Dismissed

Sri Aravind L H v. State Bank of India

DRT29 Apr 2025SA/218/2023

Case brief

AI extract

What is this about?

In this Securitization Application challenging a possession notice, the Tribunal examined whether the applicant could avail MSME benefits belatedly and whether procedural lapses like notice service issues or descriptive errors vitiated the enforcement measures under the SARFAESI Act.

What did the court decide?

The Securitization Application was dismissed; all pending interlocutory applications were closed; parties to bear respective costs.

Sri Aravind L H versus State Bank of India — Specific Performance | DRT (2025)

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IN THE DEBTS RECOVERY TRIBUNAL-II, AT BANGALORE

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Dated this 29th day of April 2025

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PRESENT: SHRI T. RAJESH PRESIDING OFFICER

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SA No.218 of 2023

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Sri Aravind L.H. Proprietor “Energy Efficient Lights” No.48/A, 153, 5^th Main, Prakash Nagar, Industrial Area, Rajaji Nagar, Bangalore 560 010.

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Also at: Sri Aravind L.H. S/o. Shri L.V. Hiriyanna, Flat No.2, 2^nd floor, “RNM Enclave” No.4 (Old No.4/14), PID No.52-1010-58, Gavipura, Chandrashekar Azad Road, Bengaluru 560 019.

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… Applicant

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Vs.

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State Bank of India, Stressed Assets Recovery Branch, 3^rd floor, Building No.11/90, Near Old Shivaji Theatre, JC Road, Bengaluru 560 002. Rep. by Authorised Officer

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… Respondent

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Ld. Counsels on record / appeared :-

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For Applicant :- Shri V. Mohan For Respondent :- M/s. Divya Purandar & Shruti B.S. …….

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ORDER

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The possession notice dated 17.7.2023 and the measures leading to the same is under challenge in this Securitization Application (SA) filed under section 17of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 ( hereinafter referred to as the “Act”).

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The applicant who admits to have availed the credit facility is impugning the measures contending that the possession is not issued against the proprietary concern; M/s Energy Efficient Lights. Another contention taken is that though the respondent addressed another letter to the applicant referring paper publication wherein it is mentioned that the demand notice is dated 9.5.2023. It is also stated that the possession notice publication was made on 17.7.2023 was published on 20.7.2023 wrongly mentioning the date of demand notice as 2.5.2023. The applicant also reiterates the fact

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that the principle borrower was the proprietary concern which was not served with any of the notices.

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Another contention taken by the applicant is that the representation dated 10.7.2023 is not properly considered and replied. In respect of the NPA classification it is the case of the applicant that the classification is illegal as earlier demand notice dated 18.7.2019 and 16.3.2021 were withdrawn before issuing the fresh demand notice 9.5.2023. Hence according to the applicant, the account is illegally classified as NPA even after conversion of the same as standard.

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In the grounds, the applicant contends that the recovery measures were initiated during the moratorium period and that the account was all within sanctioned limits. The non issuance of notices to the principle borrower, M/s. Energy efficient lights is also reiterated in the grounds. The applicant is also putting forward the contention that the description of the property is not correct and also that different dates as to the demand notice were mentioned in the paper publication and affixture of possession notice. The applicant is also having a contention that the respondent had failed in following the prudential norms and RBI guidelines. Along with the SA the applicant had produced the following documents.

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i) Copy of the possession notice as affixed.

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ii) Respondent’s letter dated 20.7.2023

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iii) Paper publication of the possession notice

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iv) Demand notice dated 9.5.2023.

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v) Objection to the demand notice dated 10.7.2023

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vi) Copy of the Sale deed in respect of the scheduled property.

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vii) Copy of the OTS letter dated 27.1.2022 viii) Bank statement.

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ix) RBI circular

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The respondent had filed their objection denying the contentions of the applicant. It is stated that a cash credit facility was availed by the proprietary concern, a Housing loan was availed by the proprietor and a Car loan was also availed. It is also stated that security over the scheduled properties were also created and as the applicant failed in making the repayments the account is classified as NPA on 28.10.2019. It is also stated that a demand notice dated 9.5.2023 was issued and served on the borrower. It is also stated that the request made by the applicant for payment in piece meal cannot be considered as a representation under 13(3A). In respect of the possession notice also, the respondent submits that the same is duly served and published and affixed as mandated by

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the statute. According to the respondent, since the applicant is in

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receipt of possession notice, no prejudice is caused to the applicant due to the typographical error in paper publication and will no way prejudice the applicant. In respect of the other contention, it is stated that the earlier demand notice issued by the applicant is withdrawn and fresh demand notice was issued on 9.5.2023 retaining the original NPA date. The contention of the applicant as to the so claimed regularization of the account is also denied by the respondent. In respect of the alleged wrong description of the property, it is stated that the minor mistake, if any, will not prejudice the applicant any way. The respondent had also reiterated the fact that the OTS facility extended to the applicant was not complied with.

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Along with the objection the respondent had produced the following documents.

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i) Copy of the memorandum of deposit of title deeds ii) Copy of CERSAI registration iii) Demand notice dated 9.5.2023 iv) Postal receipts and acknowledgments of the demand notice

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v) Possession notice

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vi) Postal receipts and acknowledgment in respect of possession notice

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vii) Paper publication of possession notice viii) Statement of accounts of three facilities

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Heard the Counsels for both sides and considered the rival contentions. The only issue that arises for consideration is, whether the respondent had followed the statutory mandates while initiation and continuation of measures leading to impugned possession notice.

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The first and foremost contention of the applicant is as to the NPA classification. Even though the applicant had harped upon the clause in the Master circular which says that the account cannot be classified as NPA merely due to the existence of some deficiency which are temporary in nature such as non-availability of adequate drawing power based on the latest available stocks statement and non-renewal of the limit on the due date, the same cannot be accepted in view of the statement of accounts as produced by the respondent which evidences that all the accounts were irregular.

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Even though the applicant contends that the benefits available for MSME is not extended to them, this Tribunal is not inclined to accept the same as, at no point of time, the applicant had raised the said issue before the respondent. Even in the representation forwarded by the applicant, only a proposal for paying the amounts in installment were raised. It is also to be noted that an OTS facility was also availed by the borrower firm. In the absence of any specific evidence which indicates the account as regular, the challenge as to the NPA classification cannot be entertained.

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This issue was gone into by the Division Bench of Hon’ble Kerala High Court in “Krishna Kumar P K v/s IndusInd Bank” (2024 KHC Online 7178)where in it is held that

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“14. The Hon'ble Supreme Court in the case of M/s. Pro Knits had examined the scheme of MSME Act in conjunction with the SARFAESI Act and had accepted the contention of the MSMEs that they could have a special status as regards recovery of loans. However, after concluding so, the Hon'ble Supreme Court observed thus:

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"16. We may hasten to add that under the "Framework for Revival and Rehabilitation of MSMEs", the banks or creditors are required to identify the incipient stress in the account of the Micro, Small and Medium Enterprises. before their accounts turn into non - performing assets, by creating three sub-categories under the "Special Mention Account" Category, however, while creating such sub-categories, the Banks must have some

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authenticated and verifiable material with them as produced by the concerned MSME to show that loan account is of a Micro, Small and Medium Enterprise, classified and registered as such under the MSMED Act. The said Framework also enables the Micro, Small or Medium Enterprise to voluntarily initiate the proceedings under the said Framework, by filing an application along with the affidavit of an authorised person. Therefore, the stage of identification of incipient stress in the loan account of MSMEs and categorisation under the Special Mention Account category, before the loan account of MSME turns into NPA is a very crucial stage, and therefore it would be incumbent on the part of the concerned MSME also to produce authenticated and verifiable documents / material for substantiating its claim of being MSME, before its account is classified as NPA. If that is not done, and once the account is classified as NPA, the banks i.e. secured creditors would be entitled to take the recourse to Chapter III of the SARFAESI Act for the enforcement of the security interest.

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17. It is also pertinent to note that sufficient safeguards have been provided under the said Chapter for safeguarding the interest of the Defaulters - Borrowers for giving them opportunities to discharge their debt. However, if at the stage of classification of the loan account of the borrower as NPA, the borrower does not bring to the notice of the concerned bank / creditor that it is a Micro, Small or Medium Enterprise under the MSMED Act and if such an Enterprise allows the entire process for enforcement of security interest under the SARFAESI Act to be over, or it having challenged such action of the concerned bank / creditor in the court of law / tribunal and having failed, such an Enterprise could not be permitted to misuse the process of law for thwarting the actions taken under the SARFAESI Act by raising the plea of being an MSME at a belated stage. Suffice it to say, when it is mandatory or obligatory on the part of the Banks to follow the Instructions / Directions issued by the Central Government and the Reserve

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Bank of India with regard to the Framework for Revival and Rehabilitation of MSMEs, it would be equally incumbent on the part of the concerned MSMEs to be vigilant enough to follow the process laid down under the said Framework, and bring to the notice of the concerned Banks, by producing authenticated and verifiable documents / material to show its eligibility to get the benefit of the said Framework”.

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(emphasis supplied)

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The Hon'ble Supreme Court, therefore, has laid down the position of law that if, at the stage of classification of the loan account, the borrower does not bring to the notice of the Bank that it is an MSME and allow the entire process to go through, then it will be precluded from raising it at the belated stage. This dicta is very clear and is binding.

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15. Furthermore, the Appellants are mixing up several issues which have different connotations, such as res judicata, estoppel, waiver and acquiescence. The waiver and acquiescence will stand on a completely different footing than an estoppel. If a party knowingly permits a certain state of affairs to go through, the concept of waiver and acquiescence also comes into play.

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16. In this case, the Appellants permitted the state of affairs to prevail, including that of seeking repayment by installments, and therefore, clearly benefited from the delay, which has enured to their benefit, whereby the Appellants have been able to retain the amount instead of repaying the same. 17. The observations of the Hon'ble Supreme Court in paragraph (17) in the case of M/s. Pro Knits lays Ipermit the state of affairs to continue, they will be precluded from raising the challenge. The case is not only of estoppel as argued but acquiescence and waiver as well. The Appellants have sidestepped this aspect of the matter and have focused entirely on the principle of estoppel. Even otherwise, the clear dicta of the

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Hon'ble Supreme Court in the case of M/s. Pro Knits leaves no room to accept the contention raised by the Appellants .”

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In view of the fact that applicant had never approached the respondent claiming the benefit of MSME. He cannot be allowed to rake up the issue at his convenient timings.

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The next contention of the applicant is that no notice is served on the borrower as nothing was addressed to “Energy Efficient lights”. It is true that demand notice and impugned possession notice were not served, much less not issued to the borrower “Energy Efficient lights. However, it is to be born in mind that the borrower is a proprietary concern which is not a separate entity other than the

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‘sole proprietor’. A sole proprietorship is an unincorporated business that one person owns and manages hence the concern and its proprietor are not separate legal entity. Hence the service on the sole proprietor is to be treated as proper service and contention of the applicant in this regard is also to be rejected.

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Another contention taken by the applicant is that, in the demand notice, though a reference was made as to schedule A, there is no schedule A property. This contention cannot be accepted for the

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simple reason that the property sought to be proceeded against is sufficiently described for the purpose of identification. The applicant had not succeeded in proving any prejudice due to the wrongdescription of the property, if any.

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Now it is settled law as laid down by the Hon’ble Apex Court in “L and T Housing Finance Ltd(M/s) v/s M/s Trishul Developers and Another” (2020(10) SCC 659)” that

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“19. In the facts and circumstances, when the action has been taken by the competent authority as per the procedure prescribed by law and the person affected has a knowledge leaving no ambiguity or confusion in initiating proceedings under the provisions of the SARFAESI Act by the secured creditor, in our considered view, such action taken thereof cannot be held to be bad in law merely on raising a trivial objection which has no legs to stand unless the person is able to show any substantial prejudice being caused on account of the procedural lapse as prescribed under the Act or the rules framed thereunder still with a caveat that it always depends upon the facts of each case to decipher the nature of the procedural lapse being complained of and the resultant prejudiced if any, being caused and there cannot be a straitjacket formula which can be uniformly followed in all the transactions.”

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