Dismissed

Kabilan Adhi v. State Bank of India

DRT3 Sept 2024SA/305/2023

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal dismissed a challenge to possession and sale notices under the SARFAESI Act. The Tribunal held that procedural deviations in the possession notice, such as lack of strict conformity with Appendix IV or missing caution clauses, did not cause palpable prejudice to the borrower. The Court adopted the principle that rules are directory where the phrase 'as nearly as possible' is used and allowed the bank to withdraw part of the claim. In the sale challenging petition, the Tribunal affirmed that the borrower's right of redemption was extinguished upon failure to pay dues before the auction notice publication.

What did the court decide?

SA No. 80/2023 dismissed; bank directed not to debit expenses for issuing possession notice. SA No. 305/2023 dismissed; borrower lost right of redemption.

Kabilan Adhi versus State Bank of India — Banking and Recovery | DRT (2024)

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SAs 80/2023 & 305/2023

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03.09.2024

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IN THE DEBTS RECOVERY TRIBUNAL-III, CHENNAI

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Dated this the 03^rd day of September, 2024

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Present: SHRI A. S. JAYACHANDRA Presiding Officer (In – charge)

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SARFAESI APPLICATION No.80 of 2023

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SARFAESI APPLICATION No.305 of 2023

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Sh. M.KabilanAdhi, S/o.Munuadhi, No.1, 2^nd Street Patel Street, Mudichur Road, West Tambaram, Chennai – 600 045

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….Applicant

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(in both the SAs)

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(By the Ld. Counsel Sh. J. Prince)

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-Vs-

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The Authorized Officer, State Bank of India, SME Branch, Guindy, 1/65A 2nd Floor, GST Road, Guindy, Chennai – 600 032 ….Defendant No.1 (in both the SAs)

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(By the Ld. Counsel Dr. T. Ramasamy)

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M/s Saravana Housing Pvt. Ltd. No.15, New Giri Road T. Nagar, Chennai – 600 017 ….Defendant No.2 (in SA No.305/2023)

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(By the Ld. Counsel Sh. G. Sanjeevi)

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:- COMMON ORDER -:

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By a common order both the SAs 80/2023 and SA No.305/2023 which

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challenges the legality of the possession notice and the sale notice in SA 305/2023 as opposed to the law are being disposed of, since the facts leading to both the cases and the arguments advanced are common.

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SAs 80/2023 & 305/2023

03.09.2024

SA No.80/2023

1.1 Applicant is the Director of M/s Finewear Leathers Pvt. Ltd., the borrower and stood as one of the guarantors, offering immovable properties as security towards repayment of the loans availed by the company. As there were irregular payments due to Covid-19, it is pleaded that the accounts were declared NPA. Demand Notice dated 07.04.2022 was issued. He was disputing the Statement of Accounts and pleaded willingness to repay. However the bank issued Symbolic Possession Notice dated 25.11.2022, which he questions in the instant petition.

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1.2 The grounds urged are that the classification of NPA is against RBI guidelines and the Demand Notice is not issued, the possession notice is not served on all parties and not published in two leading newspapers. It was not affixed on the schedule property. It is also pleaded that the same in not accordance with Appendix – IV of Security Interest (Enforcement) Rules, 2002. The possession notice also speaks of moveable property for which Rule 6 is not followed.

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1.3 The Ld. Predecessor had noted in the order sheet dated 21.02.2023 that the applicant filed a memo and expressed the willingness to deposit 10% of the debt within a week and another 10% within three weeks. Applicant was asked to prove the bonafides of the memo and the matter was kept for considering the stay orders to be passed.

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1.4 The order sheet of the Ld. Predecessor does not reflect any stay order on the impugned possession notice.

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2.1 However, the defendant bank had entered appearance and filed their counter.

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SAs 80/2023 & 305/2023

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03.09.2024

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Objections of the bank:

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3.1 In the counter, the bank contends that the applicant failed to deposit the sums as per his memo and on this count SA is ought to be dismissed. It is submitted that the bank had followed the guidelines of RBI in declaring the NPA and in terms of Section 2(o) of the Act. The Demand Notice was served on the Principal borrower. The notice sent to this applicant returned „unclaimed‟ and therefore publications were effected on 21.09.2022 and the same was affixed as per Rule 3 of Security Interest (Enforcement) Rules, 2002.

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3.2 The possession notice is published in the local newspapers and affixture was also carried out. The possession notice was also affixed as per Rule 8(1) and the same was published as per Rule 8(2). It is also contended that the proper loan account is maintained and the payments made have been duly credited to the loan account. The demand notice was never cared. There is no illegality in the process of issuing the possession notice. The bank had also furnished the documents of Demand Notice and proof of service, paper publication of the demand notice, possession notice and its proof of service. Photos showing affixation of the same, publications dated 29.11.2022 both in „New Indian Express‟ and „Dinamani‟ are furnished in the list of documents.

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4.1 Heard the Ld. Counsel for the parties and perused the documents.

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4.2 The Ld. Counsel for the applicants has filed common written arguments for SA No.80/2023 and SA No.305/2023 (kept in file SA No.80/2023).

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SAs 80/2023 & 305/2023

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03.09.2024

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Contentions of the applicant:

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5.1 The gist of the contentions of the applicant to point out the irregularity of the possession notice to term it as opposing to the SARFAESI Act and Security Interest (Enforcement) Rules, 2002 are:

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(a) The Rule 8(1) of the Security Interest (Enforcement) Rules, 2002 is not followed. It is argued that when the movables are included in the possession notice, which is not in accordance with Rule 4(1), the same suffers the nonconformity of the Security Interest (Enforcement) Rules, 2002. This is admitted by the bank and they withdrew the possession of movables included in the impugned notice. Such withdrawal is not permitted under the Rules.

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(b) Appendix-IV to the Security Interest (Enforcement) Rules, 2002 makes in mandatory to notify the time available to redeem the property which is not done. The rulings of P. Magudeeswaran – Vs.- The Authorised Officer - Manu/TN/3519/17 , K. Ramaselvam & Others – Vs.- Indian Overseas Bank - 2009(5) CTC 835, K. Kailasam – Vs. – Canara Bank - CRP No.2210/2015 are relied to urge that certain procedure prescribed should be followed in the manner as per law and in no other manner. Rules require strict adherence which is not followed and thus the possession notice is liable to be set aside.

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(c) Applicant further relies on the ruling of Mathew Verghese – Vs. – Amritha Kumar 2014(5) SCC 610 to urge that the secured creditor is entitled to enforce the secured assets and such enforcement should be in conformity with other provisions of SARFAESI Act.

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SAs 80/2023 & 305/2023

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03.09.2024

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Contentions of the Defendant Bank:

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6.1 In the written arguments filed by the Ld. Counsel for the bank, it is submitted that the applicant having not deposited the amounts as per the undertaking given, the SA is liable to be dismissed. It is argued that the possession notice having been served, affixed and published for which documents are produced, there has been no lapse in following the rules. As far as Rule 8(1) mandating to follow the Appendix-IV, the Ld. Counsel points out that this Rule is directory and not mandatory. A directory provision indicates what may be done with no provision for enforcement unlike a mandatory provision. It is contended that the applicant himself has surreptitiously removed the hypothecated assets to defeat the enforcement of security interest. Only the land and building was visible and unit ceased to be operative even before initiation of SARFAESI proceedings. All the formalities of Security Interest (Enforcement) Rules, 2002 were adhered to.

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6.2 In the supplemental written arguments filed by the bank, while re-iterating the facts leading to the issuance of demand notice, it is submitted that the demand notice was unclaimed and it was made to be published as per Rule 3 of the Security Interest (Enforcement) Rules, 2002, which the bank had complied. It is contended that the possession notice is served, published apart from affixtures carried out. Considering the Rule 8(1), the Ld. Counsel had pointed out to the terminology employed in Rule 8(1) and emphasizes on the wordings “as nearly as possible” to point out that this rule is directory and not mandatory. He relied on M. Eswara Gounder – Vs. – S. Subathra of Madras High Court - Indian Kanoon Doc No.12331488 , wherein it is held that when the words „as nearly as possible‟ is employed in a statute, even

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SAs 80/2023 & 305/2023

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03.09.2024

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though the prescribed format is not followed, that would not affect the proceedings. He also relies on State of Orissa Vs- Ramnarayan Sitaram [1988] 68STC153 (Orissa) to urge that the Rules cannot override the provisions of the Act. He also relied on the ruling of the Hon'ble Supreme Court in Ramjas Foundation & Anr – Vs. Union of India - 2021 (2) SCC 392 to urge that a person who does not come to

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the court with clean hands is not entitled to be heard on the merits of his grievance.

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Points for consideration in SA No.80/2023:

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7.1 With the above contentions, the following points arise for determination in this petition:

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(i) Whether there was proper service of the Possession Notice?

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(ii) Whether the Possession Notice is bad for not following the text as per the Appendix-IV as prescribed in Rule 8(1) of the Security Interest (Enforcement) Rules, 2002?

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The service of possession notice:

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8.1 To find out whether there was proper service of possession notice or not, this Tribunal had examined the documents furnished by the respondent bank. It is contended that the possession notice is published in „The New Indian Express‟ and „Dinamani‟ dated 29.11.2022. The possession notice is dated 25.11.2022. The applicant is the guarantor to the borrower namely M/s Finewear Leathers Private Limited. The publications are furnished at page 34 and 35. Page 28 shows the postal receipts, page 29 is the acknowledgement card of the service against the

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SAs 80/2023 & 305/2023

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03.09.2024

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applicant herein, page 30 and 31 are the postal acknowledgement cards of the other two persons namely the borrower and the other guarantor. The photographs evidencing affixation are produced at page 32 and 33. In view of the above, it cannot be said that there was no proper service of the possession notice.

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The non-conformity with Appendix-IV:

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9.1 The peculiarity of the present possession notice is that the same is not in conformity with the Appendix-IV to the Security Interest (Enforcement) Rules, 2002. It is clear that the possession notice is jointly issued for hypothecated movables and also the immovable property mortgaged, which are at Part I and II of the possession notice.

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9.2 The respondent bank submits that on 03.05.2023, the Ld. Predecessor had kept the matter for clarification regarding the same. On the subsequent date i.e., 22.11.2023, the matter was kept for filing appropriate memo by the bank. It is argued by the Ld. Counsel for the defendant bank that the bank had withdrawn the part I of the movables from the possession notice and further submitted a memo to this effect. The same is dated 15.12.2023 and reads as under:

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“ It is therefore humbly submitted that with the leave of this Hon'ble Tribunal the inclusion of the clause relating to Part 1 Hypothecation of Movable Properties in the said Possession Notice and Paper publications may be treated as withdrawn since this Respondent Bank has not taken symbolic possession of the hypothecated movable properties. Symbolic possession of only immovable properties was taken.

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Other things remain the same in the said Possession Notice and Paper Publications.”

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SAs 80/2023 & 305/2023

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03.09.2024

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9.3 It is also prayed in the memo that appropriate orders may be passed.

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9.4 The Ld. Predecessor had not passed any orders. What remains on the record is that the Ld. Predecessor had noted the anomaly in the possession notice by an order dated 22.11.2023. The suitable orders are not passed.

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9.5 The Ld. Counsel for the applicant submits that this is an incurable defect, since the Security Interest (Enforcement) Rules, 2002 prescribe the mode of taking possession of the movables under Rule 4(1) by conducting a Panchnama as nearly as possible in Appendix I to these Rules. He submits that for taking possession of the immovable properties, Rule 8(1) prescribes that the Authorised Officer shall deliver the possession notice prepared as nearly as possible in Appendix IV to the rules to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. Rule 8(2) mandates the publication not later than seven days in two leading newspapers including vernacular. Rule 2(A) prescribes that such notices may also be served upon the borrower through electronic mode.

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9.6 It is also urged that the possession notice also lacks the proper mandated „caution‟ notice that is to be inserted into Appendix-IV by the amendment brought with effect from 04.11.2016. The wordings of caution prescribed are “ The borrower‟s attention is invited to provisions of sub-section (8) of Section 13 of the Act, in respect of time available, to redeem the secured assets.” In the absence of such caution notice, the impugned possession notice is opposed to the rules.

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SAs 80/2023 & 305/2023

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03.09.2024

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9.7 The Ld. Counsel for the applicant also submits that with these flagrant violations, the possession notice may be set aside as not in conformity with the Security Interest (Enforcement) Rules, 2002.

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10.1 On the other hand, the Ld. Counsel for the defendant bank urges that the substantial law is to be looked into rather than the Rules framed there under. It is only a procedural lapse and that had not caused any prejudice to the defendant bank. He further submits that since the movables were not taken into possession, the same be treated as having been withdrawn partly.

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11.1 After careful consideration of the arguments on both the sides, it is to be noted that Section 13(4) provides for taking possession of the secured assets. The Ld. Counsel for the defendant bank argued that the provision made under the Rules both in Rule 4 and Rule 8(1) is inserted with a great caution by the legislature in so far as employing the language that the appendices both at I and IV are to be prepared as nearly as possible in the Appendix. When such words are used in the statute, they are to be understood as connoting a direction and the same would not be mandatory. To drive home this point, the defendant bank had relied on the ruling of the Madras High Court in M. Eswara Gounder (supra) . In the said ruling while dealing with the domestic violence rules, the Hon'ble High Court opined “ this rule intends that an application of the aggrieved person should be in form II, but at the same time, it intends that even otherwise, it may be as nearly as possible thereto. Therefore, even assuming that the application is not in the prescribed form II, it may not affect the proceedings”. With this ruling, the Ld. Counsel for the bank had argued that the words „as nearly as possible‟ will not affect the possession notice and the tenor of it.

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SAs 80/2023 & 305/2023

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03.09.2024

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11.2 He also relied on the ruling of the Orissa High Court in State of Orissa (supra) that the provisions in the rules cannot override the provisions of the Act.

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11.3 No doubt, the provisions of the Act make it clear as per Section 13(4) of the Act, the Authorised Officer is empowered to take the possession of both movable and immovable properties, which are either hypothecated or mortgaged forming the secured assets. The substantive legislation authorizes certain acts. The procedural law under the Security Interest (Enforcement) Rules, 2002 prescribes certain modes. It is also true that if the rules prescribed something to be done in a particular way and when it becomes part of the statute, the same be followed in letter and spirit in the manner prescribed and in no other manner. The law laid down by the various rulings relied by the Ld. Counsel for applicant in P. Mugudeswaran (supra) , Swastik Agency (supra) speaks volumes. In both the cases, it is held that when the statute provides for particular procedure, the same is to be followed.

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11.4 With utmost respect to the law laid down in the rulings urged by the Ld. Counsel for the applicant, an opinion comes to the fore that the bank had not followed the prescribed procedure under the law. The real question is whether such non-compliance had caused any prejudice to the party complaining the same or not.

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11.5 The ruling of Varimadugu Obi Reddy –Vs- B. Sreenivasulu in Civil Appeal

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No. 8470/2022, the Hon‟ble Supreme Court had held that “since no palpable prejudice was demonstrated to have been occasioned out of the said error in the description of the property, nor such a plea was not taken in response to the notices issued under Sections 13(2), 13(4) etc., or before the DRT at the outset, therefore the

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SAs 80/2023 & 305/2023

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03.09.2024

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plea belatedly after the conclusion of auction proceedings was an afterthought and not sustainable”.

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11.6 In the said ruling at para 20, the Hon'ble Supreme Court had noted that when no prejudice has been caused to the borrowers because of certain mistakes, such mistakes cannot be taken very serious note of. In para 36, the Hon'ble Supreme Court had noted that if the borrower failed to demonstrate that because of any typographical error the property could not have fetched the value, as it ought to have fetched and that apart, there is no documentary evidence placed on record to substantiate the kind of prejudice being caused. In such an event, that itself could not be considered to be a ground to annul the process held, while relying on para 36 and 37 of the above said ruling, the Ld. Counsel for the defendant bank submits that the non-adherence and the process held be not viewed very seriously to the detriment of the recovery of the public money.

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11.7 The Ld. Counsel for the applicant was asked to explain as to what prejudice the borrower suffered due to the two mistakes pointed out by him. The Ld. Counsel for the applicant only submits that the procedural derailment cannot be condoned and the possession notice be annulled. He did not explain the prejudice caused to his client. The pleadings are also perused. The pleadings also do not disclose the prejudice caused.

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11.8 In the above context, the ruling relied by the Ld. Counsel for the defendant bank assumes the significance to the aspect of causing prejudice and the procedural inadvertence shown. There are two aspects which are debatable.

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SAs 80/2023 & 305/2023

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03.09.2024

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12.1 The first debate relates to the defendant bank giving up the portion of movables described in the Part I of the schedule to the impugned notice. As noted above, the bank had given up the enforcement of hypothecated goods described in Part I. The relevant portion in the memo filed by the bank dated 15.12.2023 is that the respondent bank has not taken symbolic possession of the hypothecated movables.

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12.2 In this context, a legal quagmire arises as to what should be the approach of the Tribunal when the law / rules do not provide for and at the same time do not prohibit certain actions. It is in the common prudence that a party approaching the legal forum may give up / abandon a part of the claim or whole of it. But while the defendant as in the instant case do not want to enforce a particular aspect of the possession notice, whether the party could be allowed to abandon a part of the claims made in the impugned notice is the point which rallies around the legality of the same.

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12.3 The rules neither provides for such a concession nor it prohibit such a giving up of the part of the proposed acquisition. In this peculiar background, the ruling of the Hon'ble Supreme Court in Rajendra Prasad Gupta vs Prakash Chandra Mishra & Ors on 12 January, 2011 CIVIL APPEAL NO(s). 984 OF 2006, would guide the course of adjudication. It is held therein that

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Rules of procedure are handmaids of justice. Section 151 of the Code of Civil Procedure gives inherent powers to the court to do justice. That provision has to be interpreted to mean that every procedure is permitted to the court for doing justice unless expressly prohibited, and not that every

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SAs 80/2023 & 305/2023

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03.09.2024

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procedure is prohibited unless expressly permitted. There is no express bar in filing an application for withdrawal of the withdrawal application.

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In Narsingh Das v. Mangal Dubey, ILR 5 All 163 (FB) (1882), Mr. Justice Mahmood, the celebrated Judge of the Allahabad High Court, observed :-

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"Courts are not to act upon the principle that every procedure is to be taken as prohibited unless it is expressly provided for by the Code, but on the converse principle that every procedure is to be understood as permissible till it is shown to be prohibited by the law. As a matter of general principle prohibition cannot be presumed."

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The above view was followed by a Full Bench of the Allahabad High Court in Raj Narain Saxena Vs. Bhim Sen & others, AIR 1966 Allahabad 84 FB, and we agree with this view.”

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12.4 Guided by the above principle of law laid down by the Hon'ble Supreme Court, it cannot be said that the Rules do not prohibit the defendant bank to give up a part of the claim under the Possession Notice assailed. Therefore, the submission of the Ld. Counsel for the bank that the bank is entitled to give up the claim has to be understood. There is no express prohibition under the Security Interest (Enforcement) Rules, 2002 so far as the secured creditor giving up a part of the assets whether movable or immovable and therefore the memo filed by the Ld. Counsel for the bank dated 15.12.2023 is allowed and consequently, the argument that the possession notice is bad in law for having issued jointly the symbolic possession notice without following due procedure concerning the movables - do not vitiate the same.

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13.1 In this context, the ruling of the Hon'ble DRAT Allahabd in Maa Vaishno Cold Warehouse Private Limited II (2022) BC 51 (DRAT) , had noted that

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SAs 80/2023 & 305/2023

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03.09.2024

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“Thus, it cannot be said that by issuing a combined sale notice, the bank has committed any grave irregularity, because it has not caused any prejudice to the borrowers, who were well aware about their properties and the reserve prices fixed for those assets.”

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13.2 The second point highly debated across the bar by the Ld. Counsel for the applicant lampooning the possession notice for not following the caution by the words “ The borrower‟s attention is invited to provisions of sub-section (8) of Section 13 of the Act, in respect of time available, to redeem the secured assets ” also vitiates the said possession notice. The Ld. Counsel for the bank submits that in view of the Rule 8(1) which has a specific connotation that the possession notice should be prepared as nearly as possible in Appendix – IV, should not be read as mandatory. He submits that the same is directory. It is also his contention that the nonincorporation of this particular sentence had not caused any prejudice to the applicant. Therefore, he submits that such inadvertence is always condoned by the courts of law. He relies on the ruling of Varimadugu Obi Reddy – Vs. – B. Sreenivasulu & Others in 2023 (2) SCC 168 . He invites the attention of this Tribunal to para 38 by emphasizing the following:

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“ We find substance in the submissions made by the learned counsel for the appellant for the reason that so far as the error in the description of door number of the property is concerned, which admittedly indicated throughout as “123393” instead of “123 39”, but the fact is that the description of the mortgaged property from the commencement of the proceedings under Section 13(2) of the SARFAESI Act, 2002, due to human error instead of “12339”, door number was indicated as “123393”, but admittedly the fact is that there is no such property available in the locality/vicinity with Door no.”123393” and as full description of the

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SAs 80/2023 & 305/2023

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03.09.2024

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mortgaged property was mentioned/indicated, although there was a typographical error, but the respondent borrowers failed to demonstrate any prejudice being caused on account of the inadvertent error being caused in description of the mortgaged property. At the same time, the borrower failed to demonstrate that because of a typographical inadvertent error in door number, as indicated above, the property could not have fetched the value as it ought to have fetched and that apart, there was no documentary evidence placed on record to substantiate the kind of prejudice, if any, being caused.

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It is true that the secured creditor is under an obligation to undertake the exercise and crosscheck the description of the mortgaged property at the stage when the initial proceedings under Section 13(2) are initiated or in the later consequential proceedings, but at the same time, mere typographical error due to inadvertence which has not caused any prejudice to the borrowers, that in itself could not be considered to be the ground to annul the process held by the secured creditor which, in our view, is in due compliance with the requirement as contemplated under the provisions of Rules, 2002 and this was extensively considered by the Tribunal and that apart, it is not the case of the respondents that participants in e-auction sale are misguided because of the error in description of the property put to auction and when there is no ambiguity with regard to the detailed description of the mortgaged property put to auction, mere mentioning of the door number “123393” instead of “12339” is inconsequential and does not vitiate the auction proceedings held on 28th March, 2015.”

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13.3 It is already discussed that the non-incorporation of the sentence highlighted

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had not caused any prejudice to the applicant. There is no pleading also concerning the prejudice caused by the erroneous possession notice. It is to be noted that the possession notice itself had connoted the caution which the Ld. Counsel for the applicant emphasizes having not mentioned in the sale notice. After going through

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SAs 80/2023 & 305/2023

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03.09.2024

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the demand notice dated 07.04.2022, such a caution was already made to the borrower. Therefore, this Tribunal is of the view that no prejudice is caused concerning the non-incorporation of the above sentence in the impugned possession notice. Further, whenever the words “as nearly as possible” if found in the statute is to be understood as only directory and not mandatory as held by the Madras High Court in the ruling of M.Eswara Gounder (supra) .

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14.1 The rulings urged by the Ld. Counsel for the applicant in P. Magudeswaran is to be seen from the context where the authorized representative of the secured creditor himself had participated in the auction without issuing the mandatory notice under Rule 9(1) of the Security Interest (Enforcement) Rules, 2002. Since no notice was issued, the Hon'ble High Court had held that the auction conducted is in violation of the Security Interest (Enforcement) Rules, 2002. The relevant portion of the ruling at para 25 shows that

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“ As regards the procedure to be followed, by a creditor for bringing that secured asset for auction and whether, mandatory requirement in Rule 9(1) of the Security Interest (Enforcement) Rules, 2002, has to be followed, we deem it fit to consider few decisions………..”

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It also held that “Though Mr.A.V.Radhakrishnan, learned counsel for the Bank submitted that sale has been effected properly and procedure as contemplated under the SARFAESI Act, 2002 and the Rules framed thereunder, have been followed, going through the material on record, we are of the view that the same is not substantiated.”

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After going through the said ruling where the subsequent sale notice was not issued and the secured creditor himself having participated in the bid and declared

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SAs 80/2023 & 305/2023

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03.09.2024

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as successful bidder, the Hon'ble High Court did set aside the sale. The instant case is distinguishable on facts.

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14.2 In the case of Swastik Agency (Supra) relied by the Ld. Counsel, the nonpublication of the notice in Oriya language is held to be fatal (para 72) and no proper valuation was done in the said case. The non-compliance of statutory requirement of publication was viewed seriously in the said case and thus this ruling is also distinguishable on facts since publication is carried out.

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14.3 The ruling of M. Chockalingam (supra) relied by the Ld. Counsel for the applicant shows that the Hon'ble High Court has considered the point that the borrower has paid substantial amount and the property is a residential building, directed the bank to receive the amounts and the auction purchaser was awarded refund with interest to be borne by the petitioner. In the case on hand, the applicant has not expressed any intention to clear the debt as noted by the Ld. Predecessor. Therefore, this ruling is also not helpful to the applicant.

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15.1 Having considered the entire gamut of events pleaded and the arguments advanced on both the sides, the plea that non-conformity of the possession notice with Appendix IV is to be held as not fatal to the cause of the bank and no prejudice is caused to the applicant. Therefore, the point for determination after conspectus of the matter is held as a curable defect and the same is only irregular but not fatally defective. At the same time, the inadvertence shown by the bank in issuing such a possession notice which is of course not fatal cannot be viewed with impunity. In the

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SAs 80/2023 & 305/2023

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03.09.2024

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circumstances, the applicant cannot be held liable for the expenses incurred by the bank in issuing the possession notice now challenged. Accordingly the following:

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: - O R D E R - :

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SA No. 80/2023 stands dismissed. However, the defendant bank is directed not

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to debit any expenses including the legal expenses incurred by the bank in issuing the possession notice dated 25.11.2022. The parties to bear their own costs.

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SA No.305/2023:

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1.1 On the same set of facts mentioned above, the very applicant challenges the concluded sale held on 24.04.2023 pursuant to the sale notice dated 09.03.2023 and published in the newspapers on 11.03.2023.

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1.2 The second defendant herein is impleaded pursuant to the orders dated 28.06.2024, who is the auction purchaser.

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2.1 The grounds urged to set aside the sale is that the demand notice is not properly served and that the sale notice is contrary to Rule 8(6) and 9(1) of Security Interest (Enforcement) Rules, 2002. Therefore, the concluded sale is bad in law for not affording 30 clear days notice. The possession notice is not served, there is variation in the description of the property. Rule 8(5) is not followed in obtaining the correct valuation report.

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SAs 80/2023 & 305/2023

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03.09.2024

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3.1 In the counter of the defendant No.1, it is submitted that the loan account was declared NPA on 28.02.2022 and demand notice dated 07.04.2022 is sent to the parties under RPAD with the available addresses which came back undelivered. Thereafter the same was published in the newspapers as per Rule 3 of Security Interest (Enforcement) Rules, 2002. The possession notice was published in the newspapers on 29.11.2022 and also affixed. The Rule 8(1) is directory and not mandatory. The applicant removed surreptitiously the hypothecated assets and the unit became non-functional even before the initiation of SARFAESI proceedings. Demand notice was duly served. Possession notice was also served.

¶160

3.2 The valuation report dated 26.07.2022 is obtained from the approved valuer as per Rule 8(5). The sale notice was duly served by RPAD and the sale notices were also published in the dailies dated 11.03.2023, apart from affixing the same. The sale was concluded on 24.04.2023. The property at Item NO.1 was sold for Rs. 11,26,25,000/- and the same was confirmed on 29.04.2023. At the request of the auction purchaser, bank granted extension of time for payment of the balance amount as per Rule 9(4) of the Security Interest (Enforcement) Rules, 2002. The entire sale consideration was paid on 28.07.2023. The sale certificate is also issued on 08.08.2023. This matter has become “fiat accompli” and nothing survives for consideration.

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3.3 The applicant failed to redeem the property as stipulated in Section 13(8) of the Act. He has also not challenged the sale notice and waived such a right allowing the bank to sell the property. The applicant failed to discharge the liability

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SAs 80/2023 & 305/2023

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¶164

03.09.2024

¶165

consequent to the demand notice and possession notice. The classification of NPA cannot be disputed at this stage. Therefore the bank prays for dismissal of the SA.

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Counter of second defendant.

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4.1 The second defendant submits that SA is liable to be dismissed in liminie since the applicant has not discharged the liability under the loan agreement, despite the publication of sale notice. This defendant had paid the entire sale consideration in terms of Rule 9(4). The applicant has no locus to now challenge the concluded sale. The bank took possession of the mortgaged property by following the relevant Rules and then issued the sale notice affording 30 days time, which was not availed by the applicant. The sale notice is published in two newspapers. This defendant emerged successful in the participation of the auction. This defendant adverting to the publications, approached the first defendant. His bid was accepted and thus he had become the legal owner of the property. He prays for dismissal of the SA.

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5.1 Arguments were also heard and written submissions filed.

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5.2 The Ld. Counsel for the applicant submits that the valuation report has become stale. Fresh valuation report was not obtained. The amounts were not deposited in time. The sale notice is not delivered at the correct address. The Ld. Counsel for the defendant bank submits that the applicant had lost the right of redemption in this matter which is a concluded sale. Since the sale notice is not challenged, the applicant cannot maintain the present SA. He further submits that

¶170

SAs 80/2023 & 305/2023

¶171

¶172

03.09.2024

¶173

the applicant had lost the rights of redemption under Section 13(8) of the SARFAESI Act.

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6.1 The second defendant also sailed with the submissions of the Ld. Counsel for

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the defendant NO.1 bank.

¶176

7.1 In the above context, the following points arise for determination in the present

¶177

SA:

¶178

(i) Whether the valuation report obtained is stale?

¶179

(ii) Whether the sale notice is not properly served?

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(iii) Whether the SA is not maintainable in view of the applicant having lost the rights of redemption?

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Answers to the Points:

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8.0 Whether the valuation report is stale?

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8.1 Admittedly, the sale notice is dated 09.03.2023. In the index of documents

¶184

filed by the defendant bank, the valuation report is dated 26.07.2022.

¶185

8.2 Under Rule 8 sub proviso (5) provides for obtaining the valuation report from approved valuer for fixing the reserve price of the property. It is stated that before effecting the sale, such valuation report is to be obtained. Valuation report is dated 26.07.2022. Rule 8(5) reads as under:

¶186

SAs 80/2023 & 305/2023

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¶188

03.09.2024

¶189

“Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorized officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:-

¶190

(a)by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or

¶191

(b)by inviting tenders from the public;

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(c)[ by holding public auction including through e-auction mode; or] [Substituted by Notification No. G.S.R. 1046 (E), dated 3.11.2016 (w.e.f. 20.9.2002).]

¶193

(d)by private treaty.”

¶194

This only shows that the valuation report must be obtained prior to effecting the sale. From the contention of the Ld. Counsel, it is to be gathered that the valuation report dated 26.07.2022 is stale, since the sale notice is dated 09.03.2023. There is no specific rule fixing any time limit for the currency of the valuation report obtained. Only the condition is that the valuation report must precede the sale notice. It is just six months old and the current price may not vary to the disadvantage of the borrower. In fact, no material is placed to show the valuation of the property more than what is arrived by the approved valuer. The applicant has not relied on any document to show the valuation of the property and no independent valuation report worth its value to be accepted is furnished. Therefore, merely on

¶195

SAs 80/2023 & 305/2023

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¶197

03.09.2024

¶198

the ground that the valuation report has become stale cannot be the ground to set aside the concluded sale.

¶199

9.0 Whether the sale notice is not properly served?

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9.1 The Ld. Counsel for the applicant submits that the sale notice is not properly served at the correct address of the applicant. He points out that the possession notice is served at No.1, Second Street, Patel Nagar, West Tambaram and the sale notice had mentioned the address of the applicant at No.8, Vadivel Street, West Tambaram, as is found in the sale notice. This ground is not pleaded in the SA.

¶201

9.2 The contention of the bank is explained in the affidavit filed on 12.04.2024 sworn on 12.04.2024 wherein it is said that the sale notice addressed to the applicant sent through speed post was returned undelivered with the postal endorsement „left without instructions‟. It is urged by the bank that the applicant had kept on shifting the addresses with an ulterior motive to evade the service of notice.

¶202

9.3 The address found on the sale notice and the address furnished in the SA being the same, the postal covers returned to the bank un-served shows that the same is returned with an endorsement „left without instructions‟. The photocopies of the same are enclosed in the further affidavit of the bank. However, the publication and affixture is carried out. It is pertinent to note that at para 8 of the SA mentions “the applicant submits by shock and surprise that the respondent arbitrarily and mechanically sent the sale notice dated 09.03.2023” and that the bank had orally informed the applicant that the sale has taken place. It is not pleaded that the sale

¶203

SAs 80/2023 & 305/2023

¶204

¶205

03.09.2024

¶206

notice was not served. Therefore, the applicant was very much aware of the sale notice. Thus it cannot be said that the bank had sent the sale notice to a different address.

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10.0 Whether the SA is maintainable in view of the applicant having lost the rights of redemption?

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10.1 It is worthwhile to note that in the Demand Notice dated 07.04.2022, which copy is produced at page No.1 of the index filed by the bank, there is a stipulation in the demand notice itself, which reads as under:

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“9. We invite your attention to the provisions of sub-section 8 of Section 13 of the SARFAESI Act which speaks about the time available to the borrower / guarantor to redeem the secured assets.”

¶210

10.2 With this caution, it cannot be said that bank did not follow the provisions of

¶211

Section 13(8) of the SARFAESI Act. There was due, abundant caution regarding the rights of redemption available to the applicant - clearly made out by the said notice.

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11.1 In Celir LLP – Vs. – Bafna Motors (CA No.5542 – 5543 of 2023 DD 21.09.2023) , it is clearly held as under

¶213

“In view of the aforesaid discussions, we hold that as per the amended Section 13(8) of the SARFAESI ACt, once the borrower fails to tender the entire amount of dues with all cost and charges to the secured creditor before the publication of auction notice, his right of redemption of mortgage shall stand extinguished / waived

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SAs 80/2023 & 305/2023

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¶216

03.09.2024

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on the date of publication of the auction notice in the newspaper in accordance with Rule 8 of the Rules of 2002.”

¶218

11.2 The Ld. Predecessor vide an order dated 01.07.2023 while taking up the matter through E-drt, had noted the following:

¶219

“This case is taken up through E-drt. This SA is filed challenging the sale held on 24.04.2023 pursuant to Sale Notice dated 09.03.2023 issued by respondent bank for recovery of a sum of Rs.5,12,28,933.88p along with S.I.A Nos.774/23 and 775/22 for urgent hearing and for stay respectively.

¶220

Respondent bank is on caveat and copy of SA paper book along with memo served to Ld. counsel for caveat or / respondent bank.

¶221

Although this SA was filed on 03.05.2023, the same was processed and applicant could get it numbered only on 12.06.2023. Since the case was not moved before the Bench by applicant, SA is taken up through E-drt.

¶222

Perused records. As applicant did not prosecute the SA nor filed any memo showing their readiness for discharge of debt for consideration of stay petition, SIAs 774/23 and 775/23 are dismissed with costs of Rs.2000/- each payable to „Library Fund‟ of DRT and DRAT Bar Association by applicant.

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Call on 18.08.2023 for reporting compliance or otherwise by applicant and for filing counter and typed set of documents by respondent bank.

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PO”

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SAs 80/2023 & 305/2023

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¶227

03.09.2024

¶228

11.3 There was no stay order. In view of there being no stay operative as on the date of sale held on 24.04.2023, the applicant allowed the bank to proceed with the sale notice without seeking any stay orders. Thus the sale was concluded. When once the sale is concluded consequent to the borrower failing to tender the entire amount, the rights to redeem the mortgage stood extinguished, as held in Cellir LLp (Supra) .

¶229

11.4 The Ld. Counsel for the defendant bank had relied on the ruling of K. Kumara Gupta – Vs. – Sri Markendaya and Sri Omkareswara Swamy Temple & Ors 2022

¶230

(5) SCC 710 , wherein the Hon'ble Supreme Court had held that

¶231

“The sale pursuant to the public auction can be set aside in an eventuality where it is found on the basis of material on record that the property had been sold away at a throw away price and/or on a wholly inadequate consideration because of the fraud and/or collusion and/or after any material irregularity and/or illegality is found in conducing/holding the public auction. After the public auction is held and the highest bid is received and the property is sold in a public auction in favour of a highest bidder, such a sale cannot be set aside on the basis of some offer made by third parties subsequently and that too when they did not participate in the auction proceedings and made any offer and/or the offer is made only for the sake of making it and without any serious intent. In the present case, as observed hereinabove, though Shri Jagat Kumar immediately after finalising the auction stated that he is ready and willing to pay a higher price, however, subsequently, he backed out. If the auction/sale pursuant to the public auction is set aside on the basis of the such frivolous and irresponsible representations

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SAs 80/2023 & 305/2023

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¶234

03.09.2024

¶235

made by such persons then the sanctity of a public auction would be frustrated and the rights of a genuine bidder would be adversely affected.”

¶236

11.5 In the ruling of Valji Khimji & Company Vs. Official Liquidator [reported in (2008 (9) SCC 299] the Hon‟ble Supreme Court had noted at Para 11 as under:-

¶237

“11. It may be noted that the auction sale was done after adequate publicity in well-known newspapers. Hence, if any one wanted to make a bid in the auction he should have participated in the said auction and made his bid. Moreover even after the auction the sale was confirmed by the High Court only on 30.7.2003, and any objection to the sale could have been filed prior to that date. However, in our opinion, entertaining objections after the sale is confirmed should not ordinarily be allowed, except on very limited grounds like fraud, otherwise no auction sale will ever be complete.”

¶238

12.1 In view of the above law, declared by the Hon'ble Supreme Court, this instant petition which only challenges the conclude sale on the untenable grounds discussed above cannot be entertained since it lacks merits. Hence the following

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: - O R D E R : -

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SA stands dismissed. Parties to bear their own costs.

¶241

13.0 Order be communicated to the parties as per Rules.

¶242

Sd/(A.S. JAYACHANDRA) PRESIDING OFFICER (In-charge)

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(Dictated to PS, who typed in the system, corrected, signed and pronounced in Open Court, on this 03^rd day of September, 2024)

Kabilan Adhi v. State Bank of India

Case brief

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Kabilan Adhi v. State Bank of India

Case brief

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