Dismissed

B Bhagyalakshmi v. Ikf Home Finance Limited

DRT6 Jan 2023SA/37/2022

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal dismissed an application seeking to set aside SARFAESI enforcement measures, ruling that the loan agreement was valid, interest rates were not court-judicially reviewable under Section 21A, and the secured creditor followed due procedure in taking possession.

What did the court decide?

The Securitization Application and all connected interlocutory applications seeking redelivery of possession or stay on auction were dismissed.

B Bhagyalakshmi versus Ikf Home Finance Limited — Company and Corporate | DRT (2023)

¶1

IN THE^{DEBTSRECOVERYTRIBUNAL-IIATHYDERABAD} DATED THIS^{THEO6THDAYOF JANUARY' 2023}

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PRESENT:^{SH. RAMESHWARKOTHE' B'com' L'LB'(Hons')' M'A'} PRESIDING^OFFICER

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Securitization^{ApplicationNo'37OF 2022}

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(Along with IA^{Nos.1658& 1659 of 2022 and IA No'BB9/2022)}

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Smt. B.^{BhagYalakshmi} W/o Sri^{B. Hanumantha Rao} Aged about⁴⁷ Years Occupation:^Business R/o H.No.2-5-40/2lA KummariBasthi,^MachaBolarum Secunderabad-S00⁰¹⁰

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.......Applicant.

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Versus

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IKF Home^{Finance Limited} Reo bv its^{Authorized Officer} 1'r Floor,^{#6-3-902/A,Plot No'1} Near Yashoda^{Hospital,Central Plaza} Raj Bhavan^Road Hyderabad-SOO⁰⁸²

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.......Respondent.

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Counsel for^{the Appticant :Mr' T' PoorrnaChanderrRao} Counsel forRespondent^{:Mr' Abhay Singh}

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.: Q-B-D-E-B:.

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The ApplicantFiled the^{present Securitisation Applicationuls't7 of} the Securitization and Reconstruction of^{Financial Assets and} Enforcement of Security Interest^{Act, 2002 (hereinafter "the Act"} for short)to set asidethe measures taken by the^{respondentfor} taking physical^possession of the application^{schedule property} A"y-**la'\

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Page 2 of 14

SA No.37 of 2022

on 08.02.2022 through Advocate commissioner vide orders obtained in Crl Mp No.3O7 of ZO2L on the fite of learned Chief Metropolitan Magistrate, R.R. District at L.B. Nagar; pursuant to possession notice dated 03.ll.ZOZI under Rule B(1) of the security Interest (Enforcement) Rures, 2002 ('.hereinafter,,the Rules" for short)and demand notice dated 04.0g.2021 under sec.13(2) of the Act and to rederiver the apprication schedure property.

¶17

2, The averments of the application, in brief, are that the applicant along with two others viz., B. Gangadhar and B. Hanumantha Rao availed loan of Rs.23 lakhs on 30.03.2018 which is secured by way of mortgage of application schedule property. No notice of demand was given before initiating the proceedings, either Arbitration or SARFAESI proceedings. The respondent independenfly obtained Arbitral Award dated 24.06.20tg for a sum of Rs.27,09,761l- with interest @1Bo/o p.a. from 01.06.2018 till date of Award and the said Award is under chailenge before the learned Chief Judge, City Civil Court, Hyderabad. Although obtained Arbitrar Award, the respondent issued demand notice dated 04.08.2021 u/s t3(2) of the Act for Rs.40,52,467/_ which include other charges of Rs.6 rakhs folrowed by possession notice dated 03.11.2021. Classification of NpA was never informed before issuance of demand notice. The respondent charged high rate of interest and costs. Capitalization of interest, penal interest etc., that are not included in the contract, is against guidelines issued by the RBL The respondent took physical possession through advocate commissioner on 08.02.2022 in pursuance of order obtained in Crl.MP No.307 of 2O2l on the fl]e of learned

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Page 3 of 14

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SA No.37 of 2022

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Chief Metropolitan Magistrate,^{LB Nagar,Cyberabad,Ranga} Reddy District and notified the^{physical possessionby writing on} the outer walls.Aggrieved by^{the Securitizationmeasuresinitiated} by the respondent, the applicant^{approachedthe Hon'bleHigh} Court by filing WP^No.33524 of^{2O2L and vide order dated} !3.t2.2021 the Hon'ble High Court^{granted liberty to approach} the Tribunal. Hence this SA.

¶21

The submissions of the respondent, as^{per reply statement,} briefly are that the borrowers agreed to^{pay loan amountalong} with interest @18o/o^p.a. with^{monthly rests under agreement of} loan dated 30.03.2016. Since they defaulted^{in payment of EMIs} as per agreed terms, the respondent^{recalledthe entire amount} of Rs.27,09,76L1'with interest and^{proceededto file claim} statement before the Arbitrator and Arbitral^{Award was passed} on 24.06.2019. The respondent also^{initiatedSARFAESI} proceedings by issuing demand notice dated 04.08.202t^{and the} same was served on applicant, affixed on^{securedassetand} published in two newspapers. Symbolic^possession of^secured asset was taken vide^{possessionnotice dated03.tL.202L,} published in two newspapers and affixed on secured asset as^per rules. Thereafter, took^{physical possession} of^{secured asseton} 08.02.2022 through advocate commissioner in^{pursuance of} order of learned CMM, LB Nagar.^{No facts were suppressedin the} application filed u/s 14 of the Act before the^learnedCMMas alleged. The applicant returned the Rule 8(6)^{notice prior to sale} dated 10.02.2022. The^proposed auction on^{04.04'2022 was not} conducted in view of orders of the Hon'ble High Court^{in WP} No.11163 of 2022 dated 03.03.2022 filed by the applicant^after ( firy(.;vi,,' E.'

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Page 4 of 14

¶23

SA No.37 of 2022

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filing SAIR 168 of 2022 before this Tribunal. However, the applicant did not comply the conditional order passed by the Hon'ble High Court and the WP No.11163 of 2022 was disposed of on 03.03.3022.On|y on^perusal of material documents of SA the respondent came to know that the applicant addressed a letter dated 08.09.2021, however the alleged letter was never received by the respondent. There is no pleading about this letter in the SA. The respondent lawfully initiated measures against the secured asset. The SA is liable to be dismissed.

¶25

The applicant filed rejoinder, inter-alia, submitting that no loan agreement dated 30.03.2016 was executed, The loan agreement with notary stamp dated 28.03.2019 does not disclose about the loan amount, rate of interest, tenor of loan etc., but the loan sanction letter dated 26.03.2018 discloses those particulars. The memorandum of deposit of title deeds discloses only the loan sanction amount. She could deposit Rs,3.30 lakhs towards compliance of conditional order of the Hon'ble High Court, This fact was suppressed by the respondent bank however, on filing IA No.889/2022 for redelivery of possession, this fact came to light. If the possession is not delivered and compensation of Rs.23 lakhs is not awarded, the applicant would be put to irrepa ra ble loss.

¶26

5. IA No.1658/2022:

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This interlocutory application was filed seeking amendments to the SA pleadings and prayer. The averments of this petition are, pending the SA, the respondent issued sale notice dated 17.17.2022 for the sale of SA schedule property on 09.t2.2022.

Page 5 of 14

5A No,37 of 2022

6. IA No.1659/2O22:

This interlocutory application^{was filed seekingstay of scheduled} auction of the SA schedule^{propertyon 09.72.2022pursuantto} sale notice dated t7.11.2022.

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7. IA No.889/2022:

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This interlocutory application was^{filed seeking redeliveryof} physical possession of SA schedule^property taken by^the respondent through advocate^{commissloner on 08.02.2022 on} the^ground that she complied^{the conditionalorder of the Hon'ble} High Court. The respondent filed^{counter and opposed for grant} order of any interim redeliverY.

¶34

B. Heard learned counsels appearing^{for the applicantand} respondent. Perused the written arguments^{filed by the applicant} and the material documents^{brought on record.}

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The learned counsel for^{the applicantwhile reiteratingaverments} of the application and^{rejoinder, submitsthat the rate of interest} is not mentioned in the demand^{notice dated 04'08.2021and} demanded amount of Rs.40,52,467l-^{thereinis excessive against} the provisions. The^{provisions of Chapter III of the SARFAESIAct} empowers secured creditor to enforce^{security interestunder} Sec.13(4) i.e., the^{secured creditorhas to enforcesecurityin} terms of contract of loan, creation of^{security interest,NPA} classification, secured debt, registration of^{securityinterest etc.} As per Sec.106 of the Indian^{EvidenceAct, the burden of proving} the fact falls on the^person who^{has knowledgeof the fact'The} applicant two demand drafts of^{Rs.1,65,000/-eaph towards} OY*

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Page 6 of 14

¶37

SA No.37 of 2022

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compliance of conditional order passed by the Hon'ble High Court in WP No.11163 of 2022 to pa\ l5o/o of dues and this amount was paid calculated on the dues as quantified by the respondents i.e., Rs.22,07,288/- plus interest. According to Sec.26-D of the SARFAESI Act, no secured creditor shall be entitled to exercise the rights of enforcement of securities unless the security interest has been registered with the Central Registry but the respondent bank has not established any proof of such registration. The learned counsel emphasised that as the loan agreement dated 26.03.2018 does not disclose the loan amount, rate of interest etc., and it displays notary stamp dated as 28.03.2019, it is not a 'security agreement'as per Sec.2(zb) of the Act. The respondent is enforcing the security basing on sanction letter against provisions of law. The learned counsel refers to the Usurious Loans Act, 1918 with regard to'interest','loan', and,reopening of transactions' and submits that the Tribunal has ample power under Sec.34 of the SARFAESI Act to deal with the same.

¶39

It is further submitted that in the application filed under Sec.14 of the Act before the learned CMM, the authorized officer did not mention the necessary particulars such as reasons for taking physical possession, amount of financial assistance, total claim of the bank etc. and wrongly presented the demanded amount under Sec.13(2) as Rs.40,52,467/- as on 27.07.2021 whereas the claim should be Rs.22,07,288/- as on 12.II.2021.

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11, The further contention is that as per Sec.35 of the Arbitration and Conciliation Act, 1996 an arbitral award shall be final and binding on the parties and person claiming under the respectively. The

/W*

Page 7 of 14

SA No.37 of 2022

panchanama contains blanks writings and it was not drawn on 08.02.2022 in the^presence of advocate^{commissioner.The} inventory was made in respect of movable^{properties whichwere} not secured assets. The fact of compliance of^{conditional order} came to light only when the applicant filed IA^{No.B89of 2022} before this Tribunal seeking direction to^redeliver the^possession. The respondent received the amounts and failed to acknowledge the receipt of letter dated 31.3.2022.

¶45

With the above contentions, learned counsel sought to^{quash all} the measures initiated against the SA schedule^{property and} order for redelivery of^{physicalpossession.}

¶46

The learned counsel for the respondent submitted^{that the} arguments on the similar lines of^{reply statement. He further} adds that Sec.106 of^{The EvidenceAct prescribes that when an} individual has done an act, with an^{intentionotherthan that} which the circumstances indicate,^{the onus of proving that} specific intention falls onto the^{individualand not on the} prosecution. The learned counsel rebuts the contention^{of the} applicant about applicability of^{UsuriousLoans Act, 1918and he} refers to the Sec.214 of the^{Banking Regulation Act. As per the} Section, notwithstanding anything^{containedin the Usurious} Loans Act, a debt between a^{banking company and lts debtor} cannot be reopened on the^{ground of rate of interestchargedis} excessive. The SARFAESI Act is a^{Parliamentaryenactmentand} the provisions of such Act are^{applicable in the adjudicationof} Securitization Appeals such^as the^{present case'The respondent} approached the learned Chief^{Metropolitan Magistrateunder}

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Page 8 of 14

SA No.37 of 2022

Sec.14 of the Act and took physical possession through advocate commissioner appointed by the learned CMM. Moreover, the proceedings under Sec.14 do not involve any adjudicatory process, The applicant was very much present during the proceedings. The respondent, in its demand notice mentioned the outstanding dues as Rs.40,52,467l- and accordingly the applicant ought to have make payment of l5o/o in compliance of Hon'ble High Court's order. There is no truth in stating that two demand drafts and letter were furnished and that the respondent did not issue any response to their letter. The applicant is not entitled for redelivery of possession.The learned counsel placed reliance on the following^judgements in support of his submissions:

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(i) Hon'ble Supreme Court in Sabitri Samantaray vs, State of Odisha in Criminal Appeal No.B60 of 2022 (Arising out of SLP (Crl.) No.3BB1 of 2017 decided on 20.05.2022;

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( ii) Hon'ble Supreme Court in Jayant Verma &Ors, Vs. Union of India &Ors, in Writ^petiton (Civil) No.134 of 2013 decided on 16.02.2018;

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( iii) Hon'ble Supreme Court in Balkrishna Rama Tarle Dead Thr LRs &Anr vs. Phoenix ARC private Limited &Ors. in Special Leave Petition No.16013 of 2022 decided on 26.09.2022;

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(iv) Hon'ble Supreme Court in M/s Transcore vs. lJnion of India &Anr in Appeal (civil) No.3228 ot 2006 decided on 29.11.2006;

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(v) Hon'ble Supreme Court in Bank of Baroda vs, M/s Karwa Trading Company & Anr.in Civit Appeal No.363 of 2022 decided on 10.02.2022; and

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Page 9 of 14

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SA No.37 of 2022

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(v i) Hon'ble Madras High Court in M/s Lakshmi Shankar Mills (P) Ltd &ors. vs. The Authorized Officer/Chief Manager, Canara Bank, Madurai &Ors. in WP Nos.3714B & 37534 of 2007 decided on 15.04.2008.

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l-4. Now, the points that arise for consideration are;-

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(i) Whether the applicant establishes any valid ground for quashing measures initiated by the respondent against the SA schedule property under the provisions of the SARFAESI Act and for redelivery of physical possession?

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(ii) To what relief?

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Point No.(i):-

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I have perused the material documents placed on record by both the parties. The sanction letter is dated 26.03.2018 placed at^pages 33 and 34 of material documents filed along with reply statement. It clearly indicates the loan amount as Rs.23,00,000/, rate of interest as Rs.18o/o p.a. variable along with other details as well as terms and conditions. The applicant and two others signed on the two-page sanction^letteras acceptance of the contents and terms and^{conditionsof the} sanction letter. As^per the 'other conditions'^{column of the} sanction letter, the loan was a^{takeoverone from other} financiers and loan sanction was subject to^{proof of closureof} miscellaneous loans. Presumably, after^{compliance,the loan} agreement was executed on^{29'03.2018on Rs'200NJ stamp} paper between the respondent and applicant and two other^co- borrower/guarantors. Article 1^(e) of the^{loan agreement} describes'agreement' as Follows: fr(,>

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Page 10 of 14

¶65

SA No.37 of 2022

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"Agreement means this agreement and all^other annexures and attachments to this agreement including Application, Modification, Schedules, Letters, Undertakings, Supplementary Agreements etc., as may be executed between the^parties"

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The sanction letter being such annexure, executed^{preceding to} loan agreement, forms^part of the loan agreement. In^{view of} these documents, the applicant cannot^plead that^non- mentioning of loan amount invalidates the^loan agreement^and that such agreement is not a'security agreement'as^per Sec,2(zb) definition, I find that the loan agreement^dated 29.03.2018 is a valid'security agreement'for^enforcingthe security interest by the respondent.

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t7. The rate of interest is 18o/o p.a. variable as^per sanction letter and as per clause 2.6 (b) of the loan agreement, delay in payment would attract rate of interest @360lo p.a. or at such revised rates as decided by the creditor which was agreeable to the applicant in view of her executing the document. Sec.21A of the Banking Regulation Act reads as hereunder:

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"[21A. Rates of interest charged by banking companies not to be subject to scrutiny by courts.- Notwithstanding anything contained in the Usurious Loans Act, 1918 (10 of 1918), or any other law relating to indebtedness in force in

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any State, a transaction between a banking company and its debtor shall not be re-opened by any court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive.l"

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In view of the above provision, it is clear that it is not open to the courts to entertain any dispute of indebtedness by a debtor basing on complaint of charging excessive rate of interest. But it

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Page 11 of 14

¶73

SA No.37 of 2022

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is cast upon the Tribunal to oversee whether the secure creditor has followed the procedure contemplated under the provisions of the SARFAESI Act while initiating measures for recovery of secured debt. In this connection, let me reproduce the definition of^'secured debt' as defined under Sec.2(ze) of the Act, as hereunder:

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"(ze) "secured debt" means a debt which is secured by any secu rity interest"

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Sec.13(3) mandates the secured creditor to give details of the amount^payable by the borrower in the demand notice being issued u nder sub-section (2).

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The main controversy is about the amount of liability or the secured debt. The outstanding dues mentioned in the demand notice dated 04.08.202L, possession notice dated 03.11.2021, Rue B(6) notice dated 17.IL2022 and sale notice dated 01.03.2022 is Rs.40,52,467/- which was due as on 27.07.2021, In the application filed before the learned Chief Metropolitan Magistrate, in para 5, the respondent referred to outstanding dues as Rs.40,52,467l- in the demand notice but in^para B said the financial assistance granted and the total claim of the Petitioner Bank as on the date of filing application is mentioned as Rs.22,07,2881- as on 22.17.2021. This amount is nearer to the financial assistance^granted and based on this figure, the Hon'ble High Court^granted conditional stay of further steps and auction of secured asset subject to^payment of^{l5o/o of the said} amount. I am not going into the details of^paymentof Rs.3,30,000/- as compliance but the^{respondent proceeded with}

'/'4''",flr-rg..,

Page 12 of 14

SA No.37 of 2022

auction by issuing sale notice dated^{17.11.2022, sincethe} auction did not take^place for want of bidders.^However,as held by the Hon'ble Supreme Court^{in BalkrishnaRama Tarle} Dead Thr LRs & Anr vs, Phoenix ARC^{PrivateLimited & Ors case} (cited at (iii) supra), Sec.14 does not involve any adjudicatory process. The respondent also issued a letter dated 26.08.2022 addressed to the applicant^providing details, at^{her request,of} outstanding dues i.e., Rs.49,44,774l- for^{prepaymentoF loan} account. All the above inquiry, lead me to conclude that^the outstanding amount due is what is mentioned in the^demand notice dated 04.08.202t.

¶82

2r. As per material brought on record, it is observed that the demand notice dated 04.08.2021 was issued under Sec.13(2) of the Act demanding the applicant and co-borrowers to^pay outstanding dues of Rs.40,52,467l-^payable as on 27,07.2021, within 60 days from the date of notice which was served on the applicant and co-borrowers on 05.08.2021 by registered^post and was published. The possession notice dated 03.11.2021 was also received by applicant through registered post on 06.17.202t, affixed and published in two newspapers. The respondent placed on record the panchanama and inventory list with the signatures of advocate commissioner prepared while taking physical possession on 08.02.2022 in pursuance of order of learned Chief Metropolitan Magistrate in Crl.MP No.307 12021. In view of these documents, I find that there is no infraction of procedure contemplated in the provisions of the Act and the Rules, 2002 by the respondent in issuing demand notice, possession notice and taking physicul ,ossession.ifu.,>>

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Page 13 of 14

¶84

SA No.37 of 2022

¶85

Admittedly, the Arbitral Award granted on 24.06.2019 by the learned Sole Arbitrator for Rs.27,09,761/- is under challenge in OP No.25 of 2021 on the file learned Chief Judge, City Civil Courts, Hyderabad. Hence, there is no finality of the Arbitral Award as on date.

¶86

With regard to the submission of registration of security with Central Registry under Sec.26-D of the Act, the learned counsel for the respondent took specific objection that the same cannot be considered without original^pleading which is true,

¶87

The applicant moved two interlocutory applications IA No.1658/2022 for amendments^pertaining to sale notice dated t7.LL.2022 fixing auction on 09.12.2022 and IA No.t659/2022 for stay of the same. These two applications are taken up with the SA. As endorsed by the respondent on the stay^petition IA No.1659/2022 dated 07.12.2022 that no bidders^{participated,} these two interlocutory application need no consideration and accordingly liable to be dismissed as infructuous.

¶88

In view of the foregoing discussion, I find that the applicant failed to make out any valid^ground to^quash the^measures undertaken by the respondent under^{the provisions of the} SARFAESI Act and the Rules framed thereunder^{against the} secured asset for realization of secured^{debt and accordingly the} SA is liable to be dismissed. The applicant also^movedIA No.BB9/2022 for redelivery of^{physicalpossessionof the SA}

vfu(*

Page 14 of 14

SA No.37 of²⁰²²

schedule^{property is also taken up along with this SA' The IA} No.889/2022 is also^{liable to be dismissed as no breach of Rules} found in taking^{physicalpossession as observedsupra'}

¶93

Point No.(ii):

¶94

In the result,^{The Securitization Application is dismissed'}

¶95

The Interlocutory^{Application Nos.BBg/2022, 1658/2022and} 165912022 are dismissed.^{As a sequel to dismissalof SA, pending} Interlocutory Applications^{if any, shall also stand closed'No} order as to costs.

¶96

28, Communicate^{a copy of this order to the parties concerned'}

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(Dictoted to the Ps, trdnscribed by^{him, corrected, signed ond pronouncedby me in theopen} court on this the 06thdoy^{of Jonuory, 2023).}

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,flwr^__ ^ u'6,ou' (RAMESHWAR KOTHE) PRESIDING OFFICER

B Bhagyalakshmi v. Ikf Home Finance Limited

Case brief

What is this about?

What did the court decide?

B Bhagyalakshmi v. Ikf Home Finance Limited

Case brief

What is this about?

What did the court decide?

What the court decided

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