Allowed

Sri Santhoshimatha Enterprises v. State Bank of India

DRT14 Aug 2024SA/81/2022

Case brief

AI extract

What is this about?

This application challenged the validity of a post-pandemic asset auction conducted by the State Bank of India due to alleged non-compliance with mandatory 30-day notice provisions under the Security Interest (Enforcement) Rules, 2002.

What did the court decide?

The impugned auction was set aside. The auction purchaser is directed to refund the bid amount with interest. The sale certificate is to be cancelled, and the Bank is to proceed afresh.

Sri Santhoshimatha Enterprises versus State Bank of India — Execution and Attachment | DRT (2024)

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IN THE DEBTS RECOVERYTRIBUNAL- IAT HYDERABAD

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DATED THIS THE I 4TH DAY OF AUGUST, 2024

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PRESENT: GUMMADI GOPICHAND, PRESIDING OFFICER

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sA.No.81,/2022

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1.Sri Santoshimatha Enterprises Rep. by its Proprietor A. Shoba Rani, W/o A. Venkanna, aged 45 years, Occ:business, R/o Sri Venkateswara Commercial Complex, Besides MadhuHospital, Opp. To YES Bank lane, M.G. Road, Suryapet

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2.Sri A. Venkanna, S/o Somaiah, aged 57 years, Occ:business, R/o Sri Venkateswara commercial Complex, Besides Madhu Hospital, Opp. To YES Bank lane,

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M.G. Road, Suryapet ...Applicants

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Versus

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1 . State Bank of India, Old Bus Stand Road branch, Suryapet,

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Rep. by its Authorized Officer

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Dr. M. Sandeep Kumar,

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S/o M. Vasudev, aged abut 34 years, Occ:Doctor, R/o Tilaknagar, Suryapert, Telangana state. .. Respondents.

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Counsel for the Sri Sidhar Tadakanti
Counsel for 1,t Krishnam Raju
Counsel for 2"d Abhag Singh
: 1qntu#BL;
S.*, ^"ds
1. This application is /s. 17 of the SARFAESI Act,
2002 challenging the cted by the 1st Respondent

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SA.No.81/22

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Bank in respect of schedule property on 27.03.2020 pursuant to the Sale Notice dt.15.O2.2O2O published in Hans India daily newspaper on 18.O2.2O2O and issuance of Sale Certilicate in favour of 2.d Respondent and to declare the same as null and void.

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The averments made in the application, in brief, are as under,-

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The Applicant No. 1 availed credit facilities from the l st Respondent Bank to a tune of Rs.40 lakhs and created mortgage in respect of the schedule property. As the Applicants could not repay the loan amounts due, the lst Respondent bank declared the loan account as NPA and issued^possession notice dt. 16. 10.2019. When the lstRespondent Bank issued AuctionNotice dt. 15.02.2019, the same was challenged by the Applicants by liling SA 93/2019 before this Tribunal and the same was allowed and the said Auction Notice dt. 15.02.2019 was quashed. Thereafter the lstRespondent Bank published the e Auction Sale Notice dt.1S.O2.2O2O in Hans India daily newspaper fixing the date of auction on 27.03.2020 in respect of the schedule property without following the requirements u/r 8(6) &9(1) of Security Interest (Enforcement) Rules, 2OO2. Tlne lst Respondent Bank served the said Auction Notice upon the Applicant No.1 on 29.O2.2O2O and on the 2"d Applicant who is the mortgagor of the schedule property on O2.O3.2O20. So, the lst Respondent Bank did not give 30 days clear time to the Applicants which is untenable under law. The reserve price is fixed at Rs.2,58,55,300/ - which is grossly undervalued and the prevailing market value is Rs.5.5 crores. The l"t Respondent bank given permission vide letter dt. 18.12.2019 to release floor wise or shop wise collateralsecurit5r on deposit of market value i.e. unit wise. So there is chance to sell floo €{$op^{wise of collateral security to} the extent of Applican spondent Bank conducted d arbitrary. The Auction auction ."":t':' ''1{f; -^W t:lq\ was conoucteo ,, ii t ,,ioin clown pehod due ***** id pandemic. In the auction conductedl:oi zz1og.ftfr,?fl01le 2gi I ndent became the I successful bidder cipated in the auction

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SA.No.81/22

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and the other bidder is none other than the close friend of 2'dRespondent. The 1st Respondent Bank registered the sale certificate during the pendency of the writ petition No.6T l3l2O filed by the Applicants. Hence the SA.

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The 1"t Respondent Bank filed its Reply and the contentions of the rst Respondent Bank, in brief, are as under_

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The l"t Respondent Bank has no knowledge about the orders passed in writ petitiot No.67r3l20 and so the sare certificate was registered in favour of the auction purchaser, 2"d Respondent. The auction proposed on 27.O3.2O20 is not the first auction proposed by ths 1st Respondent Bank. Admittedry, the Bank has made an attempt to serl the property on 25.03.2019 and the same did not materiali ze. T,e Auction sale Notice dt.rs.o2.2o2o was served on the lst Applicant who is the owner/mortgagor of the schedule propert5r on 29.O2.2O2O and paper publication was made on 1g.02.2020, so there was clear 15 days time and the auction was conducted beyond lS days from the date of notice on the Applicants and as such, there is no violation of Rules 8(6)&9(1) of Security Interest (Enforcement) Rules, 2oo2 and so the auction conducted on 2T .O3.2O20 is valid as per the provisions of the SARFAESI Act, 2oo2 and Rules made thereunder. The l"tRespondent Bank fixed the reserve price by obtaining valuation reports from the approvedvaruer of the Bank. As such, the Applicants are not entitled to contend that the value of the property is Rs.5.50 crores. In the auction conducted on 22.O3.2O2O, the 2naRe5pondent became the successfulbidder for a sum of Rs.2,69,55,300/- and he

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the entire bid amount and so, sale certificate was issued in f the 2"dRespondent and it was also registered on 11.O5.2020. _ ri,.! \ Thorr$ on was granted to the Applicants as early as on IF 1.4.t2. to sell the complex floor wise or shop-wise, the Applicants t 1^{q AUII Jtru["*} e any effort for sale of the schedule property, so the Bank had Sale Notice dt. 15. O2.2O2O. There is no bar for the Bank to proceed with auction and there is no impact of 3

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SA.No.81/22

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lock down on the auction held on 2Z .O3.2O2O. Accordingly, lst Respondent Bank prayed to dismiss the SA.

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5' The 2nd Respondent, auction purchaser filed his Reply contending that he is the purchaser of the schedule property in the auction conducted on 27 .o3.2o2o by the 1st Respondent Bank and sale certificate was also issued in his favour and the same was registered. There is no collusion between the 2"d Respondent and the 1"t Respondent Bank. The Applicants received the Sale Notice on 29.O2.2O2O and the auction was conducted on 27.03.2020 and, t]...e amended proviso of Rule 9(1) of the Securit5r Interest (Enforcement) Rules, 2002 does not contemplate a notice of 30 days in case of subsequent sales and hence there is no violation of any rule in this regard. The reserve price was fixed basing on the valuation report obtained by the 1st Respondent Bank from its approved valuer in respect of the schedule property.

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Heard Ld. Counsel for the Applicants, ld. Counsel for the l st Respondent Bank, 2"a Respondent and perused the material brought on record.

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Now, the points that arise for consideration are,-

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i) Whetler the Applicants haue estabtished any ualid ground for setting aside the auction of tLrc schedule property conducted. bg the l.t Respondent Bank on 27.03.2020pursuant to the Auction Sale Notice dt. 1 5. 02. 2 02 0?

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iil To uhat relief?

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Polnt No.lilt

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SA.No.81/22

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During the course of arguments, Ld. Counsel for the Applicants and the Ld. Counsel for the Respondent No. 1 Bank& Respondent

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No.2reiterated their respective versions as stated supra.

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Ld. counsel for the Appricants argued that the auction was conducted during the lock down imposed by the Government of India in view of the covlD pandemic and that the Auction Sale Notice dt.rs.o2.2o2o was served on the Applicant No.1 on 29.O2.2O20 and on Applicant No.2 on 02.03.2020 and thus there is no clear 30 days time given to the Applicants for redemption before conducting auction and so, the auction conducted by the 1.t Respondent Bank is illegal. Ld. Counsel further argued that the market value of the schedule property is Rs.5.5. crores at the time of conducting auction but the reserve price was fixed at Rs.2.58 crores which is much less than the prevailing market value and so, the auction conducted by the lst Respondent Bank is illegal and liable to be set aside.

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Ld. Counsel for the 1"t Respondent Bank argued that the 1st Respondent Bank has scrupulously followed the procedure laid down under the SARFAESI Act and Rules made thereunder in conducting auction of schedule property. Ld. counsel argued that there is no bar on the Respondent Bank to conduct auction during lock down imposed by the Government of India and the reserve price of the schedule property is hxed basing on the valuation reports obtained by the lstRespondent Bank from its approvedvaluer and that the auctionconducted on 27.os.2o2o is not the first auction and hence llt^{tary" notice is sufficientand} thus the l^stRespondent Bank has the procedure prescribed under the provisions of SARFAESI and Rules made thereunder. Ld. Counsel for the ffi^S.t, { lp &'oRilfl"aRespon5[\t *lh, argued that the 2.dRespondent is a bonafidepurchaser , i^.k the same in the auctio nn n 4 1[ [ Nfl{ l\ffiffitsched^{ffilschea$teproperry havingpurchased} ii i'^{.J 'J-} conduc r3dibrrqd6li the r stRespondent Bank and he paid the e ntire sale }.fi .' and sare certificate was arso issued in his favour and the "or,"d&iTianrr^{sqrc..:,'r-.,-..:-^,^^ :^^,-^-, :- ,-:} qtk#.ffir

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f -*-. .:

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:,A.No.81/22

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l"tRespondent Bank has not violated any of the Rules and so, the auction conducted on 27.O3.2O2O in respect of the schedule property is valid and so, the SA is liable to be dismissed.

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There is no dispute regarding the fact that the Applicants availed loan from the 1st Respondent Bank by mortgaging the schedule property in favour of the lstRespondent Bank and they failed to repay the outstanding dues and the loan account was declared as NPA and the Respondent Bank initiated proceedings under the provisions of SARFAESI Act,2OO2. There is also no dispute regarding the fact that on earlier occasion, the lstRespondent Bank issued Auction Sale Notice dt. 15.02.2019 and the same was challenged by the Applicants by liling SA 93/2019 before this Tribunal and the said SA was allowed. Thereafterthe present Auction Sale Notice dLl5.O2.2O2O was issued by the lstRespondent Bank by fixing the auction on 27.03.2020 and the said Auction notice was published in daily newspapers on 18.O2.2O2O. There is also no dispute regarding the fact that the Auction Sale Notice was served on Applicants on 29.02.2020. So, before serving Auction notice on the Applicants, the lst Respondent Bank published the said notice in the daily newspapers on 18.2.2O2O.

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RulesS(6)&9(1) of Security Interest (Enforcement) Rules, 2002 deal with notice to the borrower prior to sale which reads as follows:

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8(6)The Authorised officer shall serue to the borrower a notice of thirtg days for sale of the immouable secured assefs, under sub-rule (5);

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Prouided that if tlrc sale if such seanred assef is being effected bg eittrcr tenders from the public or bg holding public auction, the seanred shall cause a public notice in tuto leading neu.tspapers; one in language hauing sufficient ciranlation in the localitg by setting of sale, uhich uhich shall include:-

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'/6 of sale, uhich uhich shall include:ir The desciption of the immouable propertg is to be sold,

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{ 1 the details of the enanmbrances known to be seanred [^[u0 't?[

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SA.No.81/22

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@)^{fhe secureddebt} for^{recouery of uthich tle propertyis to be} sold,

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(d) Time and place of public auction or the time after which sale bg ang other mode shall be completed;

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(e) Depositing eamest moneA as mag be stipulated bg the seanred creditor

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A^{AnA other thing which tlrc authorized offtcer considers it} mateial for a purchaser to knou.t in order to^judge tLte nafitre and ualue of the propertg.

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9(1): No sale of immouable property under tlese rules shall take^place before tlrc expiry of thirtg dags from the date on uhich the^public notice of sale is published in neutspapers as refened to in the^prouiso to subrule (6) or notice of sale has been serued to the borrower."

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Rule 13(8) of SARFAESI Act, 2OO2 deals with the right^{of redemption} of the security interest by the mortgagor^prior to^{salewhichreadsas} follows:

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"If tlrc dues of the seanred creditor^{togetherwith all costs,chargesand} expenses inanrred by him are tendered^{to the secured creditor at anA time} before the date fixed for sale or transfer, tte^{seanred asset shall not be} sold or transferred by the secrtred^{creditor,and no} further^{step shall be} taken bg him for transfer or sale of tle^{secured asset".}

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In the instant case admittedly, the^{1"t RespondentBank has not given} Notice of 30 days to the Applicants^{before conductingauction of the} schedule property. The Notice as^{contemplatedunder Rule 8(6) of} Security Interest (Enforcement)^{Rules, 2002 was not issuedto the} Applicants before conducing auction.

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Recently, the Hon'ble Debts Recovery^{AppellateTribunal, Kolkata in} Miscellaneous Appel No.34/^{2023betweenUnion Bank of India Vs'} ilshadElahi,^{categoricallyheld that it isincumbent uponthe} officer even in case of second sale^also, toissue^{notice of} 30 er Rule 8(6) and as well as^{notice underRule 9(1) of} terest (Enforcement) Rules, 2OO2.^{Law nowhere} 3$."t,"rn right to redemption available to the^{borrowerunder}

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S'A.No.81/22

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Section 13(8) of the Act in case of a subsequent sale. In Para 31 of the said judgment, it is held as follows:

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"31. Right of redemption of the Borrouer is a sacrosanct ight as prouided under the law. The amended prouisions of Section 13 (8) of the Act bing in a radical change, inasmuch as the ight of the borrouer to red.eem the secured asset slands ertinguished thereunder on the uery date of publication of the notice for public auction under Rule 9⁽¹⁾ of the Rules. In effect, the ight of redemption auailable to the borrouter under the present statutory regime stands drosticallg curtailed and would^be auailable onlg till the date of publication of the notice under^{Rule 9 (1) of} the Rules and not till completion of the sale or transkr^{of the secured} asset in fauour of the Auction Purchaser. Houteuer,^it is^{signiftcant to note} that Rule 8 (6) of the Rules still continues^{to remainthe same and} thereunder, the Authorized OJficer of the^{secured creditormust} necessarilg serue upon the borrouer^o. notice^{of 3O dags} for^{sole of the} immouable seanred asset taking^{recourse to one of the options auailable} under Rule 8 (5) thereof. Therefore,^{euen if the amendmentof Section 13} (8) of the Act, Secured Creditor is bound to afford^{to the Borrouer a clear} 30 dags notice peiod under^{Rule 8 (6) to enablehim to exercise his ight} of redemption. In consequence, a^{noticeunder Rule 9 (1) cannotbe} pubtished pior to expiry of 3O dags^{peiod. In the new scenaiopost} amendment of Section 13⁽⁸⁾ of the^{Act,such ight of redemption u.tould} stand terminated immediatelg^{upon publicationof the Sale Noticeunder} Rule 9⁽¹⁾ of the Rules. Proaso attached^{to Rule9 (1) simplg prouidesthat} if the sale of immoueable^{propertAby one of the metlndsspecifiedbg} Sub-rule (5) of Rule 8 fails, sale^{is required to be conductedagain. TLe} Authoised Officer shatl serue, affix^{and publishnoticeof sale on not less} than 15 d.ags to the Bonouer for^{ony subsequentsale, It meansthat in} of subsequent sale, the^{peiodof 3O dags, as requireduntlerRule 9} curtailed to 15 dags.^{Thisprouiso of Rule9 (1) in no manner} the period of notice^{prouidedunderRltle 8 (6). Had it been the} of the Legistature, that^{peiodprouidedunderRule 8 (6) utould} to be amended bg the legislature.^{But intentionollg Rule 8 (6) b} but tLre peiod in subsequent^{sale is curtoiledto 15 dags. It} that euen in the case of subseqtent^{sale, proubions of Rule 8 (6)} 8

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SA.No.81/22

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haue to be follotued bg the Autttorised Officer. Accordinglg, it is incumbent upon the Authoised Officer, euen in case of subsequent sale, to complg the prouisions of Rule 8 (6) as well as prouiso to Rule 9 (1). Laut norahere curtails the ight to redemption auailable to the Borrower und.er Section 13 (8) of the Act in case ofa subsequent sale. Accordingly, I am of the con-sidered uietu that euen in case of subseqtent sale, Authorised Offtcer is required to issue 30 dags notice under Rule 8 (6) and. thereafier 15 dags notice under Prouiso attached to Rule 9 (1)".

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So, in view of the above ratio laid down by the Hon'ble DRAT, Kolkata in Misc.Appeal No.3412023, it is clear that the auction conducted by the l^stRespondent Bank on 27 .O3.2O2O in respect of the schedule property is in violation of Rules 8(6)&9(l) of Security Interest (Enforcement) Rules, 2OO2 as Notice of 30 days was not given to the Applicants before conducting auction for giving an opportunity to the borrowers to redeem the secured asset. Even in case of subsequent sale also, the Authorized oflicer is required to issue 3Odays notice under Rule 8(6) of Rules, 20O2 and thereafter 15 days notice under Rule 9(1) of Rules, 2OO2. In view of the above, the auction conducted by the l"tRespondent Bank in respect of the schedule propert5z on 27.O3.2O2O is liable to be set aside on the very ground that notice of 30 days as contemplated under Rule 8(6) was not issued by the Authorized officer of the l"tRespondent Bank before conducting the impugned auction of the schedule propert5z. So, in view of the above discussion and facts and circumstances of the case, I hold that the auction conducted by the l"t Respondent Bank ot 27.O3.2O2O in respect of the schedule property is not in accordance with Rules 8(6)&9(1) of Security Interest (Enforcement) Rules, 2OO2 arrd as such, the said auction is liable to be set aside. Accordingly, this point is answered in favour of against the Respondents. Point No (iil * 1 [^[u[ '0?4 T

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w,-''s-

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SA.No.81/22

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In the result, SA 81 /2O22allowed by setting aside the impugned auction conducted by the lst Respondent Bank in respect of the schedule property on 27.03.2020 pursuant to the Auction Sale Notice dt.15.O2.2O2O. Accordingly, the l"t Respondent Bank is directed to refund the sale consideration deposited by the 2.d Respondent i.e. auction purchaser of the schedule propert5r towards the bid amount along with interest @ 7o/o p.a. simple from the date of deposit till the date of repayment, within one month from the date of receipt of order. The l"t Respondent Bank is directed to take steps for cancellation of the Sale certificate issued in favour of the 2"d Respondent in respect of the schedule property and the l"t Respondent Bankis at liberty to proceed afresh with the auction of the schedule property in accordance with the provisions of SARFAESI Act,2OO2 and Rules made thereunder. No costs.

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Communicate a copy of this Order to the parties concerned.

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(Dictated to tlre P.A., transcribed bg her, corrected, signed and pronounced bg me in the open court on this the 14th dag of August, 2024).

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sdl(G. GOPTCHANDI PRESIDING OFFICER

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DRT-',^HY8!:9ABAD. .

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Sri Santhoshimatha Enterprises v. State Bank of India

Case brief

What is this about?

What did the court decide?

Sri Santhoshimatha Enterprises v. State Bank of India

Case brief

What is this about?

What did the court decide?

What the court decided

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Issues for consideration

Cases cited

Statutes considered

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