Allowed

M/S Scasa Organics Private Limited v. Indian Overseas Bank

DRT27 May 2025SA/348/2024

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal allowed the applicant's securitization application. The Tribunal quashed the SARFAESI proceedings initiated by the respondent bank, ruling that the classification of the applicant's loan accounts as NPA was illegal and contrary to Supreme Court guidelines.

What did the court decide?

Securitization application allowed; SARFAESI proceedings quashed as initiation was illegal.

M/S Scasa Organics Private Limited versus Indian… — Contract and Commercial Disputes | 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.348/2024

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Date of Institution: 05.09.2024 Date of Decision: 27.05.2025

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M/s SCASA Organics Private Limited, situated at Village & Post Office Raian, Tehsil Koomkalan, Chandigarh Road, Ludhiana, through its Director Arjun Sethi son of Sh. Ashok Sethi, Resident of House No. 129, Urban NRI Enclave (Carlton Woods), Phase-2, Village Jhamat, Shaheed Sukhdev Nagar, (South City), Ludhiana, District Ludhiana.

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--Applicant Versus

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Authorized Officer, Indian Overseas Bank, Asset Recovery Management Branch, Chandigarh, SCO3025-26, Sector-22D, Chandigarh-160022.

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--Respondent

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Argued by: Sh. Akhilesh Vyas, Advocate along with Ms. Deepshikha Gupta, Advocate for Applicant Sh. V.K. Sachdeva, Advocate assisted by Sh. Saurav Goyal, Advocate for Respondent

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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) to set aside e-auction sale notice dated 21.08.2024 (Annexure A15), whereby alleged sale is fixed for 27.09.2024, possession notice dated 09.08.2024 (Annexure A14) and demand notice dated 27.03.2024 (Annexure A8).

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(2) It was stated in the application that applicant has availed credit facilities from the respondent i.e., OCC Limit of Rs.6 Crores, Term Loan-I of Rs.1 Crores and Term Loan-II of Rs.80 Lacs; that applicant Company is an MSME Unit; that in order to secure financial facilities, the Title Deeds of the properties were deposited by execution of mortgage deed with respondent i.e., Equitable Mortgage of land measuring 3735.87 sq. yards situated at

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SA/348/2024

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M/S SCASA ORGANICS PVT. LTD. VS. INDIAN OVERSEAS BANK

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Village Rayian, Hadbast No. 196, Chandigarh Road, Tehsil & District Ludhiana in the name of Sh. Arjun Sethi S/o Sh. Ashok Sethi vide sale deed bearing Vasika No. 1070 dated 30.03.2017 registered in the office of SubRegistrar, Koom Kalan; that applicant had been paying the installments without being any fault as there was no dispute with the respondent; that subsequently, Covid-19 Pandemic was spread in the country due to which the situation turned bad to worse; that all the businesses were shut down even then also applicant paid the installments to the respondent; that instead of paying the said amounts loan account of applicant was classified as NPA on 03.09.2020 by the respondent; that even after declaration of the accounts as NPA, the respondent promised the applicant that they will get the loan accounts of the applicant out of NPA category as 180 days criteria has not been followed in the present case; that during that period Reserve Bank of India had issued Resolution Framework Guidelines 1.0 and Resolution Framework Guidelines 2.0 during which moratorium period begun from 01.03.2020 to 22.05.2020 and that moratorium period was extended from 23.05.2020 to 30.08.2020 by resolution/circulars/notifications issued by Reserve Bank of India; that Reserve Bank of India had issued Circular dated 27.03.2020 and 17.04.2020 by providing extension of moratorium period for 03 months and subsequently, Circular RBI/2019-20/244 DOR No. B.P.B.C.71/21.040.048/2019-20dated 23.05.2020 was issued announcing certain regulatory measures in wake of disruptions on account of Covid-19 Pandemic and the consequent Asset Classification and Provisioning Norms; that in this Circular it was stated that all Commercial Banks, Co-operative Bank, all India Financial Institutions and Non-Banking Financial Companies are permitted to extend the moratorium by another 03 months i.e., from 01.06.2020 to 31.08.2020 with regard to payment of all installments in respect of Term Loans; that in the meantime various petitions were filed before Hon’ble Apex Court with regard to the moratorium period, charging of interest by the Banks and declaration of accounts as NPA; that in one of the said Writ Petition (Civil) No. 825/2020 in which Hon’ble Supreme Court of India vide its order dated 03.09.2020 ordered that no account shall be declared as NPA till further orders, which were not declared as NPA till 31.08.2020; that even

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SA/348/2024

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M/S SCASA ORGANICS PVT. LTD. VS. INDIAN OVERSEAS BANK

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resolution framework 2.0 was also issued dated 05.05.2021 regarding Covid-19 stress of individual and small businesses; that ignoring all the Circulars and Notifications issued by Government of India during Covid19 Pandemic including the stay order passed by Hon’ble Supreme Court of India, respondent had wrongly classified the account as NPA on 03.09.2020 and issued notice under Section 13(2) of the Act dated 12.04.2020 posted by respondent on 12.04.2021; that representation cum objections were duly sent to the respondent by applicant but the respondent declined the said objections and issued the possession notice; that thereafter, fresh demand notice under Section 13(2) of the Act was issued on 27.03.2024; that there is no reasoning given in the said notice as to why the earlier notice under Section 13(2) of the Act was withdrawn by the respondent; that applicant has already approached the respondent highlighting his concern being an MSME Unit still the point was not considered by the respondent intentionally and the policy dated 17.03.2016 has been violated; that respondent was required to sent the case of applicant to the Designated Committee before classification of loan account as NPA but the respondent has not followed the procedure; that thereafter, Writ Petition No. 476/2020 titled as Small Scale Industrial Manufacturers Association Vs. Union of India in which the order staying the classification of loan accounts as NPA was vacated on 23.03.2021; that the above mentioned clarification apparently states that no account could have declared as NPA by any bank or Financial Institution during this period from 31.08.2020 to 23.03.2021; that hence, loan accounts as NPA on 03.09.2020 is wrong and illegal in the eyes of law and is liable to be set aside; that on 20.05.2024 applicant filed objections under Section 13(3A) of the Act against demand notice dated 27.03.2024, wherein it is specifically stated that the applicant is a promoter of the Company M/s SCASA Nutrients Pvt. Ltd., which is an MSME Unit registered with Ministry of MSME, Government of India; that respondent intentionally and deliberately did not consider the said representation nor made any reply to the same; that applicant filed a CWP No. 13710/2021 before the Hon’ble Punjab and Haryana High Court, Chandigarh against respondent and Hon’ble High Court has granted stay in favour of the applicant and later on directed the parties to approach Hon’ble

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SA/348/2024

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M/S SCASA ORGANICS PVT. LTD. VS. INDIAN OVERSEAS BANK

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Debts Recovery Tribunal, Chandigarh; that during the period when stay order was intact as passed by the Hon’ble High Court the respondent again proceeded against the applicant and for the said reason the applicant was constrained to file the Contempt Petition bearing COCP No. 1753/2022; that thereafter, respondent filed OA No. 2149/2021 before this Tribunal; that respondent has not replied to the representation under Section 13(3-A) of the Act filed by applicant in proper manner vide its reply dated 06.06.2024; that thereafter, respondent again issued possession notice dated 09.08.2024 against immovable mortgaged property i.e., residential house in which the total outstanding amount was mentioned as Rs. 11,98,13,265/-; that issuance of impugned notice and especially the possession notice is totally wrong and illegal because there are huge contradictions in the documents issued by respondent itself; that the demand notice dated 27.03.2024 was issued for sum of Rs.2,49,75,865/- and it was only issued to Sh. Arjun Sethi, whereas possession notice was wrongly been issued to M/s SCASA Nutrients Pvt. Ltd. adding the collateral security without any prior demand notice to M/s SCASA Nutrients Pvt. Ltd. regarding the present loan; that respondent has also added the amount outstanding towards M/s SCASA Nutrients Pvt. Ltd. and the respondent has issued impugned possession notice wrongly; that the said possession notice was not published and never been affixed on the conspicuous part of the property; that immediately after issuance of the possession notice, respondent has issued e-auction sale notice dated 21.08.2024 for the sale on 27.09.2024 being wrong and illegal in the eyes of law; that it appears that respondent bank want to sale the property in hurried manner; that no date of auction or date of sale can be fixed in absence of any notice of redemption, which in the present case has not been issued by the respondent; that the reserve price assessed by the respondent is totally wrong and the same is very lower side, whereas the actual market price of the property is more than the reserve price in the present time; that no fresh valuation report was obtained by the respondent from the approved valuer before putting the property on sale; that the said sale notice was neither published in the newspaper nor affixed or served as per Rule 8 of the Security Interest (Enforcement)

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SA/348/2024

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M/S SCASA ORGANICS PVT. LTD. VS. INDIAN OVERSEAS BANK

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Rules, 2002 (hereinafter referred to as ‘the Rules’ for brevity); that mortgaged properties are not registered under the CERSAI, which is mandatory for the respondent to register its charge under CERSAI otherwise respondent cannot initiate action under the Act in those properties as per Section 26-D of the Act. It was prayed that the present SA may kindly be allowed.

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(3) Reply filed by respondent.

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(4) It is stated in the reply that applicant has not come to this Tribunal with clean hands and has concealed the true and material facts from this Tribunal and misstated the true and material facts, therefore applicant is not entitled to any relief as sought in the SA; that applicant was earlier availing loan facilities i.e., CC Limit of Rs. 06 Crores against the Hypothecation of Stock and Book Debts and Term Loan of Rs.80.00 Lacs for purchase of machinery and Term Loan of Rs. 1.00 Crore for construction of building vide sanction letter dated 03.11.2017; that CC Limit was to be repayable on the demand of the respondent and the Term Loan of Rs. 80.00 Lacs was repayable in 84 EMIs i.e., sum of Rs. 95,080/- and Term Loan of Rs. 1.00 Crore was repayable in 84 EMIs i.e., sum of Rs. 1,18,850/-; that in order to secure the above said credit facilities Sh. Arjun Sethi stood as guarantor and mortgaged the property in favour of respondent, which is situated at village Rayian, Hadbast No. 196, Chandigarh Road, Sub-Tehsil Kumbkalan, District Ludhiana; that loan accounts of applicant was running irregular since long and applicant failed to maintain the financial discipline of the bank and did not adhere to the terms and conditions of loan documents and sanction letter; that applicant Firm failed to pay the interest and installments in respect of loan facilities granted to the applicant and failed to regularly submit stock statements in respect of stock hypothecated to the respondent; that applicant also failed to submit balance sheet and other financial data of their business; that the limit availed by the applicant was lastly renewed on 30.09.2019 for one year and the said limit was not renewed thereafter; that respondent vide several letters inform the applicant to submit the required documents for renewal of the limit, pay the outstanding dues, route the entire business transactions through the loan account as there is no transaction regarding the business since February, 2020; that loan accounts of the applicant were

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SA/348/2024

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M/S SCASA ORGANICS PVT. LTD. VS. INDIAN OVERSEAS BANK

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not declared as NPA due to the Government Guidelines on moratorium period which was granted upto 31.08.2020; that later on, Hon’ble Supreme Court has also issued directions that no account shall be declared as NPA till further order, which were not declared as NPA till 31.08.2020; that therefore, the loan accounts of applicant and loan account of other borrower company i.e., M/s SCASA Organic and M/s SCASA Nutrients were declared as NPA on 31.03.2021 w.e.f. 30.09.2020; that thereafter, respondent had issued the demand notice dated 12.04.2021 under Section 13(2) of the Act; that in the said notice date was inadvertently mentioned as 12.04.2020 instead of 12.04.2021 and the said notice was sent through registered post on 12.04.2021; that respondent has again issued statutory demand notice dated 27.03.2024 under Section 13(2) of the Act upon applicant through registered post on 03.04.2024 to clear the dues of Rs. 11,73,79,498/- stands outstanding within a period of 60 days; that in the said notice it was duly informed that this notice has been issued in supersession of earlier demand notice dated 12.04.2021; that on receipt of notice under Section 13(2) of the Act, applicant has filed representation dated 20.05.2024 under Section 13(3-A) of the Act received on 27.05.2024; that respondent has duly considered the representation and duly replied vide letter dated 06.06.2024 through registered post on 07.06.2024, wherein each and every objections raised by the applicant has been replied in detail; that inspite receipt of notice under Section 13(2) of the Act, applicant failed to clear the outstanding dues of the respondent; that therefore, respondent issued notice dated 09.08.2024 under Section 13(4) of the Act upon applicant through registered post on 12.08.2024 in both the loan accounts i.e., applicant as well as M/s SCASA Nutrients Pvt. Ltd.; that the said possession notice was published in two newspapers i.e., ‘Times of India and Jagbani’ on 13.08.2024; that the said notice was also pasted upon the mortgaged properties on 09.08.2024; that thereafter, in order to recover its outstanding dues, respondent issued sale notice dated 21.08.2024 sent through registered post on 22.08.2024, whereby mortgaged property i.e., residential house was put on sale on 27.09.2024; that the said sale notice was published in two newspapers i.e., ‘Times of India and Jagbani’ on 24.08.2024; that the said notice was also

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SA/348/2024

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M/S SCASA ORGANICS PVT. LTD. VS. INDIAN OVERSEAS BANK

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pasted upon the mortgaged properties on 27.08.2024; that before putting the mortgaged property on e-auction, respondent has obtained valuation report from Bank’s Empaneled Valuer; that presently huge amount of Rs. 12,78,52,039/- stands outstanding in respect of Housing Loan as on 31.12.2024 alongwith interest in the loan accounts of applicants; that respondent has filed OA No. 1952/2021 before this Tribunal for recovery of Rs. 9,06,30,196/- against the applicant; that the respondent has also submitted a complaint dated 20.05.2022 for lodging of FIR with the Central Bureau Investigation against the applicant and its Directors i.e., Sh. Arjun Sethi and Smt. Saroj Sethi and informed that the Auditor i.e., M/s Pardeep Garg & Company has done the audit of the account of the company; that Auditor has also submitted the report dated 30.06.2021 in the loan account of applicant that there is no cooperation by the applicant; that applicant had filed the present SA against the respondent without any cause of action and grounds, whereas each and every action of respondent is just, legal and as per the provisions of the Act and the Rules. It was prayed that as such the present SA filed by applicant deserves to be dismissed.

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(5) No replication filed by applicant to the reply filed by respondent.

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(6) I have heard arguments advanced by Sh. Akhilesh Vyas, Ms. Deepshikha Gupta, Sh. V.K. Sachdeva, Advocates and gone through the record carefully.

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(7) Sh. Akhilesh Vyas, Advocate argued that loan accounts of applicant were classified as NPA on 03.09.2020 by ignoring all the Circulars and Notifications issued by Government of India during Covid-19 Pandemic including the stay order passed by Hon’ble Supreme Court of India. It was further argued that Hon’ble Supreme Court of India has passed an order in Writ Petition No. 476/2020 titled as Small-Scale Industrial Manufacturers Association Vs. Union of India in which the order staying the classification of loan accounts as NPA was vacated on 23.03.2021 and stated that no account could have declared as NPA by any Bank or Financial Institution during this period from 31.08.2020 to 23.03.2021. Therefore, the loan accounts were classified as NPA on 03.09.2020 is bad in the eyes of law and therefore, all the proceedings initiated under the Act by respondent are illegal.

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SA/348/2024

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M/S SCASA ORGANICS PVT. LTD. VS. INDIAN OVERSEAS BANK

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(8) Per contra , Sh. V.K. Sachdeva, Advocate argued that loan accounts of applicant were classified as NPA as per guidelines of Reserve Bank of India and there is no illegality in it. It was further argued that loan accounts of the applicant were not declared as NPA due to the Government Guidelines on moratorium period, which was granted upto 31.08.2020. It was further argued that Hon’ble Supreme Court of India has also issued directions that no account shall be declared as NPA till further orders, which were not declared as NPA till 31.08.2020. It was further argued that therefore, the loan accounts of applicant and loan accounts of other borrower company i.e., M/s SCASA Nutrients Pvt. Ltd. and of Sh. Arjun Sethi were declared as NPA on 31.03.2021 w.e.f. 03.09.2020.

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(9) Though the declaration of loan accounts as NPA was mentioned as on 31.03.2021 w.e.f. 03.09.2020 but in the demand notice dated 27.03.2024 (Annexure A8) date of NPA was mentioned as 30.09.2020.

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(10) It is admitted fact between both the parties that loan accounts of applicant were not NPA till 31.08.2020. It was further admitted by both the parties that in light of various Circulars issued by Reserve Bank of India and order passed by Hon’ble Supreme Court of India no account was to be classified/declared as NPA till 23.03.2021. It is further admitted fact between the parties that loan accounts of applicant were classified as NPA on 30.09.2020 as mentioned in the demand notice (Annexure A8).

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(11) It was argued by Sh. V.K. Sachdeva, Advocate that there was a difference between the classification and declaration of NPA but he was failed to explain the above difference. No legal provision or case law was put before the Tribunal that classification and declaration of a loan account as NPA are two different stages. Respondent has accepted that loan accounts of applicant and loan accounts of other borrower company i.e., M/s SCASA Nutrients Pvt. Ltd. and Sh. Arjun Sethi were declared as NPA on 31.03.2021 w.e.f. 30.09.2020/03.09.2020. There is no legal provision in which it was provided that loan account will be declared as NPA on any different date w.e.f. any different date. Hon’ble Supreme Court of India in Writ Petition(S) (Civil) No.(S) 825/2020 Gajendra Sharma Vs. Union Bank of India and Another on 03.09.2020 it was ordered as under:

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9 SA/348/2024

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M/S SCASA ORGANICS PVT. LTD. VS. INDIAN OVERSEAS BANK

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“ Mr. Harish Salve, Learned Senior Advocate, submitted that no account shall became NPA atleast for a period of two months.

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In view of the above, the accounts which were not declared NPA till 31.08.2020 shall not be declared NPA till further orders .”

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(12) Above order shows that there was no

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difference between classification and declaration of loan account as NPA.

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(13) After considering the above facts and circumstances, in the considered opinion of this Tribunal, loan accounts could not be classified as NPA on 03.09.2020 or 30.09.2020 in light of Circulars issued by Reserve Bank of India as well as order passed by Hon’ble Supreme Court of India. There is no force in the argument of Sh. V.K. Sachdeva, Advocate that despite the Circulars issued by Reserve Bank of India and order passed by Hon’ble Supreme Court of India, loan account of applicant and other Firms can be classified as NPA during the period in which the said action was restrained and loan accounts may be declared as NPA after the said period w.e.f. date of classification as NPA.

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(14) In the considered opinion of this Tribunal when initial stage of proceeding under the Act was illegal then whole building constructed upon it is also without authority and base as well as liable to be quashed on this sole ground.

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(15) Sh. Akhilesh Vyas, Advocate further argued that applicant is an MSME Unit but respondent has not referred the matter to the Designated Committee before classification of loan accounts as NPA as per policy dated 17.03.2016 issued by Reserve Bank of India.

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(16) Per contra , Sh. V.K. Sachdeva, Advocate argued that applicant is relying upon the guidelines that were issued for MSME Unit. It was further argued that as per RBI Circular dated 17.03.2016 on ‘Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises’, applicants were not entitled to get provisions of the said Circular.

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(17) No copy of Udhyam Registration Certificate was annexed by applicant with the SA.

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(18) In light of above, applicant cannot claim any benefit on the basis of being MSME Unit and in light of RBI Circular dated 17.03.2016.

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10 SA/348/2024

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M/S SCASA ORGANICS PVT. LTD. VS. INDIAN OVERSEAS BANK

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(19) Ms. Deepshikha Gupta, Advocate argued that respondent had issued notice under Section 13(2) of the Act dated 27.03.2024 in which, there is no reasoning given as to why the earlier notice under Section 13(2) of the Act dated 12.04.2020 was withdrawn by the respondent. It was further argued that after receiving notice under Section 13(2) of the Act dated 27.03.2024, applicant has sent representation under Section 13(3-A) of the Act dated 20.05.2024 to respondent but the same was not duly replied by respondent.

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(20) Per Contra , Sh. V.K. Sachdeva, Advocate argued that respondent has issued demand notice dated 27.03.2024 under Section 13(2) of the Act and in the said notice it was duly informed that this notice has been issued in supersession of earlier demand notice dated 12.04.2021. It was further argued that on receipt of notice under Section 13(2) of the Act, applicant has filed representation dated 20.05.2024 under Section 13(3-A) of the Act received on 27.05.2024. It was further argued that respondent has duly considered the representation and duly replied vide letter dated 06.06.2024 through registered post on 07.06.2024, wherein each and every objections raised by the applicant has been replied in detail.

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(21) It reveals from record that reply to notice under Section 13(2) of the Act dated 27.03.2024 was sent on 20.05.2024 to respondent and representation under Section 13(3-A) of the Act is Annexure A11 to the SA. It further reveals from record that respondent, replied to the above representation on 06.06.2024 and copy of reply filed by respondent along with the reply to SA as Annexure R5. Fact of receiving reply to representation under Section 13(3-A) of the Act was also mentioned in the SA. Therefore, it is incorrect to say that respondent has not replied to representation under Section 13(3-A) of the Act. It further reveals from record that the reply to representation under Section 13(3-A) of the Act covered all objections in respect of demand notice were replied.

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(22) Ms. Deepshikha Gupta, Advocate further argued that possession notice dated 09.08.2024 was not published in two leading newspapers as per Rules as well as the newspapers were not widely circulated in the area concerned. It was further argued that the said possession

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SA/348/2024

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M/S SCASA ORGANICS PVT. LTD. VS. INDIAN OVERSEAS BANK

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notice was also not affixed on the conspicuous part of the properties as per the Rules.

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(23) Per Contra , Sh. V.K. Sachdeva, Advocate argued that possession notice dated 09.08.2024 was duly served upon the applicant as per Rules. It was further submitted that copy of possession notice, copies of receipts of registered post along with tracking reports, paper publication and proof of pasting are annexed as Annexures R7 to R9 with the reply. It was further argued that possession notice was published in two leading newspapers, one in vernacular as well as both the newspapers have wide circulation in the area concerned. It was further argued that no evidence is on record that the newspapers have no wide circulation in the area concerned.

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(24) Annexure R9 from page Nos. 55 to 58 are not clear to show as to who has pasted the notices, where the notices were pasted, what was the notice and when the same were pasted.

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(25) In light of above factual position and evidence on record, this Tribunal is of the considered opinion that the possession notice was not served upon applicant and guarantors as per Rules.

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(26) Sh. Akhilesh Vyas, Advocate further argued that respondent had never created its charge against the properties in question with CERSAI. (27) Per contra , Sh. V.K. Sachdeva, Advocate argued that respondent had duly created its charge against the properties in question with CERSAI and copy of CERSAI Certificate is annexed as Annexure R17 to the reply.

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(28) It revels from Annexure R17 that it runs from page 135 to 142. It reveals from the CERSAI Certificate(s) that in these CERSAI Certificate(s) name of borrower was mentioned as Sh. Arjun Sethi though this SA was filed by M/s SCASA Organics Pvt. Ltd. and related SARFAESI proceedings have been initiated against the loans granted to M/s SCASA Organics Pvt. Ltd. Therefore, it cannot be said that this CERSAI Certificate(s) relates to the loans advanced to M/s SCASA Organics Pvt. Ltd.

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(29) Though the sale notice dated 21.08.2024 (Annexure A15) was also challenged in this SA but no arguments were advanced by any party regarding the sale notice.

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12 SA/348/2024

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M/S SCASA ORGANICS PVT. LTD. VS. INDIAN OVERSEAS BANK

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(30) No other point/argument was pressed or advanced by any party. (31) After considering the above facts and circumstances as well as evidence on record, present SA is liable to be allowed. (32) SA is allowed. SARFAESI proceedings initiated by the respondent is quashed since initiation as loan accounts were classified as NPA wrongly and illegally in contravention of guidelines issued by Reserve Bank of India as well as order passed by Hon’ble Supreme Court of India. It is made clear that respondent may again initiate fresh SARFAESI proceedings according to law. Record be consigned to record room after due compliance. Date: 27.05.2025 Pronounced by me in the open Tribunal. (MRIDULESHKUMARSINGH) Presiding Officer, DRT-III, Chandigarh

M/S Scasa Organics Private Limited v. Indian Overseas Bank

Case brief

What is this about?

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M/S Scasa Organics Private Limited v. Indian Overseas Bank

Case brief

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What did the court decide?

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