Dismissed

Saju Muhammed Alias Saju Ismail v. Urban Co. operative Bnak Ltd.

DRT20 Jan 2025SA/275/2024

Case brief

AI extract

What is this about?

The Debt Recovery Tribunal dismissed an application challenging securitization proceedings, holding that the bank's demand notice was properly served and that registration of the security interest after the notice did not invalidate the proceedings, relying on precedent.

What did the court decide?

The securitization application was dismissed; applicants ordered to pay costs of Rs.10,000 to the defendant bank.

Saju Muhammed Alias Saju Ismail versus Urban Co. operative… — Banking and Recovery | DRT (2025)

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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 20^th day of January, 2025

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SECURITIZATION APPLICATION No.275/2024

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Between

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Saju Muhammed @ Saju Ismail, Pezhumkattil House, Nadackal P.O., Erattupetta,

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Kottayam – 686 124.

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Nisha Saju, Pezhumkattil House, Nadackal P.O., Erattupetta, Kottayam – 686 124. …Applicants

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And

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The Meenachil East Urban Co-operative Bank Ltd., Represented by its Branch Manager, Aruvithura Branch, Kottayam District.

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The Authorised Officer, Meenachil East Urban Co-operative Bank Ltd., Poonjar, Poonjar Thekkekara P.O., Kottayam District – 686 582. …Defendants

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This Securitization Application having been heard on 20.12.2024

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in the presence of Advocates M/s.V.K.Peer Mohamed Khan, Girish Kumar V.C. and Asna M.B. for the applicants and Advocates M/s.Shinu J.Pillai, Suja S., Mariya Rajan, Nesmel Divan and Diya Bijoy for the defendants, and stood over to this day for consideration, the Tribunal delivered the following:

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SA 275/2024

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F I N A L O R D E R

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Challenging the securitization proceeding initiated by the defendants under the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘the SARFAESI Act’), the applicants/borrowers have filed this SA under S.17(1) of the SARFAESI Act.

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Brief facts of the case :

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In the SA it is averred that the applicants availed cash credit facility of Rs.25 lakhs from the defendant bank by creating security interest over the properties described in the application owned by the 1^st applicant for securing such loan. The applicants were servicing the loan regularly without any default but the defendant bank started charging higher rate of interest, for which the loan could not be repaid in time. The defendants initiated the proceedings under the provisions of SARFAESI Act and issued demand notice under S.13(2) of the SARFAESI Act calling the applicants to pay the outstanding amount within the statutory period of 60 days. Instead of proper service of demand notice, the defendants approached the CJM, Kottayam by filing MC No.143/2024 under S.14 of the SARFAESI Act seeking assistance of the court for taking possession of the secured asset. Accordingly, an Advocate Commissioner was appointed who issued notice to the applicants to take possession of the property vide Annexure-A2.

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It is claimed by the applicants that all the statutory provisions as mandated in proviso to S.14 of the SARFAESI Act in filing the declaration are not duly followed which vitiate the entire

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SA 275/2024

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proceedings and based upon the illegal order passed by the CJM, the defendants cannot proceed with the securitization measures in taking possession of the secured asset. It is also claimed that security interest was not registered in the CERSAI portal at the time of issuance of demand notice and the defendants cannot enforce the security interest in view of bar contained in S.26-D of the SARFAESI Act. Hence the SA may be allowed by settling aside the entire securitization proceedings.

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The defendants contested the claim by filing written statement denying the averments in the SA and claimed inter alia that due to default in repayment of the loans, securitization measure was initiated and demand notice under S.13(2) of the SARFAESI Act was issued on 15.11.2021 vide Annexure-D2 which was duly served on the applicants. The postal receipts and acknowledgement cards are produced in this case. The security interest was also registered in CERSAI portal. Hence the contentions regarding non-service of demand notice and absence of registration of security interest in the CERSAI portal are not at all tenable and the SA may be dismissed.

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From the respective case of the applicants and defendants,

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the following points are emerged for adjudication in this case:

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(i) Whether the securitization proceedings initiated by the defendants suffer from any illegality, defect or irregularity to intervene with the same?

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

SA 275/2024

FINDINGS:

Point Nos.(i) & (ii):

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For the sake of convenience, both the points being interlinked with each other are taken up together for adjudication. From the averments in the SA and also during the course of argument, learned counsel for the applicants did not dispute about availing of the loan. He raised the following contentions regarding illegality in the securitization proceeding as follows:-

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(i) The demand notice was not duly served on the applicants and in absence of service of demand notice, securitization proceeding is not tenable.

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(ii) Statutory procedure prescribed under Section 14 of the SARFAESI act was not duly complied.

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(iii) Security interest was registered in the CERSAI portal on 19.09.2023 which is apparent from the certificate of registration filed by the defendants marked Annexure-D4 and hence issuance of demand notice to enforce the securitization measure prior to registration of the security interest in the CERSAI portal is barred under section 26-D of the SARFAESI act .

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It is contended by the learned counsel for the defendants that “Garhika” cash credit loan availed by the 2^nd applicant was closed and the defendants are proceeding in respect of the cash credit loan availed by the 1^st applicant which is secured by the guarantee of his wife, the 2^nd applicant. The postal receipts for issuance of demand notice are produced as Annexure-D3 and also acknowledgement cards

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SA 275/2024

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showing proper service of demand notice on the applicants are also produced and hence the contention on this aspect is totally untenable and baseless. The learned counsel for the defendants would contend that even the security interest was registered in CERSAI portal after issuance of the demand notice, securitization proceeding is not vitiated and demand notice cannot be said as illegal as it was not issued for enforcement of security interest. In support of his contention, learned counsel has referred an order of the Hon'ble High Court of Karnataka in the case of C.Sarasamma vs. Karnataka State Financial Corporation & others [order dated 07.09.2023 in W.P.No.20356/2018]. There is no illegality in the order passed by the Chief Judicial Magistrate in the proceeding under section 14 of the SARFAESI act. All procedural requirements are duly followed.

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The defendants produced materials showing due service of demand notice on the applicants. No counter affidavit is filed by the applicants in disputing the documents produced by the defendants. In this case, without enforcing any measure as prescribed under S.13(4) of the SARFAESI Act, the defendants initiated application under S.14 of the SARFAESI Act by filing MC No.143/2024 after registration of security interest in the CERSAI portal for taking delivery of possession. Law is well settled on the point that proceeding under section 14 of the SARFAESI Act is a measure under section 13 of the said Act. Hence there is no illegality to proceed directly under section 14 of the SARFAESI Act to take possession of the secured asset. No material defect in the proceeding under section 14 of the SARFAESI Act before the Chief Judicial Magistrate causing substantial prejudice to the applicants is established nor the same is pointed out by the learned

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SA 275/2024

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counsel for the applicants. In absence of the same, the untenable contention of the learned counsel for the applicants on this aspect is not accepted.

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Admittedly, at the time of issuance of demand notice, security interest was not registered in the CERSAI portal as required under the provision of SARFAESI Act but the same was registered on 19.09.2023 which is apparent from the registration of security interest acknowledgement report marked Annexure-D4 i.e., after issuance of the demand notice. The material question is raised by the learned counsel for the applicants that issuance of such demand notice prior to registration of the security interest in the CERSAI portal vitiates the entire securitization proceeding.

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S.26-D of the SARFAESI Act reads as follows:

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‘Notwithstanding anything contained in any other law for the time being in force, from the date of commencement of the provisions of this Chapter, no secured creditor shall be entitled to exercise the rights of enforcement of securities under Chapter III unless the security interest created in its favour by the borrower has been registered with the Central Registry.”

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In the judgment cited by the learned counsel for the defendant

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in the case of C.Sarasamma vs. Karnataka State Financial Corporation (supra) , the scope and ambit of S.26-D of the SARFAESI Act was considered by the Hon'ble High Court of Karnataka wherein it was held as follows:-

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“55. Therefore, it has to be held that mere issuance of notice under Section 13 (2) of SARFAESI Act would not amount to enforcement of security interest. Consequently, effect of non-registration cannot be a ground for testing validity of notice under Section 13 (2).”

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The Hon'ble High Court has specifically held that issuance of demand notice is not enforcement of security interest and hence registration of security interest after issuance of demand notice would not vitiate the securitization proceedings. The ratio decided by the Hon'ble High

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SA 275/2024

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Court of Karnataka is applicable to the facts and circumstances of the present case. No counter authority is filed by the applicants to accept the contention. There is no reason to differ from the view taken by the Hon'ble High Court of Karnataka. Hence the applicants are not entitled to get any relief in this case and both the points are answered against them.

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Hence it is ordered:-

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ORDER

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In view of the foregoing reasons, this SA, being devoid of any merit, is hereby dismissed. Since the applicants have raised vexatious contentions for delaying the securitization proceedings initiated by the defendants, they are liable to pay costs of Rs.10,000/(Rupees ten thousand only) to the defendant bank.

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(Dictated to my PA, corrected and pronounced by me in the open Tribunal on this the 20^th day of January, 2025)

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[SOVAN KUMAR DASH] PRESIDING OFFICER

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SA 275/2024

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Documents on the part of the applicants

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Annexures Date Particulars of documents

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Annexure-A1 24.02.2024	Copy of petition i the defendant	n MC No.143/2024 filed by bank before the CJM,
	Kottayam.
Annexure-A2 18.03.2024	Copy of notice	issued by the Advocate
	Commissioner in	MC No.143/2024.

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Documents on the part of the defendants

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Annexure-D1	26.06.2018	Copy of memorandum of deposit deed executed by the 1^stapplicant.	of title
Annexure-D2	15.11.2021	Copy of demand notice issued by defendant to the applicants.	the 2^nd
Annexure-D3	26.11.2021	Copy of postal receipts acknowledgement cards evidencing of demand notice by the applicants.	and receipt
Annexure-D4	19.09.2023	Copy of registration of security acknowledgement report of CERSAI.	interest