Allowed

Shanti Jwellers v. State Bank of India

DRT16 Mar 2024SA/43/2022

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal allowed this securitization application, quashing the bank's illegal NPA classification which violated Supreme Court stays and setting aside auction sales conducted without compliance with Rule 8(6) notice requirements.

What did the court decide?

The Securitization Application allowed with costs; NPA classification and related notices/quashed; auction sale set aside; sale certificate cancelled; deposit returned with interest.

Shanti Jwellers versus State Bank of India — Contract and Commercial Disputes | DRT (2024)

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Presented on: 17/12/2021 Registered on: 05/02/2022 Decided on: 16/03/2024 Duration: Y M D 2 - 3 - 0

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IN THE DEBTS RECOVERY TRIBUNAL, at Aurangabad

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Securitization Application No. 43 of 2022

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M/s. Shanti Jewellers through its Proprietor Shri Champalal Babulalji Soni, age 64 years occupation business R/o 57, survey No. 428/2, Ganapati Nagar, Jalgaon Tal. & Dist. Jalgaon.

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Mr Ishwarlal Babulal Soni, age 58 years occup. business R/o S.No. 428/2, Plot No. 57 (part), Shanti Bungalow, Ganapati Nagar, Jalgaon Tal. & Dist. Jalgaon

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… Applicants

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Versus

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State Bank of India through its Authorized Officer/Chief Manager, S.M.E. Branch Jalgaon, Plot No. 7/2, Ajanta Road, Jalgaon Tal. & Dist. Jalgaon

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The State Bank of India through its Assistant General Manager, Stressed Assets Recovery Branch, Administrative Office-II, Plot No. 1, Town Centre, CIDCO, Aurangabad

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( Madkar )

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(S. A. No. 43/2022) Page 1 of No. 14

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Mr Maheshkumar Mahadev Devakar Age major occup. business R/o Balaji Refinery, 247, Joshi Peth, Jalgaon Tal. & Dist. Jalgaon

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Mr Rajiv Prashant Balapure, age major occup. business R/o New Balapure Jewellers, Main Road, Faizpur Tal. Yawal Dist. Jalgaon .... Respondents

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Appearance :

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For Applicant Mr P.S. Gaikwad, Adv For Respondents No.1 & 2 Mr S.V. Adwant, Adv.

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For Respondents No.3 & 4: Mr Hemant Surve, Adv., a/w. Mr Kshitij Surve, Adv.

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Shri Vimal Gupta Presiding Officer

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Judgment Pronounced on: 16^th March 2024

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J U D G M E N T

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This Securitization Application is filed under subsection (1) of Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short “the 2002 Act”) and the Security Interest (Enforcement) Rules (for short “the said Rules”) by applicants for quashing and setting aside

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( Madkar )

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(S. A. No. 43/2022) Page 2 of No. 14

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action of the respondent bank in taking possession of the property of the applicants as shown in possession notice dated 17/11/2021 and the bank may be directed to hand over the possession of the property; also for quashing and setting aside the order dated 06/01/2022 passed by the District Magistrate, Jalgaon U/S. 14 of the 2002 Act and the e-auction notice dated 01/08/2022 issued by bank; auction sale conducted by bank in favour of Respondents No. 3 & 4 in respect of property (i) shop No.3 from North side, GF CTS No. 1689A/2B, Joshi Peth, Jalgaon & (ii) shop CTS No. 156B, final plot 68A TPS No.1, Saraf Bazar, Subhash chowk, Jalgaon and also action of bank in taking physical possession of the shop on 28/09/2022.

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The facts in the Securitisation Application, in brief, are as under:

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Applicant No.1 is a proprietary concern dealing in the business of sale and purchase of gold ornaments and fine gold. Applicant No.1 obtained loan facility from the respondent bank of Rs. 2.00 crores and in 2018 applicants got expansion of the loan upto Rs. 5.00 crores from respondent bank. It is pleaded that however due to lockdown on account of Covid-19 Pandemic, the business affected and suffered loss which resulted into classifying

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( Madkar )

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(S. A. No. 43/2022) Page 3 of No. 14

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the loan account as NPA on 28/12/2020 and thereafter the respondent bank issued a demand notice U/S. 13(2) of the Act on 30/12/2020. It is pleaded that prior to it applicants had issued notice to the bank on 24/12/2020 which is allegedly replied by the bank on 31/12/2020 that the bank has not committed any breach of contract and on the very same day the respondent bank issued another notice to applicants asking to repay the loan amount within a period of 15 days. After receipt of the said demand notice U/S. 13(2), applicant approached to the Hon’ble Supreme Court and filed the Contempt Petition against respondent bank on 16/01/2021 and on getting knowledge of the same, the respondent bank issued a letter to the applicants on 18/01/2021 stating that they are withdrawing the demand notice U/S. 13(2) dated 30/12/2020. It is contended that on 23/03/2021 the Hon’ble Supreme Court pleased to vacate the earlier directions quo to directing the financial institutions not to declare the accounts of respective borrowers as NPA. It is pleaded that thereafter again the respondent bank issued demand notice U/S. 13(2) to the applicants on 06/04/2021 informing the loan account classified as NPA on 28/12/2020 and directed to repay the loan amount due of Rs. 5,32,97,754/- within 60 days from

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( Madkar )

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(S. A. No. 43/2022) Page 4 of No. 14

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the date of receipt of the said notice. Applicants submitted reply/objection immediately on 02/06/2021 to the said notice. Respondent bank replied the objection on 14/06/2021 vaguely. Thereafter the bank issued letter on 14/06/2021 informing that the loan account transferred to the Stressed Assets Recovery Branch at Aurangabad, which is also replied by applicants on 17/08/2021 stating that the respondent bank has taken illegal action.

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Applicants plead that the respondent bank took symbolic possession of the properties of the applicant on 17/11/2021 of the residential building “Shanti Bungalow” situated at Ganapati Nagar, Mehrun Shivar, Jalgaon and also taken possession of the commercial shop No. 3 from North side, ground floor and another commercial building CTS No. 156B, final plot 68A TPS No. 1, Saraf Bazar, Subhash Chowk, Jalgaon; because of which applicants suffered huge losses in the business and therefore, applicants filed the civil suit for compensation and damages in the Civil Court S.D., Jalgaon vide commercial suit No. 1 of 2021. It is pleaded that the respondent filed application U/S. 14 of the Act before the Dist. Magistrate, Jalgaon which is allowed on 06/01/2022 with a direction to take physical possession of the properties of the applicants.

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( Madkar )

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(S. A. No. 43/2022) Page 5 of No. 14

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Thereafter the respondent bank put the properties of the applicant for sale through e-auction notice dated 01/08/2022 and said sale of the properties was kept on 30/08/2022 and said auction is illegal in view of pendency of the civil suit before the Civil Court. Auction sale notice dated 01/08/2022 is not legal and proper as it is without following procedure and as per Rule 5 it is mandatory on the part of bank to obtain the valuation of the property before sale. The bank has also not followed the Rule 8(6) and 8(7). Respondent bank obtained an order from Tahsildar, Jalgaon on 21/09/2022 from Tahsildar as to taking over possession of the two shops property in pursuance of which respondent bank obtained forcefully the physical possession of two shops on 28/09/2022 though amount of Rs. 40.00 lakhs was deposited as per order of the Tribunal in I.A. No. 1357/2022 for stay. It is pleaded that from the date of initial sanction till 2020, the applicant paid Rs. 3,17,38,147/- in the loan account towards interest, component and also the bank has recovered the amount of Rs. 4,42,00,000/- towards the rate difference of gold and thus total paid amount is Rs. 7,59,38,147/-. It is pleaded that the respondent bank has not complied provision of Section 13(3A) as the reply is

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( Madkar )

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(S. A. No. 43/2022) Page 6 of No. 14

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given hurriedly by the bank. The bank has charged exorbitant interest. Demand notice U/S. 13(2) does not disclose what is the principal and what is interest receivable and thus is in violation of the law. Thus, the applicants prayed for allowing the securitization Application

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In pursuance of summons of the Securtisaton Application, respondents No.1 & 2-bank appeared in the matter and filed their say at Exh. 8 denying adverse contentions. Respondents rely upon contents of Original Application (Diary) No. 373/2021 filed by RespondentNo.1 against applicants, which is pending before this Tribunal. The securitization Application is not within limitation. The claim of the applicants is thoroughly false. The respondents categorically denied all such statements where the applicants have tried to disown their liability under the liability created, guaranteed and secured by them. Applicants admitted obtaining loan amounts from the bank, however, the S.A. filed is with the sole view and intent to evade the debt raised by them. The suit filed by applicants is thoroughly unsustainable at law and on facts. There is express bar engrafted under the SARFAESI Act in entertaining a claim relating to the

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( Madkar )

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(S. A. No. 43/2022) Page 7 of No. 14

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secured assets and secured debt by the Civil Court and therefore, the reliefs claimed therein are far from being granted by Civil Court – Commercial Court, especially when the proceedings under the RDDB Act, 1993 and the SARFAESI Act, 2002 is pending and to be specific, the Civil Court has refused to grant the temporary injunction application filed at Exh.5 and thus, the fate of the suit has been sealed. The learned Commercial Court, Jalgaon, has correctly observed while rejecting injunction application on 06/04/2022 that the applicants have mortgaged the suit properties against the loans advanced in favour of bank and therefore, no credence can be given to bald statements of applicants. It is contended that the bank has followed meticulously the rules and procedure under the Act of 2002, governing the case and no fault can be found with the actions of the respondents. Order passed by the District Magistrate in the proceedings-initiated U/S. 14 of the Act and actions therein are totally legal and proper. It is contended that the applicants have not complied with the order passed by the Tribunal in I.A in its letter and spirit and thus, the claim in the S.A. is unsustainable.

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Respondents contend that they are acting within their right and authority and the applicants have no right to

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( Madkar )

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(S. A. No. 43/2022) Page 8 of No. 14

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challenge the action taken by them. Applicants have acknowledged their subsisting liability towards the bank in writing by executing revival letters and balance confirmation letters thereby admitting the charging of interest and debiting the amount thereof to the loan account as per contract and have also acknowledged the liability to pay the charges, costs, expenditures, expenses, insurance premium, etc. to the bank under the documents executed by them. It is contended that thus there is no illegality or irregularity or inconsistence in the measures taken by the secured creditor-bank while proceeding with the matter and hence interim relief granted on the representation of applicants on 11/04/2022 needs to be vacated and in the event the interim relief is continued the bank would be put to loss as it would be prevented from recovering the public money. It is contended that the learned Advocate for applicants on 11/04/2022 made a solemn statement before the Tribunal that they would deposit Rs. 15.00 lakhs in the account before the respondents take possession, however, no amount is deposited and hence the applicants misrepresented to the Tribunal with a view to hold back the process initiated by the respondents. Thus, the respondents-bank prayed to

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( Madkar )

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(S. A. No. 43/2022) Page 9 of No. 14

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reject the Securtisaton Application with costs.

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Respondents No.3 & 4 appeared in the matter but they have not filed their say to the Securtisaton Application and remained absent thereafter.

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Heard the arguments advanced by learned Counsel for applicants and Respondent, at length. The learned Counsel for applicants also submitted the written notes of arguments dated 28/02/2024.

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In this matter, the Tribunal initially protected the applicants’ possession by directing them to deposit an amount of Rs. 40.00 Lakhs, the same was taken by the bank and, therefore, vide order dated 13.10.2022 the Tribunal restored the possession of two shops on supardari with the applicants on a condition to deposit Rs.1.28 crores, accordingly the same was deposited and the possession as on date is with the applicant.

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The main thrust of the applicant in the Securitization Application is that the classification of the account as NPA on 31.12.2020 by the respondent bank is illegal as at the relevant time there were restraining orders of the Hon’ble Apex Court in operation and the account of the applicants cannot be classified as NPA, I found substance in the said submission. As such, the Apex Court

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( Madkar )

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(S. A. No. 43/2022) Page 10 of No. 14

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clearly directed the financial institutions that the accounts which were not declared NPA till 31.08.2020, shall not be declared NPA till further orders and the respondent bank classified the account of the applicant as NPA during operation of such orders. Thus, it appears that the respondent bank classified the account of the applicant as NPA in violation of the interim order and issued the first Demand notice relying on the said date of NPA.

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During that period, accounts were treated to be performing assets and issued the first Demand notice relying on the said date of NPA. and the said demand notice was withdrawn by the bank as the applicant has filed the Contempt Petition in the Apex Court. However, from the record, it appears that, the respondent bank after vacating the interim relief by the Apex Court, issued the second demand notice on 06/04/2021 relying on the earlier date of NPA, thus, the said demand notice is also not legal and though a specific objection to that effect was raised by the applicants in the Securitization Application as well as in the objection to the demand notice, however, the respondent bank has not given any satisfactory reply to the same. Thus, the subsequent actions taken U/S. 13 (4) relying on the said demand notice are also not legal and

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( Madkar )

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(S. A. No. 43/2022) Page 11 of No. 14

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not in accordance with the provisions of the 2002 Act.

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The submission by the applicants is that, the bank has taken the illegal action and in hurried manner as the applicants have filed the Contempt Proceeding against the respondent bank in the Apex Court. To substantiate the said submission, applicants relied that, though the applicants have deposited Rs.40.00 lakhs as per the direction of the Tribunal dated 27.09.2022, the respondent bank on 28.09.2022 took the physical possession forcibly and also not permitted redemption of account as per rule 8(6). from the applicants. The respondent bank has taken the physical possession of the property forcibly and as per the order of the Tribunal, the same were restored on supardari on deposit of amount of Rs. 1.28 crores, as the sale consideration of the said properties was Rs.1.17 crore. The third contention of the applicants is that the said notice is not in accordance with the 2002 Rules, as per the record the said notice was issued on 01/08/2022 and the sale was conducted on 30/08/2022, however, it appears from the record, that no separate 30 days’ notice as contemplated under Rule 8 (6) was issued by the respondent bank to the applicant and only the notice was published in the newspaper. Thus, there is violation of the said statutory

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( Madkar )

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(S. A. No. 43/2022) Page 12 of No. 14

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provision.

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Further, the objection to the demand notice was not dealt with the specific objection quo to illegal classification of account as NPA by the respondent bank and thus there is also non-compliance of the provision of Section 13 (3A). In view of the above, the action of the respondent bank under the Section 13 (2), 13(4) is illegal and deserves to be set aside, consequently, issuance of sale certificate also needs to be quashed. Hence, I pass the following order:

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O R D E R

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A. Securitisation Application No. 43 of 2022 is allowed in following terms, with costs.

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(i) All actions taken by Respt.No.1-bank including classifying the account as NPA in violation of the Hon’ble Supreme Court orders to issuance of notice U/S. 13(4) of the Act including symbolic possession and an application before the District Magistrate are quashed.

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(ii) The sale conducted on 30/08/2022 in favour of

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( Madkar )

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(S. A. No. 43/2022) Page 13 of No. 14

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respondents No.3 & 4 is set aside as no notice under Rule 8(6) was given. Consequently, sale certificate and sale registration, if done, also stand cancelled.

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