribunal would defeat the object behind the Act. This Tribunal is forced to take such a view bearing in mind the avowed object of the Act. When an authorised officer is fully armed with ample powers to sell the secured asset without intervention of the Court or Tribunal, it shall not cause any legal prejudice to the opposite side. The secured creditors should be very careful and vigilant in appointing its officers as its authorised officers under the Act. In such circumstances, allowing any person or individual to be armed with the powers of an authorised officer under the Act by way of a mere general power of attorney would be detrimental and against what intended by the lawmakers in their wisdom. Ratification of such acts by this Tribunal would make a wave of long standing ramifications and cause irreparable injury, loss and hardship to the borrowers. The absence of a special power of attorney or authorisation in terms of S.l3(12) of the Act r/w R.2(a) of the Rules authorising an officer not below the rank of Chief Manager of M/s Can Fin Homes Ltd to exercise its rights under the Act is a crucial aspect in the eye of law. If the law makers in their wisdom had intended to garb any officer of the secured creditor and empower him with the powers of an authorised offrcer akin to a quasijudicial authority to exercise the rights of the secured creditor under the Act, the same would have been mentioned explicitly in the provisions of the Act and the Rules made

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sA lI3t2022

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thereunder itself. [n the absence of such a specific enabling provision, this Tribunal is of the view that permitting any person or individual other than what is intended in the Rules to exercise the rights of a secured creditor under the Act would amount to reading into the said provisions something which was never intended to be contemplated therein by the law makers in their wisdom. This is especially because the Statement of Objects and Reasons of the Act has recorded that as the proceedings under the Recovery of Debts and Bankruptcy Act,1993 (as amended from time to time) with passage of time had become synonymous with those before regular courts affecting expeditious adjudication, Narasimhan Committee I and II as also the Andhyarujina Committee constituted by the Central Government had suggested to enactment of new legislation for securitisation and empowering banks and financial institutions to take possession of securities and sell them without Court intervention which would enable them to realise long-term assets, manage problems of liquidity, asset liability mismatches and improve recovery. There can be no dispute that such empowernent should be expressly in terms of the Act and the Rules. In such circumstances, this Tribunal is of the firm view that the recourses and measures taken by M/s Can Fin Homes Limited under S.13 of the Act through its^general power of attomey holder is not in accordance with the provisions under the Act and the Rules made thereunder. The unavoidable consequence of such finding is that such recourses and measures taken by Mis Can Fin Homes Limited are without^{jurisdiction,power} and authority as granted under the Act and, therefore, are liable to be set aside.

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In the above circumstances and in view of the discussion as above, the SA is liable to be allowed with liberty to M/s Can Fin Homes Limited 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.504/2022, 50512022, 50612022,^172912022, 198412022 are closed and SA 11312022 is allowed with the following^{declarations/} directions:-

sA n3t2022

(i) this Tribunal declares that the recourse and measures taken by M/s Can Fin Homes Limited through its defendant authorised officer under S.l3 of the Act are invalid and thus set aside;

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(ii) M/s Can Fin Homes Limited is directed to restore the possession of the secured asset to the borrower or the mortgagor, as the case may be, within seven days from today;

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(iii) M/s Can Fin Homes Limited shall reverse all costs, charges and expenses incurred by it or any expenses incidental thereto in connection with the impugned actions taken against the applicants under the provisions of Ss.13 and 14 of the Act and shall not claim them as legally recoverable debt by operation of law;

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(iv) M/s Can Fin Homes Limited is granted liberty to invoke the provisions under the Act for enforcement of its security interest over the secured asset afresh in accordance with the provisions of the Act and the Rules made thereunder meticulously; and

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(v) the parties shall suffer their respective costs.

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Communicate copy of this final order to both parties as provided in subsection (7) of S.17 of the Act r/w R.16 of the Debs Recovery Tribunal (Procedure) Rules, 1993 (as amended from time to time).

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[Dictated^{to my PA directlyon the computer,coruected and pronounced by me in the openTribunalon this the 2dh} day ofSeptember,20231

PRESIDING OFFICER

Appendix to SA I1312022

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APPENDIX

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Applicant's Exhibits

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Witnessforthe	applicant	Nil
Witnessforde	fendant	Nil
ExhibitNo.	Date	Particularsofdocuments
Annexure-A	l22.10.2018	Photocopyofthe possessionnoticeissuedby M/sCanFin HomesLimitedinrespectoftheschedule immovable property
AnnexureA	214.01.2022	PhotocopyoftheorderpassedbytheIIIAddlChief Metropolitan Magistrate, Bengaluruin CrlMisc No.547612021
Annexurer\3	03.03.202	2PhotocopyofletterissuedbyM/sCanFinHomesLimited addressedtotheapplicants requesting themtovacatethe premises Defendant'sExhibits
Annexure-B	lNil	Photocopyofgeneralpowerofattorney executedbythe DeputyGeneral Managerof M/sCanFinHomesLimitedin favourofShri HemanthKumarN
Annexure-B	204.03.2016	Photocopyofhousingloanagreement executedby^the applicantsinfavourofM/sCanFinHomesLimited
Annexure-B	322.04.2022	Computer^generatedreportofsecurity^interestfrom^the websiteofCERSAI
Annexure84		Photocopyofstatementofaccountforthe periodfrom 01.01.2016to24.04.2022inrespectofloanaccount No.171226000055
Annexure85	18.05.2018	PhotocopyofdemandnoticeissuedunderS.l3(2)ofthe ActbyM/sCanFinHomesLimitedtothe applicants
Annexure86	21.05.201	8Photocopyofpostalacknowledgement cards signedbythe applicantsforhaving received Annexure85noticesent to them by registered post
Arurexure87	22.10.2018	Photocopyofpossessionnoticeissued^{underS.13(4)ofthe} ActbyM/sCanFinHomesLimited
Annexure88	23.10.201	8Photocopyoftheextract ofthepublicationofAnnexureBT madeinKannadadaily
Annexure89	23.10.201	8Photocopyofthe extractofthe^publicationofAnnexureBl madeinEnglishdaily

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\ uo'n' PRE,SIDING OFFICER

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Schedule to SA 11312022

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SCIIEI'I'LE PROPERTT

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All that part and parcel of property bearing No.72, old No.362, 2"d Main, 2"d stage, EWS, KHB Colony, Agrajara Dasarghalli, Basaveshwar Nagar, Balgalore, measuring East to West: 23.9 Feet and North to South:21.6 Feet, totally measuring 510.625 Sq. Ft bounded as;

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East by; Property house No.363,;

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West by; Road,

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North by; Propergr House No.374,

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South by; Property House No.361

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\ oo'o' PRESIDING\OFFICER

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IN THE DEBTS RECOVERY^{TzuBUNAL- I,} KARNATAKA AT BANGALORE

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PRESENT: SRI IMTI AZ ALT PRESIDING OFFICER

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Dated the 20th day of September,2023

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SECURITISATION APPLICATION^{NO.113 OF 2022}

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Between Garudappa Mudappa, S/o Mudappa Garudappa, 362, New Municipal No.72, 2nd Main,2nd Stage, EWS KHB Colony, Agrahara Dasarahalli, Basaveshwaranagara, Bangalore, Karnataka - 560079 and another. And The authorised officer, Can Fin Homes Ltd. 106 and 108, Ground Floor, Vrjay Icon Apartments, Huskur Gate, Anantha Nagar Road, Electronic City, Bangalore, Karnataka - 560100.

...Applicants

Defendant

FINAL ORDER

\ 3vs ryo

Sri Garudappa Mudappa v. Can Fin Homes Ltd.

Case brief

What is this about?

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Sri Garudappa Mudappa v. Can Fin Homes Ltd.

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