Dismissed

Mr Bagilthaya Subramanya v. Housing Development Finance Corporation Ltd.

DRT19 May 2023SA/337/2022

Case brief

AI extract

What is this about?

The Debt Recovery Tribunal dismissed an appeal against a possession notice issued under the SARFAESI Act. The court held that the lender properly served the demand notice and possession procedures. The borrowers, who had defaulted and breached loan agreements, were not entitled to quash the notice.

What did the court decide?

The appeal is dismissed. The demand notice dated 16.04.2021 and possession notice dated 13.05.2022 are held valid. The interim order stands vacated.

Mr Bagilthaya Subramanya versus Housing Development Finance… — Cheque Dishonour | DRT (2023)

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IN THE DEBTS RECOVERY TRIBUNAL-I, KARNATAKA AT BENGALURU

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Dated this the 19th day of May 2023

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Present: Sri. IMTIAZ ALI

Presiding Officer

S.A.No.337l2022

BETWEEN:

Sri Bagilthaya Subramanya

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S/o Jayaram Bagilthaya

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Aged about 65 years

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Residing at Plot No.18, Shubha

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12th Cross, Indiaranagar ltt Stage

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Bengaluru-560 038

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Sri Bagilthaya Shreyas S

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S/o P S Bagilthaya

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Aged about 35 years

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Residing at Plot No.18, Shubha

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12th Cross, Indiranagar 1't Stage

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Bengaluru -560 038

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3. Miss Bagilthaya Swathi Subramanya

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D/o. Subramanya Bagilthaya

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Aged about 30 years

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Residing at Plot No. 18, Shubha

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12th Cross, Indiranagar 1't Stage

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Bengaluru-560 038

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4. Mrs Bagilthaya Palimar Lakshmi

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W/o Palimar Jayaram Bagilthaya

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Aged about 89 years

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Residing at Plot No.18, Shubha 12th Cross, Indirnagar 1st Stage Bengaluru-560 038

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5. Mrs Subramanya Sobha

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W/o Subramanya Bagilthaya Aged about 58 years Residing at Plot No.18, Shubha

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12th Cross, Indiranagar 1st Stage Bengaluru-560 038

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\ \ (.

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S.A.No.337/2022

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6. M/s Shakti Coach^{Works PrivateLtd}

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Plot No. 14, KIADB^{Industrial Area}

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Attibele Industrial Area

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Hosur Road, Attibele

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Bengaluru-562 107

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Represented by its Managing^Director Sri Bagilthaya SubramnanYa

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7. Mls Hotel Anjanta

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No.22/A, Mahatma Gandhi Road

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Bengaluru-560 001

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Represented by its Partner

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Mrs Bagilthaya Palimar Lakshmi

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8. M/s Shakti Enterprases

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Plot No.14, KAIDB Industrial Area

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Attibele Industrial Area

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Hosur Road, Attibele

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Bengaluru-562 107

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Represented by its Proprietor .. APPELLANTS Mr Bagilthaya Subramanya

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AND:

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Housing Development Fanance Corporation Limited

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Having its Corporate Office at

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No.s1, HDFC LTD, HDFC HOUSC

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Kasturba Road

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Bangalore-560 001

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Inter alia Having its

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Registered Office at

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Ramon House, H T Parekh Marg, 169 Backbay Reclamation, Churchgate Mumbai-400 020

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Represented by its Authorised Officer .. RESPONDENT

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Counsels on record/aopeared for:

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Appellants : Sri Ashok Kumar Respondent : Sri Francis Xavier

5.A.No.337 /2022

FINAL ORDER

The Appellants have filed an Appeal under Section 17 of the SARFAESI Act, 2OO2 (for short "Act"), seeking for quashing/setting aside the Possession Notice dated 13.05.2022 issued by the Respondent Bank and all further proceedings pursuant thereto in respect of the schedule property for recovery of Rs.2O,4O169,89L/- (Rupees Twenty Crore Forty Lakh Sixty-nine Thousand Eight Hundred and Ninety-one only) from the Appellants with further interest thereon, charges costs, etc.

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The facts leading to the Appeal in question in a nutshell are that, the Appellants No.1 to 5 are a family who own and operate the businesses which are mentioned as Appellants No.6 to B, herein. The Appellants have gained enormous goodwill and reputation amongst the general public for providing goods and service of exceptional quality, by running businesses for many decades. For operating their businesses, the Respondent Bank had sanctioned following credit facilities to them vide account Nos.:

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a) 636594204 for a sanctioned loan amount of Rs.9,99,99,500/- (Rupees Nine Crore Ninety-nine Lakh Ninety-nine Thousand and Five Hundred Only)

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b) 638269809 for a sanctioned^{loan amountof} Rs.4,99,99,500/-^(Rupees Four Crore^{Ninety Nine Lakhs} Ninety Nine Thousand and Five Hundred Only)

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c) 638269878 for a sanctioned loan amount^of Rs.3,10,00,000/- (Rupees Three Crore and Ten Lakh Only)

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d) 638475853 for a sanctioned loan amount^of Rs.22,21,283/ - (Rupees Twenty-two Lakh Twenty-one Thousand Two Hundred and Elghty-three Only)

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e) 63a476483 for a sanctioned loan amount of Rs.10,20,804/- (Rupees Ten Lakh Twenty Thousand Eight Hundred and Four only).

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In relation to the above said loan accounts, the Appellants had mortgaged the schedule^{properties.The} Appellants submitted that the above mentioned loan amounts were sanctioned in the months of January and February, 2019 and the Appellants were^paying the EMI that accrued on a regular basis. The Appellants have regularly^paid the E!1Is that were due till the month of February, 2020. As on March, 2020, due to the ongoing^pandemic of COVID-19, the Reserve Bank of India^granted a moratorium on loan repayments and extended the same till the month of August, 2020. Since the business of the Appellants were in relation to lodging and restau rant seTvices and the Appellants have

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disproportionately borne the burden of the losses caused due to the lockdown imposed to contain the^pandemic, the Appellants opted for the loan moratorium granted by RBI. The moratorium opted by the Appellants was approved by the Respondent. In view of the moratorium granted by RBI, the loan account of the Appellants remained 'standard' till 31st August, 2020. At the end of the moratorium period, RBI was pleased to permit the lvlicro, Small and Medium Enterprlses ("14SME" for short) sector entities to restructure their loans if they met 6 conditions as pacified in their circular No. DOR No.BP.BC/ 4/27.04.O4A/2O2O-27 dated 06.08.2020. As the Appellants are registered as MSME and met all the conditions mentioned in the said Circular and since the business of the Appellants had not recovered from the impact of the lockdown imposed due to the pandemic, the Appellants through email dated 12.10.2020 requested for the restructuring of their loans. The officials of the Respondent responded vide email dated 13-10.2020 informed the Appellants that they had to make a formal request to the Respondent in the proper format and that the Respondent would revert to the Applicant within 14 working days.

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As directed by the officials of the Respondent, the Appellants filed their formal request for restructuring of their credit facilities as per the procedures and documents

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prescribed by the Respondent, on^{02.11.2020 in terms of the} guidelines issued by RBI. Since the Appellants^{did not receive} any response within^{the 14 workingdaysas informedby the} officiats of the Respondent,^{the Appellantsvide email dated} O2.12.2O2O requested the Respondent^{to process their} request for restructuring of^{their credit facilities.Apartfrom} an automated response,^{the Appellants did not receiveany} response from the Respondent.^{When theAppellants} contacted the Respondent,^{the Appellantswere informed that} their application was being^{processed and due to the large} number of applications received by the^{Respondent, they} would take some time to respond to the^Appellants application. The Appellants'vide^{email dated 01.03.2021once} again requested the Respondent^{to consider the restructuring} application^pending before them.

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In terms of RBI^guidelines for restructuring of^MSME advances, the Appellants were eligible for^{restructuringin} terms of the condition^(v), wherein it states as under;

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"v. Asset classification of borrowers classified^as standard may be retained as such, whereas the accounts which may have slipped into NPA category between March 2, 2020 and date of implementation may be upgraded as 'standard asset', as on the date

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of implementation of the restructuring plan. The asset classification benefit will be available only if the restructuring is done as per provisions for this circular".

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The Appellants further submitted that in view of the above, the Appellants were entitled for restructuring since all the conditions from (i) to (vi) were satisfied by the Appellants. The Respondent completely and comprehensively flouted the guidelines of RBI and instead of considering the restructuring, arbitrarily recalled the entire loan facility and it called upon the Appellants to pay Rs.20,2t,4t,827- (Rupees Twenty Crore Twenty-one Lakh Forty-one Thousand Eight Hundred and Twenty-seven Only) within a period of 7 days, vide lts letter date 05.03.2021. Further, the Respondent declared loan accounts of the Appellants as Non-performing Asset ('NPA') in contravention of the above mentioned RBI guidelines. The Appellants further submitted that as per the RBI guidelines on restructuring of MSMEs, it is a fit case to be considered for restructuring. While the Appellants once again wrote an email dated 11.03.2021 stating thelr position and requesting for a restructuring of the loans, the Appellants only received an untenable response dated 12.03.2021 and the email did not clarify the reason. The Respondent had initiated recovery of the loan amounts without properly responding to

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their request for^{restructuring.The Appellantssubmittedthat} the Respondent,^{insteadof extending handholding support in} terms of RBI^{guidelines, arbitrarilyissued a noticedated} 76.O4.2021 under Section^{13(2) of the Act, informingthe} Appellants that their^{loan account was classifled as NPA as on} 31't March 2021. The Appellants^{submitted that as on the} date of classification as^{NPA, Respondenthad nelther} accepted nor rejected the^{restructuringrequest. In view of} the clause (v) of the^{RBI guidelines as stated supra, the loan} account ought to have^{beenmaintainedas standard till} pending consideration of request for restructuring.^Hence, the Appellants contended^{that the Demand Noticewas based} on illegal foundation and consequently^{all other proceedings} were also illegal. The^{Appellantsimmediatelyresponded to} the notice of the Respondent documentlng the^fraudulent behaviour of the Respondent^{and once again requestedthe} Respondent to consider the^{flnancial distress caused due to} COVID-19^pandemic and restructure^{the loan accountsof the} Appellants. In response to the reply dated^{20.04.2021, the} Respondent issued a completely fraudulent response dated 04.05.2021 wherein the Respondent had claimed that^the Appellants were orally informed that their request^for restructuring was rejected and that is the reason^the Appellants sent the email dated 01.11.2020 consenting^to explore the^possibility of sanctioning loan under GECL.^This

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claim of the Respondent was preposterous as the offlcial request for restructuring was submitted only on 02.11.2020. The Appellants being aggrieved by the arbitrary action of the Respondent in not considering the request for restructuring, recalling the entire loan and classifying the loan account of the Appellants as NPA durinq the pendency of the restructuring application and by the issuance of the notice dated 16.04.2021 under Section 13(2) of the SARFASESI Act, 2002 filed a Writ Petition under Article 226 of the Constitution of India, before the Hon'ble High Court of Karnataka. The Writ Petition was numbered as W.P. No.11766/2027. fhe Hon'ble High Court after considering the contentions of both the parties was pleased to dispose the writ petition vide order da|.€d 2A.O3.2022 and directed the Respondent to consider the restructuring application filed by the Appellants.

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The Appellants submitted that while the order in Writ Petition No.117612021 was passed on 2A.O3.2022, the copy of the order was not released, scanned and printed till 78.O4.2O22. Despite the release of the order only on 18.O4.2022, the Respondent in its urgency to mechanically reject the restructuring application of the Appellants, dismissed the restructuring request on !2,O4,2022 itselt, which is 6 days before in the Writ^petition was even released by the Hon'ble High Court. The Appellants have filed an

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appropriate response^{calling upon the Respondent to wait till} the release of the^{orderbeforemechanicallyrejectingthe} restructuring request.^{while the Respondentis completely} aware that the final order^{of the Hon'bleHigh Courtof} Karnataka in Writ^{Petition No.l7766l2o2lin effect has set} aside the notice dated^{76.042021 issued under Section 13(2)} of the SARFAESI Act,^{2002,and the said noticeis no longerin} existence, the Respondent^{has fraudulently affixeda notice} under Section 13(4) of the^{SARFAESIAct, 2002on the} Schedule Properties, with the^{sole intentionof intimidating} Appellants.

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6, Upon service of notice, the Respondent,^{a non-Banking} Financial Institution entered appearance^{throughits counsel} and subsequently filed statement of^{objectionsto the main} application with^photocopies of^{relevant documents markedas} Annexures-R1 to R25, contending that^{considering the request} of the Appellants, the Respondent had^{sanctionedcredit} facilities in respect of various loan^{accountsand disbursed a} total sum of Rs.20,43,85,630/-. Towards the^{repayment of} the said loans as a security, an equitable mortgage^was created by the Appellants by deposit of title^deeds in^respect of the immovable^properties which has been admitted by the Appellants ln^para 5.2 of the appeal memorandum. As^per the terms stipulated in the sanction letter/s and the loan

5.A. No.337l2022

agreements, the Appellants were required to pay the loan instalments punctually and regularly without any default. However, contrary to the terms, the Appellants committed default. In the interregnum, the Appellants have submitted the request for moratorium which ,r,ras granted by the Respondent to the Appellants on 03.O4.2OZO, 06.04.2020 and L4.O6.2O2O respectively. The granting of the moratorium by the Respondent to the Appellants has been admitted in para 5.3 of the Appeal Memorandum. When such being a fact stood thus, on 12.10.2020, the Appellants sent a mail to the Respondent for restructuring the loans. The said mail was replied by the Respondent vide its mail dated 13.10.2020, requesting for the format for making a formal request for resolution plan, and requested the Appellants to print the form, fill, sign and submit it along with the requested documents at the nearest HDFC branch office. It is pertinent to note that, the Appellants were specifically informed that Respondent shall have the right to accept or to reject the request for restructuring. On 02.11.2020 the Appellants sent a request letter with a request for consideration of a resolution plan for restructuring the loans. It could be seen from the request letter dated 02.11.2020 (Annexure-A1O Page 7O-7!), the Appellants specifically agreed as follows;

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'we further agree and^{undertake that invocationof} the resolution and^{implementationof the Resolution} plan in respect of our loan account shall be at^sole discretion of HDFC, and^{shall be subiectto the terms} and conditions of the circular.^{HDFC shall have the} right to assess our^{requestand further shall havethe} right to not to consider the^{request for resolutionfor} such reasons as HDFC may deem^{fit in its sole} discretion. We further^{agree and confirmthat the} date of imptementation^{of the ResolutionPlan shall be} as stated in the^agreement to^{be entered in} connection with the^{Resolutionplan;}

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We fufther agree that in the^{eventof HDFC accepts} our request for invocation of the^{resolutionand} implementation of the Resolution^{plan;the same shall} be based on consideration^{and assessmentof viability} by HDFC of certain^{parameters of eligibility as} represented by us to HDFC, In the^{event any change} in such^parameters; or misrepresentation by^us, HDFC shall, apart from any other right that it^maY have under the Loan Agreement/Facility^Agreement or under applicable law, inter alia, have the^{option to} reject the request for invocation of the^resolution and/or implementation of the Resolution^{plan, and}

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any in principle approval granted to us in this regard shall stand cancelled forthwith without any act on the part of HDFC'

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7, As the request of the Appellants was not viable for consideration for restructuring the loan; the same was rejected by the Respondent and communicated the same to the Appellants orally. Upon rejection for restructuring, the Appellants requested the Respondent for grant of GECL loans. Subsequent to request of the Appellants for granting GECL loans, the officials of the Respondent have co-ordinated with the Appellants and their staff throughout November 2020 and December 2020 to collect the application form, KyC and financial documents so as to login and process GECL proposal. A welcome e-mail about GECL loans was also communicated to the Appellants on 30.12.2020 and 3t.L2.ZOZO. On 27.OL.2O21 a check list for the documents required to be submitted for disbursement of the loans under GECL was also forwarded to the Appellants through mail. Since the Appellants did not come forward and delayed in submitting in the documents for disbursement of the loans under GECL, Respondent once again sent the check list for the submissions of the necessary documents for the compliance of the disbursement of loans under GECL. However, the Appellants did not respond to the mails sent by the Respondent for

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submission of the necessary document/s for compliance of^the disbursement of the loans and GECL. When such beinq a case, again on 01.03.2021 the Appellants sent a mail with a request to exploring the^possibility of sanctioning the loan under Guarantor Emergency Credit Line (for the sake for brevity herein after referred to as'GEcL'). Meanwhile, it was noticed that the Appellants have failed to submit the registered title original documents for balance transfer loan vide loan account number 638269452 availed against immovable^property bearinq Flat No. 1504, 15th Floor, Salarpuria Greenage Apartment, Bommanahalli, Hongasandra, Bangalore within 30 days from the date of loan and there was a contractual breach of the terms and conditions of the sanction letter dated 30.12.2018 which is at Annexure-R7 and other loan documents and conduct of the Appellants transparently showcases seriousness towards voluntary contractual and pecuniary obligations, and further since the dues in the loan accounts of the Appellants have continued to accrue and are outstanding from more than 180 days, the Appellants were communicated that GECL loan cannot be released and called upon them to regularize the loan account immediately vide mail dated 12-03-2027. Despite the above communication, the Appellants did not come forward to pay the outstanding due amount, Subsequently, it came to the notice of the Respondent that the Appellants without the knowledge and

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consent of the Respondent, surreptitiously cancelled the flat No.1504, 15th Floor, Salarpuria Greenage Apartment, Bommanahalli, Hongasandra, Bangalore and fraudulently received the funds from the builder and diverted the said funds into their own use and benefit. As the Appellants committed breach of the terms and conditions of the loan agreement/s and also committed fraud on the Respondent, the loan account was classified as NPA on 31.03.2021 and on !6-04.2021 the Respondent issued a notice under Section 13(2) of the SARFAESI Act and called upon the Appellants to pay the total outstanding due of Rs. 20,4O,69,AgU - within 60 days from the date of notice. The Demand Notice issued in the desired manner as aforesaid, was duly served upon Borrowers, For the abundant caution, the contents of the Demand Notice dated 16.04.2021 were also published in two leading newspapers i.e., New Indian Express dated 30.O4.2021 and Kannada Prabha dated 30.04.2021 and also affixed the copies of the Demand Notice dated 16.04.2021 on the outer door and conspicuous part of the Secured Assets. Instead of discharging the liability due to the Respondent, the 1st Applicant by himself and also through his counsel, Sri M. Srinivas sent an untenable reply on 2O.O4.2O27. fhe Respondent suitably replied by way of its reply dated 04.05.2021. In meantime, the Appellants have also filed a suit against Respondent before Hon'ble City Civil Judge (CCH-21)

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at Bangalore, in o.5.2539512021^with a^{relief to grant} perpetual injunction against the Respondent from^interfering with^{peacefulpossession} and enjoyment of the^mortgaged properties. However, the Hon'ble Court refused to^grant temporary injunction and subsequently, the said^{suit was} withdrawn by the Appellants. Upon^{issuance of the statutory} notice under Section 13(2) of the Act, the^Appellants approached the Hon'ble^High Court of^{Karnatakain Writ} Petition No.1176612021 with a relief to^{direct the Respondent} to consider the request for restructuring dated^{02.71 2022} and to^provide a written response;^and to^quash the^recall letter dated 05.03.2021 and the notice issued under Section 13(2) of the Act dated f6.O4.2O27 and had obtained ex-parte interim order. In the interregnum; the Appellants sent letters dated 10.02.2022 and 07.O3.2O22 requesting for settlement; as they got intending^purchaser to^purchase the Plot bearing No.14 at Attibele, Bangalore. On 17.02.2022, the Hon'ble High Court of Karnataka^passed an interim order, directing the Appellants to deposit a sum of Rs. 5.00 Crores with the Respondent. However, the Appellants did not bother to comply the said interim order; and the 'conduct' and 'demeanor' of the Appellants clearly demonstrated that they have no respect to the order^passed by the Hon'ble High Court of Karnataka. As the request for restructuring was communicated orally, the Hon'ble High Court vide its order

5.A.No-33712022

dat€d 2a.03.2022 (Annexure-A-21^page 123-126) directed the Respondent to consider the letter dated 20.10.2020 within a reasonable time. When such being a case, the allegation of the Appellants that Hon'ble High Court has set aside the notice issued under Section 13(2) of the Act dated 16.04.2027 is totally incorrect and liable to be rejected. It could be seen from the entire order there is no observation or reference with regard to the measures initiated under the provisions of the SARFAESI Act.

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In furtherance to the order passed by the Hon,ble High Court of Karnataka in WP No.117612021 dated 28.03.2022, as the request for restructuring is not commercially viable for consideration and restructuring of the loans is creditors, prerogative subject to versatile a condition precedent the same has been rejected by the Respondent by narrating the reasons vide its letter dated f2.O4.2022. In response to the said letter dated 72-04.2022 the Appellants on tg.O4.2O2Z issued a reply with baseless allegations and the same has been duly replied by the Respondent vide its letter dated 22.O4-2022 and requested the Appellants to discharge their liability. Despite communication of the reasons for rejection of the objections, the Appellants did not come forward to discharge the liability and thus, the Authorized Olficer of the Respondent, by exercising the power conferred under Rule

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B(1) of the Security^{Interest(Enforcement)Rules 2002,has} taken the Symbolic and^{Physical Possession of Secured Assets} on 13.05.2022 by delivering the^{PossessionNotice dated} 73.o5.2022^prescribed as nearly^{as possible in Appendix-Iv to} these rules to the Borrowers/Appellants^{and also by affixlng} the Possession Notice on the outer^{door/conspicuous part of} the Schedule Properties. In^{complianceof Rule 8(2) of} Security Interest^{(Enforcement)Rule, 2002,the Possession} Notice dated 13.O5.2022 as referred in Sub-Rule^{(1) was also} published in two leading newspapers viz, New Indian Express and Kannada Prabha dated 77.05.2022- The^Applications themselves have^produced the^Possession notice^dated 13.o5.2022 (Annexure A-25 to A-27) before this Tribunal. When such being a case, the allegations the Appellants that the Respondent violated Rule 8(1)(2) of SIE Rules is false and baseless. In light of foregoing contentions and^grounds, Respondent Bank sought for the dismissal of the appeal memorandum with exemplary costs, in the interest of^justice and equity.

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On the above background, I have^gone through the available records and heard arguments addressed by Learned Counsels appearing for both the sides and their written arguments. The following^points arise for my consideration:

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(a) Whether the Appellants/Borrowers have made

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out the case to allow the appeal? and

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(b) To what relief, the parties are entitled?

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REASONS

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After hearing the Learned Counsels for the parties and on perusal of the materials available in the records, it is seen that admittedly the Appellant side have availed various credit facilities for a total sum of Rs.20,43,85,630/-. It also appears that there is no dispute in respect of the creation of the mortgage with regard to the property in question in favour of the Respondent Bank towards credit facilities availed. However, there is default in the repayment of the loan amount. The Appellant side admitted that loan amounts were sanctioned in the year 2019 and initially, they were paying the EMIS on regular basis. But, due to COVID-1g pandemic situation, the Appellants opted for moratorium granted by Reserve Bank of India. After the moratorium period, the Appellants sought for restructure of their loans, which was considered by the Respondent Bank. The complaint of the Appellants that their loans are not being UJ,LO restructured is factually wrong since it is ^^*, the Respondent Bank who has lent moneys to recover their outstanding loans from the borrowers in the manner known

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to Iaw at appropriate^{tlmeand that cannot be ground for the} Appellants to^{escape their liability.Of course,it is noneof the} business of the^{Appellantsto raise such issueswithout first} making repayment^{of theirdues to the Respondent Bank'} The Appeltants^{being themselvesdefaulters cannot ask for} restructuring of the^{loanaccountssincethey themselves} have violated the^{terms and conditionsof the sanctioning of} the toans. Moreover, it^{is prerogativeof Respondent Bank to} restTucture the^{loan. As the loan accounts continued to be in} default of more^{than six months,it resultedin classification} of the accounts^{as non-performing assetsSince the} restructuring of the^{loanswas not possible, theRespondent} Bank rejected^{the same, but Respondent Bank officialshave} coordinated^{with the Appellantsfor granting of loans under} GECL^{proposal. A welcome mail was also sent to the} Appellants seeking^{thenecessarydocumentsfor} disbursement of^{such loans.Interestingly,the Appellantsdid} not come forward^{and delayed in submittingthe required} documents,^{resultingin failure of the disbursementof the} said loans. Further,^{the Appellants have failed to submitthe} registered title^{originaldocumentsof the Flat No.1504, 15th} Floor, Salarpuria^{GreenageApartment,Bommanahalli,} Hongasandra, Bangalore^{and as such, there wasa} contractual breach of^{the terms and conditions of the} connected sanction^{letter.Although,the Appellants had given}

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undertaking to submit such documents within 30 days; they have failed to do so, despite reminders issued by the Respondent Bank. Since, the dues in the loan accounts of the Appellants continued to accrue, and remained outstanding for more than six months, the Respondent Bank intimated the Appellants that such GECL loans cannot be released and called upon them to regularize the loan account, But, the Appellants did not come forward to pay the outstanding due amount. Surprisingly, the Appellant side had cancelled the above-mentioned flat and after receiving the funds from the builder had diverted such funds for their own use and benefit and this aspect of the matter clearly reveals that there was a breach of the terms and conditions of the sanction and also there seems that it was a willful default on the part of the Appellants to repay the loan amount as well as the mischief caused by the Appellants in cancelling the flat in question. In view of such irregularity, breach of contract contrary to the terms of sanction and non-submission of the tiue deeds as stated above, resulted in classification of the loan accounts as non-performing assets. The documents produced by the Respondent Bank clearly show that there was breach of contract, the mischief played by the Appellant side and the irregularity in repayment of the loan amount. So far the classification of the loan account is concerned, it is the internal mechanism of the Respondent Bank which is

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governed by the^{guidelinesissued by the RBI In this respect,} the Appetlants cannot^{raise questlon relating tothe} classification of the^{account as non-performing assetunder} the^provisions of^{the SARFAESIAct. Subsequentto the} classification^of the^{loan accountsas non-performingassets} on 31.03.2021,^{the RespondentBank issueda noticedated} 76.O4.2021under^{Section13(2) of the Act and the same was} sent to the^{Appellantside by RPAD as per the receipts} produced by the Respondent^{Bank. Annexure-R1o shows the} copy of the^{demandnotice dated 16.04'2021 along with} postal receipts and receipts of^{acknowledgements madeon} behalf of the^{Appellants. However, as an abundantcaution,} the demand notice^{was alsopublished in two leading} newspapers i.e. "The^{NewIndianExpress", English daily and} in "Kannada Prabha",^{KannadaEdition,bothdated} 30.o4.2O21 and^{RespondentBank also affixed the demand} notice on the conspicuous^{part of the secured assetand the} same would be^{evidentfrom Annexure-R11.As such,the} Respondent Bank^{has establishedthat there was fulflllment} of the^{procedure as required under law with regardto service} of demand notice on^{the Appellants. A perusal of the demand} notice would reveal the^{names of the borrower and the co-} borrowers, the loan^{availed as well as the creation of the} mortgage and its^{details. In the said notice,it is also brought} to the notice of the^{borrower, co-boTroweras well as the}

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mortgagor that the Authorized Officer of the Respondent Bank has been exercising powers under Section 13(2) and Section 13(13) of the SARFAESI Act for which Appe ant side was barred from transferring the secured asset or creating any interest or right over the secured asset. In view of the above, the said demand notice produced by the Respondent Bank clearly established that the Respondent Bank has complied with the requirement as prescribed under the SARFAESI Act and Rules. It is admitted fact that the Appellant side has availed the loan in the year 2019 and defaulted in repayment due to COVID-19. As such, Appellant side approached the Respondent Bank for restructuring the loans which was considered, but rejected. The Appellants did not liquidate the liability as per the demand made by the Respondent Bank in the notice under Section 13(2) of the Act within 60 days. Therefore, the Respondent Bank issued Possession Notice dated 73.O5.2022. Annexure-R23 shows the copy of the possession notice dated 13.05.2022 along with postal receipts and receipts of acknowledgements made on behalf of the Appellants. The Respondent Bank has also affixed the Possession Notice on the secured asset as per the photographs produced by the Respondent Bank. Further, the Possession Notice was also published in two leading

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s.A.No.337/2022

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newspapers i.e. "The^{New IndianExpress", English dailyand} in "Kannada Prabha",^{KannadaEdition,bothdated}

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¶167

17.O5.2022 and the^{same would be evident fromAnnexure-} R24. As such, the^{Respondent Bankhas establishedthat} there was fulfillment^{of the procedureas required underlaw} with regard to service^{of possessionnotice on the Appellants'} Apart from the^{above,the Respondent Bank has also} produced proof of registration^{of charge before the CERSAI} as required under^{law underSection26-D of theSARFAESI} Act. Thus, it seems^{that the RespondentBankhas} established due^{compliance of the provisions ofthe} SARFAESI Act and^{the rulesmade thereunder' On the other} hand, there is^{nothing to show that there is any discrepancy,} violation of any irregularity^{in issuing, publishingand pasting} of the Possession^{Notice dated 13.05'2022under Section} 13(4) of the Act. In^{that view of the matter, this Tribunalis} of the view that the^{measurestakenby the Respondent Bank} are in accordance with^{the SARFAESI Act and the procedures} as mandated under the^{law. Such being the position,the} demand notice dated^{L6.O4.2O2[and the Possession Notice} dated 13.f2022 under^{Sections13(2) and 13(4) of the Act} ! respectively are held to^{be validand the samewere issued by} the Respondent Bank in^{accordancewith the procedureas}

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S.A. No.337/2022

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mandated under the SARFAESI Act and the Rules made

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thereunder. Resultantly, the appeal is liable to be dismissed.

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Accordingly, I pass following:

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ORDERS

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In the result, S.A.No.337/2022 is dismissed.

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Interim order, if any, stands vacated.^pending IAs, if any, also stand closed.

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There will be no order as to cost.

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(Dictated to the Stenographer, after its transcription and necessary corrections, signed and pronounced by me in the Open Court on this the 19th day of May 2023)^-

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\1,^bqj (rMTrAt ALr) PRESIDING OFFICER DRT-f, Bengaluru

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{rash*

Mr Bagilthaya Subramanya v. Housing Development Finance Corporation Ltd.

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Mr Bagilthaya Subramanya v. Housing Development Finance Corporation Ltd.

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