Disposed

bhaganagar solvent extractions Pvt. Ltd. v. indian renewable energy development agency Ltd.

DRT10 Nov 2023SA/6/2023

Case brief

AI extract

What is this about?

Debts Recovery Tribunal held that recovery measures under SARFAESI Act were not barred by limitation and complied with SIE Rules. The sale of movables as scrap was validated based on expert valuation. While challenging the sale, the Tribunal granted appellant a conditional window to recover sold assets by depositing auction proceeds.

What did the court decide?

Sale upheld but sold movables returned to borrower upon deposit of entire sale consideration plus interest within 27 days, or handed over to auction purchaser.

bhaganagar solvent extractions Pvt. Ltd. versus indian… — Execution and Attachment | DRT (2023)

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IN THE DEBTS RECOVERY TRIBUNAL –I AT CHENNAI

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Dated this 10^th Day of November, 2023

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PRESENT: SHRI A.S.JAYACHANDRA

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Presiding Officer

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S.A. No.6 of 2023

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Bhagyanagar Solvent Extraction Pvt. Ltd., Corporate Office:- No.9, Flat No.702, 7^th Floor, Manju Block, Chitra Avenue, Choolaimedu High Road, Chennai – 600094. [Rep. by its Ld. Sr. Counsel Sh.Rajagopal a/w Sh.Antony L.X.Selvam, Sh.RKM Suresh & Sh.Adithiya]

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. . . Applicant

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Versus

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The Authorised Officer,

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Indian Renewable Energy Development Agency Limited, A Govt. of India Enterprise, Core-4A, East Court, 1^st Floor, India Habitat Centre, Lodhi Road, New Delhi – 110003. [Rep. by its Ld. Counsel Sh.Jose & Smt. Lily for M/s.King & Partridge.] . . . Defendant No.1

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. . . Defendant No.1

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Shri.Syed Fabad, S/o Mr.S.M.Kamal Pasha, Golden Hatcheries, Building No.324, Thimmaiah Road, Off Queens Road Cross, Bangalore – 560052.

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Also at:No.3, 4^th Main, Jayamahal Extension, Bangalore North Benson Town, Bangalore – 560046. [Rep. by Counsel Mr.Srinandan & Mrs.A.Sella Visalakshi for M/s.Ashwin Shanbhag] . . . Defendant No.2

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: - O R D E R - :

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1.0 The Applicant Company challenges the sale notice of movables dated 06.03.2023, in this petition under Section 17(1) of SARFAESI Act. The Company is registered at Chennai and its factory is in Heggasanahalli Village, Devasugur Hobli, Raichur District, Karnataka.

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2.0 Facts of the Case as per appliant :-

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2.1 The Defendant herein, a non-banking financial institution with an object to support financially the projects of generating electricity / energy was approached by the Applicant for Project Financing Scheme in the year 2001 for a term loan of Rs.1659 Lakhs. The entire movable and immovable assets of the applicant company are to be charged to secure the repayment. Defendants disbursed the proceeds in trickles between 2002 to 2004. The energy was to be produced and distribution of the same was not permitted and the tariff was to be fixed by the regulatory authority. The Karnataka State Electricity Board and Karnataka Power Transmission Company Limited (KPTCL) entered into a power purchase agreement. The UCO Bank also financed in the year 2005, ranking pari-passu with the Defendant and escrow account was opened for the deposit of flow from KPTCL in the year 2005. There were some litigation between the KPTCL and the Applicant which resulted into financial difficulties leading to defaulting the proper performance of the loan account with the Defendant and the UCO Bank. The operations in the power plant had to be discontinued.

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2.2 It is also submitted that on 21.09.2011 the applicant company was ordered to be liquidated in CP No. 57/2006 by the orders of Hon’ble High Court of Andhra Pradesh in a petition filed by a private party. Liquidator was also appointed. However in OSA No.55/2021 the Hon’ble High Court granted

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interim stay subject to the applicant company depositing Rs.75 Lakhs within eight weeks. An SLP was filed, which was dismissed as withdrawn. The present Defendant No.1 is aware of these developments

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2.3 However, the Defendant No.1 issued a demand notice under Section 13(2) of SARFAESI Act demanding Rs.33,81,67,155/-, when the liquidator was incharge of the company. The said notice is alleged to be of no competence and not specifying the date of declaring the NPA and was vague. The same was replied on 06.07.2012. The applicant did not raise any objection so that it may not offend the Defendant No.1 who may turn unsympathetic. There were correspondence between the applicant and Defendant No.1. Thereafter on 13.09.2012, this applicant submitted OTS proposals by making payment of Rs.800 Lakhs, based on this letter Defendant No.1 sent a claim letter to UCO Bank dated 13.09.2012 amplifying that the said bank had adjusted the proceeds received from KPTCL against their dues without sharing the proceeds with the Defendant No.1.

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2.4 Another winding up petition in CP No.66/2006 was filed and the official liquidator was appointed. The Official liquidator took possession of the factory on 19.11.2012. The Defendant No.1 wanted to protect the securities and deployed a security agency for the purposes of safeguarding its hypothecated and mortgaged assets. Based on the orders of the Hon’ble High Court inventory was conducted in the presence of the officials of the Official Liquidator and the Defendant No.1 on 27.05.2013. Valuation report dated 08.10.2014 was also filed, which showed the valuation at Rs.11,38,30,334/- (Market Value) and distress sale value was Rs.9,49,66,970/-.

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2.5 According to the applicant, the entire factory with assets were in the possession of the Official Liquidator and the Defendant No.1 was taking care

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of the security. The applicant wanted to restart the factory. On 06.12.2012, an OTS proposal was made by the applicant at Rs.8 Crores. The better particulars were sought by the Defendant No.1 on 20.12.2012. The same was replied on 26.02.2013. The Defendant No.1 by a letter dated 03.04.2013 rejected the same and made it clear that proceedings would be continued, to another letter dated 10.05.2013 by the applicant to encourage a strategic investor for re-start was also declined by the Defendant No.1 on 14.06.2013.

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2.6 The applicant further submits that on 24.06.2016 (date as mentioned in the application at Para-10, Page-10, Line No.4) one more OTS proposal for Rs.650 Lakhs and expenses at Rs.53 Lakhs was submitted. The same was accepted by the Defendant No.1 on 31.05.2016. An amount of Rs.520 Lakhs was to be paid within sixty days so that the unit could be started by the strategic investor. With the acceptance of the offer of OTS by the Defendant No.1, the Hon’ble AP High Court in CP No.66/2006 by an order dated 22.09.2016 had recalled the winding up order dated 13.07.2012.

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2.7 It is also submitted that the applicant remitted Rs.10 Lakhs and submitted to the Defendant No.1 that the above proposal became unworkable and sought concession. The Defendant No.1 by its letter 17.11.2016 demanded the applicant to deposit Rs.130 Lakhs, failing which the OTS will be withdrawn. The Defendant No.1 objected to handing over of the possession by the Official Liquidator to this applicant. However, the Applicant was put into possession by the Official Liquidator on 02.12.2016 and inventory was conducted. Some of the machinery was damaged and substantial machinery had become waste, as per the allegations in the present application.

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2.8 It is also pleaded that the Defendant No.1 instead of reducing the OTS amount had sent a letter dated 04.09.2018 intimating that they would possess the property and also asked the applicant to depute its representative on 20.09.2018 and to hand over the possession peacefully. This letter is signed by one Mr.S.C. Barman as the authorised officer.

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2.9 On 17.09.2018, the applicant reported to the Police about the loss, damage and missing of articles.

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2.10 On 20.09.2018, this Defendant No.1 took forcible possession without affixing the Possession Notice and did not allow the applicants to be present.

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2.11 On 27.09.2018, applicant received a letter by the Defendant No.1 enclosing the Panchanama / inventory drawn on 20.09.2018 and the copy of the possession notice published in New Indian Express and Vijaya Karnataka.

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2.12 The Possession Notice was challenged in SA No. 184/2018, which was dismissed by the DRT-1, Chennai and thereafter a review petition was filed. The same is transferred to DRT-2, Chennai.

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2.13 It is further pleaded that on 14.03.2013, few persons inspected the plant and informed that a sale notice was published in Vijaya Karnataka. According to the applicant the said sale notice is not describing the list of machineries to be sold. The e-auction sale notice was published in New Indian Express, Kalurgi edition on 06.03.2023. The notices of the demand, possession and other communication at the corporate office of the applicant without any notice to the applicant. The plant and machinery proposed to be sold is grossly undervalued.

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3.0 Grounds :-

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3.1 The demand notice was defective since the official liquidator was appointed in CP 57/2006 and the same ought to have been addressed to the Official Liquidator. The Defendant No.1 failed to note that the power distribution companies in Karnataka did not revise the tariff as per the electricity regulatory authority. The Defendant No.1 did not note that the legitimate dues would have gone into the escrow account. The Defendant No.1 neglected to realise the monies due to them under the escrow agreement, when the UCO Bank agreed to share the securities. If the monies were realised according to the escrow mechanism, the account would have been not a non performing asset. Therefore demand notice 08.06.2012 is bad in law. The demand notice was replied on 06.07.2012 and 23.07.2012 by the representations which were rejected arbitrarily by the letters dated 05.08.2012 and 07.08.2012. The Defendant No.1 did not follow the statutory scheme and inferior rank officers were appointed as authorised officers. The consequences of winding up orders were not acted upon for the speedy realisation of the security. The physical possession was taken by the official liquidator and the Defendant No.1 appointed a security agency.

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3.2 The inventory made by the official liquidator was approved by the Hon’ble AP High Court, the Defendant No.1 failed to depute its officials. As the winding up order was recalled, and there was negligence in protecting the property. The forcible taking possession of the property is invalid. There is a discrepancy in the valuation of the movables as per the inventory made by the defendant when compared with the inventory of the official liquidator.

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3.3 The Defendant No.1 had taken possession of the factory, the plant and machinery as per Annexure A mentioned in the application. It raised objections to the valuation report in CA No.184/2015 before the Hon’ble AP High Court and it was directed by the Hon’ble AP High Court to accept the valuation report submitted for all purposes.

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3.4 The e-auction notice published does not contain the details of machinery and assets item wise and each item is not given its proper valuation.

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3.5 The valuation as mentioned in the notice is unjustified and improper since the very Defendant No.1 earlier valued the same at Rs.11,38,30,334/and the distress value at Rs.9,49,66,979/-, this was the earlier valuation report. In the impugned notice, the same is valued at Rs.1.00 Crore.

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3.6 The Applicant also contends that they have taken the insurance policy valuing the movables at Rs.45.60 Crores. The reduction of value is suspicious.

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3.7 Rule 6 of the SIE Rules is not followed. Earlier sale notice dated 09.08.2021 was served at the corporate office. In the instant notice dated 06.03.2023 was not served at the corporate office.

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3.8 The earlier demand notice, possession notice and the sale notice dated 08.06.2012, 27.09.2018 and 09.08.2021 respectively were served at the applicant company corporate office No.9, Flat No.702, 7th Floor, Manju Block, Chithra Avenue, Choolaimedu High Road, Chennai - 600094. The present sale notice dated 06.03.2023 is not served on the said address.

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4.0 Contours of the case :-

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4.1 The Defendant No.1 is the caveator. When the matter was listed, the sale had already taken place as per the caveator. The name of the purchaser was disclosed and the auction purchaser was impleaded as Defendant No.2. The Defendant No.2 submitted that they sail with the Defendant No.1 in defending their case.

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5.0 Case of the Defendant No.1 :-

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5.1 Defendant No.1 filed its counter affidavit through the authorised signatory. It is submitted that the allegations made in the application are denied unless specifically admitted. It is their case that the outstanding amount is Rs.127,29,19,644/- as on 31.03.2023 and the same was not paid despite innumerable chances including the intimations and sale notices.

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5.2 The Defendant No.1 is a non-banking institution registered under Companies Act and is a financial institution as per Section 2(m)(i) and a secured creditor as per the SARFAESI Act. It is submitted that the application is not maintainable since the SA No.184/2018 filed by the very applicant was earlier dismissed for want of territorial jurisdiction. The signatory to the application by name Sh.C.Adhinarayana was not the part of the loan agreement and the borrower company had not intimated his appointment for which no approval was sought. The orders of the Hon’ble High Court of Karnataka in WP No.200034 and 200322 of 2017 dated 30.05.2017 opined that the conduct and attitude of the applicant is nothing but misusing and abusing the process of law. It was observed that this applicant had not complied with the interim order of undertaking to pay Rs.1.50 Crores on or before 31.03.2017, showing the lack of bonafides and diligence on the part of

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the applicant. The measures taken by the Defendant are in accordance with law.

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5.3 A very lengthy counter is filed. The pith and substance of the counter is that loan agreement was entered into by the parties for setting up a biomass power project on 06.03.2002 and the Applicant created charges on various securities including the property which is the subject matter of the sale notice. This defendant disbursed a loan of Rs.16,95,00,000/- between 22.04.2002 to 31.01.2004. UCO Bank had also granted Rs.15 Crore and with a pari passu charge to secure their loan and to open an escrow account with UCO Bank for the proceeds to be received by the Applicant from KPTCL. No objection was given on 30.05.2005. UCO Bank breached the agreement and unilaterally adjusted all the proceeds which was objected to vide their letter dated 13.08.2012. The correspondence between UCO Bank and the Defendant is superfluous for the purposes of this application.

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5.4 It is the contention of this Defendant No.1 that the applicant failed in repayment plan of the loan amount and the same was classified as NPA on 31.03.2008 and the outstanding amount was Rs.33,81,67,133/- as on that date.

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5.5 It is pointed out that one Metro Steel Rolling Mills filed a Company Petition against the Applicant and the Hon’ble AP High Court in CP No.57/2006 and passed an order of winding up on 21.09.2011. This was challenged in OSA 55/2021. A conditional order was passed on 22.12.2011 subject to payment of Rs.75 Lakhs. Thereafter SLP 2545/2012 was filed against this order and the same was withdrawn by the Applicant and the SLP was dismissed by the order dated 03.02.2012. Thus this stay order continued.

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5.6 While the stay order was pending the applicant failed to make overdue payments to this defendant and demand notice dated 08.06.2012 was issued and then the company was under the control of the official liquidator at that time. The demand notice is duly acknowledged.

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5.7 It is also submitted that another party namely M/s.Cethar Vessels Private Limited approached the Hon’ble AP High Court against this applicant in CP No.66/2006 and the applicant company was directed to be wound up by an order dated 13.07.2012. The said order was set aside on 22.09.2016. The notice issued by the Official liquidator in CP No.66/2006 is subsequent to the demand notice issued by this Defendant.

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5.8 However, consequent to the demand notice issued by this defendant, this applicant by their letters dated 06.07.2012 and 23.07.2012 expressed their interest in reviving the project. The offers made by the applicant were rejected by this Defendant vide communication dated 05.08.2012 and 07.08.2012 on the ground that there was continued shut down and lack of progress to restart the plant and that the applicant had no proposals to settle the dues except with vague assurances. It is also submitted that in CP No.66/2006 the Official Liquidator took possession of the properties of the company and an agency was appointed with consent to safeguard the protection of the movable properties and the expenses was being paid by this Defendant.

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5.9 It is their submission that in OSA 55/2011 the Hon’ble DB set aside the winding up order and further remanded the matter to the single Judge to look into the issue of service of notice. The said order of the DB is dated 28.04.2016 and the winding up order was still operating.

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5.10 This applicant by a letter dated 13.11.2012 offered settlement of Rs.800 Lakhs as OTS. This was rejected by this Defendant vide letter dated 19.11.2012. Another letter dated 19.11.2012 replied by letter dated 06.12.2022, a proposal was made by the applicant followed by the letter dated 20.12.2012 by which the defendant sought certain information within seven days. The same was replied. However the proposal was rejected by the letter of this defendant dated 03.04.2013. Once again the applicant requested consideration of the proposal by a letter dated 10.05.2013, which was again rejected by a letter dated 14.06.2013 with a request to increase the settlement amount.

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5.11 Again the applicant came up with a letter requesting for OTS dated 12.02.2016 offering Rs.6.05 Crores, the same is also rejected by a letter dated 23.03.2016 by this Defendant.

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5.12 Again the defendant came up with a proposal dated 24.04.2016 offering Rs.6.50 Crores, which was accepted by this defendant on 31.08.2016 and demanded unconditional acceptance of the conditions arising in this correspondence. It is pleaded that the stipulations of conditions with regard to the payment schedule and the amount though accepted by the applicant was never adhered to. Therefore, this defendant withdrew the offer by a letter dated 29.11.2016.

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5.13 It is also pleaded that the official liquidator with the permission of Hon’ble High Court got valued the properties consequent to the order of the Hon’ble High Court dated 19.07.2013. The present Defendant had raised objections to the valuation and submitted its valuation report dated 08.10.2014 and the same was also filed in the company court through CA No.745/2015. The Hon’ble High Court by its order dated 27.04.2015 directed

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the Official Liquidator to ignore the earlier report and to accept the valuation report dated 08.10.2014.

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5.14 It is also submitted that the applicant company filed an application for recalling the winding up order in CP No.66/2006 and same was recalled by an order dated 22.09.2016. During the course of hearing this defendant objected that there was no settlement and no amount was paid to this defendant under the OTS.

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5.15 It is submitted that the settlement dated 31.08.2016 was withdrawn since no payments were made as per the terms. It was also made clear by the Defendant to the applicant company that the demand notice issued earlier would become payable and the same is to be construed as notice under Section 13(4). The said letter by the defendant is dated 29.11.2016. It was also notified that the possession would be taken over from the official liquidator on 02.01.2017. However, upon the recalling of the winding up order, the official liquidator handed over the possession to the applicant company on 02.12.2016 despite the objections by this Defendant. The inventory made at this point of time is not even communicated to this defendant till date.

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5.16 It is informed in the counter by the Defendant that the applicant moved the Hon’ble High Court of Karnataka challenging the withdrawal of OTS letter by this defendant in WP No.200034 and 200322/2017. They have also sought for setting aside all the proceedings by this Defendant. A conditional stay order was obtained by which the applicant company was to deposit Rs.1.50 Crores within the stipulated time. Despite extensions of time the conditional order was not complied. Ultimately the writ petitions were

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dismissed an order dated 30.05.2017 since the applicant did not comply, which the Hon’ble High Court opined as abuse of process of law.

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5.17 It is also submitted that this defendant filed OA No.166/2015 before DRT-1 and one R.Jagadish appeared as the director of the applicant company in the said OA and C.Adhinarayana did not appear, who has signed the present Application.

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5.18 The Applicant Company to stonewall the process of law filed OS No.4265/2017 before the City Civil Court, Bangalore with a prayer to declare the proceedings under SARFAESI Act as illegal. Exparte injunction orders dated 24.06.2017 was obtained and later by an order dated 11.04.2018, the same was dismissed.

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5.19 Thereafter this defendant issued notice to take possession which is dated 04.09.2018 by 20.09.2018. By a notice dated 20.09.2018, taking possession of movable and immovable properties under Section 13(4) was published in New Indian Express and Vijaya Karnataka dailies. The same was challenged in SA No.184/2018 which was dismissed by the order dated 16.12.2020.

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5.20 It is submitted that the present proceedings is one more attempt to stall the recovery. Therefore, it is prayed that the SA may be dismissed.

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5.21 It is their contention that ever since 19.11.2012, the factory was in the possession of the official liquidator till it was handed over to the very applicant. While replying to the para wise allegations of the application, the above facts are reiterated and prays for dismissal of the present application.

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5.3. The 2nd Defendant Auction Purchaser while adopting the above defense submits that in the auction sale dated 23.03.2023, the movables were purchased for a sum of Rs.4.75 Crores, as a bonafide purchaser.

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6.0 Points for determination :-

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6.1 Both sides have filed their documents. By an order dated 12.04.2023, an order of status quo was passed till the next date of hearing. The arguments were heard. Written arguments were also filed by both the sides and the same is perused. In the above context, the following points arise for determination in these proceedings:-

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a. Whether the measures initiated by the Defendant No.1 is in accordance with the SARFAESI Act and the Rules?

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b. What relief?

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6.0 Answer to Point No.(a) :-

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6.1 The Ld. Sr. Counsel appearing for the applicant while taking through the documents, challenges the impugned sale notice and submits that the same is liable to be set aside. Firstly it was argued that the impugned sale notice is hit by limitation. Secondly he submits that the Defendant No.1 had not followed the mandatory rules under Rule 4 to 6 of the Security Interest (Enforcement) Rules, 2002. Thirdly it was canvassed that there was no proper and effective service of notice. The last contention of the Ld. Counsel is on the aspect of valuation, which he alleges as grossly undervalued in an unscientific manner. Applicant had filed the written arguments also.

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6.2 Responding to the same, the Ld. Counsel for the 1^st Defendant submits that the limitation aspect now pleaded is bereft of merits. He submits that the limitation applies only to the courts of law alone and not to the Authorised

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Officers under the Act. The independent Acts of the Bankers who issue the demand notices are not hit by the limitation and the sale is not barred by limitation. As regards the non observance of the rules, certain documents are placed on record, which would be discussed in the course of this order. It is also argued that the application itself is not maintainable since the same is signed by one Mr.C.Adhinarayana who was the additional Director of the Company. As per Section 161 of the Companies Act additional Director shall hold the office up to the date of the next general body meeting. In the absence of re-appointment of Director as an additional Director, he cannot claim to be the director of the company since he was appointed as additional director on 05.12.2016. The Ld. Counsel for the defendant No.1 submits that there was proper valuation and the same was according to the approved valuation report which was submitted to the Hon’ble High Court also.

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7.1 The aspect of limitation is not pleaded in the grounds of the application. However, in the written arguments the grounds urged are that the debt was classified as NPA on 31.03.2008 and the hypothecated goods are of the nature of decay. Section 36 of the SARFAESI Act comes into play and since the debt to be recovered within the period of limitation, and due to the failure on the part of the Defendant No.1, the same is hit by limitation. The applicant relies on the Ruling of Hon’ble Madras High Court M/s.Lakshmi Shankar Mills Pvt. Ltd. & Ors Vs. Authorised Officer Indian Bank 2008(2)

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CTC 529 . The sale of movables under the hypothecated goods is only three years and not beyond that period, according to the Ld. Counsel for the Petitioner. The Ruling of the Hon’ble Madras High Court and the Paras 20, 21 & 22(i) are much canvassed. The other rulings on this aspect relied by the applicant are of the Hon’ble Delhi High Court in the case of Somnath Manocha Vs. Punjab & Sind Bank & Anr. dt.20.04.2012 and Hon’ble

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Kolkata High Court in the case of Dr.Dipankar Chakraborty Vs. Allahabad Bank & Ors. dt. 07.07.2017 .

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7.2 The ruling of the full bench of Hon’ble High Court of Madras in Para20, relied on the earlier ruling wherein it is held that in a given case, the claim of the bank/financial institution may be barred by limitation and such grounds, can be raised in the proceedings under Section 17 of the SARFAESI Act, before the DRT. Following the said ruling, the aspect of limitation raised by the Applicant though not pleaded as a ground in the application, the same being the question of law cannot be ignored and thus being examined herein.

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7.3 In the ruling of M/s.Somnath Manocha (Supra) , it was held that on the date of issuance of notice under Section 13(2) of SARFAESI Act, there was no such existing or subsisting right qua-mortgage. The said ruling held:

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“we agree with the contention of the appellant that the remedy provided under the SARFAESI Act is simply a new means of enforcing a preexisting right i.e. one that existed before the SARFAESI Act came into existence. That remedy is the right to sell a mortgaged property and recover the sum.” [Para-18].

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In that case, Hon’ble Delhi Court ruling was dealing with a situation prior to the SARFAESI Act, which came into effect from 18.12.2002. In that case, the bank had filed the original suit in CS(OS) No.935 of 1984 for recovery and also issued a notice under Section 13(2) of the SARFAESI Act on 20.11.2004. The suit was filed in the year 1984 itself as could be seen from Para-3 of the Judgement. The suit was not decided till the time the ruling was pronounced. Thus, taking note of the provisions of SARFAESI Act as additional remedy, it noted that merely the bank had earlier filed a suit would not mean that it is precluded in enforcing the security. The Bank had not filed the suit under Section 34 of CPC in that case and further the bank had pleaded that it

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was not claiming any relief against the mortgaged immovable property in the said suit. Therefore, the twelve year period of limitation had expired. It explained at Para 19 that :

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“position would have been different if the bank had filed a mortgage suit and such suit was pending.”

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It is also pertinent to note that the ruling of the Hon’ble Delhi High Court is relied upon and referred to by the Hon’ble Kolkata High Court in the ruling of

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Dr.Dipankar Chakraborty .

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7.4 The peculiar facts of the present case discussed in the following paragraphs would clearly make out that the ruling of the Hon’ble Delhi High Court is distinguishable on facts for the following reasons.

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(i) The SARFAESI Act does not prescribe the limitations with regard to the time frame under Section 13(4) of the Act after issuance of the demand notice under Section 13(2).

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(ii) In the instant case, the defendant had initiated recovery proceedings in OA No.166/2015 on 05.06.2015. The filing of this OA and the pendency pleaded in the counter is not disputed by the applicant.

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(iii) It is seen from the documents filed, that the applicant had agreed initially under the loan agreement that the period of repayment shall be after the moratorium of three years from the loan agreement and thereafter the same is to be repaid in 28 quarterly installments as per Page - 27 of the documents filed by the Defendant. The disbursed amounts ranged from 22.04.2002 till 31.01.2004. After allowing a three year moratorium the payments ought to have started from 30.01.2007. The same is to be repaid within the period of 28 quarterly installments which amounts to 84 months i.e. seven years, plus the moratorium period of three years. Thus the demand notice dated 08.06.2012 is within the period of limitation.

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(iv) Apart from the above initial calculations, there have been letters written by the Applicant, requesting for rescheduling the loan which are dated 30.09.2005, 29.03.2008, 18.09.2010, copies of which are filed along with the counter by the Defendant. The same are not disputed by the applicant, which were written asking for rescheduling of the loan. Therefore, there has been an acknowledgement of debt / novation of the loan latest by 18.09.2010. Thus, the Applicant cannot plead that the debt is barred by limitation.

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(v) It is very pertinent to note that the applicant apart from seeking rescheduling of the loan had been time and again submitting the proposals of OTS vide, its letter dated 06.02.2014, 14.02.2015, 05.08.2015, 24.04.2016, which would clearly establish that the applicant was conscious of the fact that the debt is not barred under law. These letters asking for the facility of OTS are to be understood as the acknowledgement of debt within the period of limitation and the request for rescheduling coupled with the letters for extending the OTS facility would make the claim of the defendant within the period of limitation.

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(vi) Had the claim of the defendant been barred by limitation, the applicant would have never pleaded for rescheduling of the loans and for according the OTS facility from time to time till the latest OTS, which was agreed and not complied.

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(vii) On the other hand, the applicant approached the Hon’ble High Court of Karnataka in WP No.200034 & 200322/2017 with a prayer to set aside the letter of the Defendant No.1 dated 29.11.2016 withdrawing the OTS offer dated 31.08.2016. While disposing the said writ petition, the Hon’ble Court noted at Para 14 & 15 as under:

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“14. It is well settled principle that no one ask for a mandamus without a legal right. There must be a judicially enforceable right as well as a legally protected right before one suffering a legal grievance can ask for a mandamus. A person can be said to be aggrieved only when a person is denied a legal right by someone who has a legal duty to do something or to abstain from doing something. Admittedly, in the present case the petitioner has not made out any judicially enforceable

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right as well as legally protected right for issuance of writ of mandamus. On that ground alone writ petition is liable to be dismissed.

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It is undisputed fact that this court by an order dated 25.01.2017 granted interim order without prejudice to the rights of the parties and directed the petitioner to deposit Rs.1.50 Crores on or before 31.03.2017 by two installments and subsequently the interim order was extended up to 28.03.2017. Admittedly, the petitioner has not complied the conditional of interim order which only shows the lack of bonafide or diligence on the part of the petitioner. There is no ventilation of the grievance of the petitioner. The conduct and attitude of the petitioner is nothing but misusing and abusing the process of writ court which is impermissible in view of the dictum of this Court, to the case of H.M.P. Cements Ltd., and Another Vs. Karnataka Electricity Board now Karnataka Power Transmission Corporation Ltd., and Others, reported in II.R 2007 KAR 1928 . ”

¶117

It was never pleaded by the Applicant before the Hon’ble Karnataka High Court that the debt is barred under limitation.

¶118

7.5 This Tribunal cannot be oblivious of the gamut of litigations on the Company side in CP No.57 of 2006 filed by M/s.Metro Steel Rolling Mills and the subsequent orders in OSA No.55/2011 and the SLP No.2545/2012, which was dismissed as withdrawn on 03.02.2012. It is to be further noted that one more company petition in CP No.66/2006 was filed and a winding up order was passed on 13.07.2012, which was subsequently set aside by the order 22.09.2016. If these litigations were pending before the Hon’ble High Court, on the company side, the Defendant No.1 was disabled to initiate recovery, which is in the common prudence.

¶119

7.6 In view of the above, the rulings of the Hon’ble Delhi High Court and the Kolkata High Court cannot come to the aid of the applicant. It is for the first time that this applicant had raised the question of limitation only during the arguments and the same are not perhaps correctly not pleaded in the grounds.

¶120

¶121

For the aforesaid reasons and circumstances, this Tribunal is constrained to reject the arguments of the Ld. Counsel for the Applicant that the proceedings initiated under the SARFAESI Act are barred under limitation.

¶122

8.0 Whether the proceedings are vitiated under SIE Rules :-

¶123

8.1 The contention of the applicant is that there is non compliance of Rule 6(2) of the SIE Rules. It is stated in the written arguments that the applicant had received demand notice and possession notice at its corporate office, which address No.9, Flat No.702, 7^th Floor, Manju Block, Chitra Avenue, Choolaimedu High Road, Chennai – 600094. The sale notice is sent to a wrong address i.e. No.9, Flat No.202 (Instead of 702), 7th Floor Manju Block. The correct address is Flat No.702. Therefore it is not served and not complied with Rule 6(2) of the SIE Rules.

¶124

8.2 The Defendant No.1 while refuting these allegations, relies on the letter addressed by the applicant dated 24.04.2016 at Page No.178 of the Defendant’s document which shows the corporate office address as No.9, Flat No.202. The Defendant submits that such false contentions must be visited with exemplary costs as per the ruling of Hon’ble High Court of Madras as mentioned in the written arguments, but not supplied.

¶125

8.3 The grouse of the applicant is that the sale notice is served in the wrong address as per Page-292 of the defendant’s documents.

¶126

8.4 Rule 6(2) mandates the authorised officer to serve the borrower the notice of 30 days for sale of movable assets and the further proviso makes it mandatory for publication of such notice in two leading newspapers including one in vernacular. Rule 6(2) does not speak of the registered office or

¶127

¶128

corporate office, but notice is to be served on the borrower. From the documents produced by the defendant at Page No.178, the corporate office address is admittedly on the letter head of the applicant, which gives the corporate office address as No.9, Flat No.202. It is intriguing as to how the letter addressed by the applicant gave this address on the letter head of the applicants letter dated 24.04.2016 at Page No.178. This Tribunal perused the additional documents filed by the applicant himself dated 24.03.2023 at Page

¶129

53, the applicant gives the corporate address in its letter dated 23.07.2012, the address as No.9, Flat No.202, 2nd Floor, etc. This shows that the applicant himself is not sure of its address. At one place in the cause title it is shown as No.9, Flat No.702 and at Page 53 of the documents filed vide index dated 24.03.2023, it is shown as No.9, Flat No.202. The documents filed by the defendant of their index dated 02.05.2023 also shows the corporate address as No.9, Flat No.202. Therefore, the contention of the applicant that the sale notice is mentioning the wrong address and hence not served cannot be accepted since the notice is served not only on the registered office, but also at the corporate office and also the guarantors.

¶130

8.5 The Ld. Sr. Counsel also relied on the ruling of the Hon’ble Telangana High Court in WP No.16870/2019 to submit that the affixture ought to have been carried out if the sale notice is returned with a remark of insufficient address. The ruling was pertaining to non compliance of Rule 8(6) with regard to the sale of immovable secured assets. There the Hon’ble High Court held that the DRT gave no finding on the aspect of service and affixture of the notice. Since the notice is served on the admitted address, the said Ruling does not help the applicants.

¶131

¶132

8.6 The appendix II-A of the SIE Rules, 2002 prescribes the format of sale notice of the movable properties. It is mentioned therein that “Give short description of the movable property with known encumbrances, if any”. The Ld. Sr. Counsel appearing for the applicant submits that the clear details of the movable assets have not been disclosed as required under Rule 6(2). The proviso to the Rule 6(2) makes it mandatory that the notice in Appendix II-A be published in the format as prescribed. The Ld. Sr. Counsel submits that the movables sold under the impugned notice is mentioned as under:-

¶133

“The whole of the movable properties of the Bhagyanagar Solvent Extraction Pvt. Ltd., including and pertaining to 6.00 MW (enhanced to 11 MW) Biomass based Power Generation Plant lying at parcel of Land admeasuring 12 acres 11 guntas bearing Sy.No.10(portion), 85/P2(portion) and 85/P1 (Portion), Heggasanahalli Village, Devasugur Hobli, Raichur Taluka, Raichur District, Karnataka”

¶134

The same is scrutinized by this Tribunal. The Appendix II-A also shows that the complete description of the properties may be referred to the notice available on the web site. The impugned sale notice is in accordance with the format provided under Appendix II-A. The object of Appendix II-A to give a short description of the movables. The contention of the applicant that the description of the properties as stated in the notice is incorrect, round illogical.

¶135

8.7 Ld. Sr. Counsel relied on the ruling of the Hon’ble High Court at Hyderabad for Telangana and AP in WP No.44964 and 67 of 2017 DD 31.10.2018.

¶136

In the said ruling, it is seen that the WP No.44964 is filed by the borrower challenging the sale and WP No.44967 of 2017 is filed by the guarantor to declare the sale as illegal and arbitrary. The petitioners therein had challenged the sale of immovable property and the bank had admitted at

¶137

¶138

Para 15 of the counter that “the structure and plant and machinery worth of Rs.14.5 Crores was also sold in public auction”. It is observed in the order that (Internal Page-17) “it is contended by the 1st respondent bank that there was no machinery on the property except cages, etc. and that as the cages were part of the building, they were not separately sold.” The Hon’ble DB has noted that there was no sufficient compliance of the mandate of Rule 8(6). (Internal Page - 19 of the ruling). Rule 8 deals with sale of immovable secured assets.

¶139

8.8 After going through the said ruling, the entire matter revolved around the sale of immovable property and that the sale certificate did not disclose the structures and only registered a certain area of the immovable property. In those circumstances, the sale was set aside and fresh sale notice was ordered by the Hon’ble High Court. It revolved around the non compliance of rules concerning the immovable property. Thus the said ruling is distinguishable with the present set of facts, which deals with the sale of movables, which is governed under Rule 6 of the SIE Rules.

¶140

8.9 In view of the above, this Tribunal is not persuaded to accept the contentions of the applicant that the sale notice is not in accordance with the Security Interest (Enforcement) Rules, 2002. Thus the measures challenged on the grounds of limitation and the non-compliance of the procedural aspect cannot be accepted.

¶141

9.1 It is argued by the Ld. Sr. Counsel for the applicant that the movables sold were not properly valued and the implements, the machinery and the specific goods were taken at the “scrap value”. The valuable specific goods were the machineries and other implements which were used for the

¶142

¶143

production of bio-based energy. He expressed the shock that how such specific goods of high value machinery were sold as scrap on weight basis.

¶144

9.2 On the other hand the Ld. Counsel for the Defendant No.1 submits that by the very letters of the Applicant, the movables sold cannot be treated better than scrap. The Ld. Counsel for the Defendant No.1 invites the attention of the Tribunal to the letter of the applicant dated 18.03.2016 (Page170 of the counter filed by the Defendant). He points out that the applicant had categorically and specifically submitted to this defendant in that letter the following:-

¶145

“With reference to our letter dated 14.02.2015., we humbly stated that we are sincere to close our liability with you by means of an OTS. The plant presently is left in scrap condition and its really pathetic with all assets being stripped and left without nothing.”

¶146

9.3 In the above context, it was argued by the Defendant No.1 Counsel that the movables sold were treated as scrap. The movables sold are properly valued according to the valuation report furnished along with the counter. The same is perused. Annexure – III to the valuation report titled as “Valuation Details of Plant and Machinery” is much emphasized. The pictorial presentation is also furnished at Annexure – IV. Item No.1 deals with the boiler with all its accessories. The weight is mentioned as 200 MT and scrap rate per MT is mentioned and thus the value is arrived. Item No.2 deals with the turbine generator set which is of weight 75 MT. Third item is fuel handling system of 20 Metric Tons. Fourth Item is cooling tower of 2 MTs, fifth item is DM Water Plant and Storage Tanks of 20 MTs. Sixth items is MCC Boiler, cooler towers and others along with Transformer weighed at 25 MTs. Seventh Items is Ash handling system, vehicles crane, backup generator of 70 MTs. All these items were taken up at MSS Scrap value rate per MT at Rs.25,000/-.

¶147

¶148

9.4 It was explained during the arguments by the Ld. Counsel for Defendant No.1 that the valuation report dated 08.10.2014 included the immovable and movable properties, which was Rs.11,38,30,334/- as already mentioned in Para-2.4 (Supra).

¶149

9.5 The Ld. Counsel for the applicant submits that the valuation report dated 08.10.2014 which valued at Rs.11,38,30,334/- and the valuation report furnished do not match. The reserve price fixed in the sale notice is Rs.1,00,00,000/- as per the sale notice. The same is highly at the rock bottom level and the valuable plant and machinery is sold for a song and the machineries cannot be treated as scrap. It is to be noted that the movables were sold at Rs.4.75 Crores. The valuation report dated 08.10.2014 included the immovable property as well as movable property. The initial valuation report is dated 08.10.2014, which is clearly mentioned in 21(c) of the counter affidavit filed by the Defendant No.1. It also states that due to the depreciation of the movables, which is quite but natural after a lapse nearly a decade, the latest valuation report obtained prior to the measures i.e. report dated 30.10.2022 is to be viewed from the depreciation of the machinery. The same cannot be ignored. The said report dated 30.10.2022 had assessed the value of both movables and immovables as at Rs.6.08 crores. It is seen that the present auction sale of the movables alone did fetch Rs.4.75 Crores against the reserve price of Rs.1 Crore as opined by the valuers. Considering this development of the auction fetching Rs.3.75 Crores more than the reserve price in the open e-auction bidding held on 23.03.2023, the contention of the Ld. Counsel that the movables were sold for a song is only a far fetched imagination.

¶150

¶151

9.6 The grouse of the applicant is that the plant and machinery could not have been sold at such rock bottom price. The Ld. Counsel for the Defendant No.1 had filed index additional volume-II furnishing the valuation report by its memo dated 13.09.2023 showing that the plant and machinery could fetch the fair market value of Rs.3,46,22,880/- and the distress sale value is Rs.2,42,36,016/-. Therefore, it is submitted that considering the bid knocked down at Rs.4.75 Crores, cannot be set aside on this ground. The same was under open bidding.

¶152

9.7 It is the case of the applicant that the valuation of each of the machinery item-wise and its value is not mentioned in the publication. Therefore the same is assailed as opposing to the very concept of valuation of the movables. The Defendant counters this argument by submitting in their counter “as far as the details and machinery and assets as item wise and valuation of each item not mentioned in the publication notice is concerned, the same are not being done in any sale notice since for itemized inter asset valuation there is space constraint and heavy cost is also involved in doing the same”. All the machineries are sold at scrap value.

¶153

9.8 The word scrap is explained by the Hon’ble Supreme Court in AIR 2009 SC (Supp) 776. It explains:-

¶154

“Would ordinarily mean something which cannot be used for same purpose for which it was being earlier used even after repairing or renovating the same.”

¶155

9.9 The profile of the valuer is perused. It is mentioned that the valuation team started in the year 2019 by name Shri. Mahalakshmi Technical Associates. One Mr.Srinivasa Rao is the lead valuer being the chartered engineer. They had a team of Senior Technical Professionals retired from

¶156

¶157

Semi Government Organisations and other top companies. One from the Mechanical side has expertise in plant and buildings. The basis, approach and methodology is also furnished. The same cites that the plant and machinery is arrived at the fair market value worked out using the replacement value as the basis. The replacement value means the price expected to replace the existing asset with similar or equivalent new asset as on the date of valuation. To this replacement value suitable depreciation has been applied based on used life of the asset using the straight line method (SLM) to arrive at the fair market value. The general methodology for estimation of fair market value of plant and machinery is summarized at figure 3 of the valuation report.

¶158

9.10 It is mentioned in the report that after inspection, the conclusions as under:

¶159

“1. The plant was shut down since October 2013 and there was no proper maintenance done during shutdown.

¶160

Hoist Cranes including supporting structure were completely rusted and in not repairable/usable condition.

¶161

Boiler section including supporting structure were rusted and in not repairable/usable condition.

¶162

ESP section including supporting structure were in rusted condition.

¶163

The entire plant & machinery and other miscellaneous equipment are in non-workable condition and cannot be used in future and will not fulfill the desired purpose in which they have commissioned initially during the plant establishment in 2002.

¶164

The entire plant & machinery / other miscellaneous equipment cannot be refurbished, repairable and cannot put in use.

¶165

¶166

As the machinery left over in as is where is condition without any maintenance being carried out since the plant shutdown, the entire machinery turned into scrap condition.”

¶167

The observation of the valuers and their report shows that the plant and machinery are non workable, rusted and not repairable since left unmaintained.

¶168

9.11 To come to this conclusion, the valuers had inspected and found out the condition to be so. It is not forthcoming from the report that the boiler and accessories, turbine generator water plant and the cooling tower were put to use to find out whether it is in workable condition or not so as to comply the test of the usage of the machinery for the same purpose while it was being earlier put to use. This Tribunal can only examine the records and the opinion of the experts cannot be ignored. The valuation according to the approved valuers show that they conducted the inspection and their technical expertise cannot be doubted.

¶169

9.12 The Ld. Counsel for the applicant submits that the plant and machinery is of great value to the applicants and it could have not been sold as scrap. It is the applicant who would use these plant and machineries to his benefit and the same could have fetched more value in the open market as old spare parts or the used machinery market.

¶170

9.13 It is common prudence that in the case of condemned automobile vehicles, when auctioned on scrap value basis, the dealers in such old motor parts do purchase them in lots and thereafter while dismantling such automobile machinery certain spare parts are separated which would work with little or some effort to put it to re-use. In such an event the separated

¶171

¶172

part loses its scrap value and assumes another value may be of 30 to 40% of the true value of such new parts. There may not be necessarily a test to find out whether such dismembered part of the machinery works out to the satisfaction of such user who may use. Keeping in mind this practicality in case of such specialized machineries, if the applicant has still an interest to reuse such parts, the christening of the machinery sold as scrap is the subjective conception of the applicant. At the same time the amount of debt recovered at Rs.4.75 Crores as against the reserve price of Rs.1/- Crore cannot be set at naught. These aspects are considered for the purposes of answering, what would be the appropriate orders to be passed in the context of above discussion. This Tribunal has already held that the argument of the applicant regarding the limitation is unacceptable. Likewise the service of notice argued as unserved and at a wrong address is also untenable for the reasons stated supra. This Tribunal also finds that the Rule 5 & 6 of the SIE Rules are complied with the Defendant No.1. The sale certificate is also issued. The Ld. Sr. Counsel for the applicant submitted that the contents of the sale certificate are chaotic since the same confers on such of the movables that may be installed in future also. The same could not confer any rights over the future movables. There may not be any chaos since it concerns only such of the plant and machinery to which the second defendant turned out to be a successful bidder. When once the purchaser removes such machinery sold as scrap from the spot, he cannot lay any claim to future machineries which are not described in the sale notice or the web site. In view of the above the fears expressed by the Ld. Counsel regarding the chaotic wording in the sale certificate turns out to be only a hallucination. Thus this Tribunal is of the considered opinion that this transaction sale and the sale notice remains irrefutable.

¶173

¶174

Answers to Point (b) :-

¶175

10.1 While moulding the relief, the provisions of Section 17(3) of the SARFAESI Act needs to be taken note of:-

¶176

“1 7(3) If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub-section (4) of section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made there under, and require restoration of the management of the secured assets to the borrower or restoration of possession of the secured assets to the borrower or other aggrieved person, it may, by order,-

¶177

(a) declare the recourse to any one or more measures referred to in sub-section(4) of Section 13 by the secured creditor as invalid; and

¶178

(b) restore the possession of the secured assets to the borrower or restore the management of the secured assets to the borrower, as the case may be, and

¶179

(c) pass such order as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under sub-section (4) of section 13.”

¶180

The said proviso at Para (c) above, empowers the Tribunal to pass such other directions as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor.

¶181

10.2 Keeping in mind the above provision of law, certain developments during the pendency of this SA needs to be noted:

¶182

(a) There was a caveat when the petition came up for hearing on 24.03.2023.

¶183

(b) The goods – movables were given only under symbolic possession and they were lying in the premises of the borrower – applicant and upon such

¶184

¶185

submissions by the Defendant No.1 status quo was ordered on 12.04.2023 till the next date.

¶186

(c) On 04.08.2023 applicant submits that some of the material were moved but no affidavit is filed. Hence status quo continued.

¶187

(d) On 05.09.2023, one person unconnected with the litigation wanted to get impleaded in this matter on the ground that he is a neighbor who alleged certain material were removed belonging to him and not that of the applicant. This Tribunal while disposing the impleading application IA No. 191/2023, noted that he is unconnected with the litigation and the same was disposed as not maintainable.

¶188

(e) On 13.10.2023, this applicant made a submission that a police compliant was lodged with the Jurisdictional Police in Karnataka and it has its bearing in this case.

¶189

(f) On 07.11.2023 applicant moved an IA 212/20203 for re-opening the case on the point that there was charge in favour of the applicant bank in OA 151/2011. The same was duly answered by the Defendant No.1 who submitted that the demand notice dated 08.06.2012 claim an amount more than 60% and consultative process is required under the SARFAESI Act with anyone including the applicant in OA 151/2011 and that the Defendant No.1 is the first charge holder. Therefore, the non disclosure of the disposal of OA has no bearing on this case. On the same day it was also pointed out that the complaint lodged by this applicant (which details not furnished and not necessary to find out the validity of the measures under Section 17) ended in B report filed by the Jurisdiction of Police. In view of the B report, the complaint if any filed by the applicant with the Police has no bearing to the present case. The print out of the revision petition filed before the Ld. ASJ

¶190

¶191

Raichur District against the B report in FIR No.1131/2016 is also filed in this Tribunal, which this Tribunal cannot take note of.

¶192

10.3 Suffice to say that the material is not yet removed from this spot where it is lying.

¶193

10.4 As noted above and taking note of the fact that though the movables were sold as scrap and considering the subjective opinion of the applicant that such material are of some use more than as scrap, as discussed in Para 9.13 Supra, the moulding of relief is considered. In the peculiar context, at the same time keeping in mind that the sale held in accordance with law cannot be set at naught, this Tribunal considered the present case to exercise the powers conferred under Section 17(3)(c) of the SARFAESI Act. Accordingly, the SA is disposed of by the following:

¶194

: - O R D E R - :

¶195

The sale notice challenged is held as in accordance with the provisions of SARFAESI Act and Rules and thus this Tribunal does not interfere in the sale held on 20.03.2023.

¶196

However, if the applicant is still interested to retain the movables sold in the public auction, the Defendant No.1 is directed to:

¶197

(i) To hand over the movables on as is where is basis to the applicant provided the applicant deposits the entire sale consideration amount along with up to date interest @9% p.a. on or before 27.11.2023 with the Defendant No.1.

¶198

(ii) If such deposit is made, the entire proceeds of such deposit be refunded to the Defendant No.2 auction purchaser, who shall not lay claim to the movables as per the sale certificate upon such repayment by the Defendant No.1

¶199

¶200

(iii) If the amount is not deposited by the applicant in pursuance of this order, the Defendant No.2 will be at liberty to remove the goods lying in the premises of the Applicant as its lawful owner and the Defendant No.1 shall ensure proper security to the goods, which costs be borne by the Defendant No.2 and the applicant shall not interfere in any manner with the security arrangement or the supervision of such arrangements by the Defendants 1 & 2 till 27.12.2023 /compliance of deposit.

¶201

(iv) It is also made clear that no extension of time shall be allowed on any pretext to deposit the amount which shall be deposited on or before 27.11.2023.

¶202

(v) Non compliance by the applicant within the time prescribed be treated as the applicant having lost interest in the matter.

¶203

(vi) Defendant No.1 is directed to communicate this order to the Jurisdictional Police where the material is so lying and the SHO, Raichur, Rural PS may be requested to ensure proper patrolling(gasthi) every day for a period of 15 days.

¶204

Parties to bear their own costs.

¶205

Copy of this order be communicated in accordance with the Rules.

¶206

Sd/(A.S.JAYACHANDRA) PRESIDING OFFICER DRT-I, CHENNAI

¶207

(Dictated to PS on the system, typed by him, corrected, signed and pronounced by me on this 10^th Day of November, 2023)

¶208

bhaganagar solvent extractions Pvt. Ltd. v. indian renewable energy development agency Ltd.

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bhaganagar solvent extractions Pvt. Ltd. v. indian renewable energy development agency Ltd.

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