Allowed

Ms Masani Reddy Poultry Farms v. Canara Bank

DRT17 Oct 2024SA/1/2022

Case brief

AI extract

What is this about?

The Tribunal allowed an application under Section 17 of the SARFAESI Act to set aside auction proceedings initiated by a bank. The auction was quashed because the bank's demand and sale notices claimed a higher amount than the sum adjudicated in a prior Order of the same Tribunal, rendering the notices legally invalid.

What did the court decide?

Impugned auction set aside. Bank directed to refund sale consideration with interest and cancel the sale certificate. Bank permitted to issue fresh notice based on the earlier Tribunal order amount.

Ms Masani Reddy Poultry Farms versus Canara Bank — Banking and Recovery | DRT (2024)

¶1

IN THE DEBTS RECOVERYTRIBUNAL- IAT HYDERABAD

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DATED THIS THE 1 7TH DAY OF OCTOBER, 2024

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PRESENT: GUMMADI GOPICHAND, PRESIDING oFFICER

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sA.No.1/2022

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M/s Masani Reddy Poultry Farms Sy.No.476, Pudur village, Gadwal Mandal, Mahbubnagar Dist. Rep. by its Proprietor M. Venkateswar Reddy

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...Applicant

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Versus

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l.Canara Bank, ARM Branch, 3d floor, Circle Office building, MCH No. 10-3- 163&10-3- 163/A, Plot No.85, Sy.No.625, Beside Rail Nilayam, Secunderabad-5O0 026

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Rep. by its Authorized Officer

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Mr. Pitta Suderashan Reddy, S/o Pitta Laxma Reddy, 2-5, Injapur, Hayathnagar, R.R.District-5015 10.

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(Respondent No.2 is impieaded as per the orders dt. 18.O4.2022 int.A.No.B 1 3/ 2023)

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.. Respondents.

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Counsel for the Applicant Sri B. Siniuas Reddy

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Counsel for 1"t Sri ManouGecil Thomas Counsel for 2na R f&*-ff, :."ftt^{-Er</sup> Sn S.M. .Ffussain rFS'S ; :^lrorfmf"'l !-i -,,L6 :}

¶15

This Securitizatio bdication is e Applicant u/s. 17 of the SARFAESI Act, Si.l->,**'0, the Possession Notice dt.25.1 1.2o21, Notice t.O6.12.2O21 and e Auction Sale Notice dt.07.0t.2O23 issued by the lst Respondent Bank against the schedule propertiesand to declare the same as null and void.

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SA.No.1/2022

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The averments made in the application, in brief, are as under,-

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The Applicant is a Proprietorship concern engaged in the business of poultry at GadwalMandal, Mahabubnagar district. The Applicant availed credit facilities from the 1"t Respondent Bank in the year 2013 against the security of mortgage of schedule properties. Due to Covid_ 19, the Applicant could not repay the loan amounts. The lst Respondent Bank issued demand notice and possession notice to the Applicant under the provisions of SARFAESI Act,2OO2 and challenging the same, the Applicant filed SA153/2019 and the same was dismissed by this Hon'ble Tribunal on 27.1O.2O19. Aggrieved by the said order, the Applicant approached the Hon'ble High Court of Telangana by filing W.P.No. 1564 l2O2O and the said writ petition was allowed on 08.04.2019 by setting aside the measures initiated by the Respondent Bank. Thereafter the l"t Respondent Bank hurriedly issued demand notice u/s 13(2) of the SARFAESI Act demanding an amount of Rs. 15,59,57,567/- To the said demand notice, the Applicant raised objections vide its letter/ reply dt. 18.09.202 1 . But without clarifying the said objections, the l"t Respondent Bank submitted a reply dt.O4.lO.2O2l stating that the objections raised by the applicant are not sustainable. Thereafterthe Bank issued possession notice dt.25.1 l.2O2l wl s 13(4) of the Act and later issued Notice prior to Sale d,t.O6.12.2O2l against the schedule properties calling upon the Applicant to pay the outstanding dues within 30 days from the date of receipt of the said notice. The said possession notice was neither affixedon the schedule properties nor published in two daily newspapers. The particulars of reserve price and date of auction etc. are not mentioned i to Sale. Correct valuation is not obtained from fore fixing the reserve price against the schedule properties are agricultural oerties r and^so- the l.r ndent Bank is not entitled to proceed un i;' s."t-,, s,(#l"r s AESI Act against the said properties. Th 1er thc l^st Resp,S Bank issued e Auction Sale .-: \ ..t. t I js',. ).

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SA.No.1/2022

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Notice dt.07. ol.2o23 and the said notice was not affixed on the scheduleproperties and not published in two daily newspapers. The Respondent bank has not maintained 30 days gap between the sale notice dt'07. o1.2o23 and paper pubrication of auction sale notice which was published on r4.o7.2o23. No separate notice was issued for sale of themovable properties and the description of the movabre properties is not mentioned in the sale notice. The l"t Respondent Bank filed O.A.66ll2O1Z against the Applicant and others for recovery of an amount of Rs.9,36,23,279 l- and the same was allowed and as per the order in the O.A., the outstandingamount due is Rs.ll'47 '49,760/- as on the date of issuance of demand notice dt.22.O7.2021 and Rs.12,34 ,6l,3gl I _ as on the date of issuance of impugnedAuction sare Notice dt.07.o1.1o23 whereas the Respondent Bank has issued the impugned Auction Notice for recovery of outstanding amount of Rs. 19,43,44,7961_ as on 31.12.2022 which cannot prevail under law. After passing of order rn OA 661 llZ, the lst Respondent Bank is expected to issue demand notice as ordered in the said O.A but not as per their calculation. Hence the SA.

¶21

The lst Respondent Bank fired their Reply and the contentions of the lst Respondent Bank, in brief, are as under_

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The lst Respondent Bank issued demand notice dt.22.07.2021 in view of the default committed by the Applicant in repayment of outstanding dues. In reply dt.04. lO.2O2l issued by the lst Respondent Bank to the objections submitted by the Applicant vide letter dt. 18.09.2021, the bank clearly mentioned that the objections raised by the Applicant to the demand notice are not sustainabre, so the bank issued .11.2021 and the said notice was affixed on the d published in two leading newspapers. notagricultural lands as evidenced by In the Redemption notice dt.o6.12.202t, the date of auction and

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QBa;S9

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!,A.No,1/2O22

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reserve price etc. are not required and the date of auction and reserve price are to be mentioned only the sale notice. Thus the lst Respondent Bank has folowed the procedure contemplated under the provisions of SARFAEST Act,2oo2 and Rules made thereunder in issuing possession notice, prior to sale noticeand Auction Sale notice against the schedule properties..

¶26

The 1st Respondent Bank arso filed Additionar Repry by contending that as per the orders in 0A.66I l17, an amoun t of 12,52,g3,274.23 ps. was due as on the date of demand notice and as on the date of the auction i.e. 15.02.2023, an amount of Rs. 13,4g ,9g,444.36 ps. is due andso, the minor errors should not be a ground for setting aside the notices issued under the provisions of SARFAESI Act. The l.t Respondent Bank is ready and w,ling to recover onry the amount due as per the decree and order passed in the OA. Accordingly, 1"t Respondent Bank prayed to dismiss the SA.

¶27

4' The 2"d Respondent, auction purchaser filedhis Reply contending that the reserve price is fixed as per the valuation report obtained from the approved valuer and the l"t Respondent Bank has scrupulously followed the rules and regulations in conducting auction in respect of the schedule properties and so the said sale cannot be cance ed. If the sale is cancelled, the institution of auction purchasers will collapse and the auction purchasers will lose faith in the process of public auction sales. In the auction conducted on 15.02.2023, the 2"dRespondent became successfulbidder and he paid the bid amount and sale was duly confirmed in his favour and sale confirmation and sale certificates were also issued by the lstRespondent Bank in respect of the schedule properties.

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64"rqh 5. Heard Ld. Counsel &e nppti$rt, ld & 1 for the 1st Respondent Bank, 2"a Respon arguments filed by them.

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SA.No.1/2022

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Now, the points that arise for consideration are,_

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i) Wlether the Appticant has established ang ualid ground for setting aside the auctionconducted. bg the 7.t Respond.ent Bank in respect of the schedule properties on 11.O2.2023pursuant to tLrc Auction Sale Notice dt. I 7. O 1.2 023?

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ii) To what reliep

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Polnts No.lll.

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During the course of arguments, Ld. Counsel for the Applicant and the Ld' Counser for the lstRespondent Bank & Respondent No.2 reiterated their respective versions as stated supra.

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Ld. Counsel for the Applicant argued that when the lst Respondent bank has filed 0.,{.66l l2OlZ before this Tribunal for recovery of amount due from the Applicant herein and others and when the said OA. was allowed vide orders dt. 06.04.2019, a demand notice has to be issued as per the amount decreed in the said O.A., but the amount demanded by the 1"t Respondent Bank in the impugned demand notice

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dt.22.O7.2O21 is much higher than the amount awarded by this Tribunal in O.A.66l/17. Ld. Counsel further argued that even though, the Applicant raised valid objections to the said demand notice issued by the lst Respondent Bank, the Bank has not considered the same and proceeded further by issuing possession notice and notice prior to sale. In the Auction Sale notice, the amount claimed_is much higher than the amount awarded by so, the said notices are not legal and valid and conducted by the l"t Respondent Bank in perties is liable to be set aside.

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;^lrmm ; oh,"*s,S

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SA.No.1/2022

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Ld. Counsel for the Applicant in support of his contentions, relied upon the judgement or Hon'bre High court oJ All,.h,,bo,d. rn Ace Medra Aduertlsers p.LM. and. others Vs.Bank of Barod.a and others reported tn hrANU/up/o l so/2oogwherein it is held in para No. 10, as follows:

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"what is required to be clarifted herein is whether the Bank utin be able to proceed under the Seanitisation Act, for anA amount or for^{the amount} determined. under the decree/ ord.er of DRT. To that extent u)e are of the uieut that d.etermination of a claim und.er a non-adjudicatory process, cannot ouerrid.e the d.etermined amount of adjudicatory process, i.e., d.ecree/ ord er of DRT. Therefore, the recouery uill be auailable under the Seanitisation Act onlg u,tith regard to the determined amount bg the DRT subject to decision, if ang by the higher court/ s. Reason behind saging so is that a decree or order of a jud.icial ad.judicatory process uill alwags haue preuailing effect ouer and_ aboue that of the non_ad.jud.icatory process and secondlg, both under the Secuitisation Act and. DRT Act, the forum for adjud.ication is the same, eitLrcr for original proceeding or for appear. In this particurar case, uhen tLLe DRAT as an appellate forum has alread.g tested. the uerd.ict of DRT and drsmissed the appeat, further d.etermination or test bg the DRT as an appellate forum under the Secuitisation Act, for the self same claim is futile in nature. Therefore, tDe are of the uietu that instead of dismissing the uit petition, the same can be d.isposed of in a limited manner bg saging that process under Seanritisation Act, during the pend_encg of proceedings under the DRT Act, cannot be a bar but if the decree/ order is passed bg DRT, the craim under the Seanritisation Act will be thus, the urit petition is disposed_ of .

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a ltr,uzw '
Q

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5A.No.1/2022

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10' Ld' counsel for the Applicant arso reried upon the judgemen t of*on,bre Htgh Court of And.hra prad,esh And Tetangana betueen Sri Sad Annado'tha polgmers Vs.The Canara Bank in W.P.No,al SS/2OI Swherein it is held in para No. 177 which is as follows:

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"Howeuer, the amended prouisions of Section 13(g) of the SARFAESI Act bing in a radical change, inas much as the ight of tLre borrou.ter to red.eem the secured. asset slands extinguished_ tLLereunder on the uery d.ate of pubtication of the notice for public auction under Rule 9(1) of the Rules of 2002. In effect, the ight of redemption auailable to the borrouter under the present statutory regime stands drasticarg curtained- and taould. be aua,able onrg till the date of publication of the notice und.er RuIe 9(2) of the ruIes of 2002 and not ti, compretion of the sale or transfer of the secured asset in fauour of the auction purchaser. Howeuer it is signiJi.cant to note that ktre 8(6) of the Rutes of 2o02 still continues to remain the same and thereund.er, MANU/SC/0263/2O\8=2018 SCC Online SC 232 tte authorized_ officer of the seanredcreditor must necessailg seuer upon the borrou.ter a notice of thirtg d.ags for sale of the immouable secured_ asset taking recourse to one of the options auailable under RuIe g(S) tltereof .

¶45

Per contra, Ld. Counsel for the lsr Respondent Bank argued that even though there is some discrepancy in the demand notice issued by the 1st Respondent Bank regarding the amount due, it is not fatal and the same can be ignored. He further argued that all the notices issued by the 1st Respondent bank against the schedule properties are perfectly valid and legal and issu of the provisions of the

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SARFAESI Act,2OO2 r and so, the Applicant

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is not entitled to claim H -J-^1tltrl/at : %.a ",^it'

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Q*,tE9

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SA.No.1/2022

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12' Ld counsel for the lst Respondent bank in support of his contentions, reliedupon the judgement of Hon'ble Apex Court reported in (2O2O) 70 Supreme Court Cq.ses 659 between L&T Housingftlnance Ltd. Vs. M.shul Deoelopers utherein it is held. at para NO.9, as follows:

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"At this stage, the respond.ents proceeded in jiling Secuitisation Application No.76/2oi9 before the Debts RecoueryTribunal under Section 17 of the SARFAESI Act, assailing the issue of demand. noticeunder Section 130 and" 13ft) of tte Act inter alia on uaious grounds. The Learned Debts Recouery Tibunal uid.e its order dt.23.O3.2O18 set asid_e the demand. notice on the premise that it has not been ualidtg issued in thename of the appellant ("L&T Housing finance Ltd.") instead the name of the compang has been mentioned as^*L&T Finance Ltd." and_ this d.efect as alleged not being anrable afier issuance of d.emand notice bg another group companA instead of secured creditor, lrctd the proceed-ings not sustoinable. The order of tLrc Debts Recouery Tribunal dt.23.03.2018 came to be challenged bg the Appellant in appeal before the Debts Recouery Appellate Tribunal (DRAT) and" after the parties being heard, DRAT uide its order dt. j6.O4.20lg set aside the order of the Debts Recouery Tibunat rthich came to be challenged bg the respondents in a writ petition before heh High Court of Karnataka. The High Court while setting asid.e tlrc order of DRAT retumed its finding in conformitg with what was obserued. bg the DRT in its ord.er, tahich is ttLe subject matter of appeal before us."

¶52

Ld. Counsel for the 1st relied on the judgement of Hon'ble Hlgh & Petltlon Nog28S2O and. 28947/2018 Vs. M/s Om Vlshnu Plpes P, Ltd.uherein is as follows..

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SA.No.1/2022

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"In the instant case, tlrc 3O dags gap between notice und.er Rule 8(6) and notice under Rule 9(l) was maintained.. When the first auction process Luas not success.Tful second sale notice wcrs issued under Rule 9(1) utith 15 dags grace period. between tlrc sale notice and date of auction. As second attempt was also not successful, third notice under Rule 9(2) uLas issued" again with 15 days grace period. These tuo notices are in compliance with R.-le 9fta) prouiso, as il sfands when those tuo notices were issued.,'.

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Ld. Counsel also relied upon another judgement of Hon,ble High Court of Telangana in Wrtt petitlon No,2OZ29/2O1g between M/s Concern Readgmix and another Vs, Corporatlon Bank qnd. another wherein it is held at para No. 17, as follous:

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"Rule 9(1) does not stipulate a separate notice to be published. This Rule merelg makes a reference to the notice of sale serued_ on the bonouter. The words^.notice of sale has been serued" to the borrouero appeaing towards the end. of the main part of sub-rule 0 of Rule 9, cannot be construed as one more notice of sale, apart from^{the notice} of sale to be serued on the borrower und.er Rule 8(6). If fhis is so construed, tLen the borrouer should haue 6O dags time, with the ftrst 3O dags follouing tLrc notice of sale und.er Rule 8(6) and the second period of 30 days following th.e notice under Rule 9(1). In fact, the prouiso to sub-rule (1) of Rule 9 steers clear of anA doubt. The prouiso speaks about the faiture of tLe first^{attempt of} the seanred creditor. once the secured cred.itor fa s in his jirst attempt, then the Authorized offi.cer should "serue, affix and publish notice than 15 days to the borrouter, for^ang

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,,/ !*

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S,A.No.1/2022

¶59

The undisputed facts of the case are that the Applicant availed credit facilities from the lst Respondent Bank and thereafter committed default in repayment of dues. The l^{stRespondentBank} filedOA 661 /2017 on the file of this Tribunal against the Applicant herein and others and the said O.A. was allowed by this Tribunal on 16.04.2019 directing the defendants to pay a sum of Rs.9,36,73 ,279 I - with subsequent interest @ 6Vo p.a. simple from the date of frling of O.A. till realization. There is also no dispute regarding the fact that the lst Respondent Bank issued demand notice, possession notice, notice prior to sale to the Applicant and the Applicant received the said notices. There is also nodispute regarding the fact that the Applicant upon receipt of the demand notice dt.22.O7.2021, raised certain objections regarding the amount claimed by the 1"t Respondent Bank and the 1"t Respondent bank issued reply by stating that the objections of the Applicant are not sustainable.

¶60

¶61

A perusal of the demand notice issued by the l^stRespondent Bank makes it clear that in the demandnotice dt.22.07.2021, the lstRespondent bank clamed a sum of Rs. 15,59,57,567 l- and in response to the said notice, the Applicant raised objections vide letter dt. 18.09.202 1 stating that the interest claimed by the lstRespondent Bank is not correct. But even though, the Applicant has submitted detailed objections, the lstRespondent bank sent their reply vide letter dt.14.1O.2021 by simply stating that the objections raisedby the Applicant are not sustainable. Thereafter the lstRespondent bank issued possession notice dt.25.17.2027 and in the said possession notice also, a sum of Rs. 15,59,57,567/ - is claimed by the lstRespondent bank. In the notice issued u/s 13(8) of the SARFAESI Act , ,2OO22OO2 for giving an op port,u,rpol[unityr--to the Applicant to redeem the secured asset also, the Zdxil:rqd:.id,m!4,tra.led as Rs. 15,59 ,57,567 /- But in the , nu"rl63rt.'wtti.. ai.ozlor.zozs issued by rhe !/6P !/ t'!F , , .. . ','. l.rRespondent ' Bank, , die'-Bank^.;' clahed u "..,- of Rs.19,43,44,786/- as ,l , nnr nilLr ;^{</sup> due, as on 31.1 . ^ 2.2022', ^^^-r, ' -. 17oclI I ULI 2m7W}

¶62

SA.No.1/2022

¶63

It is pertinent to note that in the Additional Reply filed by the l"t Respondent Bank, the Bank clearly admitted that as on the date of issuance of demand notice by the l"tRespondent bank, the amount due by the Applicant is only Rs.11,47,49,7601- and by the date of iSsuance of auction Saie Notice, the amount due is only Rs. 12,34,61,381/-

¶64

So in the circumstances, it is very clear that even though, the amount awarded by this Tribunal tn 0.A.661 /2077 is much lesser than the amount mentioned in the demand notice issued by the lstRespondent Bank, the l"tRespondent Bank has not considered the objections raised by the Applicant and asserted that the amount due is Rs. 15,59,57,567 l- But strangely in the Auction Sale Notice dt.O7.O1.2O23, the amount claimed by the 1st Respondent Bank is Rs.19,43,44,7861- i.e. much higher than the amount claimed in the demand notice. As per the ratio laid down by the Honble High court of Allahabad in Ace Media Advertisers P.Ltd. and others Vs. Bank of Baroda and othersas reported supra, it is very clear that when the amount due to the lst Respondent Bank is determined in an adjudicatory process i.e. the order of this Tribunal in 0.A.661/ 17, the l^st Respondent Bank is expected to claim the same amount as awarded in the said 0.A.661 117 but not as per its whims and fancies. But in the instant case, the 1st Respondent Bank issued demand notice by ignoring the rate of interest awarded by this Tribunal and it claimed the interest as per its choice. When the demand notice ,,?'^{I '- :"-1} ":.:- -.. issued by the 1st q4!" is,;ipp!fuept on the very face of it, the 1"t Respondent i$steah the valid objections raised by the #," d proceeded further ln lssulng possesslon r-rd.lice a|l{ S8{ rlQpe. the 1"t Respondent Bank claimed the e demand notice

¶65

-rr1-?-6E, J.'-'^'

¶66

SA.No.1/2022

¶67

dt.22.O7.2O21, the Applicant ought to have paid the amount as awarded by this Tribunal in 0.A.661/ 17, otherwise, he should have exercised his right of redemption as given by the 1st Respondent Bank by paying the amount as per the award in 0.A.661 117. So, issuing demand notice by ignoring the order passed by this Tribunal in O.A.661 I 77 and proceeding further in^pursuance of the said demand notice is not proper on the part of the 1st Respondent bank.

¶68

¶69

So, when there is error on the face of the very demand^{notice and} sale notice in view of the incorrect amount claimed by^the l"tRespondent Bank, the said notices are not legal and valid^{and as} such, there is no need to determine the other aspects^{relating to the} procedure followed by the 1st Respondent Bank in issuing auction sale notice against the schedule^{propertiesand in conducting auction} of the schedule properties.

¶70

So, in view of the above discussion^{and facts and circumstances of} the case, I hold that the^{proceedingsinitiated by the 1st Respondent} bank against the schedule^{properties in pursuanceofthe invalid} demand notice dt.22.07.2021^{are not legal and valid and so, the said} proceedings are liable to be set aside.

¶71

As the l"t Respondent Bank^{has already conducted e auctionin} respect of the schedule^{propertiespursuant to the e AuctionSale} Notice dt.07.01.2023^{in which, the 2"d Respondent became successful} bidder, the said auction^{is liable to be set aside as the same is invalid.} So this^point is^{answeredaccordingly.}

Point No^(iil

1 / oci 2[rl

S'A.No.1/2022

In the result , SA I I 2O22is allowed by setting aside the impugned auction conducted by the lst Respondent Bank in respect of the schedule property on 15.02.2023 pursuant to the Auction Sale Notice dt.O7 .Ol .2023. Accordingly, the l"t Respondent Bank is directed to refund the sale consideration deposited by the 2"a Respondent i.e. auction purchaser of the schedule property towards the bid amount the along with interest @ 60/o p.a. simple from the date of deposit till date of repayment, within one month from the date of receipt of this order. The lst Respondent Bank is directed to take steps for cancellation of the Sale certificate issued in favour of the 2"a Respondent in respect of the schedule propert5r. The lst Respondent Bank is at liberty to issue fresh demand notice by claiming the amount due as per the order passed in O .A.661 I 20 17 on the file of this Tribunal.

¶76

Communicate a copy of this Order to the parties concerned.

¶77

(Dictated to the P.5., transcribed by her, corrected, signed and^pronounced bg me in the open court on this the 1Vn daA of October, 2024).

¶78

sd/(G. GOPICHANDI PRESIDING OFFICER

¶79

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¶80

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¶81

Ms Masani Reddy Poultry Farms v. Canara Bank

Case brief

What is this about?

What did the court decide?

Ms Masani Reddy Poultry Farms v. Canara Bank

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

Coram

Case details

All orders in this case

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