Allowed

Sreedath S N v. Union Bank of India

DRT15 Jul 2023SA/330/2022

Case brief

AI extract

What is this about?

The Tribunal allowed an application challenging a property sale in an e-auction. It held that the secured creditor failed to serve a mandatory 15-day notice for the subsequent sale before the authorized officer, violating Rule 9(1) of the Security Interest (Enforcement) Rules, 2002.

What did the court decide?

Sale conducted on 31.05.2022 and sale certificate issued in favor of the 3rd defendant set aside; liberty to proceed afresh; return of bid amount with interest.

Sreedath S N versus Union Bank of India — 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 PRESIDING OFFICER

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Dated this the 15^th day of July, 2023

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SECURITIZATION APPLICATION No.330/2022

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Between

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Sreedath.S.N, Prop. M/s.Bright Channel Advertisingand Marketing, 647, Syamalayam, Njarakkal, Perinad.P.O., Kollam – 691 602. …Applicant

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And

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Union Bank of India, Thrikkaruva Branch, Bhaskar Building, Kanjaveli.P.O., Kollam – 691 602.

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The Authorised Officer, Union Bank of India, Thrikkaruva Branch, Bhaskar Building, Kanjaveli.P.O., Kollam – 691 602.

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C.Sasikumar, Vadakkekara Veedu, Kanjavely.P.O., Kollam – 691 602. …Defendants

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This Securitization Application having been heard on 30.06.2023 in the presence of Advocates M/s.K.C.Eldho and S.Bijilal for the applicant and Advocates M/s.A.S.P.Kurup, Sadchith.P.Kurup and C.P.Anil Raj for the 1^st and 2^nd defendants and the 3^rd defendant being absent 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 Securitization Application is filed by the applicant under S.17(1) of the Securitization and Reconstruction of Financial Assets

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SA 330/2022

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and Enforcement of Security Interest Act, 2002 (for short ‘the SARFAESI Act’) challenging the sale conducted on 31.05.2022 on the basis of Annexure-A4 sale notice issued by the secured creditor with a prayer to set aside the same.

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Brief facts of the case :

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The applicant, being the proprietor of M/s.Bright Channel Advertising and Marketing, availed an overdraft facility of Rs.40 lakhs from the defendant bank by mortgaging the subject matter property. Subsequently, this overdraft facility was converted to working capital term loan. Due to Covid pandemic, the business of the applicant was affected severely and he could not repay the loan in time. As per the guideline of RBI dated 21.04.2021 marked Annexure-A1, the applicant approached the defendant bank to give him moratorium for two years but the 1^st and 2^nd defendants declined to provide such facility arbitrarily and illegally. Hence the applicant could not reorganize his business. In spite of payments made by the applicant from the month of October, 2021, the defendant bank classified the loan as NPA and initiated SARFAESI measures against the applicant.

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Subsequently, a notice dated 15.02.2022 under R.8 of the Security Interest (Enforcement) Rules, 2002 marked Annexure-A3 was served on the applicant for e-auction of the secured asset. The applicant approached the Hon'ble High Court of Kerala by filing W.P.(C) No.6128/2022 challenging such measures and expressed his willingness to pay off the entire arrears. Due to non-participation of bidders, the e-auction did not fructify in pursuance to Annexure-A3 notice. During pendency of the writ petition, the 2^nd defendant issued a fresh sale notice dated 10.05.2022 marked Annexure-A4 for e-

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SA 330/2022

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auction of the secured asset on 31.05.2022. The said notice was sent by registered post on 14.05.2022 which was served on the applicant on 17.05.2022. When the writ petition was taken up for hearing on 07.06.2022, the defendant bank contended that the secured asset was already sold and hence the Hon'ble High Court permitted the applicant to approach the DRT for appropriate relief.

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As per the direction of the Hon'ble High Court, details of the auction purchaser was provided to the applicant by the defendant bank vide Annexure-A6. Accordingly, the SA was filed challenging the sale mainly on the following two grounds:-

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(i) There is no clear 15 days’ notice to the applicant before putting the property for e-auction which violates R.9(1) of the Security Interest (Enforcement) Rules, 2002 and

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(ii) Proper reserve price was not fixed for the secured asset for E-auction as per Annexure A4 notice which was reduced arbitrarily without any consultation with him.

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Hence the applicant seeks relief to set aside the sale held on 31.05.2022 in which the 3^rd defendant is the successful bidder. The auction was confirmed in his favour. During the pendency of the SA, sale certificate was issued in favour of the 3^rd defendant which is also under challenge in this SA.

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The 1^st and 2^nd defendants filed written statement denying the claim advanced by the applicant. The main contention of the defendant bank is that due to filing of W.P.(C) No.6128/2022 before the Hon'ble High Court, the sale scheduled to be held on 30.03.2022 on the basis of sale notice Annexure-A3 dated 15.02.2022 did not fructify. Due to filing of frivolous litigations, the sale did not fructify

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SA 330/2022

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and hence for the subsequent sale, there is no necessity to serve clear 15 days’ notice on the applicant as required under R.9(1) of the Security Interest (Enforcement) Rules, 2002. The 1^st and 2^nd defendants admitted that notice for the subsequent sale was served on the applicant only on 17.05.2022 and there was no clear 15 days’ notice. Further, it is contended that valuation of the secured asset was taken with the help of an approved valuer of the bank and the reserve price was fixed in compliance with the provision contained in the SARFAESI Act. The reserve price was reduced in the subsequent sale which was not prejudicial to the interest of the applicant. Hence there is no merit in the contention put forth by the applicant and he is not entitled to get any relief in this case.

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It is not out of place to mention here that during the pendency of the SA, the applicant filed IA No.3028/2022 praying to restrain the 3^rd defendant/auction purchaser from alienating or encumbering the subject matter property till the final disposal of the SA, which was rejected on 19.01.2023 with the observation that the sale held in favour of the 3^rd defendant would depend on the final adjudication in the SA.

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From the respective case of the parties, the following points are emerged for adjudication in this case:

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(i) Whether there is any illegality or irregularity or defect in the e-auction of the secured asset conducted on 31.05.2022?

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(ii) Whether the applicant is entitled to get any relief in setting aside such sale held in favour of the 3^rd defendant?

SA 330/2022

FINDINGS :

Point Nos.(i) & (ii):

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For the sake of convenience, both the points being interrelated are taken up together for adjudication. In this SA the applicant did not dispute the availing of loan from the defendant bank and also did not press any claim against the demand notice and also against the possession notice issued under S.13(4) of the SARFAESI Act. The main contention in the SA is that there was no clear 15 days’ notice before conducting sale of the secured asset on 31.05.2022 which violates the provision contained under R.9(1) of the Security Interest (Enforcement) Rules, 2002 which reads as follows:-

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9. Time of sale, Issue of Sale Certificate and delivery of possession, etc.

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(1) No sale of immovable property under these rules, in first instance shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) of Rule 8 or notice of sale has been served to the borrower:

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Provided further that if sale of immovable property by any one of the methods specified by sub-rule (5) of Rule 8 fails and sale is required to be conducted again, the authorised officer shall serve, affix and publish notice of sale of not less than fifteen days to the borrower, for any subsequent sale.

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The aforementioned statutory Rule, which was introduced by way of amendment vide G.S.R.104(E) dated 03.11.2016 (w.e.f. 04.11.2016), mandates that in case sale of the immovable property did not fructify as per the method prescribed under R.8(5) of the Security Interest (Enforcement) Rules, 2002, the Authorised Officer shall serve, affix and publish notice of sale of not less than 15 days to the borrower for any subsequent sale.

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In the course of arguments and also in the notes of argument, learned counsel for the applicant contended that as there was no clear 15 days’ notice, the sale held on 31.05.2022 is vitiated

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SA 330/2022

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and the same is liable to be set aside. In support of his contention, learned counsel has relied on the judgment of the Hon'ble High Court of Kerala reported in 2022 (3) KLT 817 rendered in the case titled

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E.K.Rajan v. The Authorised Officer, Canara Bank & others and another judgment of the Hon'ble Apex Court reported in (2022) 10 SCC 641 in the case titled S.Karthik & others v. N.Subhash Chand

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Jain & others.

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The learned counsel for the 1^st and 2^nd defendants in the course of arguments and also in their notes of arguments contended that the first sale did not take place due to the deliberate act of the applicant by challenging the sale in W.P.(C) No.6128/2022 before the Hon'ble High Court and the subsequent sale can be considered to be in continuation of the first sale notice. Hence even if there is no clear 15 days’ notice, the sale is not vitiated. Further, it is contended that procedural lapse in not giving 15 days’ clear notice to the applicant did not cause any prejudice to him and hence the applicant is not entitled to get any relief. In support of his contention, learned counsel for the defendant bank relied on the same judgment referred by the applicant in the case of S.Karthik & others supra and another judgment of the Hon'ble Apex Court reported in (2020) 10 SCC 659 in the case titled L&T Housing Finance Limited v. Trishul Developers and another . It is contended further that during the pendency of the writ petition, Annexure-A4 sale notice was served on the applicant but he did not raise any objection regarding such sale notice before the Hon'ble High Court. Consequently, he has waived his right in challenging the sale held on 31.05.2022. In support of their contention learned counsel has referred the judgment of the Hon'ble Apex Court

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SA 330/2022

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reported in (2022) 2 SCC 221 in the case titled Arce Polymers Private Limited v. Alphine Pharmaceuticals Private Limited and others.

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So far as the factual aspects are concerned, there was no clear 15 days’ notice on the applicant for the subsequent sale conducted on 31.05.2022. The defendant bank admitted that Annexure-A4 sale notice for the subsequent sale was served on the applicant only on 17.05.2022 and there was no clear 15 days’ notice for conducting the sale on 31.05.2022. The Hon'ble High Court of Kerala in the judgment rendered in the case titled E.K.Rajan supra has considered this aspect, wherein at paragraph 17 it is held as follows:

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“17. A reading of the proviso to Rule 9(1) of the Rules makes it explicit that the authorised officer must serve, affix and publish the notice of sale of not less than 15 days to the borrower, for any subsequent sale. The word 'serve' relates to personal service of notice, affixture relates to the notice being affixed on the property and the publication relates to the publication of notice in the newspaper dailies. The conjunction ‘and’ employed in the proviso also indicate the mandatory nature of all three methods of notice. Further, in spite of the amendment to section 13(8) of the Act, the proviso to Rule 9(1) mandates the three methods of serve, affix and publish the notice to be carried out, with 15 days clear notice. In the instant case, there is a failure on the part of the respondent to serve notice of not less than 15 days upon the petitioner. Therefore the notice of sale is bad in law. Ext.P3 and the consequent sale are therefore liable to be set aside.”

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Further, the Hon'ble High Court in the aforesaid judgment has distinguished the judgment of the Hon'ble Apex Court passed in the case of S.Karthik & others supra and at paragraph 18 it is held as follows:-

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“18. The decision in S. Karthik & Others v. N. Subhash Chand Jain and Others (AIR 2021 SC 4559) is clearly distinguishable in law as well as on facts. In the said decision, the Supreme Court was considering a case of sale that took place in 2012 in which the proviso to Rule 9(1) was not in existence. As the law then stood, the notice of sale required only 30 days notice and there was no reference to such a notice period for any subsequent sales. Further,

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SA 330/2022

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factually, the borrower, in that case, had managed to delay the conduct of sale by methods solely attributable to the borrower. It was in such circumstances, that the Court held that there was no necessity to provide 30 days’ notice for the second sale. In the instant case, the proviso to Rule 9(1) of the Rules incorporated in 2016 mandates notice of not less than 15 days to be served on the borrower for subsequent sales. Thus the said decision is inapplicable to the facts of the present case.”

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The defendants failed to comply with the statutory mandates and hence the ratio decided by the Hon'ble High Court of Kerala is squarely applicable to the facts and circumstances of the present case.

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The law is well settled on the position of law that S.13 of the SARFAESI Act empowers the secured creditor to enforce any security interest created in its favour without the intervention of the court or Tribunal, but the same shall be in conformity with the statutory mandates contained in the statute. It is also the settled position of law that the secured creditor as a trustee of the secured asset cannot deal with the same in any manner it likes and such an asset can be disposed of only in the manner prescribed in the SARFAESI Act. The Hon'ble High Court of Kerala in E.K.Rajan (supra) has categorically held that in case of subsequent sale as per R.9(1) of Security Interest (Enforcement) Rules, 2002, it is mandatory to serve, affix and publish the notice of sale of not less than 15 days to the borrower. As per the discussion made above, the same is not complied in the present case. Further, when the statute prescribes to follow the procedure in a particular manner which is mandatory, the question of waiver of such mandatory compliance does not arise. Here in this case, defendant bank has failed to place any material showing that by conduct of the applicant they waived such mandatory provision. With due respect to the judgment cited by the learned counsel for the

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SA 330/2022

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defendant bank, as quoted earlier, is not helpful to them in the facts and circumstances of the present case.

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In the judgment cited by the defendant bank in the case of S.Karthik & others supra, the Hon'ble Apex Court by referring the judgment reported in (2014) 5 SCC 610 in the case of Mathew Varghese v. M.Amritha Kumar & others , it is held as follows:-

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“70. As we have already discussed hereinabove, the facts in the case of Mathew Varghese (supra) and the facts in the present case are totally different. In any case, in view of the observations made in paragraph 53 of the judgment of this Court in the case of Mathew Varghese (supra), we are of the view that since the sale scheduled on 27.2.2012 in pursuance to the notice dated 21.1.2012 could not be held on account of the reasons solely attributable to the appellants/guarantors, there was no necessity to provide 30 days’ period in the Second Sale Notice dated 9.7.2012, which was in continuation of the First Sale Notice dated 21.1.2012.”

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The learned counsel for the defendant bank contended that in view of this ratio, if the first sale did not take place for the reasons solely attributable to the borrower/guarantors, there was no necessity to provide 15 days’ notice period for the second sale. Here in this case, after getting first sale notice, the applicant filed W.P.(C) No.6128/2022 before the Hon'ble High Court of Kerala wherein no interim protection was given to the applicant. It is also the admitted fact that due to non-participation of the bidders, the first sale did not fructify and hence the 2^nd defendant issued fresh sale notice vide Annexure-A4 for the subsequent sale to be held on 31.05.2022.

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In Annexure-A4 sale notice dated 10.05.2022 it is specifically mentioned that “Notice of 15 days for sale of immovable secured assets under R.8 of the Security Interest (Enforcement) Rules, 2002.” At the time of issuance of Annexure-A4 notice, the 2^nd defendant considered to give 15 days’ clear notice to the applicant as per the statutory mandates, but in fact there was no clear 15 days’

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SA 330/2022

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notice. Merely because the applicant filed writ petition before the Hon'ble High Court, in which no interim order was passed, the contention of the defendant bank that the sale did not fructify due to the act of the applicant cannot be acceptable. In view of the materials available on record, it cannot be said that the first sale did not take place on account of reasons solely attributable to the applicant. Besides the same, during the pendency of the said writ petition, the 2^nd defendant conducted the subsequent sale on 31.05.2022 which was taken into consideration by the Hon'ble High Court and liberty was given to the applicant to challenge the same in accordance with law.

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In view of the discussion made above, the ratio decided by the Hon'ble High Court in E.K.Rajan (supra) is directly and squarely applicable in this case and the defendant bank, having not complied with the mandatory provision contained under R.9(1) of the Security Interest (Enforcement) Rules, 2002 in conducting the subsequent sale on 31.05.2022, it can only be said that the said sale is illegal and void. Hence the point no.1 is answered in favour of the applicant. As mandatory provision was not complied, there is no necessity to consider whether the fixing of reserve price for the subsequent sale was in accordance with law or not.

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In view of the above, the sale conducted on 31.05.2022 pursuant to Annexure-A4 sale notice is liable to be set aside, giving liberty to the secured creditor to proceed afresh for e-auction of the secured asset in accordance with the law after obtaining fresh valuation report for the secured asset. Further, the defendant bank shall return the total bid amount deposited by the 3^rd defendant/auction purchaser together with interest at the prevailing

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SA 330/2022

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rate for fixed deposits for the period the sale consideration is held by the defendant bank. The defendant bank shall give proper credit of the entire expenses for conducting such sale in the loan account of the applicant in case the same is already debited in his account.

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Hence it is ordered:-

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ORDER

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In view of the foregoing reasons and with the above observations, the SA is allowed and the sale conducted on 31.05.2022 in pursuance to Annexure-A4 sale notice dated 10.05.2022 is hereby set aside. Resultantly, sale certificate issued in favour of the 3^rd defendant is also set aside. There is no order as to costs.

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(Dictated to my PA, corrected and pronounced by me in the open Tribunal on this the 15^th day of July, 2023)

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[SOVAN KUMAR DASH] PRESIDING OFFICER

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SA 330/2022

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Documents on the part of the applicant

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Annexures	Date	Particulars of documents
Annexure-A1	21.04.2021	Copy of notification issue	d by RBI.
Annexure-A2	28.10.2021	Copy of the statement o	f account.
Annexure-A3	15.02.2022	Copy of sale notice applicant.	issued to	the
Annexure-A4	10.05.2022	Copy of sale notice applicant.	issued to	the
Annexure-A5	07.06.2022	True copy of judgme No.6128/2022 of the Ho of Kerala.	nt in W. n'ble High C	P.(C) ourt
Annexure-A6	20.06.2022	Copy of letter issued to the defendant bank.	the applican	t by
Annexure-A7	25.10.2022	Certified copy of the No.1293/2022 issued defendant.	sale certif to the	icate 3^rd

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Documents on the part of the 1^st and 2^nd defendants

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Annexure-B1 05.05.2021 Copy of notice issued by RBI. Annexure-B2 17.05.2022 Copy of acknowledgement cards signed by the applicant and guarantor.

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Documents on the part of 3^rd defendant

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Nil

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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 15^th July, 2023

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SA No.330/2022

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Between

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Sreedath.S.N, Prop. M/s.Bright Channel Advertisingand Marketing, 647, Syamalayam, Njarakkal, Perinad.P.O., Kollam – 691 602. …Applicant

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And Union Bank of India, Thrikkaruva Branch, Bhaskar Building, Kanjaveli.P.O., Kollam – 691 602 & 2 others. …Defendants

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F I N A L O R D E R

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SA 330/2022 11.07.2023

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Order not ready. Adjourned to 15.07.2023.

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Presiding Officer

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SA 330/2022 15.07.2023

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…………… In view of the foregoing reasons and with the above observations, the SA is allowed (vide separate final order) and the sale conducted on 31.05.2022 in pursuance to Annexure-A4 sale notice dated 10.05.2022 is hereby set aside. Resultantly, sale certificate issued in favour of the 3^rd defendant is also set aside. There is no order as to costs.

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Presiding Officer

Sreedath S N v. Union Bank of India

Case brief

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Sreedath S N v. Union Bank of India

Case brief

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