Allowed

Kalakuntla Somaiah v. Bank of India

DRT22 Jul 2024SA/74/2022

Case brief

AI extract

What is this about?

In this SARFAESI Act application, the Tribunal set aside the auction conducted by Bank of India and the consequent sale certificate due to procedural lapses, including failure to maintain the mandatory 30-day notice period between pre-sale notice and publication of sale notice, lack of valuation report proof, and failure to affix sale notice on the property.

What did the court decide?

the auction conducted on 25.11.2021 and the consequent Sale Certificate dated 29.12.2021 are set aside; the auction purchaser is entitled to a refund of bid amount with interest at 6% p.a.

Kalakuntla Somaiah versus Bank of India — Banking and Recovery | DRT (2024)

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IN THE DEBTS RECOVERY TRIBUNAL. I AT HYDERABAD

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DATED THIS THE 22ND DAY OF JULY, 2024

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PRESENT: GUMMADI GOPICHAND, PRESIDING OFFICER

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SA.No.7 4/2C22

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Kalakuntla Somaiah, S/o. K. Brahmaiah, Aged 49 years, Occ: Carpenter, R/o. H.No.4-65, Sri Sai Srinivasapurarn, Gurramguda, Hyderabad - 5015 10.

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Applicant.

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Versus

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Bank of India, Rep. by its Authorized Officer Sultan Bazar Branch, H.No.+13- tO 1, Ground Floor, Hanuman Tekdi, Sultan Bazar, Hyderabad - 500 001.

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Mr. Maturi Srinivas, S/o. Late Veeranjareulu, R/o. F-304, Pavan Kuteer Apartments, H.No.1-55/39 & 40, Masidbanda, Kandaptrr, Hyderabad, Telangana. Respondents.

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(Amended as per orders dt.06.04.2023 In IA.No.351/ 2023)

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Counsel for the Applicant Counsel for Respondent No. 1 Counsel for Respondent No. 2

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Sn ?. Sridhar Reddy. Sri M.V. Ramana. Sn Nelssun Matheut.

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-:ORDER:.

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t. This application is filed by the Applicant u/s.17 of the SARFAESI Act, 2OO2, challenging tht-' action of the l"t Respondent Bank in conducting auction of the applicationschedulepropertyonZ,ffi.oursuanttotheSaleNotice ::"1:jffi'Jj,L1 HI.^ :?;,:,;ff:T,j:; L do . unrChi e f l Metropol ri tan M agisp?a€agrfatd , c yberabtrd yt.."Ha at L .B. .B:N"t*, S."H*, for takin e g physicatphvsical possession of the apptication bpffedul{n?.ruUL" 2024 i,. i} t.'.' :ilJ 2. rhe averments made in the "rre-i-ilHlll#.,,

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SA.No.74/2022

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The Applicant availed Housing Loan from the l"t Respondent Bank and the he paid a total amount of Rs.4,40,001/- towards the loan account even during the Covid-19 pandemic also. But, the 1"t Respondent Bank, without considering the substantial payments made by the Applicant, demanded the Applicant to pay the total dues in the loan account. All of a sudden on 15.O3.2021, some prospective purchasers along with the 1"t Respondent's agency persons came to the property and furnished copies of Demand Notice dt.03.04.2021 and Sale Notice dt.20.1O.2021, at which time, the Applicant came to know that the l"t Respondent Bank is going to auction the schedule property in open auction on 25.11.2021 by fixing the reserve price of the property as Rs.63.00 lakhs. The l"t Respondent Bank has not taken into account the second floor and pent house constructed by the Applicant on the schedule property while fixing the reserve price and thereby violated the provisions of the SARFAESI Act, in obtaining proper valuation of the property.

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ii) The l"t Respondent Bank has illegally declared the loan account of the Applicant as NPA and the 1"t Respondent Bank has also failed to serve any notice allegedly issued under the provisions of the SARFAESI Act on the Applicant. The 1"t Respondent Bank has failed to serve a separate 30 days notice prior to sale as contemplated under Rule 8(6) before publishing the sale notice under Rule 9(1) of the Rules, 2OO2. The I"t Respondent Bank has also failed to comply with Rule 8(7) of the Rules, 2OO2. The 1"t Respondent Bank has also undervalued the schedule property and {ixed the reserve price less than the market value. The 1"t Respondent Bank has not followed Rules 8(6),8(7),9(l) of the Rules,2OO2 and Sec.13(8) of the SARFAESI Act. Hence, the SA.

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c.^ The l"t Respondent Bank neae,-$fi€fifirfupment denying all the adverse allegations made in the appU of the l"t Respondent Bank, %\

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in brief, are as under:- i: -.r:' f f;ii .t;t tr# \l * \

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i) i 1; rail " i The Applicant filed t$e-irrese{ i:^' L EA$f,if?SL"ti"..ihraer^{L uuL} r ii Sec.13(2) & 13(a) of the SARFAESI Act e,it""r.i t,i. :.^t. or served ".l..4$lThe '.:: ii'it notice u/s.13(2) was issued to both the joirrt-.!Af!1 ""d^$S,+{fltor on o3.o4.2o21 and the said notice was served ;ii.l&-uriF"ladi86;n-Uu"d namely the Applicant herein and his son K. Madhu "J>SaJl#Krecord. The,said notice is also

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5A.No.74/2022

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served on the guarantor as per the postal acknowledgement received by the 1"t Respondent Bank. Similarly, the Possession Notice dt.26.O7.2021 was personally served on Sri K. Madhu the co-borrower and the same was published in 'Namasthe Telangana'Telugu daily and 'New Indian Express' English daily on O1.O8.2O21. The Possession Notice was also affixed on the front door of the schedule property. The claim of the Applicant that he made additional construction on the schedule property with his own funds is of no consequence and the alleged additional construction is without permission from the competent authority and so the said illegal construction was not taken into consideration at the time of valuation of the property.

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ii) The schedule property was sold in the e-auction conducted on 25.11.2021 in favour of Sri Maturi Srinivs for Rs.63,50,000/- and the sale certificate was also issued in his favour on 29.12.2021 and however the property was not registered in his favour since the l"t Respondent Bank has not obtained physical possession of the schedule property. The l"t Respondent Bank filed Cr1.M.P.No.282l2O24 for obtaining physical possession of the schedule property and the Warrant issued by the Ld. CMM, could not executed in view of the subsisting stay orders passed by this Tribunal in IA.No.257l2022 in the present SA. The l"t Respondent Bank has duly followed the mandatory provisions of the SARFAESI Act and the Rules made thereunder strictly and the present SA liled by the Applicant is liable to be dismissed.

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The 2"d Respondent filed his Reply Statement stating tJrat, in pursuance of the Sale Notice dt.2o.lO.2021, published in 'Namasthe Telangana' and 'The Hindu' newspapers for auction of the application schedule property on 25.11.2021, fixing the reserve price of the property as Rs.63.00 lakhs, he participated in the e- auction by paying the EMD and he became the successful bidder and that he paid 25%o of the bid amount, including EMD amount, i.e., Rs.15,87,500/- to the 1", Respondent Bank on the date of auction and the 1"t Respondent Bank confirmed him as successful bidder vide dt.25.11.2021. He further stated that, he paid the balance 75Vo of 47,62,0001- to the l"t Respondent Bank on 10.12.202 Loan from the State Bank of India and that he the said Bank and that the l"t Respondent Bank on 29.12.2021. He further submitted that followed the procedure while

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SA.No.74/2022

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proceeding against the schedule property and that, even after payment of total bid amount, he was not handed over possession of the schedule property. The 2.a Respondent adopted the contents of the Reply Statement and the documents relied upon by the 1"t Respondent Bank and accordingly prayed for the dismissal of the present SA.

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Heard Ld. Counsels appearing for both the parties and also perused the written arguments filed by the Ld. Counsel for the Applicant.

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Now, the points that arise for consideration are -

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i) Whether the Applicant has established any valid grounds for setting aside the auction of the application schedule property conducted by the l"t Respondent on 25.11 .2021, pursuant to the Sale Notice dt.2l.lo.2o2l?

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ii) To what relieP

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Point No.(ll:-

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Ld. Counsel for the Applicant in his written arguments, contended that, the l"t Respondent Bank has failed to obtain any fresh market valuation report before fixing the reserve price of the schedule property and thus violated Rule 8(5) of the Rules, 2OO2. He also contended that, the l"t Respondent Bank has failed to issue any notice prior to sale under Rule 8(6) of the Rules, 2OO2 and the 1"t Respondent Bank has also failed to aflix the sale notice on the schedule property as contemplated under Rule 8(7) of the Rules, 2OO2. So, Ld. Counsel for the Applicant prayed for setting aside the auction sale of the schedule property conducted by the 1", Respondent Bank on 25.11 .2021, pursuant to the Sa-le Notice dt.20.1o.2021.

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Ld. Counsels for the l"t Respondent Bank and the 2nd Respondent, while reiterating the /erstons $ Respondent Bank and 2"a Respondent, as stated supra, argued th Bank has duly followed the procedure laid down under .ct les made thereunder while proceeding against the and t SA liled by the Applicant is liable to be dismisse

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SA.No.74/2022

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There is no dispute regarding the fact of availing of loan from the 1"t Respondent Bank by creating security interest over the application schedule property in favour of the l"t Respondent Bank. It is the contention of the Applicant that the l"t Respondent Bank, despite receiving substantia-l payments towards the loan account from the Applicant, has illegally classified the loan account as NPA and sold the application schedule property without serving any notices on the Applicant as per the provisions of the SARFAESI Act. The 1", Respondent Bank to disprove the said contention of the Applicant has filed copies of Demand Notices dt.03.04.2021, issued u/s. i3(2) of the SARFAESI Act, to the Applicant herein and the co-borrower viz., Sri Kalakuntla Madhu, along with postal slips and postal track reports, along with its Reply Statement, which amply prove that the said notices are duly served on them. If really, the Applicant has been paying the loan amounts regularly to the l"t Respondent Bank, the Applicant ought to have taken objections or sent a representation to the l"t Respondent Bank, to which he is entitled to u/s.13(34) of the SARFAESI Act but, he has not done so. So, now, he cannot raise a contention that the l"t Respondent Bank has illegally classified the loan account of the Applicant as NPA. The l"t Respondent Bank has also fited a copy of the Possession Notice dt.26.O7.2021, issued u/s.13(4) of the SARFAESI Act, while taking symbolic possession of the application schedule property, which reveals that the co-borrower viz., Sri K. Madhu, who is none other than the son of the Applicant herein, has personally acknowledged the receipt of the said notice. The l"t Respondent Bank has also filed copies of publication of the said Possession Notice in 'New Indian Express' English and 'Namasthe Telangana' Telugu daily newspapers dt.O1.o8.2o21 along with a copy of photograph, which amply prove the compliance of Rule 8(1) & 8(2) of the Security Interest (Enforcement) Rules, 2OO2, while issuing Possession Notice u/s.13(a) of the SARFAESI Act, 2002, by the l",Respondent Bank.

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The next contention raised by the Applicant is that, the 1"t Respondent Bank has failed to obtain proper valuation of the schedule property before proceeding to sale. Even though su Gqg,Etention was raised by the Applicant, the l"t Respondent Bank any valuation report obtained from the approved va1 k. So, the l"t Respondent Bank has failed to prove Rules, 2OO2, in obtaining valuation of the property

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SA.No.74/2022

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The further contention of the Applicant is that, the l"t Respondent Bank has failed to issue any notice prior to sale under Rule B(6) of the Rules, 2OO2, giving 3O days time before conducting the sale of the schedule property. The l"t Respondent Bank, in its material documents filed along with its Reply Statement, filed a copy of the Sale Notice dt.20.1O.2021, fixing the auction of the schedule property on 25.11.2021, and from endorsement on the said notice it is clear that the said notice was duly received by the Applicant in person on 21.10.2021. The l"t Respondent Bank has also filed copies of publication of the said e-Auction Sale Notice dt.23.lo.2021 in the newspapers dt.23.to.2o2l. However, the 1"t Respondent Bank did not file any proof with regard to affixture of Sale Notice on the secured asset i.e., schedule property towards compliance of Rule 8(7) of the Rules, 2OO2.

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t2. So, there is no doubt, the Sale Notice dt.2o.lO.2021, issued bythe 1"t Respondent Bank fixing the auction of the schedule property on 25.1I.2O21, and which was served on the Applicant on21.10.2021, has 30 days gap from the date of service of the said notice on the Applicant and till the date of auction and same is in compliance of Rule 9(1) of the Rules, 2OO2. But, Rule 8(6) provides for 3O days notice to the borrower before the sale of secured asset so as to afford him a final opportunity for redemption of the property. After amendment to Sec.13(8) of the SARFAESI Act, the right of redemption of mortgage is available to the borrower only till the publication of auction notice and not thereafter. So, now, the question that arises is whether simultaneious notice under Rule 8(6) and Rule 9(1) to the borrower for sale of the secured asset is valid or not?

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In a recent judgment, the Honble DRAT, Kolkata in "Appeal No.43 of 2023 - Sri Srikanth Reddy Kasu us. The Authorbed Officer, Bank of India and ors.", decided on 22.04.2024, t}:,e Honble DRAT, Koltaka after referring to various judgments of the Honble High Courts and the Honble Apex Court and discussing the issue elaborately, held that, there should be clear thirty days notice period being maintained between the i of sale notice under Rule 8(6) of the Rules and Rule 9(1) of the Rules as right of

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redemption s of Rule 8(6) of the Rules stands extinguished under Rule 9(1) of the Rules. The relevant jffe'mn'":+ below for better appreciation:*'

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I'n'fT ,u\ ....R**ffi.

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SA.No.74/2022

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"34. It LUas further specificaltg held. thot the decision of the Telangana High Court in the case of Concern Read.gmlx -as- Authorlzed. O;fflcer, Corpordtion Bank (20)8 SCC OnLine Ap 3484) and the jud"gment of the Hon'ble Punjab & Haryana High Court tn the cqse of M/s. po;l Allogs & Metd.l Indla. Prlaate Limited (202 j SCC OnLine p&H 2733) has not laid doutn the correct position of lau. Hotaeuer, the decisions of the Hon'ble Andhr Pradesh High Court in Srd Sai Annad.hortha Polgmers (supra) and Hon'ble Telangana High Court in K.V.V. prasold Rcro Guptd. (supra) haue laid down the correct position of low rahile interpreting the amended Section of 13(B) of the SARFAESI Act. At this stage tt would be apposite to rekr to the judgment of the Hon,ble Andhra Pradesh High Court jn Sri Sal Annqdhatha polgmers (supra) utherein consideinq the amendment of Section 13(g) of tlte Act, it was daus notice peiod to be maintained. between issuance of the sale notice under Rle 8(6) of the Rules and the publication of the sale notice under Rule 9(l) of the Rules thereof os tlrc ioht of redemption auailable to the Borrouer. in terms of nle 8(6) of the Rules, as oointed out in Mathetu notice under Rule 9(1) of the Rules. (emphosis supplied). In the case of Si Sai Annadhatha Polgmers (supra) notice und.er Rule g(6) utas issued on 1.3.2018 and publication of the sole notice in newspaper und"er Rule 9(1) uas on 3.3.2018. Hence it uas held that there is a clear uiolation of statutory mandate uhich uitiates the exercise undertaken bg the Bank. These findings haue been conftrmed and affirmed. bg the Hon,ble Apex Court in the case of Bafna Motors (supr). Hence it is crustal clear that there should be a clear thirtu d.aus notice peiod beina maintained bettueen the issuange of the saLe notice under Rule g16) of the Rules ond. the^publication of the sale notice under Rute 9(j) of the Rules as riqht of redemption auailable to the Bonower ifi terms of Rule g16) of the Rutes the Rules."

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The aforesai ffin. RAT, Kolkota, squarely applies to the case on han ce was issued by the l.t Respondent Bank on 2 :,:rrH;rfieffi ed said notice in the newspapers on

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SA.No.74/2022

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23.10.2021, fixing the auction of the schedule property on 25.11.2021. There is no clear 30 days notice under Rule 8(6) to the Applicant before publication of the sale notice in the newspapers under Rule 9(1). So, there is a clear violation of Rule 8(6) of the Rules, 2OO2, by the 1"t Respondent Bank while proceeding for the sale of the schedule property.

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So, in view of non-filing any proof of obtaining valuation of the schedule property before proceeding for sale as contemplated under Rule 8(5), non-filing of any proof of affixture of sale notice on the schedule property as contemplated under Rule 8(7) and non-compliance of Rule 8(6) in issuing 30 days notice to the borrower before publishing of sale notice under Rule 9(1) of the Security Interest (Enforcement) Rules, 2OO2, by the 1"t Respondent Bank, I am constrained to hold that the auction of the schedule property conducted by the 1"t Respondent Bank on 25.11.2021 and the consequential Sale Certificate dt.29.12-2o21, issued in favour of the 2"a Respondent Bank are liable to be set-aside. Accordingly, this point is answered in favour of the Applicant.

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Point No.liil:-

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In the result, the present Securitization Application is a-llowed by setting aside the auction of the application schedule property conducted by the l"t Respondent Bank on 25.11.2021 and the consequential Sale Certificate dt.29.12.2021, issued in favour of the 2na Respondent. The 2"d Respondent-Auction Purchaser is entitled to refund of bid amount deposited by him, with interest @ 6oh p.a., from the date of deposit till the date of payment by the l"t Respondent Bank. However, the 1"t Respondent Bank is at liberty to proceed against the secured asset in accordance with law. The Interlocutory Applications, pending if any, shall stand disposed of. No order as to costs.

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(Dictated to the

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,^transcribed bg hbn, corrected, signed and pronounced by me in the open court on this the

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sd/-
(G. GOPTCHANDI
PRESIDING OFFICER
12 IIJL zul ryF%
Ak{;l'u'
DRT-[, nwEnAAeg.

Kalakuntla Somaiah v. Bank of India

Case brief

What is this about?

What did the court decide?

Kalakuntla Somaiah v. Bank of India

Case brief

What is this about?

What did the court decide?

What the court decided

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