Allowed

Tamilnadu Jaibharath Mills Ltd. v. State Bank of India

DRT4 Jul 2024SA/417/2023

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal allowed an application to set aside an E-Auction Sale Notice under the SARFAESI Act issued by the State Bank of India. The Court held that the sale became infructuous as the auction date had not been reached due to want of bidders. The Tribunal also directed the Bank to exclude expenditure on notices and advertisements from the loan account.

What did the court decide?

The impugned E-Auction Sale Notice dated 27.07.2023 was allowed to be set aside as the auction became infructuous. The Bank is directed to exclude expenditure on notices and publications from the loan

Tamilnadu Jaibharath Mills Ltd. versus State Bank of India — Company and Corporate | DRT (2024)

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SA No.417/2023

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Fair Order

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IN THE DEBTS RECOVERY TRIBUNAL AT MADURAI DATED THIS 04^TH DAY OF JULY, 2024 PRESENT: SEEMA SINHA,

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

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SA No.417/2023

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Between:

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Tamilnadu Jaibharath Mills Limited, Registered Office at No.212, Ramasamy Nagar, Aruppukottai, Viruthunagar District, Through its Director Mrs.Jamuna, W/o. S.Rajendran

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--- Applicant

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And

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State Bank of India, Commercial branch (04034), 2ndFloor, 7A West Veli Street, Madurai

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Through its Assistant General Manager.

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State Bank of India, Stressed Assets Recovery Branch (SARB), Vinayaga Nagar Branch (Upstairs), 8, Dr.Ambedkar Road, Madurai-625020. Through Authorised Officer/ Assistant General Manager

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--- Respondents/Defendants

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Appearance of Advocates:

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M/s. H.Lakshmi Shankar, K.Hariharan, … Counsel for the Applicant S.Vishnupriya, Mr.Kirithiga, J.Britto Kanikairaj, A.Mohamed Asik, B.Arun Balaji

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Mr. Pethu Rajesh … Counsel for 1 & 2 Defendants

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Page 1 of 20

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SA No.417/2023

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This Application was heard in the presence of Mr. H. Lakshmi Shankar, Counsel for the Applicant, Mr. P. Pethu Rajesh, Counsel for Defendants No.1 & 2 Bank and upon hearing the arguments of both side Counsels and having stood over for consideration till this day, this Tribunal delivered the following:

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ORDER

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This Application has been filed under Section 17(1) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, by the Applicant praying to set aside the e-Auction Sale Notice dated 27.07.2023 captioned as “SALE NOTICE FOR SALE OF IMMOVABLE PROPERTIES” issued by the 2^nd Defendant Bank under SARFAESI Act, 2002, as illegal, arbitrary, unfair and void.

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The brief averments of the Application filed by the Applicant are as follows:-

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The Applicant Company was incorporated in the year 1989 and started its commercial production in the year 1993. It was promoted by Late T.R.Dhinakaran, a reputed industrialist in this part of the country and by the group of Companies under his management, namely (a) Shri Ramalinga Mills Private Limited, (b) Shri Jeyajothi Company Limited, (c) Aruppukottai Shri Jeyavillas Pvt Limited. Shri D.Senthil Kumar, Son of T.R.Dhinakaran was earlier the Managing Director and Chief Executive of the Company assisting Shri T.R. Dhinakaran. The Company made history by getting subscription of Rs.20 Crores in the IPO and was being managed by T.R.Dhinakaran and D.Senthil Kumar in various capacities as President, Director, Managing Director, Executive Director and Director till the year 2018.

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It is also the case of the Applicant that the Company had suffered business losses and in the year 2012 was referred to the Board for Industrial and Financial Reconstruction. Thereafter, certain measures including conversion of debts owed by the Company to the promoter

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Page 2 of 20

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SA No.417/2023

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companies into share capital was done and regarding some issues, there were objections from SEBI and SEBI issued Notice during May, 2022 for de-listing the Company. In the meantime, when the Company’s working capital dried up, Shri. D.Senthil Kumar resigned as Director of the Company in January, 2019. Thereafter, Ms.D.Kothai resigned from the board during November, 2018, but she was continuing to support the Company by arranging raw materials on a conversion basis to enable the Company to continue its operation. It is also the case of the Applicant that a sum of Rs.8 Crores was also advanced from Aruppukottai Shri Ramalinga Spinners Private Ltd. to the Company to tide over the crisis. The outstanding dues of around Rs.17.11 Crores from the Company to the Defendant Bank was paid by the Applicant Company by taking advance from the purchaser for the sale of machineries of the Company during January, 2022. It is also stated that the statement of accounts will clearly reflect the same. However, since the dues of workers were pending and there was some agitation by workers to settle their gratuity and other benefits and the GST towards agreed sale of the machineries had to be paid, the Cash Credit facility was kept alive, resulting in an outstanding of Rs.2,39,69,174.49. It is now being reflected as outstanding amount with accrued interest and the proceedings initiated under the Securitisation Act is under challenge.

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It is further submitted that after resignation of the other two Directors, only three Directors including the Promoter T.R.Dhinakaran were left in the Company last year and Shri T.R.Dhinakaran died on 19.12.2022. This had serious effect on the Company’s prospect of keeping up the operations and repaying the Defendant Bank. His death also brought down the number of Directors to two in the Company, which is below the statutory requirement of minimum three Directors for a public company as per Section-149(1) of the Companies

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Page 3 of 20

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SA No.417/2023

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Act, 2013. In the circumstances, no effective and meaningful business could be transacted in the required strength to convene any valid meeting and for taking a decision. At that time, Mr.V.Nagarajan and Mr.S.Seenivasan were proposed to be inducted as Additional Directors, thereby increasing the board strength and to take decisions for settling the Defendant Bank and other issues. However, the proposal which was circulated by resolution dated 24.01.2023 was originally accepted by the independent Director Mr.V.R.Rajendran. But he subsequently withdrew his concurrence, as it is understood, at the instigation of persons who wanted the Company to suffer by this stalemate and wanted to benefit out of any auction sale conducted by the Bank so that the valuable property can be knocked down for a song. These difficulties were also pointed out to the Registrar of Companies that the non-cooperative independent Director Mr.V.R.Rajendran may be directed to act in the best interests of the Company. But unfortunately around the same difficult time, i.e. one week before the passing away of the Promoter/Managing Director Shri T.R.Dhinakaran, the Defendant Bank issued a Demand Notice dated 12.12.2022 to the Applicant Company under Section-13(2) of the SARFAESI Act calling upon the Applicant to repay the outstanding of Rs.2,44,40,026/-, which was overdue as on 11.12.2022 with further interest and incidental expenses and costs, failing which further action will be taken. The Demand Notice was also sent to the Applicant Company’s Corporate Guarantor M/s. Shri Ramalinga Mills Private Ltd., but no action has been taken against the Corporate Guarantor, who is holding accounts in the Defendant Bank and effectively operating it, while being a major share holder in the Applicant’s Company and holding 61.63% of shares. The marking of Demand Notice copy to the Corporate Guarantor was more a ritualistic action than a meaningful one by the Defendant Bank.

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Page 4 of 20

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SA No.417/2023

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It is further submitted that in the Demand Notice in Schedule ‘C’, the Defendant Bank had mischievously mentioned the hypothecated properties as Part-1 though fully aware of the fact that the Company’s plant and machineries were sold with their concurrence and the entire outstanding debt of Rs.17.11 crores was liquidated during January, 2022, and no Schedule-C, Part-1 is in existence. It is also stated that by the time the Demand Notice was received and any action or response to the Bank could have been contemplated, the Promoter/ Managing Director Shri.T.R.Dhinakaran had passed away on 19.12.2022, bringing down the number of Directors to less than three. The Defendant Bank knows fully well the situation of the Applicant Company and also the recent developments. But, in spite of sending a notice during November, 2022 to the Corporate Guarantor M/s. Shri Ramalinga Mills Private Ltd., the Defendant Bank did not choose to pursue the matter further with the Corporate Guarantor which could have repaid the outstanding dues in no time.

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It is also submitted that the Defendant Bank is well aware that the assets of the Applicant Company mortgaged with the Bank to an extent of Rs.81.53 acres with 5 lakhs sq.ft. are highly valuable, i.e. it would fetch a market value of Rs.65 to 70 Croes and for recovery of a sum of Rs.2.78 Crores neither possession of entire mill properties nor auction sale of the entire properties is warranted. A fair market value of the mortgaged properties in normal time will be around Rs.65-75 Crores. Despite knowing this, the Defendant Bank had also issued a Possession Notice dated 15.02.2023 taking symbolic possession of the property and very curiously another Possession Notice was issued on 17.02.2023. The outstanding dues shown are different in these two notices. First Possession Notice was issued only to the Applicant Company. Second Possession Notice was issued to the Corporate Guarantor. It is further stated that after receipt of these two

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Page 5 of 20

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SA No.417/2023

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Possession Notices, the Applicant had sent detailed communication dated 21.03.2023 pointing out unsustainability of the Defendant Bank’s action and also it was informed that the Company is taking steps to sell so much of the portion of the property to a purchaser as would be sufficient to clear the Defendant Bank’s dues and further time was sought. It was also pointed out that pending negotiations with purchasers, issuance of Possession Notice had complicated the matter. The Applicant had also informed that they are ready for tripartite negotiations involving the Bank and the Purchaser to carve out a portion and settle the issue, but the Defendant Bank did not respond at all.

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It is also stated that all of a sudden, after few months, the Applicant Company received the impugned E-Auction Sale Notice dated 27.07.2023 from the Authorised Officer, Stressed Assets Recovery Branch (SARB), Madurai, that they are conducting E-Auction Sale of the mortgaged properties of the Applicant Company on 7.9.2023. The said Notice was received by the Applicant Company on 3.7.2023 and the contents of the impugned Sale Notice were shocking. It reveals the malafide intention on the part of the Bank. The E- Auction sale proceedings are arbitrary and it is evident that it is being initiated with ulterior purpose of favouring some chosen purchaser. As per the impugned E-Auction Sale Notice, the outstanding dues from the Applicant Company is Rs.2,78,13,985/- as on 26.7.2023. But the reserve price of the properties as arrived by the Bank is Rs.34,90,00,000/-. Therefore, the outstanding dues to be recovered by the Bank is approximately 8% of the reserve price of the mortgaged properties. It is also submitted that the reserve price fixed by the Bank for the mortgaged properties is abysmally low. Five lakhs square feet of Industrial buildings are standing. A property which would be worth Rs.70 Crores in the open fair market is sought to be sold for

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Page 6 of 20

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SA No.417/2023

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half the price that too, for recovery of an amount which is less than 1/10^th of the reserve price and 1/20^th of the actual market price. A fair action on the part of the Bank would have been to carve out and bring for sale only that much of the extent of the mortgaged property which would be sufficient to recover its dues. In this case, even going by the reserve price fixed by the Bank by a simple arithmetic, it can be concluded that only 1/10^th of the mortgaged property should have been carved out and made the subject matter of the impugned E- Auction Sale Notice. The action of Defendant Bank has to be seen and appreciated in the light of Applicant’s letter dated 21.3.2023 to Defendant Bank wherein the Applicant had put forward this aspect specifically. But the Defendant Bank did not respond and after few months, issued the impugned E-Auction Sale Notice. A purchaser was negotiating with the Applicant Company for purchasing the property on a fair market price of Rs.47 lakhs per acre of land and after seeing the E-Auction Sale Notice changed his mind and got back the advance paid. To the Applicant’s objection dated 5.8.2023, the Defendant Bank issued a reply on 9.8.2023 in a standard format for the second time. On 29.8.2023, the Applicant Company received a copy of the Valuation Report from the SBI wherein a very conservative and unrealistic valuation was adopted based on the ‘Guideline Value’ and the total value of 81.53 acres of land is said to be Rs.5.58 Crores as per Guideline Value and Rs.11.52 Crores as per ‘Fair Market Value’. The buildings have been valued at Rs.26 Crores. This is purely a table work and self-serving report obtained by the Bank.

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It is also submitted that the Defendant Bank has acted in a predetermined manner to issue this E-Auction Sale Notice even without deliberating upon the requirement of auctioning the entire property or the plausibility of carving out a portion to satisfy the dues. It is also submitted that the Auction Sale Notice is more of an action by the

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Page 7 of 20

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SA No.417/2023

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Defendant Bank lending its institutional mechanism for some buyer who wants to purchase the Applicant Company’s assets and take it over in the practical sense, than an auction legitimately intended to recover the Bank’s outstanding dues. This is a clear case of “excessive execution” which is illegal and against the settled principles of law governing the auction sale of the properties. Hence, the Applicant has filed this SARFAESI Application to set aside the E-Auction Sale Notice dated 27.07.2023 issued by the 2^nd Defendant Bank.

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The Applicant has filed this case on the following main grounds:-

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i) The impugned E-Auction Sale Notice is arbitrary, illegal, unreasonable and it is an abuse of the statutory power vested in the Bank under the SARFAESI Act, which is only vested for the purposes of realizing the Bank’s outstanding dues and not to be abused as a mechanism for serving commercial interest of real estate players.

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ii) The Defendant Bank had failed to consider the objections raised by the Applicant Company in its letter dated 21.3.2023 and had acted in a pre-determined manner while issuing this E-Auction Sale Notice, by advertising the entire mortgaged assets for sale, without there being any necessity for such a sale.

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iii) The Defendant Bank had been acting in a mala fide manner as it is evident from its inaction after the letter dated 21.3.2023 of the Company and its indifferent response dated 9.8.2023 to the letter dated 5.8.2023 of the Applicant Company.

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iv) The Defendant Bank had not given any reason for not accepting a tripartite negotiation and settlement with a

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Page 8 of 20

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SA No.417/2023

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purchaser sought to be introduced by the Applicant Company and it is not explained anywhere what is the extraordinary situation or compulsion for ignoring the Company’s reasonable request and going ahead with the sale of the entire mortgaged assets.

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v) The E-Auction Sale Notice is illegal and arbitrary for the simple reason that for recovering Rs.2.78 Crores which is the outstanding dues to the Bank, the entire mortgaged properties which even according to the conservative reserve price fixed by the Bank is Rs.34.90 Crores, is sought to be sold, thereby, it being a clear case of excessive execution, which is against the settled legal principles.

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vi) The reserve price fixed by the Defendant Bank is baseless and is abysmally low and a valuable property is sought to be knocked down to favour some chosen purchaser.

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vii) The Defendant Bank has issued two different Possession Notices dated 15.2.2023 and 17.2.2023, which is illegal and unsustainable in law.

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The following documents have been filed by the Applicant in support of its case, which are as follows :-

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INDEX TO LIST OF DOCUMENTS/ANNEXURE

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Sl.No.	Date	Document
1.		Copy of the of Account forJanuary,	Bank’s Statement No.10420665872 2022
2.	16.11.2022	Copy of SARFAESI A Respondent	Notice under ct, 2002, from 1^st

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Page 9 of 20

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SA No.417/2023

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3.		Copy of the Bank’s Statement of Account No.10420665872 for December, 2022
4.	12.12.2022	Copy of the Letter dated 12.12.2022 Notice under Section-13(2) SARFAESI Act, 2002 from 1^stRespondent.
5.	15.02.2023	Copy of the Possession Notice issued by 1^stRespondent
6.	17.02.2023	Copy of the Possession Notice issued by1^stRespondent
7.	18.02.2023	Copy of Notice under Section- 13(4) of SARFAESI Act, 2002 from 1^stRespondent
8.	23.02.2023	Copy of the Reply to Notice No. ROC-Chn/IPC/018267/2023 Letter dated 09.02.2023 from Registrar of Companies, Chennai
9.	21.03.2023	Copy of the Reply Letter to 1^st and 2^ndRespondents along withcourier receipt
10.	27.07.2023	Copy of the Sale Notice of Immovable properties issued by 2^ndRespondent
11.	18.07.2023	Copy of the Letter to V.R. Rajendran, Director, Tamil Nadu Jaibharath Mills Ltd., Aruppukottai
12.	05.08.2023	Copy of the Reply to Sale Notice to 2^nd Respondent through07.08.20234email
13.	09.08.2023	Copy of the Reply Letter sent by 2^ndRespondent
14.	16.08.2023	Copy ofthePurchaseLetter
15.	17.08.2023	Copy of Applicant’s reply to 2^nd Respondent through18.8.2023 email
16.	25.09.2023	Sale Deed

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Schedule of Property

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Factory land and building situated at Survey No.396/3A, 396/3B, 393/3B2, 400/2, 393/3d, 406/B1, 406/A1, 403/A2, 401/2, 402, 401/1, 406/B2, 406/A2, 396/2A, 392/1, 396/1A, 396/1B,

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SA No.417/2023

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403/A1, 395/2A, 395/2B, 405/B, 410/1, 410/6, 400/3, 400/1, 393/3C2, 395/3B, 395/3A, 410/3, 399/1, 399/2, 399/3, 399/4A, 399/4B, 399/4C, 404/A1, 404/A2, 405/A, 398/3, 398/1A, 392/3, 392/2, 398/1 & 398/2, Malayankulam Village, Sankarankovil Taluk, Thirunelveli District in the name of M/s. Tamilnadu Jai Bharath Mills Limited. The total extent is 81.53 acres.

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The following Citations have been filed by the Applicant in support of its case, which are as follows :-

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Citations Referred by the Applicant:

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(I) K.J. Prakash Kumar & 02 Others Vs Rasheeda Yasin & Another reported in 2009 (6) CTC 243)

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(II) Ram Kishun & Others Vs State of Uttar Pradesh & Others reported in (2012) 11 SCC 511

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(III) Maharaji Educational Trust Vs Housing And Urban Development Corporation Limited & Others reported in (2017) 14 SCC 453

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(IV) Swastik Agency & Others Vs. State Bank of India, Bhubaneswar & Others (2009 SCC OnLine Ori 3)

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(V) Soma Papers and Industries Ltd. Vs Bank of India and Ors. reported in 2014 2 Bankmann (DRT) 226

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On the other hand, the Defendants No.1 & 2 Bank appeared in this case through Counsel after receiving notices and filed their Written Statement/Reply Statement along with typedset of papers. Defendants Bank have stated in their Reply Statement that at the outset they deny all the allegations levelled in Para No.1 to 15 and Grounds A to G of the main SA as false except those which are specifically admitted therein. It is submitted that the Applicant had submitted an Application through its Managing Director on 1.4.2021 for renewing the Working Capital Cash Credit Facility which already exist to the tune of Rs.17,00,00,000/-. For the said renewed Cash

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Page 11 of 20

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Credit Facility, M/s. Shri Ramalinga Mills Private Limited stood as a Corporate Guarantor by virtue of the minutes of the meeting of the Board of Directors passed on 10.05.2021. The said renewed Working Capital Cash Credit Facility was sanctioned on 25.03.2021, which will be available till 24.03.2022. It is also submitted that for the said Credit Facility, the Applicant had mortgaged the Schedule mentioned property with the Defendant Bank by executing the Registered Memorandum relating to Deposit of Title Deeds registered with SubRegistrar, Shankarankovil.

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It is further submitted that after availing the Cash Credit Facility, the Applicant failed to service the said account properly. As such, the said account was declared as NPA on 6.12.2022 and accordingly a Demand Notice under Section-13(2) of the SARFAESI Act was issued by the Defendant Bank to the Guarantor on 12.12.2023 claiming a sum of Rs.2,44,40,026.49p as on 11.12.2022 along with future interest and cost and the same was served to them on 13.12.2023. Admittedly, the Applicant and the Guarantor have not given any reply to the said Notice within 60 days and failed to repay the outstanding in the loan account. Thereafter, Defendant Bank issued Possession Notice under Section-13(4) of the SARFAESI Act read with Rule-8 on 17.02.2023 and the same was served to the Applicant and the Guarantor. The said Notice was pasted in the mortgaged premise on 17.02.2023 and also published in Tamil through Dhinamani newspaper and in English through The Indian Express newspaper on 21.02.2023. It is also submitted that even after receipt of the said Possession Notice, the Applicant and the Guarantor failed to repay the outstanding dues of the loan account. In the meantime, the said account was migrated from 1^st Defendant Bank to 2^nd Defendant Bank for recovery purpose.

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Page 12 of 20

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SA No.417/2023

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It is further submitted that the 2^nd Defendant Bank after perusing the files issued the impugned Sale Notice dated 27.07.2023 by fixing the Reserve Price for the property as Rs.34,90,00,000/- and by fixing the date of the E-Auction as 07.09.2023. The said Sale Notice was received by the Applicant and the Guarantor and the same was pasted in the mortgaged property on 27.07.2023. Paper Publication of the Sale Notice was published in the English Daily ‘The Hindu’ and in Tamil Daily on 29.07.2023. It is further submitted that so far the allegation levelled in Paras-5 to 6 of the Application, it is the Bank which is at liberty to recover the dues by taking legal action against the Applicant or from the Guarantor or from both. The Applicant being the defaulted borrower cannot have any words on the same. It is further submitted that so far the allegation made in Paras7 to 15 of the Application is concerned regarding the valuation, it is submitted that while granting Credit Facilities at various occasions and extending the same at various occasions, the property mortgaged was duly valued on 10.10.2017, 19.10.2020 and 20.03.2019 and the realizable value of the property was fixed as Rs.32,33,03,000/-, Rs.31,49,00,000/- and Rs.35,14,28,871/-. Based on the said valuation report, the Applicant successfully availed and enjoyed the credit facility granted by the Bank and in none of the said occasions, the Applicant disputed the said valuations and the same is purposefully disputed. It is also submitted that at present, the latest Valuation Report dated 25.07.2023 will show the realizable value of the property as Rs.34,90,00,000/- and the said valuation was made with the help of the Approved Valuer.

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It is also submitted that the Applicant had not replied to the Demand Notice within 60 days from the date of receipt of the same, if really he had any grievance. As such, he had admitted the contents in the Demand Notice. So, the Applicant has no right to agitate before

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this Tribunal stating that his representations to the Defendant Bank were not considered. While proceeding with the SARFAESI proceedings in the case of the Applicant, the Defendant Bank had strictly complied with the mandates required under the Act.

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The following documents have been filed by the Defendants No.1 & 2 Bank in support of their averments in the Reply Statement, which are as follows :-

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TYPED SET OF PAPERS FILED BY DEFENDANTS NO.1 & 2 BANK

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Sl.No.	Date	Document
1.	12.12.2022	Demand Notice under Section-13(2) of the SARFAESI Act issued to the Borrower and Guarantor with Acknowledgment Card signed
2.	17.02.2023	Possession Notice issued to the Borrower and Guarantor with Acknowledgement Card signed
3.	17.02.2023	Photograph showing affixture of the Possession Notice in the mortgaged premise
4.	21.02.2023	Paper publication issued in Tamil and English daily Newspaper
5.	27.07.2023	E-Auction Notice issued to the Borrower and the Guarantor with Acknowledgement Card signed.
6.	27.07.2023	Photograph showing the affixture of the E-Auction Sale Notice in the mortgaged premise
7.	29.07.2023	Paper Publication issued in Tamil and EnglishdailyNewspaper
8.	25.07.2023	Valuation Report given by K.Vijaya Kumar
9.	25.07.2023	Valuation Report given by P.Dharma- rajan

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The following are the mortgages created in favour of the 1st Defendant Bank by the Applicant in respect of the Schedule mentioned properties :-

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i) Memorandum of Deposit of Title Deeds bearing Document No.4450/2013 dated 28.11.2013.

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ii) Memorandum of Deposit of Title Deeds bearing Document No.1578/2015 executed on 29.05.2015.

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In the light of the above facts and the Citations, it is prayed that this Hon’ble Court may be pleased to dismiss the main SA with cost and thus render justice.

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On the basis of the above pleadings, now the points that arise for consideration are :-

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i) Whether the Applicant has been able to prove its case in its favour ?

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ii) Whether the Applicant is entitled for any relief as prayed for ?

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Having heard the parties and after perusing the entire pleadings along with documents filed by both the parties, I find that it is admitted fact that the Applicant had availed loan facility from the Defendant Bank and had mortgaged the properties in favour of the Bank, which is apparent from perusal of the Schedule of properties. But the Applicant had failed to repay the loan amount. Hence, the Defendant Bank issued Demand Notice dated 12.12.2022 under Section-13(2) of the SARFAESI Act. But the Applicant has not replied to the said notice within 60 days.

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Thereafter, I find the Defendant Bank issued Possession Notice on 15.02.2023 and again on 17.02.2023. In this regard, the Bank has not explained the reason for issuing two Possession Notices within two days, rather they have simply denied. From perusal of the Possession Notices dated 15.02.2023 and 17.02.2023, I also find that there is discrepancy in mentioning the outstanding loan amount. In the Possession Notice dated 15.02.2023, the outstanding amount is mentioned as Rs.2,53,24,109/-, whereas in the Possession Notice dated 17.02.2023, the outstanding amount is mentioned as Rs.2,53,38,503/- and Bank has not explained why they have mentioned two different outstanding amounts in the Possession Notices. So, the Defendant Bank has failed to follow the rules prescribed under Rule-8 of the Security Interest (Enforcement) Rules, 2002. However, the said Possession Notices were also not challenged by the Applicant.

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I also perused the typedset of papers filed by the Defendants No.1 & 2 Bank and I find that the Defendants Bank have submitted the photographs showing affixture of the Possession Notice dated 17.02.2023 on the mortgaged premises, which is available at Page No.11 of the Bank’s typedset. But it is not clear from the photographs to verify the genuineness of the affixture of Possession Notice. Defendants Bank have also filed the Paper Publication of Possession Notice in two newspapers, i.e. one in Tamil daily and another in English daily, which are available at Page No.12 to 15 in the typedset of the Bank. On careful verification, I also find that there is discrepancy in the description of properties mentioned in the Demand Notice, Possession Notice and Sale Notice, which is in violation of the SARFAESI Rules. So, this point is decided in favour of the Applicant.

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The second point for consideration is that the Applicant has challenged that the mortgaged property was not valued properly by the Defendant Bank. I perused the records and I find that the Defendant Bank has filed two Valuation Reports dated 25.07.2023, which are available at Page-1 to 106 of the Additional typedset of papers of the Bank. I also find that from Page No.1 to 62, the Defendant Bank has submitted the Valuation Report given by Mr.K.Vijayakumar (Government Registered Valuer) and from Page No.63 to 106, Bank has filed the Valuation Report prepared by Mr.P.Dharmarajan (Bank Panel Approved Valuer) and I find that in the Government Valuer’s Report, the actual price of the property, including land and building comes to Rs.34,39,01,000/- and on the same date, the Bank Panel Valuer has valued the property of the Applicant, including land and building, which comes to Rs.34,89,61,000/-. In the Sale Notice dated 27.07.2023, the Defendant Bank has fixed the Reserve Price as Rs.34,90,00,000/-. However, the Applicant has not filed any valuation report to prove that reserve price fixed by the Bank is low.

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The third point for consideration is that the Applicant has challenged that the Defendant Bank has issued the Sale Notice dated 27.07.2023 for the entire mortgaged property worth Rs.65 to 70 Crores, whereas the outstanding loan amount is only Rs.2.78 Crores. The Applicant has further submitted that the Bank can sell only those portion of properties which can satisfy the outstanding loan amount. On the other hand, the Defendant Bank has submitted that the mortgaged property is indivisible and Bank cannot carve out a portion of the property and to sell the same to satisfy the outstanding loan amount. I also perused the provisions mentioned in Rule-8(5) of the Security Interest (Enforcement) Rules, 2002, which clearly says that :-

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“(5) Before effecting sale of the immovable property referred to in sub-rule (1) to rule 9, the authorised 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 :-

¶112

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

¶113

(b) by inviting tenders from the public;

¶114

(c) by holding public auction including through e-auction mode; or

¶115

(d) by private treaty.

¶116

So, it is very clear that the Defendant Bank is duty-bound to decide whether it can sell the entire property or part of the property for realisation of the outstanding loan amount, because outstanding amount is only Rs.2.78 Crores and the Bank issued E-Auction Sale Notice dated 27.07.2023 for the entire property fixing the Reserve Price at Rs.34.90 Crores.

¶117

From a perusal of the Schedule of property, I also find that the factory land and building situated in the mortgaged property contained in several parcels of land having many Survey Numbers and executed in Sale Deeds and I do not find that there will be any difficulty for the Defendant Bank to carve out the portion of mortgaged property and to sell a portion of the land for realisation of the outstanding loan amount. Hence, the Bank’s contention that a portion of the mortgaged property cannot be carved out and sold for satisfaction of the outstanding dues is legally not tenable and against

¶118

Page 18 of 20

¶119

SA No.417/2023

¶120

the spirt and essence of SARFAESI Act and Rules. Undoubtedly, public money should be recovered and recovery should be made expeditiously. But it does not mean that the financial institutions which are concerned only with the recovery of their loans, may be permitted to behave like property dealers and be permitted further to dispose of the secured assets in any unreasonable or arbitrary manner in flagrant violation of the statutory provisions. A right to hold a property is a constitutional right as well as a human right. A person cannot be deprived of his property except in accordance with the provisions of a statute. Thus, the condition precedent for taking away some one’s property or disposing of the secured assets, is that the authority must ensure compliance with the statutory provisions. In the instant case, I find that the Defendant Bank has not followed the procedure as mentioned in the SARFAESI Act and Rules in the issuance of Possession Notice and Sale Notice as the Defendant Bank has not duly followed the procedure mentioned in Rule-8(5) of the Security Interest (Enforcement) Rules, 2002.

¶121

Having considered the entire facts of the case and in view of the foregoing reasons, I find that the Applicant has been able to prove its case. However, during the pendency of the case, the Counsel for Defendants No.1 & 2 Bank has reported that the sale fixed on 7.9.2023 was not held due to want of bidders. Hence, the impugned E-Auction Sale Notice dated 27.07.2023 becomes infructuous.

¶122

In the result, SA No.417/2023 is allowed. Consequently, pending IAs, if any, stand disposed of and closed. No costs.

¶123

Page 19 of 20

¶124

SA No.417/2023

¶125

Defendant Bank is directed not to include the expenditure incurred in the issuance of Possession Notice, Auction Sale Notice and Paper Publications in the loan account of the Applicant.

¶126

(Dictated to PS(NCS), taken down, transcribed, typed by him, corrected and pronounced by me in the open court this the 04^th July, 2024)

¶127

Sd/- (SEEMA SINHA) PRESIDING OFFICER

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Dictated & Corrected by me

¶129

Sd/-

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[SEEMA SINHA] PRESIDING OFFICER

¶131

Typed by me

¶132

(N.C. Sivakumar, PS)

¶133

Page 20 of 20

Tamilnadu Jaibharath Mills Ltd. v. State Bank of India

Case brief

What is this about?

What did the court decide?

Tamilnadu Jaibharath Mills Ltd. v. State Bank of India

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Statutes considered

Parties & counsel

Coram

Case details

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