Allowed

M/S Anand Cranks v. Karnataka Bank Limited and Others

DRT20 Mar 2025SA/313/2024

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal addressed a Securitization Application challenging a possession notice, NPA classification, and associated notices. The Tribunal held that classifying the account as NPA without a designated committee referral and failing to serve the possession notice as per rules rendered the proceedings illegal, quashing them.

What did the court decide?

All proceedings initiated by the respondents under the Act are quashed and the Securitization Application is allowed.

M/S Anand Cranks versus Karnataka Bank Limited and Others — Company and Corporate | DRT (2025)

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DEBTS RECOVERY TRIBUNAL-III, CHANDIGARH

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PRESIDED OVER: SH. MRIDULESH KUMAR SINGH

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SECURITIZATION APPLICATION NO.313/2024

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Date of Institution: 21.08.2024

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Date of Decision: 20.03.2025

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M/s Anand Cranks through its partner Sh. Savinder Singh Anand S/o Sh. Inderjit Singh Anand, R/o House No.598-A, Model Town Extension, Ludhiana, District Ludhiana

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--Applicant Versus

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Karnataka Bank Limited, Asset Recovery Management Branch, 8-B, First Floor, Rajendra Park, Pusa Road, New Delhi-110060 through its Authorised Officer

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Karnataka Bank Limited, Head Office at P.B. No. 599, Mahaveera Circle, Kankanady, Mangluru575002 through its Authorised Officer

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Karnataka Bank Limited having its branch office at Sona Complex, Miller Ganj, G.T. Road, Ludhiana through its Authorised Officer

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--Respondents

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Argued by: Sh. Diwan Sharma, Advocate for Applicant Sh. S.K. Dhir, Advocate for Respondents

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FINAL ORDER

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(1) This Securitization Application was filed under Section 17 (1) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘the Act’ for brevity) for setting aside possession notice dated 12.07.2024 under Section 13(4) of the Act, notice dated 01.02.2024 under Section 13(2) of the Act, replies dated 18.04.2024 and 27.05.2024 to representation under Section 13(3-A) of the Act sent by respondents being bad in law and also violative of order dated 14.10.2022 and order dated

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SA/313/2024

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M/S ANAND CRANKS VS. KARNATAKA BANK LIMITED AND OTHERS 18.12.2023 passed by Hon’ble High Court of Punjab and Haryana.

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(2) It was stated in the application that applicant is a partnership Firm in the name and style of M/s Anand Cranks under the partnership of Sh. Savinder Singh Anand and Sh. Jatinder Singh Anand; that applicant Firm is an MSME Unit falling under the provisions of MSMED Act, 2006 and was into the business of manufacturing and exporting Cam shafts, Diesel Engines, Pumping Sets, Generator, Oil Engine etc.; that various financial facilities were extended by the respondents being loan against properties for business purpose; that applicants had availed Term Loan dated 06.07.2020 of Rs.2,07,00,000/-, Term Loan dated 31.03.2021 of Rs.1,00,00,000/-, Term Loan dated 31.03.2021 of Rs.50,00,000/-, Term Loan dated 31.03.2021 of Rs.60,00,000/-,Term Loan dated 31.03.2021 of Rs.8,50,00,000/- and Term Loan dated 31.03.2021 of Rs.1,05,50,000/-; that owing to some financial difficulties, the applicant could not maintained the financial discipline and without any advance notice, the account of the applicant was wrongly classified as NPA on 04.01.2022 as mentioned in notice under Section 13(2) of the Act dated 25.01.2022; that no such intimation regarding NPA was given to applicant nor the matter was referred to designated committee; that the notice under Section 13(2) of the Act was completely wrong and illegal as the amount mentioned in the notice was not correct; that applicant has filed detailed objections under Section 13(3-A) of the Act dated 17.03.2022, through its partner Sh. Savinder Singh Anand, which were duly sent by the applicant through registered post; that the objections filed by applicant Firm were not dealt with or responded by the respondents; that the case of applicant is also covered by MSME notifications and Circulars issued by Government of India

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SA/313/2024

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M/S ANAND CRANKS VS. KARNATAKA BANK LIMITED AND OTHERS and Reserve Bank of India supporting the case of present applicant as the respondents have not provided an opportunity to the applicant for restructuring the loan accounts being MSME Unit; that Guidelines dated 17.03.2016 i.e., framework for revival and rehabilitation for Micro, Small and Medium Enterprises are applicable in the present case along with various other Circulars/Notifications issued by Government of India and Reserve Bank of India pertaining to Covid-19 period; that respondents were required to refer the case to the designated committee for corrective action and the restructuring measures/plan but in the present case the accounts were not sent to the designated committee and no designated committee was ever constituted and accounts were wrongly classified as NPA; that in fact, applicant being MSME in nature, NPA could only be declared before 180 days as per RBI/Government notifications; that payments have been done on timely basis but the respondents had classified the loan accounts of the applicant as NPA illegally because payments have been made on 27.12.2021 (Rs.3,00,000/-) and on 29.12.2021 (Rs.1,87,192/-) and in no way the loan accounts of the applicant could be classified as NPA just after 05 days of the payment being made to the respondents; that inspite of the fact that the objections raised by applicant under Section 13(3-A) of the Act were pending, it was mandatory on the part of respondents to decide the objections first but respondents had issued notice under Section 13(4) of the Act dated 28.09.2022, therefore the step taken by the respondents was wrong and illegal because the objections raised by applicant under Section 13(3-A) of the Act had never been decided earlier; that in fact, the possession notice issued by respondents was in violation of Rule 8(1) of the Security Interest (Enforcement) Rules, 2002; that thereafter,

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SA/313/2024

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M/S ANAND CRANKS VS. KARNATAKA BANK LIMITED AND OTHERS respondents had also proceeded for filing an application under Section 14 of the Act before District Magistrate, Ludhiana for dispossessing the applicant, which was also against law; that applicant had filed a Civil Writ Petition No.23554/2022 before Hon’ble Punjab and Haryana High Court, Chandigarh, which was disposed of on 18.12.2023 alongwith other cases; that respondents had filed a reply in aforesaid Writ Petition, wherein the respondents admitted to not replying the objections on the pretext that the same were not received, which is far from being true; that thereafter, applicant filed Securitization Application before this Tribunal; that during the pendency of the aforesaid SA before this Tribunal, respondents again issued a second demand notice under Section 13(2) of the Act dated 01.02.2024, wherein the date of NPA was mentioned as 04.01.2022; that previous notice under Section 13(2) of the Act dated 25.01.2022 claimed the outstanding amount of Rs.13,61,40,731.74p and the second notice under Section 13(2) of the Act dated 01.02.2024 claims the outstanding amount of Rs.16,69,19,272.74p as on 01.02.2024; that applicant sent representation to the said notice dated 01.02.2024 under Section 13(3-A) of the Act on 01.04.2024 and inter-alia also raised objections regarding previous proceedings as enumerated herein above and that the rate of interest mentioned in notice dated 01.04.2024 was against RBI Guidelines as no interest could be applied after classification of account as NPA; that various other issues were raised by the applicant in the objections dated 01.04.2024, which were summarily and without any application of mind not dealt with at all by respondents; that the previous demand notice dated 25.01.2022 under Section 13(2) of the Act was never recalled till date and thus, issuance of second demand notice dated 01.02.2024 under Section 13(2) of the Act is

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SA/313/2024

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M/S ANAND CRANKS VS. KARNATAKA BANK LIMITED AND OTHERS bad in law; that no letter dated 23.01.2024 as alleged by respondents vide reply dated 18.04.2024 was received by applicant; that applicant was constrained to respond to reply dated 18.04.2024 of respondent Nos. 1 & 2 through counsel vide additional representation/objections dated 07.05.2024, which were replied to by the respondents vide their reply dated 27.05.2024, wherein the tenable claims of applicant were wrongly discarded; thereafter, respondents have issued notice under Section 13(4) of the Act dated 12.07.2024 against law as the procedure under the Act and Rules has not been complied with by respondents particularly regarding service, pasting and publication and dealing of objections as aforesaid; that admittedly, ECLGS Funds were not released to the applicant in accordance with Government instructions and guidelines without any basis causing set back to the applicant; that the respondents were suppressing documents, information and details regarding charging of interest, compound interest, penal interest, charges etc., and despite requests, applicant has not been provided with any clarity regarding the calculations and figures arrived at by the respondents exorbitantly and excessively, which are seriously disputed by applicant; that calculation and computation in arriving at an outstanding amount as disclosed in notice under Section 13(2) of the Act is incorrect as levy of interest and charges is not in accordance with law and RBI guidelines as the amount is exaggerated and inflated and there has been compounding of penal interest and charges in violation of law. It was prayed that the said SA may kindly be allowed.

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(3) Reply filed by respondents.

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(4) It is stated in the reply that the respondents denies all the assertions, averments and submissions made by the applicant in its application against the

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SA/313/2024

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M/S ANAND CRANKS VS. KARNATAKA BANK LIMITED AND OTHERS respondents; that applicant had availed various loan facilities to the tune of Rs.13,72,50,000/- from the respondents; that the said loan facilities had been availed by the applicant after execution of the necessary documents and in order to secure the repayment of said loan facilities, the below mentioned immovable properties had been mortgaged by the applicant:

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i. All the part and parcel of Residential Property bearing MC No. B-XVIII-4221/598-A, built on Plot No. 598-A admeasuring 400 sq. yards, comprised in Khasra No. 331, Khata No. 949/1049 as per Jamabandi for the year 2008-2009 situated at Jawaddi Village, Locality known as Model Town Extension, Part II, Tehsil and District Ludhiana, Punjab.

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ii. All the part and parcel of Industrial Property (Lease Hold Land) and factory building constructed thereon bearing MC No. B-XXX-2185, Plot No. D-244, measuring 2800 sq. yards, situated at Phase-VII, Focal Point, Ludhiana-141010.

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iii. All the part and parcel of Residential Plot bearing No. 25 admeasuring 1709.135 sq. yards comprised in Khasra No.2//22/1, 9/1, 1//25/2, 2//13/1, 2//12/2, 18/2, 19/1, 21, 22/3, 22/4, 23/1,8//1/1,2/1,3/1, Khata No. 8/14-15,12/22,358/423 as per Jamabandi for the year 2007-2008 situated at Paddi Village, Locality known as Royal Villa, near Ranjit Avenue, Sidhwan Canal Road, Opposite Bapu Assa Ram Ashram Wali Pulli, Ludhiana, Punjab.

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(5) It was further stated that partners/guarantors of the applicant Firm had agreed to abide by various terms and conditions in all the executed agreements by them in favour of the respondents and also the terms and conditions in the sanction letters with regard to the loan facilities availed by the applicant Firm through its partners/guarantors; that applicant had failed to observe

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SA/313/2024

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M/S ANAND CRANKS VS. KARNATAKA BANK LIMITED AND OTHERS the various terms and conditions of the loan facilities availed by them and failed to adjust the outstanding in the loan account(s) as per the agreement and thus the account became highly irregular since long; that respondents had repeatedly requested the applicant Firm to regularize the account(s) but despite verbal promises and assurances they failed and neglected to do so; that respondents have also sent a recall letter dated 05.01.2022 to applicant on 05.01.2022 in which it was intimated to the applicant to repay the entire amount within 07 days failing which the respondents will initiate the recovery action; that it is incorrect to say that loan accounts of the applicant had been wrongly declared as NPA without referring the account to designated committee; that the accounts were duly restructured in the year 2020 and then in the year 2021 on the requests of the applicant; that loan accounts of applicant were classified as NPA on 04.01.2022 and as per clause 2(iv) of the RBI Circular dated June 06, 2018, the time period permitted for NPA classification is 90 days. Hence, the Bank’s NPA classification is in compliance with the Circular; that loan accounts were restructured vide sanction letter dated 30.03.2021 and the loan accounts had been classified as NPA on 04.01.2022 almost 09 months after the accounts were restructured; that as per the RBI guidelines, if the borrower fails to deposit three consecutive installments in full, the account will be classified as NPA; that in the present loan account i.e., PSTL-9601, the applicant availed a credit facility of Rs. 207 Lacs for its Working Capital requirements and the monthly EMI for this account was Rs.5,75,000/-; that during the period from 01.10.2021 to 31.12.2021, the applicant credited a total amount of Rs.15,61,800/towards the EMI instead of the required Rs.17,25,000/and this resulted in a shortfall of Rs.1,63,200/- leading to

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SA/313/2024

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M/S ANAND CRANKS VS. KARNATAKA BANK LIMITED AND OTHERS the account being classified as NPA on 04.01.2022; that in view of the above said averments, it is clear that the accounts had already been restructured in the year 2020 & 2021 and the question of again referring the matter to designated committee for restructuring does not arise at all; that as per RBI Circular only one time restructuring was permitted vide circular dated 01.01.2019, thus the question of non-adhering to the norms of the RBI formulated for MSME does not arise; that respondents had sent a demand notice dated 25.01.2022 under Section 13(2) of the Act to all the partners and guarantors of the applicant Firm and in the said notice it was stated that the applicant has committed default in repayment of the liabilities and consequently the accounts have been classified as NPA on 04.01.2022; that as per statement of accounts in respect of above said loan facilities maintained by the respondents and as per the statutory notice under Section 13(2) of the Act dated 25.01.2022 the payable outstanding amount was Rs.13,61,40,731.74p as on 24.01.2022; that after issuance of said demand notice, the applicant neither repaid the outstanding amount nor the respondents had received any objections under Section 13(3-A) of the Act; that respondents had no other option except to continue with the securitization proceedings in order to recover its outstanding amount and resultantly, respondents had issued possession notice dated 28.09.2022 under Section 13(4) of the Act; that applicant had filed CWP No.23554/2022 before Hon’ble High Court of Punjab and Haryana, Chandigarh and the said CWP was disposed of on 18.12.2023; that after the order passed by the Hon’ble High Court, respondents had withdrawn the demand notice dated 25.01.2022 and possession notice dated 28.09.2022 vide letter dated 23.01.2024; that the said letter had been duly served upon the applicant

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SA/313/2024

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M/S ANAND CRANKS VS. KARNATAKA BANK LIMITED AND OTHERS through registered post; that despite knowing the fact that the earlier SARFAESI action initiated by the respondents had already been withdrawn, the applicant still chosen to file SA before this Tribunal by challenging the previous demand notice dated 25.01.2022 & possession notice dated 28.09.2022; that however, the said SA (NDN No.97/2024) has been dismissed vide order dated 30.08.2024 by this Tribunal; that respondents had issued fresh demand notice dated 01.02.2024 to which the applicant had filed objections under Section 13(3-A) of the Act dated 01.04.2024; that the said objections had been duly rejected by the respondents vide letter dated 18.04.2024; that applicant had again filed an additional representation/objections dated 07.05.2024, which was again rejected by the respondents vide reply dated 27.05.2024; that it is true that the initial demand notice under Section 13(2) of the Act dated 25.01.2022 reflected the date of NPA as 04.01.2022 and recoverable amount as Rs.13,61,40,371.74p and then the fresh notice issued under Section 13(2) of the Act dated 01.02.2024 reflected the recoverable amount as Rs.16,69,19,272.74p, which is the outstanding amount as on 01.02.2024; that difference of amount mentioned in the notices is due to the accrued interest accumulated until 01.02.2024 that has been now added and further would keep on adding in the recoverable amount till applicant firm payoff the total dues of the respondents; that after issuance of demand notice, applicant did not turn up for the payment of outstanding amount in the aforesaid loan facilities, therefore respondents had issued possession notice dated 12.07.2024 under Section 13(4) of the Act; that the said possession notice had been duly sent to applicant along with other co-borrowers vide registered post on 12.07.2024 and the said notice had also been published in two newspapers i.e., ‘The Tribune’

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SA/313/2024

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M/S ANAND CRANKS VS. KARNATAKA BANK LIMITED AND OTHERS English and ‘The Tribune’ Punjabi on 12.07.2024; that the said notice had also been pasted on conspicuous place outside the above said mortgaged property; that after issuance of possession notice dated 12.07.2024 applicant Firm approached the respondents with a proposal of One Time Settlement vide letter dated 13.08.2024; that as per the said letter, applicant offered a settlement amount of Rs. 04 Crores for the loan accounts and vide mail dated 20.08.2024, the said OTS proposal letter had been rejected by the respondents by stating that the OTS offer is very low whereas the outstanding liability was Rs.16.63 Crores (approximately); that thereafter, respondents had issued sale notice dated 20.08.2024 to the applicant in order to auction the secured asset on 25.09.2024; that the said sale was not conducted in compliance of sale notice dated 01.10.2024; that in light of above facts and circumstances, it is quite evident that the applicant had approached this Tribunal by concealing and suppressing the material facts, which were very much in their knowledge; that no cause of action has accrued in favour of the applicant so as to file the present SA and it was prayed that the SA may kindly be dismissed.

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(6) Replication filed by applicant to the reply filed by respondents, wherein the contents of SA were reiterated and that of the reply to the SA were denied.

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(7) I have heard arguments advanced by Sh. Diwan Sharma and Sh. S.K. Dhir, Advocates and gone through the record carefully.

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(8) Sh. Diwan Sharma, Advocate argued that representation dated 01.04.2024 under Section 13(3-A) of the Act was not replied by the respondents.

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(9) Per contra , Sh. S.K. Dhir, Advocate argued that the same was replied and received by the applicant as shown in Annexure R6, which is a letter dated 07.05.2024

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11 SA/313/2024

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M/S ANAND CRANKS VS. KARNATAKA BANK LIMITED AND OTHERS issued by counsel for applicant and addressed to respondents.

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(10) In the said letter it was mentioned that representation under Section 13(3-A) of the Act dated 01.04.2024 was sent against demand notice dated 01.02.2024 and reply by respondents dated 18.04.2024 was received.

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(11) In light of above, there is no substance in the argument of Sh. Diwan Sharma, Advocate that representation under Section 13(3-A) of the Act dated 01.04.2024 was neither replied nor received by the applicant.

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(12) Sh. Diwan Sharma, Advocate further argued that applicant is MSME Unit and account of applicant was classified as NPA illegally in light of Circulars issued by Reserve Bank of India. It was further argued that the account was classified as NPA without referring the matter to the designated committee as well as the same was classified within the period of 180 days.

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(13) Per Contra , Sh. S.K. Dhir, Advocate admitted that Unit of the applicant is MSME but argued that account of applicant was classified as NPA in accordance with Circulars issued by Reserve Bank of India.

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(14) Circular dated March 17, 2016 is annexed as Annexure A7 with the Securitization Application. As per this Circular it was binding upon the respondents to refer the matter of applicant to the designated committee constituted under this Circular before classification of account as NPA. Learned counsel for respondents submitted that loan accounts of applicant was earlier restructured therefore not referred to designated committee before classification of accounts as NPA on 04.01.2022. There is nothing mentioned in this Circular that if, the Bank/FI restructured the account earlier on one occasion then it will be exempted to comply with this

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12 SA/313/2024

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M/S ANAND CRANKS VS. KARNATAKA BANK LIMITED AND OTHERS Circular dated 17.03.2016. It was neither prayed nor argued that earlier restructure of account was done after referring the matter to designated committee. It is admitted fact that Circulars issued by Reserve Bank of India are binding upon the Banks/FIs.

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(15) In the considered opinion of this Tribunal, respondents have classified the account as NPA without referring the matter to designated committee. Therefore, the said action was illegal.

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(16) Sh. Diwan Sharma, Advocate further argued that without any specific order passed by the Authorised Officer accounts of applicant cannot be classified as NPA. (17) Sh. Diwan Sharma, Advocate placed reliance upon the judgment passed by the Division Bench of Hon’ble High Court of Punjab and Haryana at Chandigarh in CWP No.6306/2007 titled as Bhupinder Singh Vs. State Bank of Patiala and Others wherein it was observed as under:

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“ In our opinion, in the instant case the respondent bank has classified the account of the petitioner as NPA without any specific order to that affect without application of mind. It is only when the account of the borrower became sub-standard, doubtful or total loss, then the account of a borrower becomes classifiable as Non-performing Assets and it is only then the act came into operation. Clause (o) of sub-section (1) of Section 2 of the Act defines Non-performing Asset, which mean an asset of account of a borrower which has been classified by a bank as sub-standard, doubtful or loss asset .”

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(18) In the present case also no such order passed by any Authorised Officer was placed on record. Therefore, on the basis of above, it is inferred that the accounts were classified as NPA without any authority.

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(19) Sh. Diwan Sharma, Advocate further argued that possession notice dated 12.07.2024 under Rule 8(1)

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13 SA/313/2024

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M/S ANAND CRANKS VS. KARNATAKA BANK LIMITED AND OTHERS of the Security Interest (Enforcement) Rules, 2002 was not served as per Rules, therefore the same is liable to be quashed.

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(20) Per contra , Sh. S.K. Dhir, Advocate argued that the said notice was served as per Rules. It was further argued that there was no need to file tracking reports for proving personal service as the said notice was also published in the newspapers. It was further argued that one property in question was vacant plot therefore, there was no need to take symbolic possession of the said land. (21) Respondents have not filed the tracking reports of registered posts to show that the said notice was served upon applicant and other concerned. Notice was to be served by all three modes as per Rules and not by any one or two modes opted by respondents. Photograph of pasting of this notice are filed by the respondents in which it was mentioned that physical possession of the property was taken over on 12.07.2024. In fact, no physical possession was taken over on 12.07.2024, therefore the said pasting of notice cannot be presumed as service of notice through pasting.

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(22) In light of above, it can be concluded that possession notice was not served upon applicant as per Rules. (23) Sh. S.K. Dhir, Advocate placed reliance upon the case of Central Bank of India Vs. Smt. Prabha Jain and Others (2025-1) 216 PLR 232 (SC) in which Hon’ble Supreme Court of India has directed that the DRT does not have the jurisdiction to grant a declaration with respect to the Mortgage Deed or the Sale Deed as sought.

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(24) No such dispute was either argued or stated in the application, therefore this case law does not support the respondents.

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14 SA/313/2024

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M/S ANAND CRANKS VS. KARNATAKA BANK LIMITED AND OTHERS

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(25) Sh. S.K. Dhir, Advocate further placed reliance upon the judgment passed by Hon’ble Supreme Court of India in the matter M/s L & T Housing Finance Ltd.

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Vs. M/s Trishul Developers and Others 2020 AIR (SC) 5339 in which Hon’ble Supreme Court has directed that merely on procedural lapse unless person is liable to show any substantial prejudice being caused, proceedings under SARFAESI Act cannot be nullified.

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(26) Above discussion shows that this is not a case of procedural lapse by respondents but there is illegality committed by the respondents, therefore directions given by Hon’ble Supreme Court in the above case law does not help the respondents.

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(27) No other point was argued/pressed.

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(28) Considering all facts and circumstances

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discussed above clearly shows that accounts of applicant were classified as NPA illegally, matter of applicant was not referred to designated committee before classification of NPA and notice under Section 13(4) of the Act was not served in accordance with Rules.

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(29) Therefore, all proceedings initiated by the respondents under the Act are hereby quashed and SA is allowed. It is made clear that respondents may initiate fresh proceedings under the Act as per law.

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Record be consigned to record room after due compliance.

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Date: 20.03.2025

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Pronounced by me in the open Tribunal.

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(MRIDULESHKUMARSINGH) Presiding Officer, DRT-III, Chandigarh

M/S Anand Cranks v. Karnataka Bank Limited and Others

Case brief

What is this about?

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M/S Anand Cranks v. Karnataka Bank Limited and Others

Case brief

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