Dismissed

M/S Iqra Educational and Charitable Trust v. Punjab National Bank

DRT24 Aug 2023SA/254/2022

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal dismissed an application challenging demand and possession notices under the SARFAESI Act. Holding that procedural defects in reply communication do not vitiate proceedings, that the debt exceeded the 20% threshold, and that S.14 orders are ministerial, the Tribunal found no illegality and dismissed the application.

What did the court decide?

Application dismissed with costs of Rs.10,000/- payable by the applicants to the defendants.

M/S Iqra Educational and Charitable Trust versus Punjab… — Execution and Attachment | DRT (2023)

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IN THE DEBTS RECOVERY TRIBUNAL-2, KERALA AT ERNAKULAM

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PRESENT: SRI.SOVAN KUMAR DASH

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PRESIDING OFFICER

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Dated this the 24^th day of August, 2023

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SECURITISATION APPLICATION No.254/2022

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Between

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M/s.Iqra Educational and Charitable Trust, represented by its Chairman Hamsa.K.S, Desamangalam.P.O., Pallur, Cheruthuruthy, Thrissur – 679 532.

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Hamsa.K.S, S/o.Saidalavy, Karuppamveettil House, Kanal Road, Thozhupadam, Chelakkara, Thrissur – 680 586.

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3.	Naseema Hamsa, W/o.Hamsa.K.S, Karuppamveettil House, Kanal Road, Thozhupadam, Chelakkara, Thrissur – 680 586. …Applicants
And 1.	Punjab National Bank, Represented by its Branch Manager, Thrissur Branch, Stressed Assets Targeted – Resolution Action Centre, Market Road, Ernakulam – 682 011.
2.	The Authorised Officer, Punjab National Bank, Stressed Assets Targeted – Resolution Action Centre, Market Road, Ernakulam – 682 011. …Defendants
	This Securitization Application having been heard on 27.07.2023
in the	presence of Advocates M/s.V.K.Peer Mohamed Khan, C.J.Chacko
and	Girish Kumar.V.C for the applicants and Advocates

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SA 254/2022

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M/s.P.Saraswathi and Umarani.M.N for the defendants, and stood over to this day for consideration, the Tribunal delivered the following:

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F I N A L O R D E R

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This SA is filed by the applicants under S.17(1) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘the SARFAESI Act’) challenging the demand notice, possession notice and the measures taken under S.14 of the SARFAESI Act with further prayer to set aside the same.

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Brief facts of the case :

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The 1^st applicant M/s.Iqra Educational and Charitable Trust, availed term loans of Rs.3.77 crores and Rs.6 crores in July, 2022 from the defendant bank for the purpose of running educational institution viz., in which the 2^nd applicant is the chairman. Subsequently, the said institution availed another WCDL of Rs.72 lakhs in May, 2020 from the defendant bank. The properties of the 1^st applicant, property of the 2^nd applicant and the property of the 3^rd applicant as described in the application were mortgaged to the defendant bank as collateral securities for availing such loans. The applicants serviced the facilities well from the inception from the income derived from the college and made repayments of more than Rs.1500 lakhs before the year 2019. The defendant bank started charging various costs and other charges illegally and arbitrarily without any reason and added such amount in the account. They also charged interest at higher rate ignoring the terms and conditions of the agreement.

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In spite of requests made by the applicants for rescheduling the loans and to re-consider charging of interest in excess

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SA 254/2022

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of the agreed rate, the defendant bank did not consider the grievance of the applicants. Due to default in repayment, the defendant bank classified the loans as NPA on 02.05.2021 and issued demand notice to the applicants calling upon them to discharge the outstanding dues within a period of 60 days from 24.08.2021. Due to non-discharge of the claim amount in time, the defendants proceeded with further securitization measures. After receipt of the notice issued by the Advocate Commissioner in a proceeding under S.14 of the SARFAESI Act before the CJM, Thrissur, the applicants filed this SA challenging the securitization measures mainly on the following grounds:-

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(i) The charging of excess interest by the defendant bank is against the terms and conditions of the agreement which the defendant bank is not entitled to recover from the applicants. The defendants have not considered the letter of request marked Annexure-A2 dated 07.09.2018 and 24.09.2018 to reconsider the claim of interest which has vitiated the securitization measures.

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(ii) The proceeding initiated by the defendants under the provisions of the SARFAESI Act is not sustainable in view of S.31(j) of the SARFAESI Act as the amount due is less than 20% of the principal amount and interest thereon.

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(iii) In S.14 application, details of the amount outstanding at the time of filing of the application are not stated and also the defendants failed to follow the required mandates under clauses (i) to (ix) of S.14(1) of the SARFAESI Act. Hence such proceeding is vitiated and basing upon the

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SA 254/2022

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same, the defendants cannot take physical possession of the secured assets.

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(iv) After receiving the demand notice, representation in the form of objection was submitted to the defendants but no reply was given by them which violates the mandatory provision contained under S.13(3-A) of the SARFAESI Act and hence the entire proceedings are liable to be set aside.

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The defendants filed written statement denying the allegations and averments in the application and claimed inter alia that there is absolutely no illegality or irregularity in any of the measures taken by them. The interest charged in the accounts is as per the agreement between the parties and in compliance of the statutory rules and regulations laid down by RBI from time to time. The interest charged during the period in three loan accounts is specifically stated in the written statement. No excessive interest is charged in the accounts which can be perused from the statements of accounts. It is contended that after receipt of the demand notice by the applicants on 06.09.2021, no reply or objection was given by them within the period of 60 days as prescribed in the statute. The objection was submitted by the applicants on 06.11.2021 i.e., after the statutory period of 60 days. However, on receiving such objection, reply was given by the bank which was duly received by the applicants. Copies of the reply, and postal acknowledgement are filed in this case, marked AnnexuresD2, D3 and D4.

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It is further contended that claim of the applicants that the amount of debt due is below 20% of the principal and interest is a totally fallacious and baseless statement. The limit sanctioned under

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SA 254/2022

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the three facilities was Rs.10.49 crores. When the loans were classified as NPA, the liability was Rs.4.26 crores as on 31.07.2021 in three loan accounts. Hence the contention of the applicants that claim is less than 20% of the principal and interest is not true and not acceptable. During the Covid period, the bank had given sufficient opportunity to the applicants to redeem the loans, but they did not take any initiative to repay the same. OA was filed for recovery of the outstanding dues and also securitization measures were taken after following all the procedural requirements. There is no defect or illegality in the application submitted under S.14 of the SARFAESI Act before the CJM and also in the affidavit of the Authorised Officer. The technical objection raised by the applicants has no force and hence they do not deserve any indulgence and the SA having no merit is liable to be dismissed.

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From the respective case of the applicants and the defendants, the following points are emerged for adjudication in this case:

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(i) Whether there is any defect or illegality in any of the measures taken by the defendants from the stage of issuance of demand notice till the measures taken under S.14 of the SARFAESI Act?

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(ii) Whether the defendants committed any illegality in issuing the demand notice, particularly by violating S.31(j) of the SARFAESI Act?

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(iii) Whether the applicants are entitled to get any relief in this case?

SA 254/2022

FINDINGS :

Point Nos.(i) to (iii):

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For the sake of convenience, all the three points being interlinked with each other are taken up together for adjudication. There is no dispute that the 1^st applicant, an educational institution being represented by its chairman Hamsa.K.S, availed three loans from the defendant bank. It is also not disputed that the properties of the said educational institution and the personal properties of its chairman/2^nd applicant and his wife/3^rd applicant were mortgaged for securing the loan transactions. It is seen from the demand notice dated 24.08.2021 issued under S.13(2) of the SARFAESI Act that the total limit for three loans was Rs.10.49 crores and the total outstanding as on 31.08.2021 with interest calculated up to 31.07.2021 was Rs.4,26,15,884.49. All the three loan accounts as per the guideline of RBI were classified as NPA and proceeded with the securitization measure. The defendants produced the demand notice and postal acknowledgement cards marked Annexure-D1, out of which one postal acknowledgement shows that the 1^st applicant received the demand notice on 09.09.2021.

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The applicants produced the objection submitted by them marked Annexure-A4 which was shown to have despatched on 09.11.2021 i.e., after the statutory period of 60 days. The applicants claimed that no reply was given to their objection. To counter the same, the defendants produced the reply marked Annexure-D2 and the postal receipt marked Annexure-D3 which falsify the contention of the applicants. The law is very well settled that the reply given under S.13(3-A) of the SARFAESI Act does not confer any right to challenge

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SA 254/2022

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the securitization measures under S.17(1) of the SARFAESI Act. Proviso to S.13(3-A) of the SARFAESI Act reads as follows:-

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Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17-A.

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In view of the statutory provision, communication issued to the applicants by the defendant bank cannot be a ground to agitate the measures in the application under S.17(1) of the SARFAESI Act.

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As discussed earlier, 20% of the amount of debt due cannot be considered as the outstanding in any particular or single loan account and it is to be construed on the basis of the total debt due at the time of issuance of the demand notice. Here in this case, the applicants availed three loans and all the loans were classified as NPA on the same date. The total outstanding is much more than 20% of the principal and interest thereon. Hence the contention of the applicants that the case is not maintainable in view of S.31(j) of the SARFAESI Act is not sustainable.

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So far S.14 measures is concerned, the learned counsel has raised some technical grounds impugning the same. The learned counsel for the defendants has cited a judgment dated 27.07.2022 of the Hon'ble Apex Court passed in Civil Appeal No.175/2022 in the case of M/s.R.D.Jain and Co. vs. Capital First Ltd. & others , wherein at paragraph 8.1 it is held as follows:-

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“8.1 ……………. Thus, we reiterate that the step to be taken by the CMM/DM under Section 14 of the SARFAESI Act, is a ministerial step. While disposing of the application under Section 14 of the SARFAESI Act, no element of quasi-judicial function or application of mind would require. The Magistrate has to adjudicate and decide the correctness of the information given in the application and nothing more. Therefore, Section 14 does not involve an adjudicatory process qua points raised

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SA 254/2022

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by the borrower against the secured creditor taking possession of secured assets.”

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In view of this ratio, the Magistrate has no jurisdiction to adjudicate on the merit of the case. The statute declares that the Magistrate being satisfied with the contents of the affidavit shall pass orders for the purpose of taking physical possession of the secured asset and he has no adjudicatory power. Once the Magistrate is satisfied with the averments in the affidavit, he has no other option except to pass an order in taking physical possession of the secured asset either by himself or through any Advocate Commissioner being appointed by him.

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The learned counsel for the applicants has strenuously contended that in the affidavit filed before the CJM, the total outstanding is not stated. But on perusal of paragraph 4 of the affidavit, it appears that the outstanding amount is specifically stated account-wise. Even if there is any omission in such affidavit before the CJM, it would not affect the entire SARFAESI measures nor can the order passed by the CJM be declared as illegal. Here in this case, the Magistrate, being satisfied with the application and the affidavit of the Authorised Officer, passed the impugned order in appointing the Advocate Commissioner to take physical possession of the secured assets. There is absolutely no illegality or irregularity in passing such order and no interference is warranted to intervene with such securitization measures. In view of the discussion made above, the applicants are not entitled to seek any relief in this case and hence all the three points are answered against the applicants.

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SA 254/2022

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Hence it is ordered:-

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ORDER

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In view of the foregoing reasons, the SA, being devoid of any merit, is hereby dismissed with costs of Rs.10,000/- (Rupees ten thousand only) payable by the applicants to the defendants.

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(Dictated to my PA, corrected and pronounced by me in the open Tribunal on this the 24^th day of August, 2023)

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[SOVAN KUMAR DASH] PRESIDING OFFICER

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SA 254/2022

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Documents on the part of the applicant

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Annexures	Date	Particulars of documents
Annexure-A1	15.11.2016 & 04.07.2017	Copy of request submitted by the applicants.
Annexure-A2	07.09.2018 & 24.09.2018	Copy of letters submitted by the applicants.
Annexure-A3	24.08.2021	Copy of demand notice issued to the applicants.
Annexure-A4	06.11.2021	Copy of objection submitted by the 1^st applicant.
Annexure-A5	09.11.2021	Copy of postal receipt.
Annexure-A6	12.10.2021	Copy of certificate issued by the Chartered Accountant along with calculations.
Annexure-A7	18.04.2022	Copy of application along with affidavit filed under S.14 of the SARFAESI Act.
Annexure-A8	09.05.2022	Copy of notice issued by the Advocate Commissioner.
Annexure- A8(a) D	… ocuments on	English translation of Annexure-A8. the part of the defendants
Annexure-D1	24.08.2021	Copy of notice issued under S.13(2) of the SARFAESI Act and postal acknowledgements.
Annexure-D2	20.11.2021	Copy of reply issued to the applicants.
Annexure-D3	24.11.2021	Copy of postal receipt.
Annexure-D4	29.11.2021	Postal acknowledgement card signed by the 1^stdefendant.

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PRESIDING OFFICER

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IN THE DEBTS RECOVERY TRIBUNAL-2, KERALA AT ERNAKULAM

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PRESENT: SRI.SOVAN KUMAR DASH PRESIDING OFFICER

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Dated the 24^th August, 2023

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SA No.254/2022

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Between

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M/s.Iqra Educational and Charitable Trust, represented by its Chairman Hamsa.K.S, Desamangalam.P.O., Pallur, Cheruthuruthy, Thrissur – 679 532 & 2 others. …Applicants

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And

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Punjab National Bank, Represented by its Branch Manager, Thrissur Branch, Stressed Assets Targeted – Resolution Action Centre, Market Road, Ernakulam – 682 011 & another. …Defendants

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F I N A L O R D E R

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SA 254/2022 24.08.2023

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…………… In view of the foregoing reasons, the SA, being devoid of any merit, is hereby dismissed (vide separate final order) with costs of Rs.10,000/- (Rupees ten thousand only) payable by the applicants to the defendants. .

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Presiding Officer

M/S Iqra Educational and Charitable Trust v. Punjab National Bank

Case brief

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M/S Iqra Educational and Charitable Trust v. Punjab National Bank

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