Dismissed

M S Dsr Farmers Ware House v. Union Bank of India

DRT22 Nov 2023SA/94/2022

Case brief

AI extract

What is this about?

In this securitization application, applicants challenged an e-auction conducted by Union Bank of India, alleging procedural irregularities including insufficient notice period, bank non-compliance with lockdown guidelines, and acceptance of earnest money after the deadline. The tribunal dismissed the application.

What did the court decide?

Securitization Application dismissed; Interlocutory Applications disposed of; No order as to costs.

M S Dsr Farmers Ware House versus Union Bank of India — Company and Corporate | DRT (2023)

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IN THE DEBTS RECOVERY TRIBUNAL.II AT HYDERABAD

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DATED THIS THE 22NO^{DAY OF NOVEMBER,2023}

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PRESENT: SH. RAMESHWAR^{KOTHE,B.COM,L.LB. (HONS.), M.A.} PRESIDING OFFICER

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Securitization APplication^{No. 94 OF 2022}

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Between:

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M/s DSR Farmer's^WareHouse A Partnership flrm having^{its Office at} Survey No.77l 1, Dondlavagu^Village Lingala Mandal, Y.S.R. District Andhra Pradesh

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Rep. by its Managing Partner

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Smt. Devireddy Srilatha

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D. Sreelatha

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Wo^{D. Sanjeeva Reddy} Aged :40^years, Occ:Agriculture Plot No.601, Hill Top Avenue Survey No.11/31,^{Kanamet Village} Serillngampally, Hyderabad-500081

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D. Sanjeeva^Reddy S/o Rama Subba Reddy Aged 44^years, Occ:^Business Plot No.601, Hill Top Avenue Survey No,1U31, Kanamet^Village Serilinga^{m pa} lly, Hyderabad-500081

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.......APPlicants.

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And

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Union Bank of India (formerly known as Andhra Bank) Pulivendula Branch, D.No.3-5-37 Main Road, Pulivend ula⁵¹⁶³⁹⁰ Kadapa District

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Rep. by its Authorized Officer

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Venkateswar Youngali S/o Y. Narahari Aged about 34^years Occ : Setf emptoyed /ilh.^-.-, (_l/ -ry\x.'

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SA No.9412022

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R/o H.No.1-363/3, Raghava Detux Apartments, Bhoiguda, Sucunderabad TS - 500003

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Mr. Rakesh Nidhalal Yadav S/o Nidhalal Yadav Aged about 39 years, Occ:Self employed R/oA- 1103/04, Bhoomi Darshan Building Mahavir Nagar, Near Kamala Ashish Towers Kandivalli West, Mumbai, Maharashtra-4OOO78

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Amit Kumar Saraswat S/o Rajendra Kumar Saraswat Aged about 45 years Occ: Self employed R/o H.No.3-6-421, 1st Floor RK Residency, Himayatnagar Hyderabad, TS

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Vipin Sharma S/o Dwaraka Prasad Sharma Aged about 34 years Occ:Self employed R/o H . N o. 19 - 19 15/4/A/ 1 Muralinagar, Bahadurpura Hyderabad, TS

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.......Respondents.

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Counsel for the Applicants : Sri S. Nagesh Reddy Counsel for 7st Respondent bank : Sri V, Sethu Madhava Rao Respondents 2 to S : Sri T. Sridhar Reddy

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-:ORDER:-

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The Applicant filed the present Securitisation Application u/s.17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter^,,the Act,, for short) to declare the action of the 1st respondent bank in issuing e_

ery'""

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sA No.94l2022

auction sale notice dated^{02.03.2020 fixing auction of SA schedule} properties on 02.04.2020 as illegal and arbitrary.

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The case of the applicants, as^{per avermentsof the application} briefly is that the 1st applicant^{is a partnershipfirm represented by 2nd} applicant as its Managing^{Partner. They availedagricultural termloan} of Rs.2.10 crores vide sanction^{letter dated 31.01.2014from erstwhile} Andhra Bank, Pulivendula^{Branch now mergedwith Union Bank of} Indla, the 1st respondent bank^{herein and constructed a godown.The} 3'd applicant stood as^{guarantor and mortgagedhls propertysituated} at Khanamet village Serilingampally^{Mandalas securityThe gowdown} and the hypothecated^goods are^{insured with UnitedInsurance} Company for Rs.25.70^{crores. The individual farmersnumbering75} also availed financial assistance^{from respondentbank under the} Kisan Sampath Scheme.^For these^{loans, the 3'd applicanthas not} offered security. There was^{fire accidentin the godown on 15.04.2019} and insurance claim of^{Rs.26 crores was made. Though the insurance} company informed the bank that claim^{would be processedat the} earliest, affixed^{possession notice} on^{the godownand published in} newspapers. Prior to that no demand^{noticeor possessionnotice was} served on applicants as well as^{75 individualfarmers. The sale notice} dated 02.03.2020 was^published on 03'03.2020^{fixing auctionon} 02.04.2020 thus there was no 30^{days clear gap as perRule 9(1) of} the Security Interest^{(Enforcement)Rules, 2002 ("Rules" hereinafter).} Proper valuation had not been obtained.^{The insuranceamountand} subsidy amount would be sufficient to clear^{the dues.The earnest} money deposit was accepted^{on 01.04.2020 after the last date which} is illegal. The Government declared lockdown^{vide order dated} 22.03.2020 and shut all commercial^{activitiesin the country in spite} of which the respondent bank^{conducted the auction on 02.04.2020.} Aggrieved by the action of the^{respondentbank, the a-pplicants filed} v$tr'Y''r'Y!. /,,/ ---rr,-

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sA No.94/2022

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wP No.6576 ol 2020 wherein the Hon'ble High court^granted conditional stay. The Writ Petition was disposed on^28.02.2022 granting liberty to file application before^{jurisdictional} DRT and hence this SA.

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The 1st respondent bank flled reply statement. While denying the adverse averments made in the application, the submissions, lnter aliat are that the applicants and mother of 3'd applicant created mortgage over SA schedule properties situated at Dondlavagu, Pulivendula and Tolichowki, Hyderabad to secure the loan facility of Rs.2.10 crores availed by the applicants directly from the 1st respondent bank. The 3'd applicant created mortgage over SA schedule^property situated at Khanamet Village, Ranga Reddy District to secure the loans extended to individual farmers based on warehouse receipts issued by the applicant warehouse. Consequent to default committed in repayment by a pplicants,, guarantors/mortgagors, the loan account became NPA on 25.07.2018 and SARFAESI^proceedings have been initiated by issuing demand notlce dated 01.08.2019 u/s 13(2) on them for payment of Rs.7 ,57 ,73,377/ - within 60 days. The demand notice was sent by^post but returned with remarks 'address left without information' and 'whereabouts not known'and hence the demand notice was^published in'Hans India' and 'Andhra Jyothi'newspapers besides affixture. Since no payment made, possession notice dated L8.12.20L9 u/s 13(4) was issued, sent by post, published in'Vartha', 'Andhra lyothi'and 'Hans India'newspapers on 21.12.2019 and affixed on secured assets. After obtaining valuation report dated 78.72.2079 from approved valuer viz., M/s Aparna Associates the reserve price was fixed at market value of Rs.3.28 crores. The 30 days' notice under Rule 8(6) notice dated 08.01.2020 was sent to applicants by^post which was returned ,4v<p:,/ - lL .,

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SA No.9412022

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unserved and hence^{publishedin 'Eenadu' and 'New IndianExpress'} on 31.01.2020. Subsequently^{e-auction sale noticedated 02.03.2020} was issued was^published in 'Eenadu',^{Hyderabad and Kadapa} editions, and in 'The Hindu'^{newspaperson 03.03.2020.TheKYC} documents were submitted by^{bidders on 31.03.2020and no} prejudice caused to applicants if bids were accepted on^01.04.2020. The notice of sale was^published on^{31.01.2020and e-auctionwas} held on 02.04.2020 which happened to be^{3oth day. Even otherwise} from^publication of notice of sale,^{there was 30 days gap as per} provision u/r 9(1) of the Rules, 2002. The bidders i.e.,^respondents2 to 5 submitted EMD online by^RTGS and^{no lockdownruleswere} flouted. The respondents 2 to 5^{were declaredas successful biddersat} Rs.3,31,28,000/-, they^{paid 250lo} of^{sale price on 02.04.2020 and} 75o/o on 17.O4.2020 thereupon^{sale certificate has been issued.The} respondent bank has followed the^{provisions of the Act and theRules} and therefore SA ls liable to be dismissed.

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The respondents 2, 4 and 5^{also filed reply statement and the} same has been adopted by^{the 3'd respondent. The submissionsarein} the same lines of reply statement^{filed by the 1st respondentbank. It} is stated that on the date of^{publication of auction notice there was no} lockdown announcement and that they^{are bonafide purchasersof} property at Khanamet village and entitled for the^{property. TheSA is} liable to be dismlssed.

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The learned counsel^for the applicants reported no^oral arguments. Heard learned^counsel appearing for the applicants^the1st respondent bank. Perused^the written arguments filed bY^the applicants and respondents 2^to 5 and the material documents^filed by the^parties. ryN!!

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sA No.94lzo22

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The submissions of the applicants in the written arguments (unsigned) are in similar lines of application.

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Ouring course of arguments, the learned counsel for 1st respondent bank reiterated the version as in its reply statement and sought for dismissal of the SA. Respondents 2 to 5 sailed with the arguments of the 1st respondent bank and prays for dismissal of the SA.

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After considering the oral and written arguments, the points that arise for consideration are;-

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(i) Whether the applicants establish any vatid ground for setting aside the e-auction held on 02.04.2020 pursuant to sale notice dated 02.03.2020 ltem no.2 of SA schedule properties?

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(ii) To what relieP

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Point No.( i):-

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Though there are five properties in the schedule attached to the application, the subject property, the relief is sought in para 6 of the application is only in respect of item no.2 property belonging to 3rd applicant situated at Khanamet Village of Serilingampally t4andal, Ranga Reddy District under GHMC.

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The applicants are not denying availment of credit facility from erstwhile Andhra Bank which is now merged with Union Bank of India. The applicants contend that the 3rd applicant did not extend mortgage to the loan availed by individual farmers whereas the respondent bank relies on registered lvlemorandum of Deposit of Title Deeds vide Doc.No.4047 /2016 dated 31.03.2016 executed by the 3.d appticant. The applicants also contend that the liability would be cleared under insurance claim. However, no document has been filed by the t' '4'Y"-"'t,/ 't

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7 ot LO

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SA Nos412022

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applicants showing credit of such^{insuranceamounts.It is pertinent to} note that vide letter dated 19.03.2020, the applicants^{had undertaken} to pay the loans advanced to "Kisan Sampath^{Loans to individual} farmers" for which they offered their^{property as securlties if} insurance claim is not credited. The applicants^{did not deny of} mortgaging Khanamet Village^property either in this^{letter or at any} polnt of time. Therefore, none of the above contentions of applicants are acceptable.

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The applicants also aver that demand^{has not been ralsed} against individual farmers, Firstly, the individual^{farmersare not} parties in this sA. secondly, the demand notice dated 01.08.2019^is addressed to the applicants as well as^{to individual farmers who} availed loans and defaulted in^payments, duly^{informingthe date of} NPA, description of^properties etc. The^{respondent bankplaced on} record^postal receipts, returned covers^sent to^{applicantswith postal} endorsement as "left without intimation". It^{is the responsibility of} addressee to be available at the^{givenaddress or make alternate} arrangement in their absence. Failing to do^{so, they cannot be} permitted to contend that the demand notlces was not^servedon them. However, the demand notice was^{publishedin English and} Telugu newspapers. Hence, the demand^{notice is deemed to be} served.

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Similarly, the^possession notice^{dated 18.12.2019 was also sent} by registered^{post,published} in two^{newspapers,one in vernacular} language and affixed on secured^{assetsvide copies of postal receipts} and returned covers,^paper clippings^{and photographs filed by the 1st} respondent bank. I find no infraction of^Rules 8(1)^{and 8(2) of the} Rules,2002. ff.rt'

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SA No.9412022

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The notice dated 08.01.2020 under Rute 8(6) was also sent by registered post to applicants besides its publication on 31.01.2020 and the date of auction was on 02.04.2020 hence, sulficient time was provided to applicants for redempHon of mortgaged properties.

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The 1st respondent bank filed two valuation reports dated 22.03.2016 and 18.12.2019. As per latest valuation report dated 18.12.2079, the market value is Rs.3.28 crores at which reserve price has been fixed. No infraction of Rule 8(5) is found.

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The 1st respondent bank issued e-auction sale notice dated O2.O3.2O20 fixing e-auction sale on 02.04.2020 in respect of item no.2 of the SA schedule property. The contention of applicants is that there was no clear gap of 30 days from the date of publication and sale date. While calculating days, either'from, date or.end, date has to be excluded and both cannot be excluded. In the instant case, the publication was carried out on 03.03.2020 whereas sale was conducted on 02.04.2020. If 03.03.2020 is inctuded and 02.04.2020 is excluded, there is expiration of exactly thirty days between the dates of publication and auction sale and thus, I find no violation of Rule 9(1) of the Rules, 2002.

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The other contention of the applicants is that the 1st respondent bank did not follow the Covid-19 lockdown guidelines and that earnest money deposit was allowed on 01.04.2020. The impugned e-auction sale notice was issued on 02.03.2020 i.e., much before the Covid-19 lockdown Circular dated 24.03.2020 for 21 days effective from 25.03.2020. Banks among some other institutions were exempted from close down. According to learned counsel for the 1st respondent bank, the auction was being conducted online, no lockdown guidelines were flouted. As regards contention on acceptance of earnest money

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sA No.9412022

deposit on 01.04.2020, the^{respondent bank submitsthat 01'04.2020} was not mentioned in the sale^{notice for paymentof EMD since it was} annual closing day and the^{authorizedofficer is empowered to extend} the time. However, the^{KYC forms were already submitted and} verified on 31.03,2020 and^{no prejudice causedto applicants in} accepting EMD on Ol.O4.2O2O^{since they already lost the opportunity} of redemption under Sec.13(8)^{of the Act' I consider the submissions} of learned counsel for^{1st respondent bank and find that the action of} 1st respondent bank in accepting^{earnest money deposit as not a} material irregularity in the^{prevailingcircumstancesat the relevant} point of time. Hence, the contentions of applicants^{are not accepted'}

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t7, The respondents 2 to 5^{depositedthe 25o/oand 75olo of sale} price as stipulated under Rules 9(3) and 9(4)^{of the Rules, 2002 and} as of now the sale certificate^{has also been issued in their favour'}

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In view of the foregoing^{discussion,I find that the applicant} failed to make out any valid^{groundto set aside the SARFAESI} proceedings initiated by the 1't respondent bank^{against the SA} schedule^properties including^{e-auction sale in respect of item no'2 of} the SA schedule^{properties held on 02.04.2020 pursuantto e-auction} sale notice dated 02.03.2020.^{Accordingly,the SA is liable to be} dismissed.

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Point No.(ii):

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