This Tribunal dismissed an application seeking to quash a SARFAESI sale notice. The court held that the bank followed the CGTMSE Scheme and that the notice format was valid even without separate principal/interest breakdown, rejecting claims of PEGMP violation.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
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BEFORE THE DEBTS RECOVERY TRIBUNAL, CUTTACK
PRESENT:- SHRI JITENDRA PRASAD SINGH
PRESIDING OFFICER.
S.A. No.216 OF 2023
DATE OF DELIVERY OF ORDER:04.12.2024
W/o. Late K. Ramachandra Rao R/o. Haladiapada Road Street Golanthara, District: Ganjam
… Applicants
VERSUS
Head Office: Lokmangal, 1501, Shivajinagar, Pune
State: Maharashtra, PIN-411005
Counsel for the Respondents No.1 & 2:- Shri Durga Prasad Sahu
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JUDGEMENT
The Applicants are running manufacture unit under the name and style of M/s. Ashirbad Poly Pipes at Raghubeer Bihar, Tulu Road, Konisi Hata, Tahsil: Konisi, District: Ganjam and got Udyog Aadhar, consequently Khadi and Village Industries Commission, recommended the Respondent bank to sanction loan in favour of the Applicant’s unit under the Prime Ministers Employment Generation Programme (PMEGP).As per the aforesaid guideline of the PMEGP scheme, the applicant No.1 has been exempted from producing any type of guarantee and security for availing the loan however she was forced to produce guarantee and security under the aforesaid scheme by the Respondent Bank, then she made her son K. Praveen Kumar as
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guarantor and the Applicant No.1 mortgaged her own property bearing Plot No. 2117/7308, Khata No.1482/4538 Area of 0.060 Decimal situated at Mouza: Haladiapadar, Tahsil: Konisi, District: Ganjam. The respondent bank after sanctioning the aforesaid Loan Rs.14.25 lakh as term loan under PMEGP scheme and cash credit limit under PMEGP scheme of Rs.4.75 lacs in favour of the Applicant No.1 submitted application dated 20.02.2020 with Khadi & Village Industries Commission claiming Margin Money (Government Subsidy) of Rs.7,00,000/-.On 01.06.2020, the Respondent Bank again approved loan amount of Rs.1,90,000/- in favour of unit vide loan application No. 60358284862. All the credit facilities sanctioned by the Respondent Bank have been utilized solely for the purpose recorded expressly in the sanction letters.
The aforesaid credit facilities sanctioned by the Respondent Bank were subject to constant monitoring through physical inspection and information systems. The applicants have regularly maintained their all accounts with the bank strictly in terms and conditions of the sanction of the credit facilities. The credit facilities granted by Respondent have been serviced consistently since inception which is a matter of record and cannot be denied by the Respondent Bank.
Outstanding due was on 14.03.2023 in the Loan Account No. 60352657388 is Rs.8,11,308.33, outstanding due was on 14.03.2023 in the Loan Account No. 60352656420 is Rs.4,10,154.38 an outstanding due was on 03.11.2022 in the Loan Account No. 60358284862 is Rs.1,68,887.00, thus total outstanding due of the three-loan account as on 14.03.2023 was Rs.13,90,349/-.The aforesaid loan amount was advanced by the respondent-bank under the PMEGP Scheme which clearly stipulates that such scheme is free of any collateral security. Thus Respondent-Bank is not required to obtain any collateral security for the amount advanced by way of financial assistance under the PMEGP Scheme. It is further submitted
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that as per the Frequently Asked Question (FAQ) available in PMEGP website it is clear from the Question and answer No.13 that as per RBI guidelines the project costing upto Rs.10.00 lakhs under PMEGP loans are free from collateral security. The CGTMSE provided collateral guarantee for the project upto Rs.2.00 Crore. The respondent-bank while implementing the PMEGP Scheme is not supposed to have any collateral security as per the RBI guidelines and only the assets created would be hypothecated to the bank and all loans will be covered under the Credit Guarantee Fund Scheme For Micro and Small Enterprises CGTMSE as per guidelines. In view of the aforesaid provisions of CGTMSE Scheme Respondent-Bank is covered for any default which may be made by the Applicants with regard to financial assistance advanced by the Respondent-Bank under the PMEGP. However, the respondent Bank without following aforesaid scheme surprisingly issued Notice for sale/public Auction of Secured Assets of NPA under section 13(4) of SARFAESI Act, 2002 R/W Rule 8(6) of Security Interest (Enforcement) Rules, 2002 dated 21.08.2023.Thereafter the Respondent Bank again issued Notice for sale/public Auction of Secured Assets of NPA under section 13(4) of SARFAESI Act, 2002 R/W Rule 8(6) of Security Interest (Enforcement)Rules, 2002 dated 30.10.2023 by which the Respondent No.2 authorized officer without mentioning principal amount and interest amount directed the Applicants to pay due amount of Rs.24,14,715.88 within period of 15 days failing which the Respondents shall sell the equitable mortgage of property. That Respondent also made publication for E-auction sale notice in respect of equitable mortgage and offered sale of said asset through online E-auction under SARFAESI Act.
Entire proceeding initiated by the Respondent bank under SARFAESI Act against the applicants in respect of mortgaged property is perversity, and non-application of mind in view of the aforesaid scheme and is liable to be quashed.
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The contention of the applicant is that the Respondent Bank while implementing the PMEGP Scheme is not supposed to have any collateral security as per the RBI guidelines and only the assets created would be hypothecated to the bank and all loans will be covered under the Credit Guarantee Fund Scheme For Micro and Small Enterprises CGTMSE as per guidelines. It is further submitted that as per RBI guidelines the project costing upto Rs.10.00 lakhs under PMEGP loans are free from collateral security. The CGTMSE scheme provided collateral guarantee for the project upto Rs.2.00 crore.
The contention of the Respondent Bank is that the defendant bank while sanctioning the loan has strictly complied with all the guidelines of the RBI and no deficiencies can be observed in this regard. The CGTMSE scheme is totally a different concept and the provisions of the scheme is not applicable to the instant case.
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From the perusal of the CGTMSE scheme it is evident that the collateral security means the security provided in addition to the primary security, in connection with the credit facility extended by a lending institution to a borrower. As per guidelines of RBI under PMEGP for project involving upto Rs.10.00 lakhs, no collateral security will be insisted upon by the bank. In case of project involving more than Rs.10.00 lakhs under PMEGP, Banks are free to determine their terms of sanction and security stipulation and personal guarantee. It is a fact that it is not mandatory on the part of the lending institution to take collateral security but there is no bar for the same. In the circumstances, collateral security provided by the applicant is of his own volition and there was no force on the part of the applicant to submit collateral security. If the applicant would have any objection for the same, then the applicant could have objected said the sanction letter.
In view of the discussion made above, this Tribunal is of the view that the Respondent Bank has violated the provisions of CGTMSE Scheme holds no good. Accordingly Issue No.(i) is answered.
Issue No.(ii):- Whether the Respondent Bank has issued notice for sale without following the CGTMSE Scheme?
The contention of the applicant is that the Respondent Bank without following the CGTMSE Scheme issued notice for sale/public auction of secured assets of NPA under Section 13(4) of SARFAESI Act, 2002 read with Rule 8(6) of Security Interest (Enforcement) Rules, 2002 dated 21.08.2023.
The contention of the Respondent Bank is that the Defendant Bank while sanctioning the loan has strictly complied with all the guidelines of the RBI and no deficiencies can be observed in this regard. The CGTMSE Scheme is totally a different concept and the provisions of the scheme is not applicable to the instant case. The E-
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auction sale notice has been issued/published as per the provisions of the Securities Interest (Enforcement) Rules, 2002 and hence there are no infirmities/discrepancies in the said Sale Notice.
From the perusal of the record it is seen that as per the Clause 7 of the Chapter II (v) of the CGTMSE scheme the payment of the guarantee claim by the Trust to the lending institution does not in any way take away the responsibility of the lending institution to recover the entire outstanding amount of the credit from the borrower. It is a fact that the applicant failed to service the interest and EMIs since inception as would be evident from the Statement of accounts under Annexure-2, the Respondent Bank compelled to take steps for sale of the secured asset. The E-auction sale notice has been issued/published as per the provisions of the Security Interest (Enforcement) Rules, 2002 and hence there are no infirmities/discrepancies in the said sale notice.
In view of the discussion made above, this Tribunal is of the view that the Respondent Bank has issued notice for sale following the CGTMSE Scheme. Accordingly issue No.(ii) is answered.
Issue No.(iii):- Whether the Respondent Bank has violated the provisions of Section 13(4) of the SARFAESI Act, 2002 by not mentioning the principal and interest amount separately?
The contention of the applicant is that the Respondent Bank issued Notice for sale/public Auction of Secured Assets of NPA under section 13(4) of SARFAESI Act, 2002 R/W Rule 8(6) of Security Interest (Enforcement)Rules, 2002 dated 30.10.2023 by which the Respondent No.2 authorized officer without mentioning principal amount and interest amount directed the Applicants to pay due amount of Rs.24,14,715.88 within period of 15 days failing which the Respondents shall sell the equitable mortgage of property. The Respondent also made publication for E-auction sale notice in respect
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of equitable mortgage and offered sale of said asset through online E-auction under SARFAESI Act. Entire proceeding initiated by the Respondent bank under SARFAESI Act against the applicants in respect of mortgaged property is perversity, and non-application of mind in view of the aforesaid scheme.
The contention of the Respondent Bank is that the notice under Section 13(4) has been issued as per Appendix-IVA provision (Rule 8(6) of the Securities Interest (Enforcement), Rules, 2002. Hence no infirmities are discernible in the said notice. This apart the details of the dues are mentioned in the demand notice issued U/s 13(2) of the SARFAESI Act, 2002.
It is further contended that E-auction sale notice has been issued/published strictly in consonance with the format as prescribed in Appendix IVA(Proviso to Rule 8(6) of Security Interest(Enforcement) Rules, 2002. There are no infirmities/discrepancies in issuance of the E-auction sale notice. The said format does not provide segregation of principal amount and interest amount separately. The break up of principal amount and interest are given in Demand Notie dated 23.11.2022 issued under Section13(2) of the SARFAESI Act, 2002.
From the perusal of the E-auction sale notice and notice under Section 13(4) it is evident that total dues of Rs.24,14,715.88 is mentioned in E-auction sale notice prescribed in Appendix IVA(Proviso to Rule 8(6) of Security Interest(Enforcement) Rules, 2002 and details of the amount i.e. principal and interest has been mentioned in the notice under Section 13(2) of the SARFAESI Act.
In view of the discussion made above, this Tribunal is of the view that the Respondent Bank has proved that the E-auction sale notice has been issued/published strictly in consonance with the format as prescribed in Appendix IVA(Proviso to Rule 8(6) of Security
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Interest(Enforcement) Rules, 2002. Accordingly, Issue No.(iii) is answered.
Issue No.(iv):- Whether the applicant is entitled to the reliefs as claimed?
From the perusal of the record it is seen that after availing the credit facilities from the bank, the applicants did not adhere to the terms and conditions of the sanction and did not clear the amount despite several correspondences and request from the bank for which the said loan accounts of the applicant became NPA. Thereafter the Respondent Bank had initiated the actions against the applicant under the provisions of the SARFAESI Act by issuing notice under Section 13(2) on 23.11.2022 and thereafter 13(4) of the said Act on 24.02.2023. Thereafter issued a letter for e-auction sale notice of the mortgaged property of the applicant vide its letter dated 21.08.2023 fixing date of auction on 29/09.2023 but failed due to non-participant of bidders. Subsequently 2nd E-auction notice was issued on 30.10.2023 and held on 17.11.2023. Hence it is evident that there is no illegality or irregularity committed by the Respondent Bank. The Respondent Bank has followed the provisions of SARFAESI Act or the Rules made thereunder.
It is further observed that when the successful bidder asked for extension of time for deposit of the balance 75% of the bid amount, doubting his ability to arrange the money which may lead to failure of 2nd E-auction and to given an opportunity to the applicants to redeem their property by repaying the dues they owe to the defendant bank, the defendant bank sent a demand notice through is advocate on 02.12.2023 demanding payment of the entire amount. This was done with an intention to afford a fresh opportunity to the appellants to redeem their property. But the applicant also failed to avail the said opportunity. In this process the Respondent Bank has not committed any illegality.
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O R D E R
In the result, SA No.-216 of 2023 filed by the applicant being devoid of any merit is dismissed without cost and the Respondent Bank has taken steps as per law and no irregularity is found by this Tribunal on the part of the Respondent Bank while initiating action under SARFAESI Act. Each party shall bear their own cost.
Since the main SA is disposed of, hence all the IAs, pending, if any, stands disposed of and interim order, if any, stands vacated.
Let the file of SA No.216 of 2023 be consigned to the record room.
Let a copy of this order be supplied to the parties forthwith as per rules.
This order is dictated and corrected by me and pronounced in the open Court under my signature, this the 4th day of December, 2024.
(Jitendra Prasad Singh) Presiding Officer.
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3 issues framed by the court
Whether the Respondent Bank violated the provisions of the PMEGP Scheme by insisting on collateral security?
Whether the notice for sale for public auction was issued without following the CGTMSE Scheme?
Whether the Rule 13(4) notice is valid as served without separately mentioning the principal and interest amount?
3 provisions across 3 enactments
K. Anusaya
K. Praveen Kumar
M/s. Ashirbad Ploy Pipes
Bank of Maharashtra Berhampur Branch
Chief Manager/Authorized Officer Bank of Maharashtra Zonal Office-Bhubaneswar
Jitendra Prasad Singh
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
