Dismissed

Royal Traders v. Indiabulls Housing Finance Ltd.

DRT11 Mar 2024SA/272/2022

Case brief

AI extract

What is this about?

In these securitisation applications, Royal Traders challenged action taken by Asset Reconstruction Company (India) Limited under the SARFAESI Act. The Tribunal held that the applications were time-barred due to a 116-day delay. It also found the applicant guilty of suppressing material facts. Consequently, the challenges were dismissed.

What did the court decide?

Securitisation Applications No.271, 272, and 273 of 2022 are dismissed with no costs. Pending Interlocutory Applications are disposed of.

Royal Traders versus Indiabulls Housing Finance Ltd. — Banking and Recovery | DRT (2024)

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Presented on : 05.09.2022 Registered on : 21.02.2024 Decided on : 11.03.2024 Duration : Y M D 01 06 06

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IN THE DEBTS RECOVERY TRIBUNAL No.2, MUMBAI

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SECURITISATION APPLICATION NO.271 OF 2022

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Royal Traders, Unit No.2, 3^rd Floor, Tardeo Air Condition Market, Tardeo, Mumbai – 400 034, Also having address at 3^rd Floor, Trade House, A-Wing, Kamala Mill Compound, Senapati Bapat Marg, Lower Parel, Mumbai – 400 013 through Authorized Signatory Ganesh Sapte

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… Applicant

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Versus

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Asset Reconstruction Company (India) Limited, Elphinstone Road, Senapati Bapat Marg, Mumbai – 400 013

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…Defendant

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AND

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Presented on : 05.09.2022 Registered on : 21.02.2024 Decided on : 11.03.2024 Duration : Y M D 01 06 06

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IN THE DEBTS RECOVERY TRIBUNAL No.2, MUMBAI SECURITISATION APPLICATION NO.272 OF 2022

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Royal Traders, Unit No.2, 3^rd Floor, Tardeo Air Condition Market, Tardeo, Mumbai – 400 034, Also having address at 3^rd Floor, Trade

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Page 1 of 17

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House, A-Wing, Kamala Mill Compound, Senapati Bapat Marg, Lower Parel, Mumbai – 400 013 through Authorized Signatory Ganesh Sapte … Applicant

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Versus

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Asset Reconstruction Company (India) Limited, Elphinstone Road, Senapati Bapat Marg, Mumbai – 400 013 …Defendant

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AND

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Presented on : 05.09.2022 Registered on : 21.02.2024 Decided on : 11.03.2024 Duration : Y M D 01 06 06

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IN THE DEBTS RECOVERY TRIBUNAL No.2, MUMBAI SECURITISATION APPLICATION NO.273 OF 2022

… Applicant

Versus

Asset Reconstruction Company (India) Limited, Elphinstone Road, Senapati Bapat Marg, Mumbai – 400 013

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…Defendant

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APPEARANCES
For the Applicant	: Mr Arsh Mis	hra	– Advo	cate
For Defendant	: Mr Nitin	Tha	kker,	Senior
	Counsel, M	s Meg	ha Gu	pta and
	Mr Nimay	Dav	ey i/	b M/s.
	Hedgehog	and	Fox	LLP –
	Advocates

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Shri Deepak M Thakkar Presiding Officer

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HEARING : 4^th March 2024 PRONOUNCEMENT : 11^th March 2024

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J U D G M E N T

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(1) The applicant is the principal borrower, and the mortgagor knocked at the Tribunal's door challenging the original lender's action and measures under the SARFAESI Act read with the Security Interest (Enforcement) Rules, 2002.

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The factual matrix of the case :

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(2) The applicant is a partnership firm with the following partners: (i) Ramesh Ghamandiram Gowani and (ii) Nidarshana Gowani. The applicant, their partners and Kamala Mills Ltd. ( borrower-1 ) approached Indiabulls Housing Finance Ltd. ( the original lender ) to grant financial assistance through a loan against property.

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(3) On 22^nd June 2016, the original lender sanctioned

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the loan against the property for their business purposes for Rs.31,76,50,818/- (with insurance premium). Borrower-1 agreed to repay the loan in 120 EMIs of Rs.53,24,418/- with 16% per annum interest. On 22^nd June 2016, borrower-1 signed and executed the loan and security documents. As per the sanction terms and conditions, on 22^nd June 2016, borrower-1 created a mortgage on 29^th July 2016 by delivering and depositing the original title deeds of 3^rd floor lower level and upper level, building "A", Trade House, Kamala City, Senapati Bapat Marg, Lower Parel, Mumbai400013 (for short, " the 1^st property "). On 30^th July 2016, the original lender recorded the mortgage creation of the 1^st property in the memorandum of entry. Schedule III to the memorandum of entry reveals the original registered mortgage deed dated 20^th July 2016, bearing no.5181, between the applicant and the original lender. The original lender refers to it as the financial transaction loan account no.HLAPLPM00277931 .

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(4) Afterwards, the applicant, their partners, Kamala Mills Ltd., Fasqua Investment Pvt. Ltd., Rajdulari Builders and Developers Pvt. Ltd., Ravi S Bhandari and Trishla Advisory Services Pvt. Ltd. (for short, " borrower-2 ") approached the original lender to grant a loan against property. On 25^th

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March 2017, the original lender sanctioned a loan against the property for Rs.27,41,84,439/- (with insurance premium). Borrower-2 agreed to repay the loan in 120 EMIs of Rs.42,57,164/- with 14% per annum interest. On 25^th March 2017, borrower 2 signed and executed the loan and security documents. As per the sanction terms and conditions, on 16^th June 2017, borrower-2 created a mortgage by delivering and depositing the original title deeds of combined (i) Flat 601, (ii) Flat 701, (iii) Flat 602 and (iv) Flat 702 on the 6^th floor of Ashachandra Sagar Building of the society known as Worli Tekdi Griha Nirman Sanstha Ltd. situated on plots bearing C.S. No.7(part), 46(part) and 53(part), Worli Mumbai400018 (for short, " the 2^nd property "). On 17^th June 2017, the original lender recorded the mortgage creation of the 2^nd property in the memorandum of entry. Schedule III to the memorandum of entry discloses the details of the original title deeds handed over by the mortgagors to the original lender. The original lender gave the financial transaction loan account

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no.HLAPLPM00324852 .

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(5) Borrower-1 once again approached the original lender, requesting that it grant financial assistance through a loan against the property. On 29^th July 2017, the original lender sanctioned

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a loan against the property for Rs.17,72,63,310/(with insurance premium). Borrower-1 agreed to repay the loan in 180 EMIs of Rs.21,84,809/- with 12.5% per annum interest. On 29^th July 2017, borrower 1 signed and executed the loan and security documents. As per the sanction terms and conditions, on 29^th July 2017, borrower-1 created a mortgage on 10^th November 2017 by delivering and depositing the original title deeds of the 1^st property. On 11^th November 2017, the original lender recorded the mortgage creation of the 1^st property in the memorandum of entry. Schedule III to the memorandum of entry reveals the original registered mortgage deed dated 27^th October 2017 between the applicant and the original lender. The original lender refers to it as the financial transaction loan account no.HLAPLPM00353643 .

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(6) The Tribunal hereafter refers to Borrower-1 and Borrower-2 collectively as " the borrowers " and " the mortgagors ". The Tribunal hereafter refers to the 1^st and the 2^nd properties as " the mortgaged properties or the secured assets. " The Tribunal shall refer to the original lender as the original lender, the secured creditor, or the assignor . The Tribunal shall refer to the present defendant as the secured creditor or the assignee .

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(7) The borrowers defaulted on payment of EMIs, interest, and loan repayment against mortgaged properties. The borrowers' default was long and persistent. Therefore, the original lender classified the borrowers' account as an NPA on 4^th May 2021 for the three loan accounts: (i) HLAPLPM00277931, (ii) HLAPLPM00353643 and (iii) HLAPLPM00324852.

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(8) On 8^th May 2021, the original lender's authorised officer issued three demand notices for three loan accounts, viz. (i) HLAPLPM00277931 for Rs.32.58 crores, (ii) HLAPLPM00353643 for Rs.20.23 crores and (iii) HLAPLPM00324852 for Rs.20.34 crores.

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(9) On 29^th March 2022, the authorised officer took symbolic possession of (i) the 1^st property, enforcing the mortgage under loan account nos. HLAPLPM00277931 and HLAPLPM00353643 and (ii) the 2^nd property, enforcing the mortgage under loan account no. HLAPLPM00324852.

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(10) On 30^th July 2022, the authorised officer issued a sale notice under Rule 8(6) announcing the e- auction of the 2^nd property on 6^th September 2022 for the reserve price of Rs.25 crores.

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(11) On 2^nd September 2022, the applicant presented S.A. No.271 of 2022, challenging the original lender's action and measures under the SARFAESI Act read with the Rules relating to loan account no. HLAPLPM00324852.

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(12) On 2^nd September 2022, the applicant presented (i) S.A. No.272 of 2023 and (ii) S.A.No.273 of 2022 challenging the original lender's action and measures under the SARFAESI Act read with the Rules relating to loan account nos. HLAPLPM00277931 and HLAPLPM00353643.

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(13) S.A. No.271 of 2022 : The original lender filed its reply affidavit Exhibit 11 stating that (i) the S.A. in its present form is not maintainable, (ii) the S.A. is time-barred, (iii) the applicant made no representation under Section 13(3-A), and (iii) the applicant falsely raised the issue of noncompliance of the Rules. The original lender produced the photocopies of the following documents (i) Memorandum of Entry dated 17^th June 2017, (ii) Board Resolution empowering the authorised officer to take action and measures under the SARFAESI Act read with the Rules, (iii) photograph of the affixing the possession intimation on the conspicuous part of the secured asset as per Rule 8(1), (iv) publication of the possession notice in Free Press Journal (English) and Navshakti (Marathi), as per Rule 8(2), (v) valuation report as per Rule 8(5), (iv) sale notice dated 6^th August 2022 as per Rule 8(6), (vii) publication of sale notices in Free Press Journal (English) and Navshakti (Marathi), and (viii) Statement of account and financial closure.

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(14) The assignee filed its reply affidavit Exhibit 16 stating that the original lender or the assignor under the assignment agreement dated 1^st December 2022, read with the rectification deed dated 7^th February 2024, assigned the debt and underlying securities. It stepped into the original lender's shoes and was entitled to continue the action and measures under the SARFAESI Act read with the Rules. The defendant states that (i) the S.A. is time-barred, (ii) the applicant waived the benefit under Section 13(3-A), (iii) the estoppel principle shall apply to the applicant from raising objections at a belated stage, (iv) the applicant misconstrued the loan against property as a home loan, (v) the applicant filed Section 8 application to defeat or delay the recovery proceedings, (vi) the applicant is guilty of suppressing material facts that the applicant and its group companies availed six loans totalling Rs.120.52 crores, (vii) the applicant selected to challenge on three loans, (viii) the applicant made wrong verification of the S.A., (ix) the challenge to the 13(2) notice wrong raised for the first time, (x) the applicant acknowledged the outstanding and applied for an OTS, and (xi) it complied with the Rules. The defendant produced the photocopy of (i) the assignment agreement dated 1^st December 2022, (ii) the rectification deed dated 7^th February

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2024, (iii) declaration-cum-undertaking dated 27^th March 2017, (iv) correspondence between the original lender and the applicant, (v) the applicant's OTS letter dated 10^th October 2023, (vi) the defendant's letter dated 9^th February 2024 rejecting the applicant's OTS, (vii) the applicant's representation dated 22^nd June 2021, (viii) the applicant's disbursal request dated 29^th July 2017, (ix) the statement of account, (x) possession notice dated 29^th March 2022, (xi) sale notice dated 9^th September 2022, (xii) photographs showing pasting of possession notice, and (xiii) publication of possession notices.

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(15) S.A. No.272 of 2022 : The original lender and the defendant filed their reply affidavits Exhibit 11 and 16, respectively. They have also produced the documents noted in S.A. No.271 of 2022.

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(16) S.A. No.273 of 2022 : The original lender and the defendant filed their reply affidavits Exhibit 9 and 14, respectively. They have also produced the documents noted in S.A. No.271 of 2022.

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(17) Based on the above facts, the parties advanced their arguments.

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(18) The applicant's submissions : In his opening statement, Mr Mishra drew the Tribunal's attention to the reasoned order dated 4^th October 2022 passed in I.A. No.2214 of 2022 to say that the final order be passed based on it. According to

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the applicant, the demand notice is wrong in law and is liable to be quashed and set aside. Consequently, Section 13(4) measures must go for invalid demand notice. The demand notice does not disclose the name and designation of the authorised officer. The authorised officer failed to give the mandatory details under Section 13(3).

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(19) Defendant's submissions : There is no challenge to the NPA classification and the Section 13(2) notice in the final relief to the S.As. Though the applicant moved I.A.s in the three S.As, the applicant neither pursued nor argued the amendment application. The applicant did not invite the original lender or the defendant to debate on the amendment application.

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(20) On the merits of the challenge to the demand notice, the applicant misinterpreted the RBI circular as regards the foreclosure charges. The secured creditor granted the loan against property and not the housing loan. The RBI circular referred to in the reply affidavit does not apply to the facts and circumstances of the present case.

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(21) The applicant is guilty of suppressing the representation of the demand notice and the authorised officer's reply. The applicant also suppressed that they and the group companies obtained six loans.

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(22) The objection to the demand notice that the

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authorised officer failed to disclose the name, designation and bifurcation is an afterthought. The applicant waived or abandoned the benefit accrued in their favour. Mr Thakker relied upon the judicial precedent in ARCE Polymers Private Limited versus Alpine Pharmaceuticals Private Limited and Others (2022) 2 SCC 221. The applicant made an untrue statement with the intent to mislead the Tribunal to condone the delay of 116 days in presenting the S.As.

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(23) The applicant failed to show sufficient cause to condone the delay in challenging the symbolic possession. The e-auction held on 6^th September 2022 failed for want of a bid. Therefore, the relief challenging the sale notice and auction became infructuous.

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(24) The applicant applied for an OTS, which the defendant rejected by a letter dated 9^th February 2024.

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(25) The original lender and the defendant produced evidence establishing proper action and valid measures by the authorised officer.

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(26) The defendant requested the Tribunal to dismiss the S.A.

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Analysis and findings :

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(27) The Tribunal heard the learned counsels for the parties and meticulously perused the pleadings and the material placed on record by the parties.

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(28) Loan and Mortgage : In S.A., the applicant admits the loan and mortgage creation. There is no dispute about executing the documents for the above loan accounts. Therefore, the Tribunal finds it appropriate to apply the provisions contained under Section 58 of the Evidence Act to the facts and circumstances of the present case.

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(29) NPA classification and Section 13(2) notice : The applicant neither pleaded nor raised any grounds challenging (i) the NPA classification dated 4^th May 2021 and (ii) the Section 13(2) notice dated 8^th May 2021 in the three 'Securitisation Applications'. Therefore, the question of the Tribunal rendering findings on (i) the NPA classification and (ii) the statutory demand notice dated 8^th May 2021 does not arise.

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(30) The applicant moved the amendment applications viz., (i) I.A. No.2213 of 2022 in S.A. No.271 of 2022, (ii) I.A. No.2219 of 2022 in S.A. No.272 of 2022, and (iii) I.A. No.2217 of 2022 in S.A. No.273 of 2022. The applicant consciously did not pursue and argue seeking leave to amend the S.A. The applicant maintained silence before the Hon'ble High Court, waiving the right to debate the amendment application and finally chose to argue. Thus, the applicant failed to plead and establish the case of any defect, illegality or irregularity in the Section 13(2) notice.

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(31) Symbolic Possession : On 29^th March 2022, the authorised officer took symbolic possession of the secured assets. Admittedly, the applicant filed the S.A. after an inordinate delay of 116 days. In paragraph 4 of the S.A., the applicant states that they did not approach this Tribunal within fortyfive days (i) as the defendant made them believe about the one-time settlement process and (ii) the defendant did not serve upon all the parties' notice under Rule 8(6). The applicant blames the secured creditor for the delay. The applicant suppressed the facts from the Tribunal and attempted to mislead to obtain a suitable order, being the modus operandi adopted at the adinterim stage. The applicant suppressed the truth and withheld the evidence, i.e. the defendant's reply letter dated 13^th August 2021. The secured creditor explicitly recorded that settlement talk may continue without prejudice by replying to the applicant's representation. The settlement may or may not happen. If it fructifies, it will be at a future date. The authorised officer specifically recorded that under the guise of settlement, the applicant cannot avoid payment demanded under the Section 13(2) notice. The authorised officer once again put the applicant to the actual notice that failing to pay the amount as per the statutory notice, the secured creditor shall proceed to deal

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with or dispose of the attached securities under the SARFAESI Act read with the Rules.

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(32) The applicant failed to explain the delay adequately, satisfactorily and convincingly. Therefore, the Tribunal is not inclined to condone the delay without sufficient cause. As a result, the Tribunal declined to condone the delay of 116 days. The Tribunal declares that (i) the challenge to notice dated 29^th March 2022 issued under Section 13(4) of the SARFAESI Act is time-barred and cannot be quashed and set aside, (ii) the prayer to restore possession of the secured assets is also time-barred. Be that as it may, Mr Thakker rightly relied upon the ARCE Polymers Private Limited ruling versus Alpine Pharmaceuticals Private Limited and Others (2022) 2 SCC 221 for waiver, abandonment or relinquishing of legal rights.

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(33) The Tribunal took judicial note that the applicant is guilty of suppressing the material fact, withholding the letter dated 13^th August 2021, and playing fraud upon the Tribunal and the secured creditor. The applicant neither referred to nor relied upon the letter dated 13^th August 2021. The Tribunal takes assistance applying the proposition laid down in S.P. Chengalvaraya Naidu (Dead) by L.R.s versus Jagannath (Dead) by L.R.s (1994) 1 SCC 1 in the present case. The

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applicant's act is malafide and intentional. The applicant did not approach the Tribunal with clean hands. The applicant took undue advantage of the non-disclosure of the facts and evidence.

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(34) The defendant produced the evidence with the affidavit and established the valid measures under Section 13(4)(a) read with Rules 8(1), 8(2), 8(5), and 8(6) of the Rules. The applicant neither responded nor dealt with it. How the applicant then calls the Rules wrong in law remained unestablished.

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(35) The applicant's relief challenging the sale notice dated 30^th July 2022 and e-auction dated 6^th September 2022 became infructuous. The e- auction failed because the authorised officer received no bid. The defendant produced the evidence with the affidavit and established the validity of the measures under Rules 8(5) to 8(7) and 9(1) of the Rules. The applicant neither responded nor dealt with it. Since the e-auction failed, the relief became redundant; therefore, the applicant's counsel advanced no arguments.

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(36) The applicant failed to establish the case to grant a permanent injunction prohibiting the secured creditor from selling the mortgaged properties. The applicant's counsel did not even attempt to argue. Therefore, the Tribunal declines to grant relief of permanent injunction.

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(37) Lastly, the Tribunal has no jurisdiction to direct or compel the secured creditor to consider a onetime settlement. The applicant has to show the eligibility criteria for the defendant to look into it because OTS is not a matter of right as per the Hon'ble Supreme Court's ruling in The Bijnor Urban Co-operative Bank Ltd. and others versus Meenal Agarwal and others (2023) 2 SCC 805.

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(38) After examining the facts and circumstances of the case and the evidence produced by the parties, the Tribunal conclusively views that the measures referred to in sub-section (4) of Section 13 taken by the secured creditor are as per the SARFAESI Act read with the Rules. Hence, the following order:

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(39) Hence, the following order:

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ORDER

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(A) Securitisation Application No.271 of 2022, Securitisation Application No.272 of 2022 and Securitisation Application No.273 of 2022 is dismissed with no costs.

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(B) Pending Interlocutory Applications, stand disposed of.

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Sd/-

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(Deepak M. Thakkar) Presiding Officer, DRT-2, Mumbai

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Nidhi

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Royal Traders v. Indiabulls Housing Finance Ltd.

Case brief

What is this about?

What did the court decide?

Royal Traders v. Indiabulls Housing Finance Ltd.

Case brief

What is this about?

What did the court decide?

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