Dismissed

Deva Matha Rock Products v. Hero Fincorp Ltd.

DRT19 Jun 2023SA/480/2022

Case brief

AI extract

What is this about?

The Debt Recovery Tribunal dismissed the applicants' securitisation application challenging the issuance of a possession notice under the SARFAESI Act. The Tribunal held that the debt assignee was deemed the lender under Section 5, no fresh Section 13(4) notice was required before Section 14 application, NPA classification was valid, and tenant lease documents were unregistered.

What the court decided

AI extract

Deva Matha Rock Products versus Hero Fincorp Ltd. — Company and Corporate | DRT (2023)

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Fair Order

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IN THE DEBTS RECOVERY TRIBUNAL - 1 AT ERNAKULAM

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DATED THIS 19^th DAY OF JUNE, 2023

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PRESENT: Su. WILLYAHM, B.Sc., M.L. [DISTRICT JUDGE - Retd] PRESIDING OFFICER

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S.A No. 480 of 2022

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Between

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M/s Deva Matha Rock Products, A Partnership Firm, Registered office at Odakkaly, Asamannor P.O., Perumbavoor, Pin-682035, Ernakulam District, Represented by its Managing Partner Leela Joseph.

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Nellimattathil Daniel Joseph, S/o Nellimattathil Mathai Daniel, Nellimattathil House, Ayurveda Junction, Thiruvamkulam P.O. -682305, Thiruvamkulam, Ernakulam Dist.

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Leela Joseph, D/o Thadikkaran Kuriakose Abraham, Nellimattathil House, Ayurveda Junction, Thiruvamkulam P.O. -682305,

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Thiruvamkulam, Ernakulam Dist.

--- Applicants

SA No.480 of 2022

And

M/s Hero Fincrop Ltd. Registered office at 34, Basant Lok, Vasant Vihar, New delhi-110 057, Represented by its Authorized Officer, No.12, 3^rd Floor, Incubex Nestevera, Longford Road, Longford Town, Shanthinagar, Banglore-560025.

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India Resurgence ARC Pvt. Ltd. 32^nd Floor No.1133, 100 Feet Road, Hal 2^nd Stage, Indira Nagar, Banglore, Karnataka-560038, Represented by its Authorized Officer.

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--- Defendants

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This S.A. coming on 11.05.2023 for hearing before me in the presence of Mr. N.K. Mohanlal, Advocate for the Applicants and Mr.Girish R., Advocate for the defendants and upon hearing arguments of learned counsels for all the parties and upon perusing the material on records, this Tribunal delivered the following:

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O R D E R

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This Securitisation Application was filed on 07.10.2022 seeking to call for the records leading to issuance of Annexure-A3 notice and set aside the same being illegal, improper and vitiated by procedural irregularity and on-compliance of mandatory requirements contemplated under the SARFAESI Act and Rules there under and to pass an order declaring that the action taken by defendants U/s 14 of the SARFAESI Act, to take physical possession of secured asset consequent to Annexure-A1 demand notice is legally unsustainable for non-compliance of mandatory provisions under SARFAESI Act and Rules there under.

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The averments of the applicants in the SA in brief are as follows:

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The applicants as partners of the 1^st applicant firm were granted a loan to the tune of Rs.2,80,00,000/- on 29.01.2016 by the

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Page 2 of 11

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SA No.480 of 2022

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1^st defendant. The applicants handed over sale deed No.3862 of Thripunithura SRO with respect of 6.79 cents of land with a four storied building comprised in resurvey No.410/5 in Block No.10 of Thiruvamkulam village owned by 1^st applicant.

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The applicants repaid 40 monthly installments amounting to Rs.1,63,94,120/- to the 1^st defendant financial institution till 8.6.2019 without default and thereafter made irregular payments to loan account. The applicants could not continue the business due to the non-availability of the granite stone as the quarries were stopped due to the restrictions imposed in mining of granite by the Government on the basis of the judgments of Green Tribunal and Hon’ble Supreme Court. The 1^st defendant classified the loan account as NPA on 6.10.2019 and issued demand notice U/s 13(2) of the SARFAESI Act dated 22.10.2019, Annexure-A1 to the applicants for payment of Rs.2,47,24,894.65.

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The applicants sent their objections to the demand notice dated 15.12.2019, Annexure-A2 to the 1^st defendant stating the reasons for the default in repayment of the loan. Actually the applicants remitted a total amount of Rs.1,71,36,008/- till 14.10.2019 to the loan account. The applicants requested for reasonable time that was not afforded by the 1^st defendant. Apart from the aforesaid objections the applicants also raised serious irregularities in the loan account for charging unreasonable rate of interest in addition to the agreed rate. The 1^st defendant had charged 24% penal interest over and above the agreed rate of 12.5% per annum and also 18% as foreclosure charges on the outstanding principal amount as demanded in Annexure-A1 notice.

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The 1^st defendant sent a letter dated 27.12.2019 demanding payment of amount outstanding without considering the objections of applicants. Thereafter on 27.09.2022 three persons along with Advocate Commissioner appointed by the Additional Chief Judicial Magistrate Court, Ernakulam came to applicants’ house and issued a notice, Annexure-A3 stating that the schedule properties will be taken possession after 14 days from the date of notice. The applicants were not served with any possession notice U/s 13(4) of the SARFAESI Act till such date no notice of proceedings as M.C. No.333/2020 before Addl. CJM Court, Ernakulam was issued to applicants. The applicants then obtained a certified copy of MC No.333/2020 from the Addl. CJM Court, Ernakulam and from the said petition only the applicants realized that the 1^st defendant had assigned the loan to 2^nd defendant

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SA No.480 of 2022

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for consideration pending the M.C and that the 1^st defendant is no more having any claims against the applicants. Hence the 2^nd defendant is now raising claims against the applicants and the secured asset. The applicants learned that the 2^nd defendant is not a secured creditor as defined under Section 2(1) (zd) of the SARFAESI Act, 2002. Hence the 2^nd defendant is not entitled to proceed against the applicants under the provisions of SARFAESI Act and the action taken at the instance of 2^nd defendant to proceed with the order obtained from Addl. CJM Court, Ernakulam is illegal and unsustainable. The 2^nd defendant purchased the loan from the 1^st defendant without any notice to applicants and the 2^nd defendant without issuing any demand notice to applicants have no right to proceed against applicants on the basis of Annexure-A1 notice.

¶31

The secured asset is the property where the applicants are residing with family and applicants have no other building of their own to shift their residence. Apart from that the building situated in the property is a four storied building of which the 1^st applicant had rented out the fourth floor and the terrace portion of the building in 2005 that was renewed on 24.12.2015. The true copy of the above Lease agreement is produced herewith as Annexure-A4. The 3^rd floor of the building was also leased out to an educational agency conducting classes there from 2013 onwards. The 1^st defendant is well aware of the occupation of the part of the building by tenants even at the time of sanctioning the loan and no notice to the tenants were given by the 1^st defendant till this date. Hence the action on the part of 2^nd defendant to take possession of the property of applicants is illegal.

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The 2^nd defendant ought to have served possession notice U/s 13(4) of the SARFAESI Act to applicants before proceeding to take possession of the property U/s 14 of the SARFAESI Act. Hence the applicants are highly aggrieved by the action taken by the defendants and is constrained to file this appeal.

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The defendants came on record and filed Written Statement inter-alia contending as follows :

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The above SA is not maintainable either in law or on facts. The averments in para 1 of the SA is admitted as the defendant Finance Company had advanced a loan amounting to Rs.2,80,00,000/- to applicant. He had deposited the title deed, executed loan agreement and connected documents.

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Page 4 of 11

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SA No.480 of 2022

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It is true that the defendant had issued, A1 notice u/s 13(2) to the applicant after duly complied with the provisions under the SARFAESI Act. It is not true that the defendant had charged unreasonable rate of interest in addition to the agreed rate. The defendant had charged only the agreed rate of interest.

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The averments in para 4 and 5 is totally false. The defendant had filed M.C before the ACJM Court after having complied with the provisions of the SARFAESI Act. The defendant bank had made an assignment deed with the 2^nd defendant. Thereafter, the 2^nd defendant has the legal right to proceed with the recovery proceeding against the borrower. It is not necessary to issue notice u/s 13(4) of the SARFAESI Act, before the proceedings u/s.14 of the Act.

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After the assignment of debt with 2^nd defendant the recovery measures initiated against the borrowers/applicant will continue from the stage it was left at the time of assignment and the assignee can pursue the further steps. Sec.5 and 6 of the SARFAESI Act, are squarely applicable to 2^nd respondent and sections envisages that on acquisition all right, title or interest; shall vest in the Asset Reconstruction Company.

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The lease agreement is not a registered one and it is only a fabricated and sham document, it is also admitted by the defendant that, the lease is continuing beyond eleven months also. Therefore, the defendant has not complied with the statutory obligation as per the T.P. Act.

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The averments in para 6 and 7 are totally false. The grounds stated in the Application are not maintainable either in law or on facts. Therefore, this Hon'ble Tribunal may be pleased to dismiss the above SA with cost.

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The point arising for consideration is as to whether the applicants are entitled to get the reliefs sought for in this S.A.

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Point: The applicants 2 and 3 are the partners of the 1^st applicant firm. The availment of credit facility to the tune of Rs.2,80,00,000/- on 29.01.2016 from the 1^st defendant Bank upon creation of security interest over the applicants’ property measuring 6.79 cents with a four storied building comprised in Re-Sy. No.410/5 in Block No.10 of Thiruvamkulam village has been admitted by the applicants in the SA, default in repayment of the outstanding loan due

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SA No.480 of 2022

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has also been admitted by the applicants in the SA. Hence the loan account of the applicants came to be classified as Non-performing asset on 15.12.2019 as averred by the applicants in the SA. Demand notice dated 22.10.2019, Annexure-A1 was served to the applicants calling upon them to repay the outstanding loan due within the period of 60 days from the date of receipt of the notice. Admittedly, the applicants did not respond to the terms of the demand notice.

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The applicants have produced copy of objection, Annexure-A2 contending that they sent objection to the 1^st defendant on 15.12.2019 raising serious irregularities in the loan account and also charging exorbitant rate of interest. The applicants have averred in the SA that the 1^st defendant sent letter dated 27.12.2019 demanding payment of the outstanding amount without considering their objections but the applicants have not produced the copy of the letter dated 27.12.2019 so as to enable this Tribunal to find out as to whether the objections of the applicants had been considered or not.

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The counsel appearing for the applicants submitted that the applicants were not served with possession notice, under Section 13(4) of the SARFAESI Act, 2002 and that notice of proceedings in M. C. No.333/2020 on the file of the Additional Chief Judicial Magistrate Court,, Ernakulam was also not issued to the applicants and that the applicants came to know of the assignment of debt to the 2^nd defendant only after they had obtained the certified copy of the petition filed in the above M.C. No.333/2020 and that assignment of debt was not informed to the applicants and that since debt has been assigned to the 2^nd defendant, the 1^st defendant is not having any claims against the applicants and that the 2^nd defendant is not a secured creditor as defined under Section 2 (1) (zd) of the SARFAESI Act, 2002 and that therefore, the 2^nd defendant is not entitled to proceed against the applicants under the SARFAESI Act, 2002 and that therefore, the action taken under Section14 of the SARFAESI Act, 2002 at the instance of the 2^nd defendant is illegal and unsustainable and that classification of loan account as NPA without completion of 90 days is unsustainable and that the 1^st defendant is aware of occupations of the part of the building by the tenants even at the time of sanctioning of the loan and that but notice was not served to the tenants and that therefore the action on the part of the 2^nd defendant in taking possession of the property is illegal.

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The counsel appearing for the defendants submitted that since the applicants failed to repay the outstanding loan due the loan

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SA No.480 of 2022

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account was classified as NPA as per the guidelines of the RBI and that exorbitant rate of interest has not been charged and that interest has been charged only as per the agreed rate of interest and that since the debt has been assigned to the 2^nd defendant as per the Assignment, the 2^nd defendant has got the right to proceed with the recovery proceedings and that reply to the demand notice was sent by the 1^st defendant and that the applicants have not produced the same along with the SA and that issuance of possession notice under Section 13(4) of the SARFAESI Act, 2002 is not mandatory before filing application under Section 14 of the SARFAESI Act, 2002 and that conditional order passed by the Hon'ble High Court of Kerala in OP DRT was not complied by the applicants and that after assignment of debt with the 2^nd defendant, the recovery measures initiated against the applicants shall continue from the stage it was left at the time of assignment of debt and that the assignee can pursue the further steps as per Section 5 of the SARFAESI Act, 2002 and that the lease agreement Annexure-A4 is not registered one and that it is a fabricated document and that therefore no reliance can be placed upon Annexure-A4 and that the defendants after complying with the provisions of the SARFAESI Act, 2002 filed application under Section 14 of the SARFAESI Act, 2002 before the Addl. Chief Judicial Magistrate Court, Ernakulam and that the SA may be dismissed with costs.

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There is no specific pleading in the SA that the loan account was classified without completion of 90 days from the date of default in repayment of loan due. This plea has been raised only by the Counsel for the applicants during the advancement of argument. In the absence of such specific plea in the SA, the contention raised by the side of the applicants in this regard is unsustainable. In M.J. Betty & ors. Vs. Union Bank of India & ors. cited by the counsel for the applicants, the Hon'ble High Court of Kerala has elaborately observed in para 15 to 19 of its judgment as to how the loan accounts should be classified as per the Reserve Bank master circular – prudential norms on income recognition. In the above case, the bank classified the accounts of the petitioners as NPA on 31.3.2007 when the outstanding had been above the limit fixed and hence it has been held in the above case that the bank can classify the account as NPA only when the interest and instalment of the principal remains overdue for more than a period of 90 days in respect of a term loan. In the present case on hand, the applicants have not placed any material before this Tribunal to show that the loan account was classified as NPA when interest and instalment of the principal were

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SA No.480 of 2022

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overdue for a period of less than 90 days. Therefore, the above argument advanced by the counsel for the applicants does not hold good.

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In Elavakkattu Ceramics & ors Vs. Authorized officer Standard Chartered Bank & Anr relied on by the counsel for the applicants, the Hon'ble High Court of Kerala has held that, if the entire due amount is satisfied by the borrower in the case of a loan account classified as NPA, the loan account should be regularized. In the present case on hand, it is not the case of the applicants that the entire due amount has been satisfied by them. The applicants have themselves admitted in the SA that they repaid 40 monthly instalments till 8.6.2019 without default and that thereafter they made irregular payments to the loan account. Therefore, the above cited judgment has no application to this case.

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In ITC Limited Vs. Blue Coast Hotels Limited & Ors cited by the counsel for the applicants, the Hon’ble Supreme Court has held in para 32 of its judgment that the creditor has not replied to the debtors representation dated 25.07.2013 and that thus it appears to be breach of Section 13 (3A) of the SARFAESI Act, 2002. Even though the applicants have averred in the SA that the 1^st defendant sent letter dated 27.12.2019 demanding payment of the outstanding amount without considering their objections, they have not produced the above letter along with SA as already observed by this Tribunal. The counsel for the defendants during advancement of the argument also submitted that copy of the reply to the objection has not produced along with the SA. Thus it is evident that the defendants have sent their reply to the objection, Annexure-A2. Hence the contention of the applicants that their objection was not considered by the defendant does not hold good.

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The applicants have not produced any material before this Tribunal and also they have not specifically averred in the SA as to how the interest charged by the defendants is exhorbitant. In the absence of convincing material record the averment of the applicants that exhorbitant rate of interest has been charged is liable to be rejected.

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Admittedly, debt pertaining to the loan account has been assigned to the 2^nd defendant. As per the provisions of Section 5(2) of the SARFAESI Act, 2002 if any Asset Reconstruction Company acquires any financial assets of any Bank or financial institution such

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SA No.480 of 2022

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reconstruction Company on such acquisition shall be deemed to be the lender and all the rights of such bank or financial institution shall rest in such company in relation to such financial assets. Therefore, in the present case, the 2^nd defendant having acquired the debt of the applicants from the 1^st defendant is deemed to be the lender and that it can pursue the recovery measures. Therefore, the contention of the applicants that the 2^nd defendant being not a secured creditor is not entitled to proceed against the applicants under the provisions of SARFAESI Act, 2002 is unsustainable.

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The applicants have not produced any records before this Tribunal to substantiate their contention that the 1^st defendant is well aware of the occupation of a partition of the secured asset by the tenants even at the time of sanctioning of the loan. In the absence of such records, the contention of the applicants with regard to occupation of portion of the secured asset by the tenants cannot be accepted as correct. The copy of lease agreement, Annexure-A4 produced by the applicants is pertaining to the year 2015. Admittedly, Annexure-A4 is an unregistered lease deed on which no reliance can be placed. The applicants have not produced any other convincing record to show that the tenant has been in occupation of the property mentioned in Annexure-A4 right from 24.12.2015 till the date. Therefore, the averment of the applicants that a portion of the secured asset is in occupation of the tenant cannot be believed.

¶65

On application filed by the defendants under Section 14 of the SARFAESI Act, 2002 before the Addl. Chief Judicial Magistrate Court, Ernakulam, order was passed for taking physical possession of the secured asset. Pursuant to the above order, the Advocate Commissioner issued notice dated 27.09.2022, Annexure-A3 to the applicants informing them that he would take possession of the secured asset within 15 days from the date of service of notice. The provision of SARFAESI Act, 2002 does not mandate that possession notice under Section 13(4) of the SARFAESI Act, 2002 has to be issued prior to filing application under Section 14 of the SARFAESI Act, 2002 either before the Ld. Chief Judicial Magistrate Court, or before the District Magistrate. Hence the contention raised by the applicants in this regard does not hold good.

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The applicants have not produced the copies of the petition and the affidavits filed by the defendants under Sec14 of the SARFAESI Act, 2002 before the Addl. Chief Judicial Magistrate Court, Ernakulam. It is not the contention of the applicants that the

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Page 9 of 11

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SA No.480 of 2022

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defendants have not furnished the details as required under Sec.14(1) (i) to (x) of the SARFAESI Act, 2002 in their affidavit filed under the above said provisions of the Act. It is also not the contention of the applicants that the Additional Chief Judicial Magistrate Court, Ernakulam passed order without having satisfied with the contents of the affidavit of the defendant filed under Section 14(1) of the SARFAESI Act, 2002. The applicants having failed to challenge the aforesaid measures, are challenging the Advocate Commissioner notice Annexure-A3 which cannot be considered as a measures under SARFAESI Act, and the Rules made there under.

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In view of the foregoing reasons, this Tribunal holds that the applicants are not entitled to get the reliefs sought for in this SA.

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In the result, S.A No.480 of 2022 stands dismissed. No costs.

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Dictated to Steno, taken down, transcribed, typed by him, corrected and pronounced by me in the open court on this the 19^th June, 2023.

(Su. WILLYAHM)

PRESIDING OFFICER

Mj/

Page 10 of 11

SA No.480 of 2022

List of documents filed by the Applicants along with the S.A.

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Sl. No.	Date	Particulars
1.	22.10.2019	True copy of demand notice issued by 1^st defendant U/s 13(2) of the SARFAESI Act to applicants.	Annexure-A1
2.	15.12.2019	True copy of the objections filed by the applicants to the1^st defendant.	Annexure-A2
3.	27.09.2022	True copy of the notice issued by the Advocate Commissionerto applicants.	Annexure-A3
4.	24.12.2015	True copy of Lease Agreement executed by 1^stapplicant with M/s Indus Towers Ltd.	Annexure-A4

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(Su. WILLYAHM) PRESIDING OFFICER

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Mj/

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Page 11 of 11

Deva Matha Rock Products v. Hero Fincorp Ltd.

Case brief

What is this about?

What the court decided

Deva Matha Rock Products v. Hero Fincorp Ltd.

Case brief

What is this about?

What the court decided

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