Dismissed

M S Mas Steel Trading Company v. Equitas Small Finance Bank Limited

DRT7 Oct 2024SA/298/2023

Case brief

AI extract

What is this about?

The Debt Recovery Tribunal dismissed an application challenging a bank's possession notice. The court found the bank complied with SARFAESI Act requirements and held that the Applicants failed to substantiate claims regarding alleged defaults or procedural violations with documentary evidence.

What did the court decide?

Application SA No.298/2023 dismissed; relief prayed for denied.

M S Mas Steel Trading Company versus Equitas Small… — Securities and Capital Markets | DRT (2024)

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SA No.298/2023

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Fair Order

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IN THE DEBTS RECOVERY TRIBUNAL AT MADURAI

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DATED THIS 07^th DAY OF OCTOBER, 2024

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PRESENT: SEEMA SINHA

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[PR. DISTRICT & SESSIONS JUDGE - Retd] PRESIDING OFFICER

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SA No. 298/2023

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M/s. MAS Steel Trading Company, Rep. by its Partner, N. Navaneetha Krishnan, S/o. Natarajan, No. 1/5A, Sivagangai Main Road, Melamadai, Madurai – 625 020. 2. N. Navaneetha Krishnan, S/o. Natarajan, S/310, Kalaignar Nagar, E. Pudukottai, Periyakulam, Theni District - 625 605. 3. K. Karthikeyan, S/o. Kamaraj, No. 11/10, Ambedkar Nagar, Thenkarai, Periakulam, Theni District – 625 601. --- Applicants -VsThe Authorized Officer, Equitas Small Finance Bank Limited, 4^th Floor, Phase II, Spenser Plaza, No. 769, Mount Road, Anna Salai, Chennai, Chennai – 600 002. --- Defendant Bank Appearance of Advocates: Mr. M. Arun Murugan ---- Counsel for the Applicants Mr. K. Hariharan ---- Counsel for the Defendant Bank

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Page 1 of 12

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SA No.298/2023

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This SARFAESI Application was heard in the presence of Counsels for the Applicants and the Defendant Bank and fixed for passing final order before me and upon hearing the arguments of the Counsels and having stood over for consideration till this day, this Tribunal delivered the following:

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O R D E R

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1 . This Application has been filed under Sec.17 of the SARFAESI Act, 2002 by the Applicants praying that this Hon'ble Tribunal may be pleased to set aside the Possession Notice dated 12.06.2023 and declare the same as void, arbitrary, illegal and perverse and prayed that this Tribunal to direct the Defendant Bank to provide adequate opportunity to settle the account under OTS as per the prudent circulars of RBI or existing circulars of the Defendant and also prayed to restore the Possession to the Applicant.

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2 . The brief averments of the Application filed by the Applicants are as follows:-

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The Applicants submitted that the Applicant is the borrower and he has borrowed the business loan from the Defendant Bank for a sum of Rs. 85,00,000/- (Rupees Eighty Five Lakhs only) on 02.12.2020. The Defendants on verification of the securities sanctioned the said loan amount, which was availed by the borrower periodically based on the capability. As a pre condition other persons stood as a guarantor. The Applicant regularly paid the amount to the bank as per the repayment schedule without any break or hindrance. As such, he has settled most of the dues through his lawyer's profession.

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It is further submitted that the Applicants were unable to pay the installments only during Covid-19. However, thereafter, the Applicants managed to pay the dues regularly and there was no break up. And, during Pandemic period, the Applicants were experiencing great uncertainty. However, with such high stakes on the line, the lawyer like Applicant dealing with the "paralysis" and break down and need to do into smaller

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Page 2 of 12

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SA No.298/2023

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steps to come out of it and then attend to issues based on their level of urgency. But, the Defendant Bank did not wait for those period and charged interest on interest and penal interest. Further, the Applicants suffered significant losses in his steel business, leading to financial hardships. Despite his best efforts, the prevailing market conditions and unforeseen circumstances have adversely impacted their business operations resulting in a sharp decline in revenue and an inability to generate sufficient funds to repay the loan. They are actively exploring various options to stabilize their business and improve their financial position. However, the Defendant did not support during these difficult times to work out the viable solutions.

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It is further submitted that in spite of those situations, the Applicants were paying the dues regularly which is evident from the account statement. However, suddenly, the Defendant issued the Demand Notice on 16.02.2023 classifying the account as NPA on 28.01.2023. It is evident from the account statement that the Applicant has paid Rs. 20,000/- on 25.01.2023 and delay of 90 days is not present as contemplated under the NPA. Hence, the classification of NPA is wrong. Further, without taken care of the Applicant, the Defendant Bank suddenly issued the present Possession Notice in a manner unknown to law on 12.06.2023 in which the Address of the Applicants are not mentioned and the description of the property are entirely wrong and door number is not mentioned. And, the Defendant did not make a publication of Possession Notice in accordance with the Security Interest (Enforcement) Rules shall be considered a violation of the mandatory provisions. According to these rules, it is typically required that the bank publishes the Possession Notice in at least one newspaper, preferably in the vernacular language of the area where the secured asset is located.

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It is further submitted that this publication serves to notify the borrower, other interested parties, and the general public about the bank's intention to take possession of the asset. Failing to fulfill this publication requirement may undermine the transparency and fairness of the process

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Page 3 of 12

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SA No.298/2023

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and could potentially invalidate the Possession Notice issued by the Bank. And, if a borrower has been making regular payment of dues and the Bank still issued a Possession Notice under SARFAESI Act, it could potentially be seen as an illegal action. The SARFAESI Act provides provisions for banks to enforce security interests in case of loan default, but it also includes safeguards to ensure fairness and protect the rights of borrowers. If the borrower has fulfilled their payment obligations and there is no valid reason for the bank to issue a Possession Notice, it may be a violation of the borrower's rights under the Act.

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It is further submitted that if a borrower has been making regular payments towards their loan obligations and the bank still declares their account as Non Performing Assets, it could potentially be deemed as an illegal action. The Defendant Bank did not follow the mandatory rules while issuing SARFAESI notices and declaring the loan account as NPA, which is totally illegal and in violation of customer code and also against the orders of the Hon'ble Supreme Court of India. And the details given in the Demand Notice and the Possession Notice are vague, indefinite and totally lacking necessary details is bad in the eyes of law and which contains incorrect balance under the head "Outstanding" and various credits made by the Applicant as per record are not shown to have been made in the account.

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GROUNDS:-

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The arbitrary action of the Defendant Bank in issuing Demand Notice, Possession Notice and declaring the account as NPA by wrongly mentioning two different dates is unfair being violative of Articles 14, 19(1) and 21 of the Constitution of India.

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The Defendant wrongly classified the account as NPA on 28.01.2023, when the Applicants have paid an amount on 25.01.2023 shows their arbitrariness and illegal exercise.

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Page 4 of 12

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SA No.298/2023

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The Defendant failed to see that they paid Rs. 28,235,333.80p till date. However, the Defendant in a haste and urgent manner issued the Demand Notice and Possession Notice, which is wholly illegal and arbitrary and the Applicant borrowers are not willful defaulter as such in the Demand Notice also the Defendant did not state the Applicants are willful defaulter. Unless they are willful defaulter as per NPA Act, the Bank is not justified in sending notices under SARFAESI Act.

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The Defendant failed to mention the address of the Applicants in the Impugned Possession Notice.

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The Defendant Bank did not past the Possession Notice on the conspicuous part of the building and not issued any Paper Publication and had squarely violated the mandatory provisions under the Security Interest (Enforcement) Rules.

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That as per section 13 of the SARFAESI Act, the bank is bound to disclose in the notice itself the measures to be taken by the bank towards maintenance and upkeep of the assets and full description of the property purported to be issued, no such details have been provided. And, the Impugned Notice is violative of rule 3(4) and Rule 8(2) of the Security Interest (Enforcement) Rules 2002 and is no notice worth its name.

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The Defendant failed to mention the actual measurement of the house building and as such there is no door number mentioned and violated the mandatory provisions of the law.

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Schedule of the Property

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Part-A Property-I

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Residential Property owned by Mr. N. Navaneetha Krishnan

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All that pieces and parcels of property situated at Theni District, Periyakulam Registration District, Periyakulam Joint II Sub Registration

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Page 5 of 12

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SA No.298/2023

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District, Periakulam Taluk, Thekarai Village, Division 1 Patta No. 2667, in S. No. 121/3B measuring 0.30.0 Hectares in Western side land measuring 231/8, cents in that Plot Nos. 8 and 9 is within the following boundaries.

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Four corners of the said property

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North : 20ft wide East West Pathway South : Land is S.No. 120 East : Vacant Land West: Plot No. 7 belongs to Murugavel

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Within which Eastern side plot no. 8 land measuring East West on North 24½ ft on South 25 ¼ ft and North South on East 37 ½ on west 37 ¼ ft and thus totally measuring 930 sq.ft. land and on its adjacent Eastern side plot no. 9 land measuring East West 20 ft and North South on East 38 ft on West 37 ½ ft and thus totally measuring 755 sq.ft. and thus above side plots totally measuring 1685 sq.ft. land and including rights upon the common pathway and with all its amenities.

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Part B-Property II

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Residential Property owned by Mr. Karthikeyan

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All that pieces and parcels of property situated at, Theni District, Periyakulam Registration District, Periyakulam Joint II Sub Registration District, Periyakulam Taluk, Thenkarai Village in S. No. 72/1A, measuring 2 acres and 10 cents at present sub divided into three sub division and now in New.

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S.No. 72/1A1 measuring 0.40.5 Ares ie. 1 acre S.No. 72/1A1 measuring 0.05.0 Ares ie. 11 cents S.No. 72/1A3 measuring 0.40.0 Ares ie. 99 cents

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And thus totally measuring 1 acres and 11 cents land had been developed into several plots in that Western part of Plot No. 12A land building Door No. 83/1, having tax assessment No. 4066 is within the following boundaries. Four corners of the said property

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North: 20 ft wide East West Road

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Page 6 of 12

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SA No.298/2023

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South: Plot No. 7 East: Land of Murugavel in Plot no. 12A

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West: J.R.R. Nagar

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Within which the land measuring East West on 24 ¾ ft and North South 48 ½ ft and thus totally measuring 1200.375, ie, 111.55 sq meter land and RCC building constructed on it measuring 1050 sq ft and with all its amenities.

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Together with all buildings and structure attached to the earth or permanently fastened to anything attached to earth, both present and future and all easementary/mamool rights annexed thereto.

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The Applicants have submitted the following List of documents in support of their claim in the SA, which are as follows:

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S.No.	Date	Particulars
1.	16.02.2023	Demand Notice
2.	12.06.2023	Possession Notice

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3 . On the other hand, the Counsel for the Defendant Bank appeared before this Tribunal and filed Vakalat, Counter and Typeset in which he has denied all the allegations and averments, statements and/or submissions made in the above Application by the Applicants are hereby denied as false, incorrect and misleading unless, specifically admitted by the answering Respondent in the averments herein below. Further, the Applicants are required to strictly prove each and every fact state in the Application.

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It is further submitted that the requisite Registration under CERSAI has been complied with by the Respondent. As per the Sanction Letter the interest is chargeable at 10.50% per annum. It is submitted that the Applicant's credit conduct was unsatisfactory since inception and the Applicant failed to maintain the credit facility in accordance with the Terms & Conditions of the Sanction Letter and duly executed loan and security documents. Consequently, the account of the Applicant under which the said facility was availed, became irregular and was classified as "Non

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Page 7 of 12

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SA No.298/2023

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Performing Assets" as on 28.01.2023, in accordance with the guidelines/directions issued by the RBI from time to time. The payments made by the Applicants/borrowers have been given due credit by the Respondent and the Applicant has defaulted in repayment of the balance outstanding and hence, the Respondent proceeded to enforce its security interest over the SA secured mortgaged property. The averment that the Applicants have been making payment as provided in the agreement and there has been no delay or default is specifically denied.

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It is further submitted that the Respondent is aware about the business conducted by the Applicants. Further, about rest of the contentions regarding sales and losses, the Respondent is not aware of the contents thereof and therefore, is not in a position to offer any comments in respect thereof. It is denied that the classification of the account of the Applicant as NPA is bad in law and contrary to the RBI guidelines. More so, the Applicants have failed to show how declaration of NPA was not in accordance with guidelines. In any event, the Applicants have agreed in the said paragraphs that they did not repay the loan as agreed with the Respondent. The Applicant committed default in payment of interest, principal amount, which despite reminders, continued to remain outstanding. Consequently, the account of the Applicant No. 1 under which the said facility was availed, became irregular and overdrawn/delinquent for the period between 02.05.2022 to 27.01.2023 and hence, classified as NPA w.e.f. 28.01.2023 by the Respondent, as per Clause 2.1.2 (ii) as per the relevant RBI guidelines/norms contained in the Master Circular-Prudential Norms on Income Recognition, Asset classification and provisioning pertaining to Advances then extant.

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It is further submitted that the lockdown imposed under the National Disaster Management Act has no applicability in the present case in hand and in this regard, it is relevant to point out that the Hon'ble First Bench of the Madras High Court has held that "…the lockdown cannot be used as a magic wand by every defaulter to wish away the default on its part." With

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Page 8 of 12

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SA No.298/2023

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reference to the entire allegations that the Respondent levied interest on interest and penal interest are all denied as false, and the Applicants are put to its strict proof.

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It is submitted that the Applicants have to blame themselves for not adhering to the terms of credit facility sanctioned to them and no fault can be found with the Respondent for the same. In view of the default committed by the Applicant, the Respondent was enforced to issue a Demand Notice dated 16.02.2023 U/s. 13(2) of the SARFAESI Act calling upon them to repay the outstanding amount to the tune of Rs. 89,65,075/- as of 15.02.2023, within a period of 60 days. The service upon the Applicant was delivered to the address as provided by them to the Respondent and the Respondent received thereof and the Respondent has affixed Demand Notice on 01.03.2023 on the outer door being a conspicuous place of the aforesaid immovable properties in compliance and Paper Publication was also effected in Daily Tamil "Dinamani" on 01.03.2023 and English daily "The New Indian Express" on 01.03.2023. The Applicant had not raised any objections to the aforesaid Demand Notice and also failed to adjust the loan liabilities due to the Respondent even after the prescribed period of 60 days and in view of the default, the Respondent issued a Possession Notice dated 12.06.2023 U/s. 13(4) of the SARFAESI Act upon the Applicant and took symbolic possession of the Schedule mentioned property on 12.06.2023 and duly affixed the said Possession Notice on 12.06.2023 on the outer door being a conspicuous place of the aforesaid immoveable properties in compliance with Rule 8(1) of the Security Interest (Enforcement) Rules, 2002. Paper Publication has also been made in "Dinamani" Tamil daily on 14.06.2023 and an English daily "The New Indian Express" under Rule 8(2) of the Security Interest (Enforcement) Rules 2002.

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It is further submitted that the loan account of the Applicant was overdrawn for the period between 02.05.2022 to 27.01.2023 and was classified as NPA w.e.f. 28.01.2023 as per the relevant RBI guidelines and the outstanding reflected is in accordance with the amount due and payable

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Page 9 of 12

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SA No.298/2023

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in the books of accounts of the Respondent maintained in the ordinary course of banking business. It is further reiterated that the Respondent has complied with all the applicable provisions of the Security Interest (Enforcement) Rules 2002, with respect to enforcing of its security interest in the Schedule mentioned properties. However, the Applicants are actively delaying and obstructing the Respondent's lawful attempts to recover the monies due to it and hence, in the interests of justice, the present Application is liable to be dismissed with costs.

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Typed set of Papers filed by the Defendant Bank

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S.No.	Date	Description
1	16.02.2023	Demand Notice/DeliveryPostal Track
2	01.03.2023	Demand Notice Affixture
3	01.03.2023	Demand Notice Paper Publication in Tamil and English
4	12.06.2023	Possession Notice/Delivery Postal Track
5	12.06.2023	Possession Notice Affixture
6	14.06.2023	Possession Notice Paper Publication in Tamil and English

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4. ON THE BASIS OF ABOVE PLEADINGS THE POINT WHICH ARISES FOR CONSIDERATION IS:-

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WHETHER THE APPLICANTS ARE ENTITLED TO GET THE RELIEFS AS PRAYED FOR?

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5 . Having heard the parties and after going through the entire documents available on the records, this Tribunal find that there is no dispute with regard to the availment of loan facilities by creating equitable mortgage on their property. Since, the borrower failed to repay the loan amount that made the loan account as NPA on 28.01.2023. It is the contention of the counsel for the Defendant Bank that the Applicants after availing the above said loan facilities, failed to repay the outstanding loan

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Page 10 of 12

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SA No.298/2023

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dues regularly. However, the Counsel for the Applicants submitted that the Applicants were unable to pay the installments only during COVID-19. However, thereafter, the Applicants managed to pay the dues regularly and there was no break up and as such till date the Applicants have paid nearly Rs. 28,235,333.80p. (Para 4 of page no.4 of main SA). I perused the documents filed by the Applicant and I find that the Applicants failed to prove their allegations with necessary documentary evidences, such as Statement of Accounts, payments receipts, etc. Here, the Applicants themselves have admitted the fact that they could not made payments regularly and that they committed default in payment of the outstanding dues. The averments narrated in the SA would strengthen the contention of the Defendant Bank and due to the failure of the Applicants to repay the outstanding dues, their loan account has been classified as Non Performing Asset. Therefore, the Defendant Bank was constrained to issue Demand Notice dated 16.02.2023 U/s. 13(2) of SARFAESI Act. I also perused the documents filed by the Bank and I find that in the typed set of papers of Bank at page nos. 1 to 14, the Bank has produced the copies of Delivery Postal Track report, affixture of Demand Notice and Paper Publication of Demand Notice in both English and Tamil dailies, which proves that the Applicants have received the Demand Notice but they had not replied to Demand Notice U/s. 13(3-A) of SARFAESI Act. I find that the Applicants have failed to give any representation to the Defendant Bank. Hence, the Defendant Bank had issued Possession Notice U/s. 13(4) of SARFAESI Act on 12.06.2023. I perused the documents filed by the Defendant Bank and at page nos. 16 to 29 of the typed set of papers, copies of Delivery of Postal Track report, affixture of Possession Notice and Paper Publication of Possession Notice in both English and Tamil dailies are available which proves that the Applicants have received the Possession Notice.

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However, the Applicants have not placed any material evidence before this Tribunal to substantiate their claim that the classification of loan account as NPA is wrong and rate of interest has been charged excessively against the guidelines of RBI. Further, the Applicants have not produced

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Page 11 of 12

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SA No.298/2023

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any proof of document that they made representations to the Defendant Bank to furnish the copy of Statement of Accounts.

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On the other hand, I do not find any illegality committed by the Bank in the proceeding under the SARFAESI Act for recovery of loan amount. Under these facts and circumstances, I find that the Applicants have failed to prove their case before this Tribunal and this Tribunal is of the considered view to dismiss the case.

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In the result, SA No.298/2023 stands dismissed with no costs. However, the Applicants have complied with this Tribunal's conditional order dated 02.08.2023. Hence, the Defendant Bank can settle the dispute amicably as the Applicants have shown their bonafide.

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Dictated to PA (DK), taken down, transcribed, typed by her, corrected and pronounced by me in the Open Court in this the 07^th October, 2024.

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sd/-

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(SEEMA SINHA) PRESIDING OFFICER

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Dictated & Corrected by me

sd/-

(SEEMA SINHA)

PRESIDING OFFICER

Typed by me

(D. Krishnaveni, PA)

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Order uploaded on 17.10.2024

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Page 12 of 12

M S Mas Steel Trading Company v. Equitas Small Finance Bank Limited

Case brief

What is this about?

What did the court decide?

M S Mas Steel Trading Company v. Equitas Small Finance Bank Limited

Case brief

What is this about?

What did the court decide?

What the court decided

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