Allowed

Ms Arvindra Electronics Private Limited v. State Bank of India

DRT11 Dec 2023SA/268/2023

Case brief

AI extract

What is this about?

The DRT allowed the applicant's securitisation application after holding that a restructuring of the loan account without the mortgagor/guarantor's consent discharged them from liability. Consequently, the demand notice served under Section 13(2) was declared illegal, making all subsequent enforcement proceedings unsustainable.

What did the court decide?

Securitisation application allowed with costs; notice under Section 13(2) of SARFAESI Act held illegal; subsequent proceedings quashed.

Ms Arvindra Electronics Private Limited versus State Bank of… — Company and Corporate | DRT (2023)

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DEBTS RECOVERY TRIBUNAL-2, CHANDIGARH, PRESIDED OVER BY M.M. DHONCHAK

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SECURITISATION APPLICATION NO.268/2023

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DATE OF INSTITUTION: 30.10.2023

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DATE OF DECISION: 11^th DAY OF DECEMBER, 2023

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M/s Arvindra Electronics (P) Limited, Registered Office at SCO Nos. 401-402, Sector-35-C, Chandigarh, through Sh. Arvinder Pal Singh, Director

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M/s AMG Hotels (P) Limited, SCO Nos. 401-402, Hotel Metro, Sector-35-C, Chandigarh, through Sh. Baljinder Singh, Director

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Versus

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....... Applicants

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Authorised Officer, State Bank of India (erstwhile SBOP), Branch Office Stressed Assets Management, SCO Nos. 99-107, Sector-8-C, Chandigarh

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…..Respondent

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Argued by: Sh. Rohit Sapra, Advocate for the applicants (SA) Sh. Vivek Verma Advocate for respondent bank

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FINAL ORDER

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This Securitisation Application has been filed under Section 17(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘the Act’ for brevity).

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In brief, it is the case of the applicants that applicant No. 2 Company, M/s AMG Hotel (P) Limited, incorporated on 12.06.1988, was in the business of running a Hotel in Sector 35-C, Chandigarh, under the name and style ‘Hotel Metro-35’; that the respondent bank vide letter dated 30.07.2012 recommended to its competent/sanctioning authority that as applicant No. 1 Company was already availing of Cash Credit Facility with interest @ 12.50% per annum from the Punjab & Sind Bank, therefore,

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concession/reduction in interest rate be given accordingly; that recommendation was also made to grant 25% concession in processing fee, keeping in view the business potential and the future interest earnings of the bank; that the respondent bank vide sanction letter dated 28.08.2012 sanctioned a Cash Credit (Hypothecation) Limit for Rs. 15 crore with interest @14.25% per annum, which was accepted by applicant No. 1 Company on the assurance of respondent bank that soon the respondent bank would forward a separate note to the competent authority for approval of further concession in the rate of interest and applicant No. 1 Company would be charged interest lower than @12.50% per annum as recommended by the respondent bank; that applicant No. 1 vide letter dated 27.11.2014 requested the respondent bank to restructure the Cash Credit Limit of Rs. 15 crore by converting the irregular component of Rs. 46.14,879.31 in Working Capital Term Loan (WCTL), to be paid in six months; that the respondent bank vide sanction dated 28.11.2014 restructured the Cash Credit Limit of Rs. 15 crore by converting the overdue/irregular component of Rs. 46.15 lac in WCTL, repayable in six months w.e.f. 01.04.2015; that the respondent bank took another drastic step by classifying the account as NPA on 02.03.2015 and serving demand notice dated 08.04.2015 under Section 13(2) of the Act upon applicant No. 1 and its Directors/Guarantors; that the statutory demand notice was not served upon applicant No. 2 Companyowner of the alleged mortgaged hotel property; that applicant No. 1 Company submitted a representation and objection dated 10.06.2015 under Section 13(3) of the Act for meaningful consideration of respondent/Authorized Officer; that the respondent bank did not consider the representation-cum-objection of applicant No. 1 Company, as applicant No. 1 Company did not receive any letter/communication from the respondent bank conveying its decision on the representation-cumobjection; that the applicants came across possession notice publication in the newspaper 'The Tribune' dated 30.06.2015 issued by the respondent bank stating to have taken possession (symbolic) of the running Hotel of applicant No. 2 Company on 26.06.2015 for having defaulted to pay an amount of Rs.16,24,03,431.86 as per demand notice; that in line with its commitment/representation, applicant No. 1 Company deposited Rs. 49.64 lac in July/August, 2015, thereby adjusting the WCTL account and also deposited Rs. 1.50 crore in Cash Credit account after classification of the account as NPA; that the respondent bank had earned interest of Rs. 5,38,40,059/- from August, 2012 to May, 2015 from applicant No. 1 Company; that despite the payments being made, the respondent bank had

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issued sale notice publication in the newspaper ‘The Tribune’ dated 01.11.2015 thereby, scheduling the e-auction of the alleged mortgaged property of applicant No. 2, on 05.12.2015; that on the date of filing Section 14 application, i.e. on or about 29.10.2021, applicant No. 1 had paid Rs. 8.51 crore, Rs. 4.51 crore on 10.05.2018, Rs. 3.50 crore on 21.05.2018 and Rs. 50 lac on 24.06.2019 to the respondent bank under the demand notice dated 08.04.2015, in which the respondent bank had claimed Rs. 16,24,03,431.86 as on 07.04.2015; that on 12.10.2023, the Director of applicant No. 1 found a letter/notice dated 05.10.2023 of Tehsildar, Chandigarh, which was posted on 10.10.2023 and delivered on 12.10.2023 informing that the physical possession of the property of applicant No. 2 would be taken on 02.11.2023 at 11 a.m.; that during the pendency of the SA, the respondent bank had taken physical possession of the property/running Hotel on 06.11.2023 and also issued sale notice dated 15.11.2023 fixing the auction for 11.12.2023; that during the pendency of the SA and after filing of the first amended SA, the respondent bank had issued sale publication in the newspaper 'The Tribune' dated 23.11.2023 fixing the auction for 11.12.2023; that before declaring/classifying the account as NPA, the applicants were not informed/intimated, as no opportunity of settlement of the controversy/doubts regarding classification of the asset was given to the applicants; that the classification of the account of applicant No. 1 Company as NPA on 02.03.2015 was not in accordance with guidelines relating to Asset Classification issued by RBI as having classified the account as NPA within 90 days instead of 180 days; that the demand notice dated 08.04.2015 (ANNEXURE A-15) under Section 13(2) of the Act was not served upon applicant No. 2 Company and therefore, the action of the respondent bank in taking symbolic and proposing to take physical possession of the immovable property of applicant No. 2 Company without serving the mandatory demand notice, was completely illegal, void ab-initio , non-est in law and without any foundation; that the applicant No. 1 Company had not received any communication from the respondent bank informing non-acceptance of its representation and objection and thus, respondent No. 1 had proceeded to take measure under Section 13(4) of the Act without considering the representation and objection and without communicating its decision; that consequently, the action/measure under Section 13(4) of the Act was void and illegal; that from the documents filed by the respondent bank with the District Magistrate, Chandigarh, it was revealed that the communication of the respondent bank under Section 13(3A) of the Act was dated 22.06.2015, i.e.

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after 11 days, which was foul of Section 13(3A) of the Act; that admittedly, the loan sanctioned to applicant No. 1 Company was restructured vide sanction letter dated 28.11.2014 (ANNEXURE A-14), thus, an altered contract between the respondent bank and the principal debtor/applicant No. 1 came into existence on 28.11.2014, which admittedly, was in variance to the original terms of contract and hence, applicant No. 2 was not bound to perform the original contract; that as per the terms and conditions of restructuring of sanction letter dated 28.11.2014, the respondent bank was to obtain acknowledgement/acceptance of the guarantors, (including applicant No. 2/mortgagor) to the terms and conditions of restructuring; that admittedly, applicant No. 2 as a mortgagor and the other guarantors did not accept/give consent to the restructuring; that consequently, under Section 62 [133] of the Indian Contract Act, 1872, applicant No. 2 stands discharged of its liability to the respondent bank and the action under the Act qua the property of applicant No. 2 was illegal and unsustainable; that the respondent bank instead of classifying the account of applicant No. 1 as NPA, made composition with applicant No. 1 and gave it time to cure the default, which reconstructing of new contract, applicant No. 2 did not assent to, thereby, discharging applicant No. 2 to such contract under Section 135 of the Indian Contract Act, 1872; that the respondent bank vide demand notice dated 08.04.2015 had claimed alleged outstanding liability of Rs. 16,24,03,431.86 as on 07.04.2015 from applicant No. 2 in two loan accounts, i.e. Rs. 15,75,72,547.31 in Cash Credit Limit and Rs. 48,30,884.55 in Working Capital Term Loan; that admittedly, applicant No. 2 had not mortgaged its property to secure the Working Capital Term Loan of Rs. 49.15 lac and thus, it was patent and clear that the demand raised in the demand notice qua applicant No. 2, was not a correct and due amount of liability ‘debt’ payable by applicant No. 2; that charging of higher rate of interest and the other charges and above factors had led to the account becoming NPA; that the alleged mortgage of the respondent bank was not registered with CERSAl, hence, the respondent bank was not entitled to exercise the rights of enforcement of security of said property; that the respondent bank had not affixed the physical possession notice on the property of applicant No. 2; that the respondent bank had not published the physical possession notice in leading vernacular newspaper having sufficient circulation in the locality reflecting that it had taken physical possession of the immovable property of applicant No. 2; that the respondent bank had not served sale notice under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as ‘the Rules of

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2022’ for brevity) upon applicant No. 2 for sale of the property of applicant No. 2 scheduled on 11.12.2023 in the loan account of applicant No.1; that the Hon'ble Apex Court in its latest judgment has held that sale of a secured asset could not take place without duly informing the 'borrower' of the time and date of such sale and any such sale without complying with the said statutory requirement would be a constitutional violation and nullify the ultimate sale; that the respondent bank had not obtained any valuation report of the property from an 'approved valuer' as defined in Rule 2(d) of the Rules of 2002; that the respondent bank had violated Rule 8(5) of the Rules of 2002 before effecting the sale of the immovable property of applicant No. 2; that the respondent bank had not affixed the notice of sale on the immovable property; that the sale notice dated 15.11.2023, delivered to applicant No.1 on 15.11.2023, was of no utility to the applicants, as their statutory right of redemption under Section 13(8) of the Act stood extinguished on 23.11.2023 on publication of sale notice, i.e. within 8 days, instead of mandatory 15 days; that the respondent bank was required to give/maintain a clear 15 days gap between the issuance of sale notice under Rule 8(6) and publication of sale notice under Rule 9(1) of the Rules of 2002 and thus, the proposed sale scheduled for 11.12.2023 was illegal and void.

¶23

Reply to the amended SA was filed by respondent wherein inter alia it was contended that earlier also the applicants had filed SA No. 278 of 2015 (New SA No. 373 of 2017) challenging the action of the respondent; that the applicants prayed for interim relief, however, the same was not granted to the applicants; that the submission made above by the applicants and observed by the Presiding Officer, proved beyond any doubt that the applicants themselves had relinquished their right to fight the case on merits and simply wanted to settle the account with the respondent bank and therefore, at this stage, the applicants could not seek indulgence of this Tribunal to hear them on merits; that order dated 26.07.2018 was never challenged by the applicants to the best of the knowledge of the respondent bank (subject to verification) and therefore, the order passed by this Tribunal in SA No. 373 of 2017 became final and even till date the applicants had not lost the physical possession of the property and therefore, this SA was not maintainable in the eyes of law; that the respondent bank had initiated the securitisation proceedings in accordance with the provisions of the Act and applicable Rules; that the respondent bank repeatedly requested the said applicant No. 1 to regularise the account but despite verbal promises and assurances, they

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miserably failed and neglected to do so; that under the facts and circumstances as explained above, the respondent Bank had no alternative but to declare the above said Cash Credit Limit Account as Non Performing Asset on 02.03.2015 and to proceed further under the Act, in order to recover its outstanding amount and issued demand notice dated 08.04.2015 under Section 13(2) of the Act; that accordingly, applicant No. 1 gave objections dated 10.06.2015 received on 11.06.2015 thereto which were duly decided by the respondent bank vide letter dated 19.06.2015; that there was no violation of Section 13(3A) of the Act as alleged in the SA, as the reply was well within the timeframe as prescribed under the Act and Rules framed under the Act; that the WCTL was granted to applicant No. 1 on its specific request letter dated 27.11.2014; that the competent authority sanctioned the restructuring of overdue amount of Rs.46.15 lac in CC Account to be repaid in six months; that subsequently, applicant No. 1 had deposited an amount of Rs. 49,64,000/- in July/August, 2015 thereby adjusting the WCTL account and had also deposited Rs. 1,50,00,000/- in Cash Credit account therefore, the point of WCTL did not hold ground at this stage; that it was wrong to say that the respondent bank in order to allure applicant No. 1 Company had offered no rate of interest than the rate of interest charged by the Punjab and Sind Bank; that as a matter of fact, the applicants had enjoyed the credit facilities granted by the respondent bank since, 2012 and now they were making false allegations with sole purpose to delay the process of recovery; that since the applicants had executed the letter of arrangement and consequently, acknowledged its conditions in an unequivocal manner, they did not have any locus standi to question the charging of the amount on account of mortgage fee and processing charges in the loan account at any stage; that the irregular amount of Rs. 46,14,879.31 was converted in working capital term loan which was to be paid in 6 monthly instalments; that even, the said instalments were not paid and thus, the account in question was to be declared NonPerforming Asset on 30.11.2014 whereas the same had been declared Non-Performing Asset on 2^nd March, 2015; that the notice under Section 13(2) of the Act was duly dispatched to the applicants in the ordinary course of business of the respondent bank; that the representation-cumobjection dated 10.06.2015 was duly considered and decided by the respondent bank and decision thereof was conveyed to the applicants vide reply dated 19.06.2015 which was sent through registered post on

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22.06.2015; that the loan account involved in the present case was rightly declared as Non-Performing Asset on 2^nd March, 2015 due to nonservice of interest for a period of 90 days; that it was not the choice of applicants to challenge the action of the respondent bank as per their own free will and as per their own convenience and the applicants could only challenge the action of the respondent bank, which was in limitation as prescribed under the law; that proper procedure was adopted by the respondent bank from the date of issuance of demand notice till the date of issuance of sale notice; that the possession notice was published in ‘The Times of India’ (English) and ‘Amar Ujala’ (Hindi) both dated 08.11.2023, having wide circulation in the area where the mortgaged property was situated; that it was wrong to say that valuation had not been taken from an approved valuer and it was wrong to say that notice was not affixed on the property. Rest of the averments made in the SA were also denied in reply to the SA.

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Replication to the reply to the amended SA was filed wherein the averments made in the SA were reiterated and that of the reply to the SA were controverted.

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I have heard the arguments on behalf of the applicants and the respondent bank and also gone through the record carefully.

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It was argued by Sh. Rohit Sapra Advocate for the applicants that there was violation of the provisions of the Act because opportunity under Section 13(8) of the Act was not granted to the applicants.

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Learned counsel for the applicant has placed reliance upon the Division Bench judgment of Hon’ble Andhra Pradesh High Court in the case of ‘Sh. Sai Annadhatha Polymers and Another Vs Canara Bank’ represented by its Branch Manager, Sh. Madanapalle, 2018 SCC online Hyderabad 178 decided on 27.06.2018 , wherein inter alia it was held as under:

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“To sum up, the post-amended scenario inevitably requires a clear thirty day notice period being maintained between issuance of the sale notice under Rule 8(6) of the Rules of 2002 and the publication of the sale notice under Rule 9(1) thereof, as the right of redemption available to the borrower in terms SA/335/2023 MAHINDRA THERMOPACKAGING Vs BANK OF MAHARASHTRA 2 of Rule 8(6) of the Rules of 2002, as

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pointed out in MATHEW VARGHESE, stands extinguished upon publication of the sale notice under Rule 9(1).”

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It was further argued by the learned counsel for the applicants that the law laid down by the Hon’ble Andhra Pradesh High Court in the authority (supra) was upheld by the Hon’ble Apex Court in the case of ‘Celir LLP Vs Bafna Motors (Mumbai) Private Limited and Others’, 2023 SCC online SC 1209, decided on 21.09.2023 .

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It has been clearly mentioned in ‘Sh. Sai Annadhatha Polymers and Another’ (supra), that 30 days notice period which has to be maintained is between issuance of sale notice under Rule 8(6) of the Rules of 2002 and the publication of the sale notice under Rule 9(1) thereof.

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Sh. Vivek Verma Advocate drew the attention of the Tribunal to order dated 25.04.2023 in the case of ‘M/s RA Pure Life Science Limited and others Vs Indian Overseas Bank in SLP(C) Nos. 7593-7595/2023’ wherein submission with regard to non-compliance and violation of Rule 8(6) read with Rule 9(1) of the Rules of 2002, was rejected on the ground that the petitioners had enough time and opportunity to make payment.

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Para No. 16 of the same is reproduced below for facilitative reference:

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“It is thus beyond pale of doubt that it is sufficient that 30 days notice is issued before sale of secured asset is conducted and notices under Rule 8(6) and Rule 9(1) can be issued simultaneously. In other words, it is not necessary that there must be a 30 days gap after notice under Rule 8(6) is issued and before notice under Rule 9(1) is issued. As held in Amme Srisailam (supra) right of redemption of mortgagor under Section 60 of Transfer of Property Act is preserved till sale certificate is registered and said right is not extinguished by amendment of Section 13(8) of the Act.”

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It was argued by Sh. Vivek Verma Advocate that above said order of the Hon’ble Supreme Court came into existence out of order dated 10.02.2023 passed by Division Bench of Hon’ble Telangana High Court in the case of ‘Indian Overseas Bank Vs M/s RA Pure Life Science Limited and others’.

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Now this Tribunal has before it the two views of the Hon’ble Benches of equal strength of the Supreme Court which are opposite to each other.

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Out of the two views, contained in the cases of ‘M/s RA Pure Life Science Limited and others Vs Indian Overseas Bank in SLP(C) Nos. 7593-7595/2023’ and ‘Indian Overseas Bank Vs M/s RA Pure Life Science Limited and others’ , the judgement relied upon by Sh. Vivek Verma Advocate will hold the field in view of the fact that the same has withstood the test of time for more duration then the judgment in the case of ‘Indian Overseas Bank Vs M/s RA Pure Life Science Limited and others’ .

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It was argued by Sh. Rohit Sapra Advocate that admittedly, there was restructure of the loan account vide sanction letter dated 28.11.2014 and applicant No. 2 was not bound to perform the original contract because by virtue of the restructure, alteration in the original contract came into existence on 28.11.2014. It was further argued that as per terms and conditions of sanction letter dated 28.11.2014, the respondent bank was to obtain acknowledgement/acceptance of the guarantors including applicant No. 2 to the terms and conditions of restructure but since no such exercise was undertaken, it resulted into discharge of the liability of applicant No. 2 in terms of Section 133 of the Indian Contract Act, 1872.

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Para No. 33(vii) of the amended SA which is identical to the earlier amendment and its reply are reproduced below in quick succession for facilitative reference:

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“vii). that admittedly, the loan sanctioned to applicant No. 1 Company was restructured vide sanction letter dated 28.11.2014 (ANNEXURE A-14), Thus, an altered contract between the respondent Bank and the principal debtor/applicant No. 1 came into existence on 28.11.2014, which admittedly was in variance to the original terms of contract and hence, applicant No. 2 was not bound to perform the original contract. It is of extreme significance and importance to state and point out here that as per the terms and conditions of restructuring sanction letter dated 28.11.2014, the copy of which is annexed herewith as ANNEXURE A-41, the respondent Bank was to obtain acknowledgement/acceptance of the guarantors, (including applicant No.

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2/mortgagor) to the terms & conditions of restructuring. Admittedly, applicant No. 2 as a mortgagor and the other guarantors did not accept/give consent to the restructuring. Consequently, u/s 62 of Contract Act, the applicant No. 2 stands discharged of its liability to the respondent Bank and the SARFAESI action qua the property of applicant No. 2 is illegal and unsustainable.”

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“vii). That the contents of para No. vii of the grounds to SA admitted to the extent of sanction of WCTL, contents of rest of the para are wrong and hence denied. Detailed reply given above. It is matter of record that the WCTL was granted to the Applicant no. 1 on its specific request letter dated 27.11.2014. The Competent authority sanctioned the Restructuring of overdue amount of Rs.46.15 Lakhs in CC Account to be repaid in six months, subsequently, the applicant No.1 had deposited an amount of Rs.49,64,000.00 in July/August, 2015 thereby adjusting the WCTL account and had also deposited Rs. 1,50,00,000.00 in Cash Credit account. Therefore, the point of WCTL does not hold ground at this stage.”

¶50

From the above pleadings, it is clear that there is hardly a reply to the contents of para No.33(vii) of the SA and there is implied admission of the following facts:

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There was no mortgage by applicant No. 2 qua the amount

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restructured.

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Applicant No. 2 Company was not a guarantor/mortgagor qua the amount restructured.

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It was argued by Sh. Rohit Sapra, Advocate that sale notice under Rule 8(6) of the Rules, 2002 was not served upon applicant No. 2 who was the mortgagor. It was further argued that in reply to the contention in the pleadings, the reply on behalf of the respondent bank was that ‘it was sent’. It was further argued that the sale notice under Rule 8(6) of the Rules of 2002 was dated 15.11.2023 and it was mentioned in the notice that sale publication would be effected subsequently.

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It was argued by Sh. Rohit Sapra, Advocate that in the notice under Section 13(2) of the Act, an amount of Rs. 16,24,03,431.86 as on 07.04.2015 was claimed, out of which, the amount of Rs. 15,75,72,547.31 was towards Cash Credit Limit and Rs. 48,30,884.55 in Working Capital Term Loan. It was further argued that the property in

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question was not a secured asset qua the Working Capital Term Loan of Rs. 48,30,884.55. Going by the contents of reply to the above para, it is clear that there is no explanation from the side of the respondent bank in this regard.

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It was further argued by Sh. Rohit Sapra, Advocate that further measures were admittedly taken in pursuance of notice under Section 13(2) of the Act which was admittedly a defective notice because the whole amount mentioned in that notice did not qualify for the mortgage as with regard to the part of the amount shown payable, there was no mortgage. In the facts and circumstances of the case, the arguments advanced by the learned counsel for the applicants cannot be brushed aside because applicant No. 2 did not make itself liable for the said amount and also the mortgage did relate to this amount.

¶59

It was argued by Sh. Vivek Verma Advocate that the restructuring of the account with regard to the amount of WCTL, had no impact since that amount had been deposited subsequently after payment was made by applicant No. 1.

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Sh. Rohit Sapra Advocate on the other hand argued that the subsequent development after taking measures under Section 13(4) (Symbolic Possession), smeared the securitisation proceedings with illegality and in pursuance of such securitisation proceedings, subsequent proceedings which were the offshoot of the same, could not hold the ground. There is considerable merit in the contention of the learned counsel in this regard because subsequent act cannot take care of the commencement of the securitisation proceedings especially in the wake of those proceedings already going further to a considerable extent.

¶61

Sh. Rohit Sapra Advocate placed reliance upon the judgment of the Division Bench of Hon’ble Punjab and Haryana High Court in the case of ‘Punjab National Bank and others Vs M/s Chintpurni School Educational Society and others’, 2020(4) PLR 373, wherein it was held that if the original documents were varied, the same would not bind the guarantor in terms of original contract/documents and they cannot be made liable beyond terms of their engagement.

¶62

In the Division Bench judgment in the case of ‘Punjab National Bank and others Vs M/s Chintpurni School Educational Society and others’ (supra), reliance was placed upon the judgment in the case

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of ‘Seth Pratap Singh Mohola Bhai and another Vs. Keshawlal Harilal Setalwad and another’ , AIR 1935, Privy Council, 21 wherein it was held as under:

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"The principle is that the surety, like any other contracting party, cannot be held bound to something for which he has not contracted. If the original parties have expressly agreed to vary the terms of the original contract no further question arises. The original contract has gone, and unless the surety has assented to the new terms there is nothing to which he can be bound, for the final obligation of the principal debtor will be something different from the obligation which the surety guaranteed. Presumably he is discharged forthwith on the contract being altered without his consent, for the parties have made it impossible for the guaranteed performance to take place."

¶66

It would not be out of place to the quote below Section 133 of the Indian Contract Act, 1872, with its illustration (b):

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“133. Discharge of surety by variance in terms of Contract. —Any variance, made without the surety’s consent, in the terms of the contract between the principal [debtor] and the creditor, discharges the surety as to transactions subsequent to the variance.

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(b) A guarantees C against the misconduct of B in an office to which B is appointed by C, and of which the duties are defined by an Act of the Legislature. By a subsequent Act, the nature of the office is materially altered. Afterwards, B misconducts himself. A is discharged by the change from future liability under his guarantee, though the misconduct of B is in respect of a duty not affected by the later Act.”

¶69

The above said judgment and the above illustration of Section 133 of the Indian Contract Act, 1872, show that the future liability under the guarantee of Applicant No. 2 should not survive.

¶70

It was argued by Sh. Rohit Sapra Advocate that Applicant No. 2 as surety was not liable as the respondent had made composition with applicant No. 1 by giving time to applicant No. 1 to cure the default. It was further argued that the act of applicant No. 1 was not binding upon applicant No. 2 by virtue of Section 135 of the Contract Act. It has been envisaged in Section 135 of the Indian Contract Act, 1872, that a contract between the creditor and the principal debtor, by which the creditor

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makes a composition with or promises to give time to, or not to sue, the principal debtor discharges the surety, unless the surety assents to such contract. It was further argued that with the coming into existence of the contract between the parties, i.e. the creditor and the borrower with the giving of time to cure the default with restructuring of the new contract, to which admittedly, applicant No. 2 did not assent, thereby applicant No. 2 has to get the benefit of Section 135 of the Indian Contract Act, 1872, by way of discharging applicant No. 2 of the liability in terms of sanction letter Annexure-A41. It has transpired from the record especially Annexure-A14, which is sanction letter qua overdue amount of Rs. 46.15 lac as WCTL which was made repayable in 6 months with effect from 01.04.2015 that the loan account was restructured only for an overdue amount of Rs. 46.15 lac which was overdue amount at the relevant time and for repayment of which, time of 6 months was granted to the borrower. Therefore, this restructuring of the account cannot be said to be the restructuring of the whole account and thus, the applicability of the provisions of Sections 133 and 135 of the Indian Contract Act, 1872, is not there with regard to the remaining amount of Cash Credit Limit and the same is confined to only the amount of 46.15 lac.

¶73

It was further argued by Sh. Rohit Sapra Advocate that the reply to the objection under Section 13(3A) of the Act and Rule 3A (c) of the Rules of 2002, was not received by the applicants. It was argued that it was pleaded that notice was sent through registered post but no track consignment record was placed on record to bring home the factum of dispatching the communication.

¶74

In view of the fact that in the pleadings, it was specifically averred on behalf of the applicants that applicant No. 1 Company had not received any communication from the respondent bank informing the non-acceptance of its representation/objections and admittedly there is no track consignment record to support the factum of sending the decision on the objection/representation and there being no evidence in this regard, it cannot be said that there was compliance of the provisions of Section 13(3A) of the Act and Rule 3A (c) of the Rules of 2002.

¶75

When the facts and circumstances of the case are seen in the light of the provisions of Sections 133 and 135 of the Indian Contract Act, 1872, the liability with regard to subsequent contract/alteration

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SA/268/2023 M/S ARVINDRA ELECTRONICS PVT LIMITED AND ANOTHER VS. STATE BANK OF INDIA 14

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with regard to the amount of interest cannot be attributed to applicant No. 2 and resultantly, it can be safely said that notice under Section 13(2) of the Act, was smeared with illegality and thereafter, the subsequent steps taken in pursuance of that illegality cannot be allowed to hold the field. Therefore, the SA is allowed with costs. With the allowing of the SA and holding notice under Section 13(2) of the Act as bad in law, the subsequent securitisation proceedings cannot be justified or maintained and those come back to square one.

¶78

Pronounced in the open Tribunal

¶79

(M.M. Dhonchak) Presiding Officer DRT-2, Chandigarh

Ms Arvindra Electronics Private Limited v. State Bank of India

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Ms Arvindra Electronics Private Limited v. State Bank of India

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