Allowed

Messrs Kamal Kunj Knitwears and Another v. Uco Bank and Another

DRT18 Oct 2024SA/107/2024

Case brief

AI extract

What is this about?

Applicants challenged SARFAESI proceedings initiated by UCO Bank for non-service of mandatory notices. The Tribunal held that demand and possession notices were not served via all three required modes, rendering the proceedings illegal.

What did the court decide?

SARFAESI proceedings initiated by respondents is quashed from the stage of issuance of notice under Section 13(2) of the Act.

Messrs Kamal Kunj Knitwears and Another versus Uco Bank and… — Banking and Recovery | DRT (2024)

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DEBTS RECOVERY TRIBUNAL-III, CHANDIGARH

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PRESIDED OVER: SH. MRIDULESH KUMAR SINGH

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SECURITIZATION APPLICATION NO.107/2024

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Date of Institution: 18.03.2024 Date of Decision: 18.10.2024

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M/s Kamal Kunj Knitwears, 4380, Narinder Nagar, Near Samrala Chowk, Ludhiana-141008 through its proprietor Nikhil Sharma S/o Sh. Brij Mohan, R/o House No. 4381, Street No.3, Ward No. 18, Narinder Nagar, Central Post Office, Ludhiana-141008

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Sh. Nikhil Sharma S/o Sh. Brij Mohan, R/o House No.4381, Street No.3, Ward No.18, Narinder Nagar, Central Post Office, Ludhiana-141008

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--Applicants

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Versus

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The Authorised Officer, UCO Bank, Civil Lines, Bharat Nagar Chowk, Ludhiana District Ludhiana141001

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Branch Manager, UCO Bank, Civil Lines, Bharat Nagar Chowk, Ludhiana, District Ludhiana-141001

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--Respondents

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Argued by: Sh. Sahil Khunger, Advocate for Applicants Sh. Vipul Babuta, Advocate for Respondents

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FINAL ORDER

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(1) This Securitization Application was filed under Section 17 (1) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘the Act’ for brevity) to set aside demand notice under Section 13(2) of the Act dated 09.08.2023, possession notice under Section 13(4) of the Act dated 02.11.2023 and sale notice dated 15.02.2024 issued by the Authorised Officer of the respondent bank.

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(2) It was stated in the application that applicants are in the business of clothing and knitwears and for

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SA/107/2024

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M/S KAMAL KUNJ KNITWEARS AND ANOTHER VS. UCO BANK AND ANOTHER

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enhancing the productivity, the applicant No.1 had initially availed a Cash Credit Facility of Rs. 20 Lacs and Working Capital Term Loan (WCTL) of Rs. 25 Lacs against mortgage of House bearing MC No. B-XXIII-4380, measuring 137-1/2 sq. yards comprised in Khata No. 433/444, Khasra No. 2//21/23 as per jamabandi for the year 1983-84 (Khata No. 545/578 as per jamabandi for the year 2008-09) situated at Sherpur Kalan, District Ludhiana as per Sale Deed bearing Vasika No. 11533 dated 02.08.1990 in the name of M/s Kamal Kunj Knitwears (applicant No.1), 4380 Street No. 2, Narinder Nagar Ludhiana; that after availing the loan facility the applicants had maintaining the financial discipline but owing to the stringent market conditions having been faced by the garment industry due to inflow of imported goods from various countries and change in the economic policies by the Government, the business of the applicants was tremendously effected, hampering the business activities and thus bringing the applicants under immense pressure; that applicants requested the respondent bank for further financial assistance but no financial assistance was provided to the applicants; that despite the repeated requests to respondents for restructuring the applicant's loan account but no action was taken by the respondents; that despite serious constraints the applicants always maintained financial discipline but the respondents had from the very beginning an eye on the mortgaged property of the applicants being a prime property on the main road having market value of more than Rs. 1.50 Crores; that the business of the applicants was starting to come on the right track but in the year 2020 lockdown was imposed upon the entire country due to the spread of COVID-19 Pandemic and the applicants thereafter could not follow up with the timely payments of the loan amount; that the applicants conveyed the difficulties being faced due to the pandemic and requested the bank to grant time to clear the payments and extend the benefit of moratorium to the applicants in terms of RBI Circulars dated 27.03.2020, 23.05.2020 and 06.08.2020; that as per RBI Circular dated 06.08.2020, the loan accounts, which were not in default for more than 30 days as on 01.03.2020 were eligible for resolution under the framework and the account of the applicants was duly

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SA/107/2024

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M/S KAMAL KUNJ KNITWEARS AND ANOTHER VS. UCO BANK AND ANOTHER

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eligible under the resolution framework for COVID-19 related STRESS in the category of personal loans; that the applicants were flabbergasted on the clandestine action of the respondents whereby the respondents had without informing to applicants that the account of the applicants was classified as NPA, served the applicants with a notice under Section 13(2) of the Act dated 09.06.2021 claiming an amount of Rs. 57,06,317.07p against the Credit Facility of Rs. 45 Lacs granted to the applicants, which included CC limit of Rs. 20 Lacs and WCTL of Rs. 25 lacs; that in the Demand Notice the applicants were informed that their account has been classified as NPA on 31.05.2021 whereas no recall notice or any intimation in this regard was ever sent to the applicants; that subsequently the applicants approached the respondents and explained the difficulties having been faced due to serious downfall in the clothing and knitwears business for which the loan facility of Rs. 45 Lacs was availed and after much request the applicants were granted further two facilities i.e. GECL and ECGL after the COVID-19 Pandemic had started to slow down; that the applicants cleared the ECGL Facility and the applicants were sent a letter dated 24.07.2023 whereby the applicants were informed that overdue amount in the CC Limit as well as WCTL is Rs.1,80,502/- and the applicants requested the bank that applicants are willing to deposit the overdue amount in two installments but the respondents threatened the applicants to deposit the same by 31.07.2023, otherwise SARFAESI action will be initiated; that the applicants on 08.08.2023 approached the respondents with the overdue amount of Rs. 1,80,502/- but the respondents refused to accept the same and informed the applicants that they have initiated SARFAESI action against the applicants and the applicants would be shortly receiving notice under Section 13(2) of the Act; that the applicants were flabbergasted to receive demand notice dated 09.08.2023 whereby the applicants were informed that their account has been classified as NPA on 31.05.2021 and an amount of Rs. 45,30,111.82p is due as on 28.04.2023 with upto date interest and it was informed that if the applicants failed to deposit the same then the respondents would initiate further SARFAESI proceedings against the applicants; that the amount claimed as per the demand notice dated

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SA/107/2024

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M/S KAMAL KUNJ KNITWEARS AND ANOTHER VS. UCO BANK AND ANOTHER

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09.06.2021 was Rs. 57,06,317.07p with interest upto 31.05.2021 and the amount claimed as per the demand notice dated 09.08.2023 was Rs. 45,30,111.82p which clearly depicts that the applicants had deposited approximately Rs.12 Lacs with the respondents and account of the applicants was very much standard account and was wrongly declared as NPA against the directives/guidelines relating to asset classification by the Reserve Bank of India; that despite the applicants having approached the respondents time and again submitting that the applicants had already deposited Rs. 12,00,000/aproximately subsequent to the demand notice dated 09.06.2021, but the respondents did not adhere to the genuine request of the applicants and remained adamant to continue with the SARFAESI action by issuing possession notice dated 02.11.2023 under Rule 8(1) of the Security Interest (Enforcement) Rules, 2002 which was only pasted on the mortgaged property of the applicants and the applicants were never personally served with the possession notice; that the respondents in a most clandestine manner are bent upon to sell the property of the applicants without complying with the provisions of the SARFAESI Act; that the applicants were astounded to receive sale notice dated 15.02.2024 where the mortgaged property which is a residential house has been put to auction on 22.03.2024; that due to the COVID-19 Pandemic a lockdown was announced, the applicant's business suffered a great set back but still the applicants tried their level best to maintain the financial discipline and even the Ministry of Finance and Reserve Bank of India had issued guidelines for granting regulatory package of the stressed accounts during the moratorium period; that the applicants requested to grant the benefit of COVID-19 relief package issued by the Govt of India and to grant additional Top-Up loan of 20% under the ECLGS Scheme in order to sustain itself but no benefit was granted to the applicants; that the applicants are preferring the instant SA before this Hon'ble Tribunal against the Demand Notice under section 13(2) of the Act dated 09.08.2023 & possession notice under Rule 8(1) dated 02.11.2023 and sale notice dated 15.02.2024 issued by the Authorized Officer of respondent bank whereby the respondents have threatened the applicants for sale of the mortgaged property of the applicants

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SA/107/2024 M/S KAMAL KUNJ KNITWEARS AND ANOTHER VS. UCO BANK AND ANOTHER

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without even serving any notice under Section 13(4) of the Act and has amusingly called upon the applicants to discharge the amount due to the bank through sale notice dated 15.02.2024, which is totally a misuse of power conferred under the Act as the procedure envisaged under the provisions of the Act has been totally flouted by the respondents; that total outstanding loan amount of the applicants is Rs. 45,30,111.82p as mentioned in the sale notice dated 15.02.2024; that applicants are also having bona-fide intention to repay the remaining loan amount to the respondents as per the OTS Scheme, the benefit of which has not been granted to the applicants and the respondents under the garb of statutory powers doing injustice with the applicants with the mala-fide intention to grab the valuable property of the applicants; that property of the applicants have much more value than the alleged outstanding loan amount; that by doing unlawful act the respondents are hammering blow of axe over the constitutional rights of the applicants and assets to which the respondents intends to grab are essential for the survival of applicants; that to curb the unlawful practice adopted by respondents in the present case the applicants are craving for the kind indulgence of this Hon'ble Tribunal by way of present SA after considering the bona-fide and good intentions of the applicants.

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(3) Reply filed by respondents.

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(4) It is stated in the reply that the financial facilities were granted to the applicants by the answering respondents after execution of security documents; that availing of the financial facilities is not in dispute; that since there was a default by the applicants, demand notice under Section 13(2) of the Act was duly served upon all concerned persons; that as the outstanding dues were not paid, possession notice in accordance with law was also served on all concerned persons; that publication of the possession notice was carried out in two newspapers and was duly affixed at the spot; that since the procedure as contemplated in law was duly complied, the same does not call for any further interference; that on this short ground the present SA deserves to be dismissed; that the other ground taken by the applicants is that the applicants were not provided the Resolution Framework for Covid-19 related Stress; that even the said objection is not maintainable as the

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SA/107/2024

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M/S KAMAL KUNJ KNITWEARS AND ANOTHER VS. UCO BANK AND ANOTHER

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applicants were given GECL Term Loan in the form of Rs. 8,70,000/- on 18.01.2021 but in any case, as the account of the applicants was about to become an NPA on 28.07.2023 when there is no moratorium available, caution overdue notice was served on the applicants on 20.06.2023 and 10.07.2023; that the applicants were also called upon to pay the overdue amount; that as the account was classified as NPA and thereafter, the proceedings under the SARFAESI Act was initiated; that the present application is liable to be dismissed on the ground of limitation; that from the copy of the SA supplied to the answering respondents, the date of filing of the SA is 17.03.2024 and the matter was taken up for hearing for the first time on 21.03.2024 and the answering respondents have reasons to believe that it was barred by limitation since the possession notice was served on the applicants on 07.12.2023 by affixation and the limitation for filing the application under Section 17 is 45 days; that since the present application has been filed beyond the period of limitation, the same is liable to be dismissed on this ground alone. Therefore, the present SA is without any substance and deserves to be dismissed.

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(5) No replication was filed by applicants to the reply filed by respondents.

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(6) I have heard arguments advanced by Sh. Sahil Khunger and Sh. Vipul Babuta, Advocates and gone through the record carefully.

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(7) It was argued by Sh. Sahil Khunger, Advocate that respondents have wrongly classified the account of applicants as NPA on 31.05.2021 and in compliance of Circulars issued by Reserve Bank of India dated 27.03.2020 and 23.05.2020 moratorium was imposed and it was also directed that in this period no loan account shall be classified as NPA. It was further argued that in the demand notice dated 09.08.2023 (Annexure A4) under Section 13(2) of the Act, date of NPA was mentioned as 31.05.2021 but in the reply filed by respondents, date of NPA was mentioned as 28.07.2023 (Annexure R1).

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Per contra , Sh. Vipul Babuta, Advocate argued that the accounts of applicants were classified as NPA on 31.05.2021 and the same were regularized by the respondents. It was further argued that after regular

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7 SA/107/2024

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M/S KAMAL KUNJ KNITWEARS AND ANOTHER VS. UCO BANK AND ANOTHER

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default accounts were classified as NPA again on 28.07.2023 in strict compliance of Rules and there is no illegality in it. It was further argued that date of NPA was changed in the demand notice because first demand notice was issued with previous date of NPA therefore, bank has again issued the notice on 09.08.2023 with correct date of NPA as on 28.07.2023.

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According to Circulars letters dated 06.08.2020 issued by Reserve Bank of India moratorium was imposed from 01.03.2020 to 31.08.2020 and as argued by Sh. Sahil Khunger, Advocate that during this period accounts of applicants could not be classified as NPA on the basis of above Circulars. In the present case in hand accounts of applicants were classified as NPA on 28.07.2023 as evident from the demand notice dated 09.08.2023 (Annexure R1). No other ground was argued regarding wrong classification of NPA by applicants.

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In the considered opinion of this Tribunal, applicants have failed to prove that their loan accounts were wrongly classified as NPA.

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(8) Sh. Sahil Khunger, Advocate further argued that demand notice under Section 13(2) of the Act dated 09.08.2023 was not served according to Rule 8 of the Security Interest (Enforcement) Rules, 2002.

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Per contra , Sh. Vipul Babuta, Advocate argued that notice under Section 13(2) of the Act was duly served upon all the applicants as per Rules. It was further argued that copy of said notice is Annexure R1 to the reply, which shows that the said notice was issued to all the applicants on 09.08.2023. Copy of receipts of registered posts are filed as Annexure R3.

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It is correct that only receipts of registered post have been filed and no tracking reports are filed to show that the same notices were served upon the recipients. Demand notice was to be served by all three modes. Therefore, it infers that the demand notice was not served as per Rules.

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(9) Sh. Sahil Khunger, Advocate further argued that possession notice was not issued as per Rules and not served in compliance of Rules. It was further argued that the said notice was not published in leading newspapers.

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Per contra , Sh. Vipul Babuta, Advocate argued that possession notice was issued and served strictly in

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8 SA/107/2024 M/S KAMAL KUNJ KNITWEARS AND ANOTHER VS. UCO BANK AND ANOTHER

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accordance with law. It was further argued that copy of possession notice is annexed as Annexure R2. It was further argued that possession notice dated 07.12.2023 was published in the two leading newspapers i.e., ‘Daily Charhdikala’ (vernacular) and ‘Hindustan Times’ on 13.12.2023, which is annexed as Annexure R4. It was further argued that possession notice was also pasted on the secured asset, photograph of affixation is annexed as Annexure R5.

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It is correct that only proof of publication and affixation are annexed with the reply but neither any receipts of registered post nor any tracking reports are filed to show that the same notices were served upon the recipients. Possession notice was to be served by all three modes. Therefore, it infers that the possession notice was not served as per Rules.

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(10) No other point/argument was pressed or advanced by any party.

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(11) This Tribunal has considered all facts, evidence available on record as well as arguments advanced by the learned counsel for parties. It is clear that demand notice and possession notice were not served upon all concerned by all three modes as required under the law. Therefore, the SARFAESI proceedings initiated by respondents are illegal.

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(12) After considering the above facts and circumstances as well as evidence on record, present SA is liable to be allowed.

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(13) SA is allowed. SARFAESI proceedings initiated by the respondents is quashed from the stage of issuance of notice under Section 13(2) of the Act. It is made clear that respondents may initiate fresh SARFAESI proceedings according to law.

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Record be consigned to record room after

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due compliance.

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Date: 18.10.2024

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Pronounced by me in the open Tribunal.

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(MRIDULESHKUMARSINGH) Presiding Officer, DRT-III, Chandigarh

Messrs Kamal Kunj Knitwears and Another v. Uco Bank and Another

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Messrs Kamal Kunj Knitwears and Another v. Uco Bank and Another

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