Ms Southern Cashew Exporters versus Union Bank of India

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IN THE DEBTS RECOVERY TRIBUNAL-2, KERALA AT ERNAKULAM

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PRESENT: SRI.SOVAN KUMAR DASH PRESIDING OFFICER

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Dated this the 14^th day of June, 2024

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SECURITIZATION APPLICATION No.446/2022

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Between

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M/s.Southern Cashew Exporters,

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Represented by its Managing Partner Shamsudeen,

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VIII/1092, O.S.Road, Chanthanathoppe,

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Kollam – 691 014.

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Shamsudeen,

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S/o.Muhammedkunju, Ayshas, Chanthanathoppe, Kollam – 691 014.

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Rahumathu Niza P., W/o.M.Abdul Rahim, Nizar Manzil, Kuttichira, TKMC P.O.,

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Kollam – 691 014.

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Rameela Beegum, W/o.Basheer M., Moonlight, Chathinamkulam, Perinad, Chanthanathoppe P.O., Kollam – 691 014.

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M.Kamarudeen, S/o.Muhammedkunju, Ajmal Manzil, Chanthanathoppe, Kollam – 691 014.

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M.Hamsa, S/o.Muhammedkunju, Subah, Chanthanathoppe, Kollam – 691 014.

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M.Sharafudeen, S/o.Muhammedkunju, MMK Residency, Chanthanathoppe, Kollam – 691 014.

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Rissa Beegum, W/o.Muhammedkunju, Moonlight, Chathinamkulam, Perinad, Chanthanathoppe P.O., Kollam – 691 014.

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Basheer M., S/o.Muhammedkunju, Moonlight, Chathinamkulam, Perinad, Chanthanathoppe P.O., Kollam – 691 014.

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Femi, W/o.M.Hamsa, Subah, Chanthanathoppe, Kollam – 691 014.

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M.Hakkim, S/o.Muhammedkunju, Hamsa Manzil, Chanthanathoppe, Kollam – 691 014.

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M.Abdul Rahim, S/o.Muhammedkunju, Nizar Manzil, Kuttichira, TKMC P.O., Kollam – 691 005.

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Ummasalumma, W/o.Muhammedkunju, Hamsa Manzil, Chanthanathoppe, Kollam – 691 014. …Applicants

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And 1. Union Bank of India, Represented by its Branch Manager, Branch – 2, Kollam, NK Building, Beach Road, Kollam – 691 001.

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The Authorised Officer, Union Bank of India, Regional Office, Kollam – 691 001. …Defendants

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Abdul Hakim M., S/o.Muhammed Kunju, SSB Manzil, Near Mekone Mazjid, Chandanathope P.O., Kollam – 691 014.

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Riyas N., S/o.Noorudheen, Punthala Veedu, Karicode, TKMC P.O., Kottamkara, Kollam – 691 015.

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Sylus Albert, S/o.Sylus, 14-12 (B07), Shalom, Paravilai, Changai, Vilavancode, Kanjiracode, Vilavancode, Kanniyakumari, Tamilnadu – 629 155.

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Hashim, TC 52/2009, Tippu Sulthan Place, Vellayani Junction, Nemom P.O., Thiruvananthapuram – 695 020.

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Geevarghese Yohannan, Kuzhivila Puthen Veedu, Kottarakkara, Ummannoor, Nellikkunnam, Kollam – 691 520. …Additional defendants [Additional defendants 3 & 4 were impleaded as per order dated 15.03.2023 in IA No.570/2023 and additional defendants 5 to 7 were impleaded as per order dated 12.10.2023 in IA No.3254/2023]

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This Securitization Application having been heard on 28.05.2024 and 05.06.2024 in the presence of Advocates M/s.V.K.Peer Mohamed Khan and Girish Kumar V.C. for the applicants and Advocates M/s.A.S.P.Kurup, Sadchith P.Kurup and C.P.Anil Raj for the 1^st and 2^nd defendants, Advocates M/s.R.Renjith and Vinaya K. for additional defendants 3 and 4, Advocate Ms.Bhavana K.K. for additional defendants 5 and 6 and Advocates M/s.M.R.Hariraj, Alina Anna Kose, Gayatri Viswanathan, Akhila S., Lakshmi V.S. and Karthika Ganesh for additional 7^th defendant and stood over to this day for consideration, the Tribunal delivered the following:

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F I N A L O R D E R

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This SA is filed by the applicants under S.17(1) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘the SARFAESI Act’) challenging the possession notices issued by the defendant no.1 and 2 with further prayer to set aside the entire securitization proceedings initiated by them. By amending the SA, the applicants challenged sale notices marked Annexures-A14 and A16 issued by the defendant Nos.1 and 2 in respect of the secured assets with prayer to set-aside the sale.

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Brief facts of the case :

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In the SA the applicants initially claimed relief against the possession notices issued by the defendant bank marked AnnexuresA7, A8 and A9 dated 08.07.2022, 11.07.2022 and 04.08.2022 respectively. It is claimed in the SA that 1^st applicant is a partnership firm, which was founded by the father of the 2^nd applicant viz., Mr.M.Mohammed Kunju in the year 1985 to carry on the business of cashew in the name and style M/s.Southern Cashew Exporters. The applicants availed loans from the erstwhile Andhra Bank in the year 1986 and there was no default in repayment of the loans. Due to Covid-19 pandemic, business of the 1^st applicant was affected. Consequently, the applicants were compelled to discontinue the cashew exporting business, resulting huge loss to them. Thereafter, the applicants availed renewal of credit facilities aggregating to Rs.59.91 crores vide sanction letter dated 27.09.2021 from the defendant bank in which erstwhile Andhra Bank was merged. After

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availing such facility, the applicants could not overcome the crisis in the business immediately resulting default in repayment.

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The defendant bank classified the loan as NPA and issued demand notice under S.13(2) of the SARFAESI Act marked AnnexureA2 showing the date of issuance as on 04.05.2025. After getting the demand notice, the applicants submitted representation under S.13(3A) of the SARFAESI Act challenging the status of NPA and claimed that they are ready and willing to clear the arrears as soon as possible. But the defendant bank did not consider the same and rejected the representation. Thereafter, the defendant bank proceeded with further securitization measures by issuing possession notices under section 13(4) of the SARFAESI Act on various dates vide Annexures-A7, A8 and A9 and also initiated proceedings under S.14 of the SARFAESI Act before the CJM, Kollam. The applicants filed this SA praying to set aside the demand notice as well as possession notices including the proceeding initiated before the CJM, Kollam vide Annexure-A10.

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During pendency of the SA, the Advocate Commissioner being appointed by the CJM issued notice for taking possession of the secured assets. The defendant bank issued a notice marked AnnexureA13 for e-auction of the secured asset. Being aggrieved by the sale notice, the same was challenged in the SA by way of amendment on the ground that item Nos.1, 2, 4, 5 and 7 properties of the demand notice are agricultural lands which are used as coconut garden and item Nos.3 and 6 properties are also agricultural lands used for rubber plantation. The applicants amended the SA seeking relief to set aside

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the notices issued by the Advocate Commissioner as well as the sale notice issued by the 2^nd defendant.

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As the earlier sale notice did not fructify, the 2^nd defendant issued fresh sale notice marked Annexure-A14 putting the entire properties for sale on 25.01.2023. Sale in respect of item No.2 property of the sale notice (item No.6 in Annexure-A2 demand notice) was fructified and the additional defendants 3 and 4 were declared as the successful bidders. Subsequently, the 2^nd defendant issued fresh sale notices marked Annexure-A16 series fixing the date of sale on 26.09.2023, in which additional 7^th defendant was the successful bidder in respect of item No.3 property in Annexure-A16(d) sale notice (item No.22 in Annexure-A2 demand notice). The additional 5^th defendant was declared as the successful bidder in respect of item No.2 property in Annexure-A16(i) sale notice (item No.19 in Annexure-A2 demand notice) and additional 6^th defendant was the successful bidder in respect of item No.4 property in Annexure-A16(i) sale notice (item No.21 in Annexure-A2 demand notice). The applicants amended the SA and claimed reliefs in respect of such sale with a prayer to set aside the same.

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In the amended SA, the applicants claim relief to set aside the entire securitization proceedings including the sale conducted on various dates mainly on the following grounds:

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(i) Classification of NPA of the loan availed by the applicants is not in accordance with the guidelines of RBI. In absence of valid classification, the entire proceeding is vitiated.

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(ii) The properties described as item Nos.2, 4, 6, 8, 10, 11, 13, 14 and 26 in the demand notice are agricultural lands, which are used for cultivation of coconut trees and rubber plantation for which securitization measures is not sustainable in view of the bar contained in the SARFAESI Act.

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(iii) The measure taken under S.14 of the SARFAESI Act and the order passed by the CJM is not in accordance with the statutory requirements which vitiates the entire proceeding. The declaration made by the Authorised Officer in the affidavit accompanied with the application is not as per the statutory mandates as contained under S.14(1) of the SARFAESI Act. Hence the defendant bank cannot proceed to take physical possession of the secured assets with the assistance of an Advocate Commissioner.

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(iv) The sale notices issued by the 2^nd defendant from time to time were not affixed at the secured assets nor were the same published in two leading dailies having sufficient circulation in the locality. There was no clear 30 days or 15 days sale notice as required under the statute, which having not complied in the sale proceeding, the entire sale is vitiated.

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(v) The description of the properties in Annexure-A14 sale notice is not proper. In absence of the same, it is difficult to identify the property mentioned in the sale notice. Description of item Nos.3 and 4 properties of the said sale notice is erroneous. In the sale notice the description of

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these properties are shown in Panayam Village, Kollam Taluk but the sale certificate was issued showing the properties in Perinad Village, which is not permissible and hence the sale is liable to be set-aside.

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(vi) The reserve price fixed in respect of the properties in Annexure-A14 sale notice is too low, which is apparent when compared with Annexure-A1 sanction letter for the same properties. The reserve price was fixed 1/3^rd of its valuation without giving any explanation by the 1^st defendant which affects the constitutional right of the applicants. In respect of the properties in AnnexureA16(d) sale notice, valuation report was obtained on 04.08.2022 but the sale notice was issued on 16.08.2023 by fixing the reserve price in respect of item No.3 property at Rs.6,16,00,000/- which is in violation of R.8(5) of the Security Interest (Enforcement) Rules, 2002. In respect of the properties in Annexure-A16(i) sale notice, reserve price was also fixed below the value stated in the valuation report submitted by the approved valuer without the concurrence of the secured creditor and the properties were sold at a very low price. The sale of the properties in pursuance to the above sale notices is in violation of mandatory statutory provision and such sale, having no legal sanctity, are liable to be set aside.

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Based on the above averments, the SA was amended from time to time and the applicants clam relief in respect of the entire securitization proceedings starting from the stage of classification of

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NPA till the sale conducted by the 1^st and 2^nd defendants by issuing various sale notices as stated earlier.

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The 1^st and 2^nd defendants filed written statement contending inter alia that the secured assets are not agricultural lands at any point of time and at the time of creation of equitable mortgage the same were not used as agricultural land. The claim advanced by the applicants in respect of some of the secured assets are purely afterthought to protract the recovery measure. All the statutory procedures are duly followed before conducting the sale. In the sale conducted pursuant to Annexure-A14 sale notice dated 26.12.2022, additional defendants 3 and 4 became the successful bidders and after receipt of the entire bid amount, sale certificate was issued to them on 30.01.2023. Thereafter, fresh sale notices marked Annexure-A16 series were issued. Item Nos.19, 21 and 22 in the demand notice were purchased by additional defendants 5 to 7 in the auction held on 01.09.2023. Reserve price was fixed after obtaining proper valuation from approved valuers. It is also stated that four items of properties purchased by additional 3^rd defendant situated in one village viz., Perinad Village contiguously. Due to bifurcation of the villages in revenue records, two items of properties are shown in Panayam Village and other two items are shown in Perinad Village. There is no discrepancy in identifying the properties and no prejudice was caused to the applicants in issuing the sale certificates showing two items in Perinad village. The same cannot be the basis to set aside the sale on such technical ground raised by the applicants. All the relevant documents regarding compliance of the statutory procedures as well

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as valuation reports are filed in this case. Hence the SA may be dismissed.

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The additional defendants 3 and 4 filed written statement contending that they purchased the property for Rs.78.36 lakhs in the auction held on 25.01.2023. Entire sale consideration was deposited and sale certificate was issued to them on 30.01.2023. Thereafter sale certificate was engrossed in the non-judicial stamp paper and registered as document No.295/2023 on the file of SRO, Kunnanallor, Kollam on 14.02.2023. The physical possession of the property was also delivered to them by the secured creditor. The SA is filed without any bonafides and hence the same may be dismissed.

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The additional defendants 5 and 6 filed written statement claiming that they are the bonafide purchasers of the property in the auction conducted by the defendant bank and entire sale consideration was deposited in time. If the SA is allowed, irreparable injury and hardship would be caused to them.

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The Power of Attorney holder of the additional 7^th defendant filed written statement contending that additional 7^th defendant is the successful bidder whose bid amount of Rs.6.65 crores was accepted by the bank on 26.09.2023 and the sale was finalized on the same date. Hence he prayed to issue sale certificate in respect of the property purchased by him and sought to dismiss the SA with costs.

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From the respective case of the applicants and the defendants, the following points are emerged for adjudication in this case:

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(i) Whether the securitization proceeding initiated by the 1^st and 2^nd defendants in respect of the subject matter properties suffer from any illegality or irregularity?

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(ii) Whether some of the secured assets as claimed by the applicants are agricultural lands exempted under S.31(i) of the SARFAESI Act?

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(iii) Whether the proceedings before CJM, Kollam under S.14 of the SARFAESI Act suffer from any illegality to interdict with the same?

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(iv) Whether the sale conducted by 1^st and 2^nd defendants in respect of some of the properties and issuance of sale certificates suffer from any illegality?

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(v) Whether the applicants are entitled to get any relief in this case?

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FINDINGS:

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Point Nos.(i) to (iii):

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For the sake of convenience, point Nos.(i) to (iii) are taken up together for adjudication. In the SA the applicants did not dispute the availing of financial assistance from the defendant bank as per sanction letter dated 27.09.2021 marked Annexure-A1. It is claimed in the SA that the loan was illegally classified as NPA which vitiates the entire securitization proceedings. It is seen from the record that after receipt of the demand notice marked Annexure-A2, the applicants

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submitted written objection on 17.05.2022 marked Annexure-A3 wherein they claimed that without giving sufficient opportunity, the loan was classified as NPA very hurriedly. Further, in paragraph 10 of the objection, the applicants have categorically stated that they are ready and willing to clear the arrears in the account as soon as possible and requested the bank to change the status of account from NPA to standard account. On receiving such representation, the defendant bank informed the applicants that asset classification is a system driven process without any manual intervention and they are unable to reverse the status of the loan account from NPA unless the account is regularized by clearing the overdue. After receipt of the reply, the applicants remained silent and they did not agitate the issue before any other forum nor took any step to redeem the overdue amount. This Tribunal is only concerned whether the loan was classified as NPA on the date of initiation of the securitization measure. It cannot adjudicate the question of erroneous classification of the loan as NPA. Besides the same, no sufficient or satisfactory material is placed to arrive at a conclusion that the classification of the loan as NPA is erroneous or arbitrary. Merely because the secured creditor bank classified the loan as NPA due to non-repayment of the outstanding amount in time, this Tribunal cannot hold the step taken by the bank as erroneous not it can be said that the loan was standard account on the date of classification of the loan as NPA. Contention of the learned counsel on this aspect is not valid to accept the same.

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Subsequently after receipt of demand notice marked Annexure A-2 issued under section 13(2) of the SARFAESI Act, the applicants did not repay the loan within the statutory period and

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consequently, defendants 1 and 2 proceeded with the measure under S.13(4) of the SARFAESI Act by issuing possession notices marked Annexures-A7 to A9. It is claimed by the applicants that defendants 1 and 2 did not follow the procedure as prescribed under R.8(1) and R.8(2) of the Security Interest (Enforcement) Rules, 2002 while issuing the possession notices and the same were not published in two leading dailies having sufficient circulation in the locality and hence the measure taken under S.13(4) of the SARFAESI Act is vitiated. The defendants 1 and 2 claimed that possession notices under S.13(4) of the SARFAESI Act marked Annexures-A7, A8 and A9 dated 08.07.2022, 11.07.2022 and 04.08.2022 were issued in accordance with law and all the statutory requirements are duly followed including affixture of the possession notice and publication in daily newspapers. It is discernible from the materials on record that the possession notices sent by registered post were duly served on the applicants. In the written statement the defendant Nos.1 and 2 in paragraph No.5 it is specially stated that all the formalities contemplated for the service of Section 13(2) notice and Section 13(4) notice are being complied with by the bank. But no material is traced out from the record showing publication of the possession notices in two dailies and affixture of the same as required under the statute.

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The question arises whether the entire proceedings can be set aside due to non-compliance of statutory procedure in issuing the possession notices? After taking symbolic possession, the defendant bank moved the CJM, Kollam for taking physical possession of the secured assets. Accordingly, an order was passed by the CJM in appointing an Advocate Commissioner to take physical possession of

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the properties. The learned counsel for the applicants claimed that as the declaration furnished by the bank before the CJM is not as per the statutory requirements, such proceeding is also vitiated.

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The law is well settled on the point that order passed by the CJM is purely administrative in nature and he has nothing to do with adjudication of the controversy on merit. Only if the CJM is satisfied that the secured creditor is unable to take possession of the secured asset, he renders assistance for the same which is purely nonadjudicatory. In a judgment of the Hon’ble Apex Court passed in Civil Appeal 175/2022 on 27.07.2022 in the case of M/s.R.D Jain and Co. vs. Capital First Ltd. & others it was held that “ Thus, we reiterate that the step to be taken by the CMM/DM under Section 14 of the SARFAESI Act, is a ministerial step. While disposing of the application under Section 14 of the SARFAESI Act, no element of quasi-judicial function or application of mind would require. The Magistrate has to adjudicate and decide the correctness of the information given in the application and nothing more. Therefore, Section 14 does not involve an adjudicatory process qua points raised by the borrower against the secured creditor taking possession of the secured assets ”. Even if there is any deficiency in filing the declaration as required under clauses (i) to (ix) of S.14(1) of the SARFAESI Act, it would not vitiate the proceedings and the CJM is only required to apply his mind to the documents produced before him and if he is satisfied with the same, he will pass order for rendering assistance for taking physical possession of the secured asset. The filing of affidavit by way declaration as prescribed under clauses (i) to (ix) of S.14(1) of the SARFAESI Act is mandatory but the format as prescribed is not

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mandatory and it is purely directory in nature. Unless any deviation in the affidavit or any omission will cause any prejudice to the borrower/guarantor, such proceeding cannot be treated as illegal. In view of the ratio decided by the Hon’ble Apex Court, the administrative order passed by the Chief Judicial Magistrate under S.14 of the SARFAESI Act cannot be said as illegal and hence the contention on this aspect is not sustainable.

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There is no illegality in the measure taken under S.14 of the SARFAESI Act. In the judgment of the Hon'ble Apex Court reported in (2013) 9 SCC 620 in the case of Standard Chartered

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Bank v. V.Noble Kumar & others, it was held as follows:-

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“29. ……………. Having regard to the scheme of Sections 13 and 14 and the object of the enactment, we do not see any warrant to record the conclusion that it is only after making an unsuccessful attempt to take possession of the secured asset, a secured creditor can approach the Magistrate. No doubt that a secured creditor may initially resort to the procedure under Section 13(4) and on facing resistance, he may still approach the Magistrate under Section 14. But, it is not mandatory for the secured creditor to make attempt to obtain possession on his own before approaching the Magistrate under Section 14. The submission that such a construction would deprive the borrower of a remedy under Section 17 is rooted in a misconception of the scope of Section 17.”

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In view of this ratio, secured creditor is open to move the CJM even without taking measure under S.13(4) of the SARFAESI Act for taking possession of the secured asset. An application under S.14 of the SARFAESI Act can be construed as a measure under S.13(4) of the SARFAESI Act. Even if the defendant bank has not produced other relevant documents in compliance of S.13(4) of the SARFAESI Act, securitization measures cannot be said as illegal in view of this ratio decided by the Hon'ble Apex Court.

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In the SA the applicants claimed that properties described as item Nos.2, 6, 10, 11, 13 and 26 in Annexure-A2 demand notice are used for cultivation of coconut trees and are lying as coconut garden. So also the applicants claimed that item Nos.4, 8 and 14 are agricultural lands as the same were used for rubber cultivation at the time of creation of mortgage in favour of the defendant bank. Except claiming the lands as agricultural properties, no material is placed by the applicants to establish the plea advanced in this case. The Hon'ble Apex Court in the case titled K.Sreedhar v. M/s.Raus Constructions Pvt. Ltd. & others [judgment dated 05.01.2023 in Civil Appeal No.7402/2022 – 2023 KHC 6012] had held that “ When it was the case on behalf of the borrowers that in view of Section 31(i) of the SARFAESI Act, the properties were agricultural lands, the same were being exempted from the provisions of the SARFAESI Act, the burden was upon the borrower to prove that the secured properties were agricultural lands and actually being used as agricultural lands and/or agricultural activities were going on.”

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In view of this ratio, the burden lies on the applicants to establish that the secured assets mentioned above are agricultural land on the date of creation of security interest. No material is placed to prove that the above items of properties were used as agricultural on the date of creation of security interest. Besides the same, after getting the demand notice though the applicants submitted a written objection under S.13(3-A) of the SARFAESI Act, they did not whisper a single word that the above items of properties are agricultural lands exempted under S.31(i) of the SARFAESI Act and the securitization proceeding is not maintainable. In absence of such plea, it can be said

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that the claim advanced by the applicants is purely an afterthought, which is not acceptable.

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Even assuming for a moment that these items of properties are used for plantation of rubber and also as a coconut garden, the same will not help the applicants for claiming exemption available under S.31(i) of the SARFAESI Act in view of the ratio decided by the Hon'ble Apex Court in the case of Indian Bank & another vs. K.Pappireddiyar & another , reported in 2018 (18) SCC Page 252 , wherein it is held that the question as to whether the land is agricultural has to be determined on the basis of the totality of facts and circumstances including the nature and character of the land, the use to which it was put and the purpose and intent of the parties on the date on which the security interest was created. In another judgment reported in 2018 (4) SCC 793 in the case of ITC Limited vs. Blue Coast Hotels Ltd. & others , the Hon'ble Apex Court held at paragraph 38 as follows;

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“38 . The purpose of enacting Section 31(i) and the meaning of the term “agricultural land” assume significance. This provision, like many others is intended to protect agricultural land held for agricultural purposes by agriculturists from the extraordinary provisions of this Act, which provides for enforcement of security interest without intervention of the Court. The plain intention of the provision is to exempt agricultural land from the provisions of the Act. In other words, the creditor cannot enforce any security interest created in his favour without intervention of the Court or Tribunal, if such security interest is in respect of agricultural land. The exemption thus protects agriculturists from losing their source of livelihood and income i.e. the agricultural land, under the drastic provision of the Act. It is also intended to deter the creation of security interest over agricultural land as defined in Section 2 (zf) 36. Thus, security interest cannot be created in respect of property specified in Section 31.”

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There is no evidence on record to show that the applicants were agriculturists having intention to retain the lands as agricultural on the date of creation of security interest. In absence of the same, the

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applicants cannot claim that the above items of properties are agricultural lands and securitization proceeding is barred as against the same. No other defect or illegality is found in the securitization proceedings to interdict with the same. In such premises, point Nos.(i) to (iii) are answered against the applicants.

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Point Nos.(iv) & (v):

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For the sake of convenience, point Nos.(iv) and (v) are taken up together for adjudication. During the pendency of the SA, defendants 1 and 2 proceeded with e-auction of the secured assets. Initially the defendant bank issued Annexure-A13 sale notice dated 06.10.2022 fixing the date of sale on 08.11.2022 for sale of the properties. The applicants amended the SA and challenged the said sale notice but the sale did not fructify. Thereafter defendants 1 and 2 issued sale notice dated 26.12.2022 marked Annexure-A14 fixing the date of e-auction of the secured assets on 25.01.2023. It is claimed by the applicants that the defendant bank illegally conducted sale of item No.6 property in the demand notice marked Annexure-A2 and additional defendants 3 and 4 are declared as the successful bidders. The said sale was challenged by the applicants by way of amendment in the SA. Again defendants 1 and 2 issued fresh sale notice marked Annexure-A16 series on 16.08.2023 and 01.09.2023 fixing the date of auction on 26.09.2023. Out of the sale notices marked AnnexureA16(a) to (i), sale notice marked Annexure-A16(i) in respect of item Nos.19 and 21 of the demand notice fructified and additional defendants 5 and 6 are the successful bidders. The sale notice marked Annexure-A16(d) in respect of item No.22 in the demand notice was also fructified and additional 7^th defendant was the successful bidder in

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the said sale. The applicants again amended the SA challenging the auction of the properties on various grounds and the auction purchasers were impleaded as parties in this case. The additional defendants filed written statements resisting the claim of the applicants.

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For better appreciation of the facts, the sale conducted on various dates in respect of item Nos.6, 19, 21 and 22 of the demand notice issued under S.13(2) of the SARFAESI Act marked Annexure-A2 are stated in a tabular form which is as follows:

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Sl. No.	Date of sale notice	Annexures	Property sold	Reserve price (Rs.)	Bid amount (Rs.)	Status of sale
1	26.12.2022	A14– item No.6 in Annexure-A2	60.13 Ares	78.16 lakhs	78.36 lakhs	Sale certificate issued to additional defendants 3 and 4.
2	16.08.2023	A16(i)– item No.19 in Annexure- A2	75.50 cents	82.63 lakhs	83.13 lakhs	Sale not yet confirmed in view of the order dated 26.09.2023 of the Tribunal.
3	16.08.2023	A16(i)– item No.21 in Annexure- A2	80.00 cents	5.25 lakhs	50.75 lakhs	Sale not yet confirmed in view of the order dated 26.09.2023 of the Tribunal.
4	16.08.2023	A16(d) – item No.22 in Annexure- A2	22.50 Ares	6.16 crores	6.65 crores	Sale not yet confirmed in view of the order dated 26.09.2023 of the Tribunal.

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In respect of Annexure-A14 sale notice, the applicants

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claim that the statutory mandates in affixing the sale notice and publishing the same in two newspapers, one in vernacular language were not complied by defendants 1 and 2. In absence of noncompliance of the mandatory requirements, the sale is vitiated. There was no clear 30 days’ notice before conducting the sale which is mandatory in nature and the same having not complied, the sale is

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vitiated. Further, item No.6 property in Annexure-A2 demand notice comprised of four items of properties and out of the same, item Nos.1 and 2 are shown as part of Panayam Village, Kollam Taluk and in respect of item Nos.3 and 4, no village name is mentioned and hence it is difficult to identify the properties. After completion of the sale, sale certificate was issued showing item Nos.3 and 4 properties situate at Perinad Village. In absence of proper description of the properties, sale in respect of Annexure-A14 sale notice is vitiated. Further, it is contended by the learned counsel for the applicants that at the time of sanction of the loan, valuation of item No.6 property was taken and it was valued at Rs.2.21 crores but defendants 1 and 2 fabricated the valuation report and fixed the reserve price which has no connection with market value of the property. Selling the property at a throwaway price affects the constitutional right of the applicants. The claim of additional defendants 3 and 4 that possession of the property having been taken through the Advocate Commissioner is not true. In view of the above, sale in respect of item No.6 property in Annexure-A2 demand notice is not sustainable and the sale certificate may also be set aside.

¶129

On the other hand, learned counsel for defendants 1 and 2 submitted that there is no illegality in the sale conducted by the bank. All the statutory requirements are duly followed. It is also claimed in additional written statement that Annexure-A14 sale notice was duly published in Deepika daily in vernacular language on 08.01.2023 and also in The New Indian Express English daily on 08.01.2023. The sale notice sent to the applicants was duly served and postal

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21

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acknowledgement cards also filed. There was also affixture of the sale notice at the secured asset and relevant documents are also filed.

¶133

On careful evaluation of the materials, it is seen that sale notice marked Annexure-A14 was served on the applicants and defendants 1 and 2 filed Xerox copies of postal acknowledgement cards marked Annexure-R1(M) series to prove the same. The defendants 1 and 2 also produced photographs marked AnnexureR1(N) series showing affixture of the sale notice on the secured asset and copies of newspapers showing publication of Annexure-A14 sale notice in Deepika daily in vernacular language and also in The New Indian Express daily on 08.01.2023. The genuineness and validity of the documents are not challenged by the applicants nor was any counter affidavit filed stating that these documents did not relate to Annexure-A14 sale notice and the same were not served on them. In absence of the same, contentions regarding non-service of sale notice and its affixture and publication are not acceptable. Besides the same, Annexure-A14 sale notice is a subsequent sale notice for which 30 days’ notice as required under R.9(1) of the Security Interest (Enforcement) Rules, 2002 is not necessary. But it is mandatory that the Authorised Officer shall serve, affix and publish the subsequent sale notice not less than 15 days, which was done in this case. In such premises, contention of the applicants on this aspect is not at all sustainable. Hence it is concluded that there was due compliance of the statutory requirements by defendants 1 and 2 in respect of Annexure-A14 sale notice.

¶134

The main dispute raised by the applicants was regarding wrong description of the properties in Annexure-A14 sale notice. It is

¶135

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22

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claimed that item No.2 property in Annexure-A14 sale notice (item No.6 in the demand notice) of an extent of 60.13 Ares of vacant land, which comprises four items of properties, is lying in Panayam Village. In the description, item Nos.1 and 2 properties are shown in Panayam Village but item Nos.3 and 4 properties are not shown in Panayam Village or in Perinad Village. The learned counsel for the applicants contended that item Nos.3 and 4 properties belonging to different persons and these properties cannot be sold. Whereas, defendants 1 and 2 claimed that these four items of properties are lying contiguously as a single lot as per revenue records and the survey numbers of all the four properties are part of Perinad Village. Subsequently, due to bifurcation of the Village, item Nos.1 and 2 properties are shown in Panayam Village and item Nos.3 and 4 properties are shown in Perinad Village as per revenue records. There was no dispute about the same at the time of creation of equitable mortgage. The applicants also stated that item Nos.3 and 4 properties are in Perinad Village. In such premises, showing the properties in Perinad Village in the sale certificate does not vitiate the sale and the sale proceedings cannot be said as illegal nor the sale certificate can be set aside on this ground.

¶138

The applicants produced sanction letter issued by the defendant bank marked Annexure-A1 wherein item No.6 property in the demand notice i.e., 60.13 Ares is shown in Perinad Village which supports the claim advanced by the defendants 1 and 2. In AnnexureA2 demand notice, item Nos.1 and 2 properties are also shown in Panayam Village and in respect of item Nos.3 and 4 properties, no village name is mentioned. After getting the demand notice, the

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23

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applicants did not dispute about description of the property nor in the objection marked Annexure-A3 did they challenge the identity of the said properties. There is no dispute that all the four items of properties having a total extent of 60.13 Ares situated earlier in one village. Mere showing of two items of properties in Panayam Village and another two items in Perinad Village in the sale certificate will not vitiate the sale as there is no dispute about the identity of the property.

¶142

The learned counsel for defendants 1 and 2 relied on a judgment of the Hon'ble Apex Court reported in 2022 KHC 7208 in the case of Varimadugu OBI Reddy v. B.Sreenivasulu, wherein at paragraph 36 the Hon'ble Apex Court held as follows:-

¶143

“36. 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 “12339”, 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 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.”

¶144

In view of this ratio, if any error in the description of property does not cause any prejudice to the borrower; the same cannot be a ground to set aside the sale. This ratio decided by the Hon'ble Apex Court is squarely applicable to the facts and circumstances of the present case. Even the village name is not mentioned in the description of item Nos.3 and 4 properties and showing the same as part of Perinad

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24

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Village in the sale certificate, the sale proceeding cannot be said as illegal and the same cannot be set aside. Besides the same, the applicants admitted by producing document Annexure A1 that 60.13 Ares of land initially situates in Perinad Village and hence the contrary claim by the applicants at this stage in respect of the same is not sustainable.

¶148

So far as the valuation is concerned, the applicants mainly relied on the sanction letter marked Annexure-A1 wherein the market value of the collateral property described as item No.6 having an extent of 60.13 Ares is shown as Rs.2.60 crores, land value is shown as Rs.2.60 crores and net realizable value is stated as Rs.2.21 crores. But the subsequent valuation report produced by defendants 1 and 2 on 09.08.2023 indicates that the property was inspected by the approved valuer on 16.08.2022 and estimate value of the property is fixed at Rs.78,16,800/-. It is well known that at the time of obtaining the loan, valuation of the properties are shown at a higher rate to obtain more loan from the financial institution which has no nexus with the market value. In absence of any valuation report and solely basing upon Annexure-A1 sanction letter produced by the applicants, it cannot be construed that realizable value of the property was Rs.2.21 crores on the date of approval of loan in the year 2021.

¶149

In the judgment cited by the learned counsel for defendants 1 and 2 reported in (2004) 8 SCC 671 in the case of Anil Kumar Srivastava v. State of U.P. & another , the Hon'ble Apex Court at paragraph 13 held as follows:-

¶150

“13. Valuation is a question of fact. This Court is reluctant to interfere where valuation is based on relevant material. [See: Duncans Industries Ltd. v. State of U.P. & others reported in (2000) 1 SCC 633]. The difference between valuation and upset price has been

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25

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explained in the case of B. Susila & another v. Saraswathi Ammal & others reported in [AIR 1970 Madras 357] in which it has been held that fixation of an upset price may be an indication of the probable price which the land may fetch from the point of view of intending bidders. However, notwithstanding the fixation of upset price and notwithstanding the fact that a bidder has offered an amount higher than the reserve/upset price, the sale is still open to challenge on the ground that the property has not fetched the proper price and that the sale be set aside. That the fixation of the reserve price does not affect the rights of the parties. Similarly, in the case Dr. A. U. Natarajan & another v. Indian Bank, Madras reported in [AIR 1981 Madras 151] it has been held that the expressions "value of a property" and "upset price" are not synonymous but have different meanings. That the term "upset price" means lowest selling price or reserve price. That unfortunately in many cases the word "value" has been used with reference to upset price. That the sale has to commence at the higher price and in the absence of bidders, the price will have to be progressively brought down till it reaches the upset price. That the upset price is fixed to facilitate the conduct of the sale. That fixation of upset price does not preclude the claimant from adducing proof that the land is sold for a low price.”

¶154

In view of the ratio decided by the Hon'ble Apex Court, fixing of reserve price/upset price has no connection with market value of the property.

¶155

It is well known that when a property mortgaged for securing loan is attempted to be sold and in case of litigation, financial institutions face hardship to procure a purchaser for the same. Considering all these aspects, after obtaining valuation report from an approved valuer, secured creditor fix the reserve price. Here in this case, first sale did not fructify and in the subsequent sale, reserve price for 60.13 Ares of property was fixed at Rs.78,16,000/- and the property was sold for Rs.78,36,000/-. It is true that borrower has right to challenge the sale and claim that his property was sold at a very low price by adducing proof, but no such proof was produced to substantiate the claim advanced by the applicants in establishing that the property was sold at a throw away price. There is no illegality in selling item No.2 property in Annexure-A14 sale notice in favour of additional defendants 3 and 4 and also no illegality committed by the

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26

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defendant bank in issuing the sale certificate. The additional 4^th defendant produced a report showing that physical possession of the secured asset was taken by the Advocate Commissioner. In such premises, contentions raised by the applicants in respect of item No.6 property in Annexure-A2 demand notice is not at all sustainable.

¶159

The defendants 1 and 2 proceeded with e-auction of other secured assets by issuing fresh sale notices marked Annexure-A16 series on 16.08.2023 and 01.09.2023 fixing the date of sale on 26.09.2023. As shown in the above table, three items of properties were sold in pursuance to Annexures-A16(i) and A16(d) sale notices issued on 16.08.2023 in respect of item Nos.19, 21 and 22 in the demand notice. The applicants amended the SA and challenged the sale. In paragraphs Y, Z, AA, AB, AC & AD of the grounds of the amended SA, they challenged in general terms that statutory mandates are not duly followed by the defendant bank before conducting the sale. The description of the properties is erroneous and many of them are not identifiable. The reserve price fixed by defendants 1 and 2 is too low which is in violation of the provisions of the SARFAESI Act and the Security Interest (Enforcement) Rules, 2002. In such premises, the applicants prayed for setting aside the sale conducted in favour of additional defendants 5 to 7.

¶160

On the other hand, learned counsel for defendants 1 and 2 contended that all the statutory mandates are duly complied in respect of the sale conducted in pursuance to Annexures-A16(d) and A16(i) sale notices. The sale notices were personally served and there was affixture of the sale notices on the secured assets and the notices were also published in daily newspapers widely circulated in the area

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i.e., Mathrubhumi Malayalam daily, Dina Thanthi Tamil daily and also in The Hindu English daily. The valuation of the properties was obtained from an approved valuer and accordingly reserve price was fixed. All the relevant documents are filed vide Annexures-R1(B) to R1(L) in support of the same.

¶164

As discussed earlier, the applicants did not whisper in the amended SA that the valuation reports obtained by defendants 1 and 2 in respect of the properties are erroneous and do not reflect the correct valuation of the properties. Merely stating in the pleading that reserve price fixed is below the market value, it is not sufficient to discard the valuation reports obtained by defendants 1 and 2 from the approved valuer. It is seen from Annexures-R1(J), R1(K) and R1(L) that the approved valuer considered all the relevant aspects in fixing the valuation of the properties and based upon the same, reserve price was fixed. After considering various aspects, to get potential buyers the reserve price is fixed by the bank. The reserve price and market value are not synonymous as held by the Hon'ble Apex Court in Anil Kumar Srivastava v. State of U.P. & another (supra). It is true that borrower has liberty to prove that valuation report obtained by the secured creditor is wrong. In this case, after completion of the sale, the applicants obtained valuation reports in respect of three items of properties sold and the same are filed along with memo dated 01.03.2024, wherein value of item No.19 is shown as Rs.2,41,60,000/-, item No.21 is shown as Rs.1,12,00,000/- and item No.22 is shown as Rs.10,52,75,000/-. But it does not appear from such valuation reports on what basis these valuation of the properties are ascertained by the valuer. Valuation of the properties cannot be

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ascertained without any supporting materials. Relying on the same, valuation reports obtained by defendants 1 and 2 from approved valuers cannot be said as erroneous.

¶168

The last point argued by the applicants, which is also not averred in the SA, is that the Branch Manager signed the valuation reports marked Annexures-R1(J), R1(K) and R1(L) on 30.10.2023 after sale of the properties. The concerned Branch Manager filed an affidavit stating that it is a clerical error and in fact he inspected the property on 09.08.2023 before putting the properties for sale. Even assuming for a moment that the Authorised Officer/Branch Manager put the date on 30.10.2023, the auction conducted cannot be said as illegal nor the valuation report can be said as erroneous. No prejudice was caused to the applicants in putting such date on the valuation report by the Branch Manager. The reserve price was fixed on the basis of the valuation reports obtained from approved valuer and the properties were sold accordingly. In absence of the pleading, the submission advanced by the learned counsel for the applicants on this aspect is not at all acceptable. It is also seen from the documents that details of the secured assets are mentioned in the sale notices which are identifiable. Further, description of the properties in the sale notices is similar to the sanction letter produced by the applicants marked Annexure-A1. Hence the applicants cannot claim and contend that description of the properties in the sale notices is erroneous and they are also estopped from challenging that the properties are not identifiable. In such premises, the sale conducted in pursuance to the sale notices marked Annexures-A16(i) and A16(d) in favour of additional defendants 5 to 7 cannot be said as illegal.

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Before parting with this case, it is essential to mention here that the applicants produced a document marked Annexure-A17 by amending the SA. In paragraph 17 of the amended SA, it is stated that the applicants approached the bank for settlement of the disputes with a proposal of OTS at Rs.53 crores and paid an upfront amount of Rs.5.30 crores and the proposal was forwarded to the higher official of the bank. True copy of the OTS proposal is marked as Annexure-A17 and statement showing the deposit of Rs.5.30 crores is marked as Annexure-A18. It is reported by defendants 1 and 2 that the OTS proposal was placed before the competent authority, who after due consideration of the facts and circumstances of these accounts, rejected the offer of Rs.53 crores and the applicants were requested to submit a revised offer by improving the offer amount. By submitting such OTS proposal after completion of the sale, it can be construed that even there is any defect in the securitization proceedings or in the sale proceeding, the same was waived by the applicants. The Hon'ble Apex Court in the judgment reported in (2013) 10 SCC 83 in the case of GM, Sri.Siddeshwara Co-operative Bank Ltd. & another vs.

¶172

Sri.Ikbal & others, it is held as follows:-

¶173

23. ………… It is settled position in law that even if a provision is mandatory, it can always be waived by a party (or parties) for whose benefit such provision has been made. The provision in Rule 9(1) being for the benefit of the borrower and the provisions contained in Rule 9(3) and Rule 9(4) being for the benefit of the secured creditor (or for that matter for the benefit of the borrower), the secured creditor and the borrower can lawfully waive their right. These provisions neither expressly nor contextually indicate otherwise. Obviously, the question whether there is waiver or not depends on facts of each case and no hard and fast rule can be laid down in this regard.”

¶174

In another judgment of Hon'ble Apex Court reported in (2022) 2 SCC 221 in the case titled Arce Polymers Private Limited

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v. Alphine Pharmaceuticals Private Limited and others, it is held

¶178

at paragraph 18 as follows:-

¶179

“18. ……….. Taking into consideration the entire facts of the case, which perspicuously reflect disingenuous conduct on part of the Borrower to gain indulgence, unfulfilled assurances and promises, their unwillingness to pay, and in light of the law laid down by this Court, we are of the view that the Borrower has waived and is estopped from challenging violation of Section 13(3A) of the SARFAESI Act and hence, the first issue is decided in favour of the Bank………”

¶180

In view of the ratio decided by the Hon'ble Apex Court, the applicants cannot claim and contend that the entire securitization proceedings including the sale proceeding is illegal. In view of the discussion made above, the applicants are not entitled to get any relief in this case. Point Nos.(iv) and (v) are also answered against the applicants.

¶181

Hence it is ordered:-

¶182

ORDER

¶183

In view of the foregoing reasons, this SA, being devoid of any merit, is hereby dismissed with costs of Rs.10,000/- (Rupees ten thousand only), payable by the applicants to the defendant bank. The defendants 1 and 2 shall proceed with confirmation of sale in respect of item Nos.19, 21 and 22 properties in Annexure-A2 demand notice and issue sale certificates in favour of additional defendants 5 to 7 forthwith.

¶184

(Dictated to my PA, corrected and pronounced by me in the open Tribunal on this the 14^th day of June, 2024)

¶185

[SOVAN KUMAR DASH] PRESIDING OFFICER

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31

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Documents on the part of the applicants

¶189

Annexures	Date	Particulars of documents
Annexure-A1	27.09.2021	Copy of sanction letter issued defendant bank.	by	the
Annexure-A2	04.05.2022	Copy of demand notice issued defendant bank.	by	the
Annexure-A3	17.05.2022	Copy of objection to the deman submitted by the 1^stapplicant.	d n	otice
Annexure-A4	31.05.2022	Copy of reply issued by the de bank.	fen	dant
Annexure-A5	…	Copy of the statements of accounts to the accounts maintained applicants.	rela by	ting the
Annexure-A6	13.07.2022	Copy of request submitted by applicant.	the	1^st
Annexure-A7	08.07.2022	Copy of possession notice issued defendant bank.	by	the
Annexure-A8	11.07.2022 & 13.07.2022	Copy of possession notices issued defendant bank.	by	the
Annexure-A9	04.08.2022 & 05.08.2022	Copy of possession notices issued defendant bank.	by	the
Annexure-A10	26.07.2022	Copy of application under S.14 SARFAESI Act filed before the CJ Kollam.	of M C	the ourt,
Annexure-A11	17.08.2022	Copy of the order of CJM, Kollam No.460/2022.	in	MC
Annexure-A12	16.09.2022	Copy of notice issued by the A Commissioner in MC No.460/2022.	dvo	cate
Annexure-A13	06.10.2022	Copy of sale notice issued by the de bank.	fen	dant
Annexure-A14	26.12.2022	Copy of sale notice issued by the de bank.	fen	dant
Annexure-A15	06.02.2023	Copy of sale notice issued by the de bank.	fen	dant
Annexure-A16	15.06.2023	Copy of sale notice issued by the de bank.	fen	dant
Annexure-A16 series	01.09.2023 & 16.08.2023	Copy of sale notices issued defendant bank.	by	the
Annexure-A17	09.10.2023	Copy of OTS proposal submitted defendant bank.	to	the

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Annexure-A18	07.12.2023	Copy of upfront payment details along with statement of account.
Annexure-A19	01.12.2023	Copy of notice issued by the Advocate Commissioner in MC No.460/2022.
Annexure-A20	01.11.2023	Copy of valuation report in respect of 22.50 Ares of land.

¶193

Documents on the part of 1^st and 2^nd defendants

¶194

Annexure- R1(A)	30.01.2023	Copy of sale certificate issued by the defendant bank.
Annexure- R1(B)	…	Copy of acknowledgement cards evidencing receipt of sale notice by the applicants.
Annexure- R1(C)	…	Copy of affixture of Annexure-A14 sale notice.
Annexure- R1(D)	…	Copy of acknowledgement cards evidencing service of Annexure-A16 sale notice.
Annexure- R1(E)	…	Copy of affixture of Annexure-A16 sale notice relating to item No.19 property in the demand notice.
Annexure- R1(F)	…	Copy of affixture of Annexure-A16 sale notice relating to item No.21 property in the demand notice.
Annexure- R1(G)	22.08.2023	Copy of publication of sale notices in The Hindu daily.
Annexure- R1(H)	22.08.2023	Copy of publication of sale notices in Mathrubhumi daily.
Annexure- R1(I)	23.08.2023	Copy of publication of sale notices in Dina Thanthi Tamil daily.
Annexure- R1(J)	04.08.2022	Copy of valuation report in respect of item No.22 property in the demand notice.
Annexure- R1(K)	09.08.2023	Copy of valuation report in respect of item No.19 property in the demand notice.
Annexure- R1(L)	09.08.2023	Copy of valuation report in respect of item No.21 property in demand notice.
Annexure- R1(M)	…	Copy of acknowledgement cards evidencing receipt of Annexure-A14 sale notice by the applicants.
Annexure- R1(N)	…	Copy of affixture of Annexure-A14 sale notice on the secured asset.
Annexure- R1(O)	08.01.2023	Copy of publication of Annexure-A14 sale notice in Deepika daily.
Annexure- R1(P)	08.01.2023	Copy of publication of Annexure-A14 sale notice in The New Indian Express daily.

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PRESIDING OFFICER

¶196

IN THE DEBTS RECOVERY TRIBUNAL-2, KERALA AT ERNAKULAM

¶197

PRESENT: SRI.SOVAN KUMAR DASH PRESIDING OFFICER

¶198

Dated the 14^th June, 2024

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SA No.446/2022

¶200

Between

¶201

M/s.Southern Cashew Exporters, Represented by its Managing Partner Shamsudeen, VIII/1092, O.S.Road, Chanthanathoppe, Kollam – 691 014 & 12 others. …Applicants

¶202

…Applicants

¶203

And

¶204

Union Bank of India, Represented by its Branch Manager, Branch – 2, Kollam, NK Building, Beach Road, Kollam – 691 001 & 6 others. …Defendants &

¶205

additional defendants

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F I N A L O R D E R

Ms Southern Cashew Exporters v. Union Bank of India

Case brief

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Ms Southern Cashew Exporters v. Union Bank of India

Case brief

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