Allowed

Md Kayum v. Karnataka Bank Limited

DRT24 Jun 2025SA/44/2022

Case brief

AI extract

What is this about?

Debts Recovery Tribunal allowed an application quashing a possession and sale notice issued under the SARFAESI Act. The Tribunal held that while security interest existed, the bank violated procedural rules regarding notice publication and service, as well as improper property valuation, warranting quashing of the notices.

What did the court decide?

Possession notice dated 08.02.2022 and sale notice dated 21.07.2022 quashed. Bank to refund auction amount with 7% interest. Applicant to deposit auction amount with interest within 30 days.

Md Kayum versus Karnataka Bank Limited — Company and Corporate | DRT (2025)

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BEFORE THE DEBTS RECOVERY TRIBUNAL, CUTTACK PRESENT: -SHRI JITENDRA PRASAD SINGH

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PRESIDING OFFICER.

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S.A. No.44 OF 2022

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DATE OF DELIVERY OF ORDER:24.06.2025

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Md. Kayum, Aged about 49 years, S/o-Late Md. Moulbi, At- Hatisalapada, Angul Town, PO/PS/Dist-Angul, PIN-759122, PAN No. CBNPK7298C

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APPLICANT

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AND

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Authorized Officer-cum-Chief Manager, Karnataka Bank, Ltd., At-Shanti Bazar, Plot No.1217 PO/PS/Dist-Angul-759122,

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The Collector-Cum-District Magistrate, Angul At/PO/PS/Dist-Angul, PIN-759122,

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Md Sajid, Aged Bout 43 years S/o-Late Md Maulbi, At-Hatisalapada, Angul Town, PO/PS/Dist-Angul, PIN-759122,

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Kanhaiya Kumar Saraf S/o. Ram Chandra Saraf At- Brahmanidei Pada Po/Dist: Angul, PIN-759122 …. Respondents

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Counsel for the Applicant: - … Shri Tuna Sahu. Counsel for the Respondent No.1:… Shri M. K. Mishra. Counsel for the Respondents No.2 & 3:None. Counsel for the Respondent No.4:Shri Kalpataru Khuntia

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JUDGEMENT

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This is an application under Section 17 (1) of the Securitization and Reconstruction of the Financial Assets and Enforcement of Security Interest Act, 2002 filed by the applicant for quashing of possession notice under Annexure-1 and quash the sale notice dated 21.07.2022 and order dated 21.09.2022 passed by the D.M., Angul under Annexure-8 and declare any consequential action of the defendant bank pursuant to such order is illegal and void and for other reliefs.

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The brief facts of the applicant case is that the applicant is having a business man delt with all types of bed/Sofa material business in the name and style as M/s. Taj Cotton and for the development of the business accordingly approached the respondent bank for obtaining a credit facility in the month of the May 2017 for sanction of Rs.25 lakhs. Accordingly, he has submitted the title documents pertaining to the property which was the subject matter in this SA more fully described in the Schedule-A and ROR before the respondent bank along with TADA Approval. The said loan documents along with the application have received by the bank but it is quite unfortunate the respondent bank has not sanction the loan amount. The applicant several occasions visited the bank for return of the original Title documents. On 02.07.2018, the applicant writes a letter to the respondent bank either sanction the loan or returns the Original Title documents. After receiving such letter the respondent bank vide its letter dt. 01.08.2018 stated that the younger brother who is the respondent No.3 has taken a loan for which the applicant is a coapplicant and guarantor and no where it has been mentioned as mortgagor. Since the applicant has approached the bank to obtain the credit facility of Rs.25 lakhs in favour of the M/s Taj Cotton and

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accordingly executed certain documents and those documents are misused by the bank and making as a guarantor to the loan availed by the M/s Taj Enterprises. Accordingly the applicant on different occasion had given its reply to the respondent bank. Therefore, the petitioner is not liable to pay any dues of the respondent bank which was availed by M/s Taj Enterprises. All of a sudden, the respondent bank without enquiring about the matter issued one letter on 22.10.2018 and stated that the account became declared as NPA and also demanding Rs.27,32,366.50, as well as requested, to repay the amount on or before 05.11.2018 otherwise they will take action against the applicant. In response to the letter dt. 20.10.2018, the Applicant has submitted reply on 28.11.2018 and stating therein that he has never executed any loan documents for the loan availed by M/s Taj Enterprises, as well as disputed that no such M/s Taj Enterprises has exist in the market, so requested the respondent bank to take action against the borrower and return of the Original Document. In spite of several objections raised by the applicant, the respondent bank time and again issued letters and finally issued one letter dt. 12.04.2019 for declaration of willful defaulter. Thereafter on 24.04.2019, the respondent bank issued one 13(2) notice under the SARFAESI Act demanding Rs.29,31,512.50 within 60 days.

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It is further stated that the respondent bank committed grave error in sanctioning and disbursing the loan to a unit who has no existence and in order to grab the property without any security interest, the respondent bank taking action against the applicant, as such the applicant approached the Hon’ble High Court by challenging

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the 13(2) notice dt. 24.04.2019 in W.P. © No. 9582/2019 and the Hon’ble High Court disposed of the matter by granting interim order till 11^th May 2021 as well as given liberty to the applicant to approach the DRT but since the 13(4) notice has not been issued, therefore the applicant unable to approach this Hon’ble Tribunal before 11.05.2021. Even before issuing impugned Possession Notice dated 08.02.2022, Respondent Bank has never inquired about the truth and a precondition for issuance of Possession notice. To cover up such lapse, the respondent Bank has indulged in manipulating/building up records/documents.The action initiated by Defendant bank U/s.13(4) of SARFAESI Act, 2002 in issuing the impugned Possession Notice dated 08.02.2022 is not only arbitrary, but also illegal and bad in law. No security interest has been created in respect of the property dealt with in the impugned Possession Notice and hence no action can be taken under the SARFAESI Act, 2002. The said possession notice has not been published in two leading news paper such one in vernacular odia language as such violated the Rule 8(2) of the SARFAESI Rule 2002 as such, all subsequent actions including issuance of Possession notice, illegal and cannot be sustained in law.

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It is further stated that when the issue of illegal with holding of Title Deeds/non-return of title Deeds by respondent Bank pertaining to the schedule properties is not enquired by the respondent bank, such action of respondent Bank in issuing Possession Notice dated 08.02.2022 is arbitrary, ill motivated and deserves to be condemned and such Possession Notice deserves to be quashed. It is the settled

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position of the law, as decided by the Hon’ble Supreme Court in the case of M/s. Tripower Pvt. Ltd. vs. State Bank of India and Others, that the DRT can pass appropriate directions in respect of all documents including in respect of the title documents.

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In view of the above, when there is no security interest created in favour of Respondent Bank in respect of Schedule-A property, the respondent Bank has no legal right and is not entitled to initiate any action including issuance of Possession Notice under the provisions of SARFAESI Act, 2002.

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Notices were issued to the defendants No.1 to 4 to show cause as to why the relief prayed for by the applicant be not granted. After receiving the notice, the Respondent No.2 and 3 neither appeared nor filed their counter.

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The Respondent No.1 filed counter contending that the respondent No.1 has issued the possession notice against the secured asset of the appellant. Till yet the respondent No.1 has not approached the collector for taking physical possession of the secured asset. So there was no necessity for the appellant to implead the collector as a party to the present proceeding. The actions taken by the respondent No.1 is in conformity with the provisions of SARFAESI Act. At no point of time the respondent No.1 has adopted any illegality which de-hors the rules and provisions of the Act. There is/was absolutely no occasion for the appellant to challenge the possession notice issued by the respondent No.1 in the aforesaid SA as the same has been done in accordance with the provisions of law. The secured interest has been created over the property of the appellant as the appellant was the CoObligant/Guarantor in the loan availed by M/s. Taj Enterprise. It is a

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fact that the appellant had approached the Hon’ble High Court of Orissa, Cuttack in W.P.(C) No. 9582/2019 and the Hon’ble High Court had directed the appellant to approach the DRT in accordance with law.

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It is further stated that M/s. Taj Enterprise, a proprietorship concern, represented by it’s proprietor, Mohammad Sajid approached the bank for availing Overdraft loan to the tune of Rs.25,00,000/- in order to meet working capital requirements vide it’s loan application dtd. 04.03.2017. Along with the said loan application, the said borrower had submitted the required documents and filled up the necessary columns of the said application from. In the said loan application the borrower had categorically mentioned the property of the appellant to be mortgaged before the bank for availing the said loan. At the time of sanction of the loan in favour of the borrower by the bank, the appellant who is none other than the brother of the borrower had executed several loan and security documents before the bank. The appellant had executed and submitted Declaration, Consent Letter, Request for Overdraft Facility, Take Delivery Letter Demand promissory Note, Guarantee Letter, Letter dtd. 15.05.2017. Memorandum of deposit of Title Deeds and also signed in the credit sanction Intimation acknowledging receipt of the credit sanction intimation and agreed to abide the terms and conditions of the sanction. Besides that also, the appellant had also submitted the Acknowledgement of Debt on dtd. 31.03.2020 acknowledging the outstanding balance in the loan account of the

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borrower. Despite execution of the aforesaid documents with the bank, the appellant is now stating before this Hon’ble Tribunal that the property mentioned in the possession notice has never been mortgaged by him before the bank at any point of time and in absence of security interest created on the property, the bank is debarred to initiate any action under the SARFAESI Act.

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It is a fact that the appellant had submitted the title documents before the bank for availing the overdraft facility to the tune of Rs.25 Lakhs in favour of M/s. Taj Enterprise. Since the appellant had not submitted the loan documents along with the loan application before the bank, therefore the question of sanctioning of the loan in favour of the appellant by the bank doesn’t arise at all. The appellant has never visited the bank on several occasions for return of his original documents. It is a fact that basing upon the false facts, the appellant had submitted an application before the bank on 02.07.2018 and the same has been duly answered by the bank and communicated to the appellant.

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In pursuance to the letter dt. 02.07.2018 the bank communicated the fate of his representation on 01.08.2018 stating therein that the appellant was personally present in the bank and handed over the original title deeds as per this letter dtd. 15.05.2017 and executed the documents as per the terms and conditions of the bank applicable to a guarantor for a loan. It is pertinent to state here that the appellant stood as the guarantor for the overdraft facility availed by M/s. Taj Enterprise. The appellant knowing the above facts had intentionally submitted the said letter with the prayer for return of original

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documents in order to save the mortgaged property when the bank initiated action under the provisions of SARFAESI Act for the recovery of the loan amount from M/s. Taj Enterprise. Therefore, it is crystal clear that the bank has not committed any illegality against the appellant in pursuance to the averments made in his representation. The documents submitted by the appellant before the bank has never been misused by the bank as alleged by the appellant.

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The bank issued the letter on dt. 22.10.2018 to the appellant as because after availing the loan from the bank, M/s. Taj Enterprise could not be able to repay the loan amount as per the terms and conditions of the credit sanction intimation. Therefore, the loan account of M/s. Taj Enterprise became N.P.A. on 26.10.2018. After the account became N.P.A, the bank was compelled to issue a request letter on 22.10.2018 to the appellant requesting therein to deposit the outstanding amount of Rs.27,32,767,50/- on or before 05.11.2018. In the said letter the bank has categorically stated that if the appellant will not repay the loan amount on or before 05.11.2018 then the bank will take action against the appellant as per law. After receipt of the aforesaid letter from the bank, the appellant had also submitted another letter before the bank on 28.11.2018 alleging the false facts which had been reiterated in his previous letter dtd. 22.07.2018. Knowing very well about the facts of deposit of title deeds as well as execution of loan documents with the bank for the overdraft facility availed by M/s. Taj Enterprise, the appellant falsely stated that the bank has misused his original title documents. The appellant in order to stall the recovery

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proceeding had adopted this type of tactics of filling vague representations with false facts before the bank deliberately.

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It is further stated that M/s. Taj Enterprise was the borrower for the overdraft facility in which the appellant was the coobligant/guarantor. As per section 128 of the Indian Contract Act the liability of the surety is co-extensive and as per RBI Guidelines, the Guarantor would be treated as a willful defaulter till the loan is repaid by the borrower. In the instant case since neither the borrower nor the appellant has repaid the loan amount before the bank, the bank declared the appellant as a willful defaulter. Despite declaring the appellant as willful defaulter when the borrower and the appellant failed to clear up the loan amount, the bank initiated action against the borrower as well as the appellant under the provisions of SARFAESI Act by issuing notice under section 13(2) of the SARFAESI Act. The borrower is non-other than the brother of the appellant. The appellant is the guarantor for the overdraft facility availed by the bank. So the bank has not committed any error as alleged by the appellant. Suppressing the actual facts, the appellant had filed writ petition before the Hon’ble High Court of Orissa, Cuttack and the Hon’ble High Court had granted the interim protection till 11.05.2021. The bank in adherence to the interim order of the Hon’ble High Court of Orissa, Cuttack had not taken any action against the appellant. Prior to issuance of the possession notice, the bank had acted in consonance with the provisions of SARFAESI Act and the action initiated against the appellant are in strict compliance with the guidelines of the bank as well as RBI and the bank knows the truth that after the appellant

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stood as guarantor for the overdraft loan availed by the borrower. The appellant has time again harpening the said issue of misusing the title documents of the appellant by the bank. After creating security interest in favour of the bank for the loan availed by the borrower, the appellant is now trying to shift his liability on the ground of non-keeping the property of the appellant as mortgage. The possession notice has also been published in two leading newspaper, one in vernacular language and the other in one national News Paper. The bank had never withhold the title documents of the appellant illegally. If the bank had kept the title document illegally, then what prompted him to wait till 2018 for raising the said issued by submitting the representation before the bank. The actions of the bank in issuing the possession notice dtd. 08.02.2022 is neither illegal nor ill motivated. The appellant must produce the clinching evidence for alleging the said facts before this Hon’ble Tribunal. Nothing wrong has been committed by the bank in respect of the title documents of the appellant. The case law cited by the appellant in this para is not applicable to the present SA as because the fact and circumstances of the said case is different from case law cited by the appellant. If at all the appellant is very much fair in his mover to approach this Hon’ble Tribunal on the basis of misusing title documents and he does not know anything about sanction of the loan, then what propelled the appellant to approach the bank in filing the representation on dtd. 20.09.2021. In the said representation, the appellant had clearly revealed the fact that the brother of the appellant had availed the loan of Rs.25,00,000/- and the appellant has lost everything in business due to COVID-19 and the appellant requested

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the bank to settle the loan account for Rs.32,00,000/- and the appellant will repay the total amount by 15^th December, 2021. If the appellant was not the guarantor for the loan availed by the borrower, then what prompted the appellant to file the said representation before the bank for settling the loan account of the borrower for Rs.32,00,000/-.

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It is further stated that M/s. Taj Enterprise represented through its Proprietor, Md. Sajid had availed Overdraft facility by approaching the bank. The appellant stood as the guarantor in the said loan. Both the appellant and borrower had executed several loan documents and agreements with these respondents for availing the said loan. At the time of availing the said loan they have signed those documents after going through the recitals as well as the terms and conditions of the same. In the loan transaction the appellant stood as the guarantor and all of them had agreed to repay the said loan amount along with interest within the stipulated time period.

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After availing the credit facility from the bank, the appellant as well as the borrower did not adhere the terms and conditions of the sanction and intentionally did not clear up the loan amount despite several correspondences and request from the bank for which the said loan account became NPA. Thereafter the respondent had initiated actions against the present appellant under the provisions of SARFAESI Act by issuing notice U/s/13 (2) and thereafter 13(4) of the said Act. An amount of Rs.50,18,047.10/- is still outstanding against the appellant in the loan account availed by the borrower as on 30.04.2022. Due to non-payment of the loan amount, the respondent

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is facing much difficulties in repaying the money to the public and thereby loosing financially in each and every day. The appellant in order to stall the proceeding for recovery of the loan had adopted this type of tactics by filing cases after cases in different Courts and forums intentionally. The appellant only with the intention to cheat the respondent and to grab the public money have not yet cleared up the loan amount of the respondent. It is trite law that anyone who takes recourse to method of suppression of facts in a court of law, playing fraud with the Court/Tribunal should not get any relief. A person coming to court with unclean hands is neither entitled to be heard in merits nor entitled for any relief. Similarly a litigant who attempts to pollute the stream of justice with tainted hand is not entitled to any relief, interim or final. The applicant in order to halt the recovery process of loan has deliberately filed this SA before this Hon’ble Tribunal without any valid and tenable grounds.

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Respondent No.1 filed additional counter and contended that t he respondent Bank put the mortgaged property for auction as per the provisions mentioned in the SARFAESI Act and clear cut 30 days’ notice provided under Rule-8(6) of the said rule were given to the appellant as well as others for participating in the auction. The valuation of the property as made properly by the respondent bank. Therefore, the allegations of the appellant regarding the said issues are not only false but also baseless. These averments are not supported by any documentary evidence from the side of the appellant. The other issues which has been alleged by the appellant has already been clarified by the respondent bank in the earlier counter affidavit filed

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by the bank before this Hon’ble Tribunal. Regarding the fact of approaching the respondent No.2 and getting the order it is stated that after conclusion of auction, the respondent had approached the respondent No.2 for taking physical possession of the mortgaged assets. The respondent No.2 after hearing the bank and after verifying the documents filed thereto had passed the reasoned order and directed for taking the physical possession of the mortgaged assets and the actions of the bank in approaching the respondent No.2 are in accordance with the provisions of SARFAESI Act. The bank has not taken any illegal and arbitrary action against the property which was put under auction.

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M/s. Taj Enterprise was the borrower for the overdraft facility in which the appellant was the co-obligant/guarantor. As per section 128 of the Indian Contract Act the liability of the surety is co-extensive and as per RBI Guidelines, the Guarantor would be treated as a willful defaulter till the loan is repaid by the borrower. In the instant case since neither the borrower nor the appellant has repaid the loan amount before the bank, the bank declared the appellant as a willful defaulter. Despite declaring the appellant as willful defaulter when the borrower and the appellant failed to clear up the loan amount, the bank initiated action against the borrower as well as the appellant under provisions of SARFAESI Act by issuing notice under section 13(2) of the SARFAESI Act.

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The respondent bank had never sold the property at throw away price and the bank has no intention to grab the property . The auction was made on the fixed dated and the highest bidder who

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is now the newly added party became the highest bidder in the said auction. The bidder deposited the auction amount before the bank and accordingly after receipt of the entire money from him, the bank had issued the sale certificate in his favour. Similarly, the bank had approached the respondent No.2 for taking physical possession of the mortgaged property in accordance with law and the respondent No.2 passed the order on the date fixed. So there is/was absolutely no illegality committed by the respondent No.2 in passing the said order and therefore the allegation of the appellant regarding passing of an order by the respondent No.2 during pendency of the SA before this Hon’ble Tribunal is absolutely a vague statement . In view of the above, since the order of the respondent No.2 is not arbitrary and illegal, this Hon’ble Tribunal should not entertain the aforesaid allegations of the appellant and should not quash the order dtd. 21.09.2022 passed by the District Magistrate, Angul.

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Prior to issuance of the possession notice, the bank had acted in consonance with the provisions of SARFAESI Act and the action initiated against the appellant are in strict compliance with the guidelines of the bank as well as RBI and the bank knows the truth that after the appellant stood as guarantor for the overdraft loan availed by the borrower. The appellant has time again harping the said issue of misusing the title documents of the appellant by the bank. The appellant without any substantial grounds, reasons and any documentary evidences is pressing hard on the self-same issue.

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After creating security interest in favour of the bank for the loan availed by the borrower, the appellant is now trying to shift his liability on the ground of non-keeping the property of the appellant as mortgage. The possession notice has also been published in two leading newspaper, one in vernacular language and the other in one national News Paper. The bank had never withhold the title documents of the appellant illegally. If the bank had kept the title document illegally, then what prompted him to wait till 2018 for raising the said issue by submitting the representation before the bank. The actions of the bank in issuing the possession notice dtd. 08.02.2022 in neither illegal nor ill-motivated. The appellant must produce the clinching evidence for alleging the said facts before this Hon’ble Tribunal. Therefore, the allegations narrated in this para should not be taken into consideration by this Hon’ble Tribunal without any documentary evidences.

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M/s. Taj Enterprise represent through it’s proprietor, Md. Sajid had availed Overdraft facility by approaching the bank. The appellant stood as the guarantor in the said loan. Both the appellant and borrower had executed several loan documents and agreements with these respondents for availing the said loan. At the time of availing the said loan they have signed those documents after going through the recitals as well as the terms & conditions of the same. In the loan transaction the appellant stood as the guarantor and all of them had agreed to repay the said loan amount along with interest within the stipulated time period.

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After availing the credit facility from the bank, the appellant as well as the borrower did not adhere the terms & conditions of the sanction and intentionally did not clear up the loan amount despite several correspondences and request from the bank for which the said loan account became NPA. Thereafter the respondent had initiated actions against the present appellant under the provisions of SARFAESI Act by issuing notice U/s.13(2) and thereafter 13(4) of the said Act.

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Respondent No.1 Bank relied on the decision reported in (2023) 13 SCR 53:2023 INSC 838 (CELIR LLP V. BAFNA MOTORS(MUMBAI) PVT. & ORS.

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The applicant filed rejoinder to the counter affidavit filed by the applicant and contended that t he present Applicant and the Respondent No.3, Md Sajid, are owners of, and, managing two separate proprietorship concerns by the name, M/s. Taj Cotton, owned by Md. Kayum and M/s. Taj Enterprise owned by Respondent No.3, Md. Sajid respectively. In the month of May, 2017, the present Applicant, owner of the proprietorship concern M/s. Taj Cotton approached the Respondent Bank for obtaining the credit facility of Rs.25 lacs and had submitted documents in this regards as demanded by the Bank officials. But, the negotiations/talks did not finalize due to the harsh and stringent conditions imposed by the bank Authorities and the present Applicant decided to avail the Credit Facility from some other bank/financial institutions. Thereafter, there has been verbal communication between the present Applicant and the bank officials regarding the return of the documents submitted by the applicant, and

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despite assuring the Applicant time and again regarding return of the documents the bank officials remained silent.

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After repeated enquiry, in a surprising manner, the bank Officials verbally informed the Applicant that, the Respondent No.1 Bank has sanctioned a loan in favour of the Respondent No.3, Md Sajid, owner of the proprietorship concern by name and style M/s. Taj Enterprises and the present Applicant is a guarantor in the said loan. Further, the Applicant was advised to ask for the documents in a manner of written application, after which the applicant has issued the letter dt. 02.07.2018, for return of the original Documents submitted or to sanction the loan amount in his favour, if at all any loan has been sanctioned. In reply to such letter dt. 02.07.2018, vide Communication dt. 01.08.2017, the Bank Officials rejected all the grievances of the Applicant. It is pertinent to note here that, to reject the grievances of the Applicant, the Bank took almost a month’s time.

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In the para 13 of the objection, the Respondent Bank has indicated that, the Applicant at no point of time had approached the bank for obtaining the credit facility of Rs.25 lacs in the month of May, 2017. But, all documents regarding the sanction of the loan and the execution of the documents indicated as 15.05.2017. From the above documents it is crystal clear that, the Applicant approached the Bank for a Credit Facility in favour of his own proprietorship concern but was somehow manipulated by the Bank Officials and the documents submitted by him have been used for sanction of a loan facility in favour of a proprietorship concern owned by Respondent No.3 illegally and without permission.

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In the Annexure A series, the Respondent Bank has annexed two Loan Application/Request Letters, one dt. 04.03.2017, and other dt. 15.05.2017. In the Loan application dt. 04.03.2017, no signature of the Applicant is present but in the Loan Request Letter dt. 15.05.2017, the Applicant’s signature appears to be present which is clearly an interpolated document. It is a fact that only the signature of the borrower is required in the Form No. 959 H as it is the borrower whose primary duty is to repay the loan availed by him. But surprisingly the signature of the Applicant is present in the F. No. 959H, which makes it crystal clear that the Applicants was present in bank in the month of May, 2017 to avail a loan facility for his own proprietorship unit M/s. Taj Cotton. More so, it is quite surprising that under what circumstances, two signatures of the Applicant are present in the said document.

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Furthermore, Annexure-A series appears to be interpolated, as because, the signature of the Applicant is completely different at Page No.38 than in all other pages of the documents in the Annexure-A series. As it appears crystal clear to the naked eye, some individual other that the applicant was trying to sign the document in English but realized he has to sign the same in Urdu and tried doing so by cutting the English Signature. The Urdu Signature clearly appears to have been copied by some other person and is completely different. The applicant strongly raises the issue that he has never created any mortgage for the purpose of credit facility sanctioned to the proprietorship concern M/s. Taj Enterprises, owned by proprietor Md. Sajid, Respondent No.3. In the said Objection, the Respondent Bank

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annexed the Memorandum of Deposit of Title Deeds dt. 17.03.2007, it is not all indicated that for which purpose such documents are being obtained from the Applicant.

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Furthermore, not a single document is annexed to show, that the applicant had submitted Title Deeds and created mortgage for the purpose of credit facility sanctioned to the proprietorship concern M/s. Taj enterprises, owned by Proprietor Md Sajid, Respondent No.3.

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The Rule 8(1) and Rule 8(2) of the statute, i.e. Security (Interest) Enforcement Rules, 2002, clearly speak the manner of issuance and service of the Possession Notice U/s.13(4) of the SARFAESI Act, 2002. The service of the Possession Notice is not in accordance with the mandatory provisions of the Statute.

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In the Objection, the Respondent Bank has annexed the paper publication of the Possession Notice in just one paper. No annexure is available showing fixation of the said Notice in the most conspicuous part of the property and Annexure-B is showing the paper publication of the Notice in some local newspaper, while the statute clearly says that the possession notice shall also be published in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorized officer. The Respondent Bank has acted contrary to the statute.

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Furthermore, the Sale Notice dt. 21.07.2022 is bad in eye of law and the facts as because the same was published during the pendency of the SARFAESI Application, but there is no indication of the pendency of the case in the said Notice. But the settled position of the law is contrary: -

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“In the case of State of HP vs. Tarsem Singh (Supra), wherein the Hon’ble Apex court has held that: -

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“an encumbrance, such as pending litigations, would be a thing which the purchaser needs to know as it has the effect on the value of the secured asset which is about to be purchased under Clause(f) and clause(a) of the Rule 8(6) of the SARFAESI Act, 2002”.

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Moreso, in a recent case, i.e. in the case of Llovegeet Dhuria-vs- State Bank of India & Ors, CWP No.3748 of 2022, wherein the Hon’ble Punjab and Haryana High Court has also observed that-

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“Existence of litigation in respect of the asset sought to be sold by a secured creditor would fall within the definition of the term encumbrance”.

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However, in the light of the facts and circumstances, being aware of the fact that the bank deals with the Public Money and in the Light of the Settled Position of law as decided by the Hon’ble Apex Court in the case of Dwarika Prasad -Versus- State of UP, the right of redemption of the scheduled property is available with the Applicant till the Registration of the Sale Deed in accordance with Section 13(8) of the SARFAESI Act, 2002 read with Section 60 of the Transfer of Property Act, 2002. The Applicant has already deposited the matching price of Rs.44,00,000/- as deposited by the Auction purchaser and is interested to redeem the property as the same is ancestral property.

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Applicant relied on the following decisions:-

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(i) AIR 2015 SC Page-50 (Mathew Verghese V. M. Amtrita Kumar & Others)

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(ii) 2014 SCC 600 Vasu P. Shetty Vrs. M/s Hotel Vandana

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Respondent No.4 filed counter affidavit and contended that p ursuant to the E-Auction Sale Notice, Respondent No.4 was declared as the Highest Bidder and accordingly Sale Certificate has already been issued in my favour. The actions taken by the Respondent Bank under the Act and the sale being finalized in favour of the present Respondent No.4 under due process of law as envisaged under the SARFRAESI Act, 2002 and the rules thereunder. On the day of Auction i.e. on 24.08.2022 at about 12 p.m., the Respondent No.4 received an E-mail from the Respondent Bank that his bid has been accepted and he is the highest bidder for the auction with final bid of Rs.43,93,000/-. Thereafter Sale Confirmation dated 25.08.2022 was issued in favour of present Respondent No.4 (Successful bidder/auction Purchaser) and in the said confirmation it was stated that sale certificate will be issued upon payment of balance amount of the Sale Consideration. The Respondent No.4 pursuant to the same paid the balance sale consideration amount and thereafter Sale Certificate dated 02.11.2022 was issued in favour of the present Respondent No.4/Successful bidder. The Respondent Bank acknowledged the receipt of the entire sale consideration amount from the present Respondent No.4. When the Respondent No.4 was in legitimate expectation of taking delivery of possession of the property purchased by him in auction, he was surprised to receive a notice from this Hon’ble Tribunal directing him to appear before this Court in the present proceeding. As such the Respondent No.4 filed Vakalatnama through his counsel and upon appearance could find that an interim Order dated 09.11.2022 has been passed directing the Respondent

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Bank not to take physical possession of the property till 22.11.2022 and to keep the Demand Draft of Rs.13 lakhs in safe custody till further orders.

¶91

The sale has become absolute and the right, title and interest has now vested in favour the Auction Purchaser/Respondent No. 4 by Transfer of mortgagor’s interest through Sale Certificate issued by Respondent Bank on account of mortgagor’s default in repayment of loan. The sale has now become complete by transfer of property by confirmation of sale by written proceedings of the ‘secured creditor’, i.e. Respondent No.4 and by issuance of a sale certificate by the ‘authorized officer’ of the Respondent Bank as required under subrule (6) of Rule 9 of the SARFAESI Rules. Hence, there is no scope of interreference with the sale proceedings duly carried under the process of law.

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Respondent No.4 relied on the following decisions:-

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A. AIR 2017 SC 3069-Alloken Poddabbayya & Ors. Vs. Allahabad Bank and Ors.

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B. (2007) 5 SCC 745 – B. Arvind Kumar Vs. Govrenment f India & others

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C. (2015) 14 SCC 316 – Embassy Hotels Pvt. Ltd. V. Gajaraj & Co. & Ors.

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D. AIR 1988 SC 1200 – Mhadagonda Ramgonda Patil and Ors. V. Shripal Balwant Rainade & Ors.

¶97

Heard all the Counsels at length and perused the records.

¶98

On the perusal of the pleadings of the rival parties, the following issues arise for consideration.

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(i) Whether the security interest has been created by the applicant in favour of the Respondent Bank over Schedule A property?

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(ii) Whether the Respondent Bank has violated the provisions under Rule 8(1) and 8(2) of the SARFAESI Act & Rules?

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(iii) Whether the Respondent Bank has violated Rule 8(6) of the Security Interest(Enforcement), Rules, 2002?

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(iv) Whether the valuation o he property has been made properly before fixing the reserve price?

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(v) Whether the applicant is entitled to the reliefs as claimed?

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Now, I decide the case issue wise.

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Issue No.(i) :- Whether the security interest has been created by the applicant in favour of the Respondent Bank over Schedule A property?

¶107

The contention of the applicant is that the Applicant has never executed any loan documents for the loan availed by M/s Taj Enterprises, as well as disputed that no such M/s Taj Enterprises has exist in the market, so requested the respondent bank to take action against the borrower and return of the Original Document. The respondent bank committed grave error in sanctioning and disbursing the loan to a unit who has no existence and in order to grab the property without any security interest, the respondent bank taking action against the applicant.

¶108

The contention of the Respondent Bank is that t he secured interest has been created over the property of the appellant as the appellant was the Co-Obligant/Guarantor in the loan availed by M/s. Taj Enterprise. M/s. Taj Enterprise, a proprietorship concern, represented by it’s proprietor, Mohammad Sajid approached the bank for availing Overdraft loan to the tune of Rs.25,00,000/- in order to

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meet working capital requirements vide it’s loan application dtd. 04.03.2017. Along with the said loan application, the said borrower had submitted the required documents and filled up the necessary columns of the said application from. In the said loan application the borrower had categorically mentioned the property of the appellant to be mortgaged before the bank for availing the said loan. At the time of sanction of the loan in favour of the borrower by the bank, the appellant who is none other than the brother of the borrower had executed several loan and security documents before the bank. The appellant had executed and submitted Declaration, Consent Letter, Request for Overdraft Facility, Take Delivery Letter Demand promissory Note, Guarantee Letter, Letter dtd. 15.05.2017. Memorandum of deposit of Title Deeds and also signed in the credit sanction Intimation acknowledging receipt of the credit sanction intimation and agreed to abide the terms and conditions of the sanction. Besides that also, the appellant had also submitted the Acknowledgement of Debt on dtd. 31.03.2020 acknowledging the outstanding balance in the loan account of the borrower.

¶111

From the perusal of the Annexure-A series of the counter filed by the Respondent Bank where several documents have been executed by the applicant including deposit of title deeds. As such it is evident that the applicant has created equitable mortgage in favour of the Respondent Bank over the schedule A property for the loan availed by M/s Taj Enterprisers. Accordingly Issue No.(i) is answered.

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Issue no.(ii):- Whether the Respondent Bank has violated the provisions under Rule 8(1) & 8(2) of the SARFAESI Act & Rules?

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The contention of the applicant is that i n the Objection, the Respondent Bank has annexed the paper publication of the Possession

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Notice in just one paper. No annexure is available showing fixation of the said Notice in the most conspicuous part of the property and Annexure-B is showing the paper publication of the Notice in some local newspaper, while the statute clearly says that the possession notice shall also be published in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorized officer. The Respondent Bank has acted contrary to the statute.

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Rule 8(1) and rule 8(2) of the statute, i.e. Security (Interest) Enforcement Rules, 2002, clearly speak the manner of issuance and service of the Possession Notice U/s.13(4) of the SARFAESI Act, 2002. The service of the Possession Notice is not in accordance with the mandatory provisions of the Statute.

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The contention of the Respondent Bank is that the possession notice has also been published in two leading Newspapers, one in vernacular language and the other in one National Newspaper.

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From the perusal of the counter and additional counter filed by the Respondent Bank it is seen that Annexure-B annexed to the counter is the Newspaper publication in vernacular language and no Newspaper publication in English has been filed. But during the course of argument on 15.05.2025 Respondent Bank has filed copy of the two Newspaper publications one in Odia and another in English. As such the Respondent Bank has not violated Rule 8(2) of Security Interest (Enforcement) Rules, 2002. But the Respondent Bank has not filed any proof showing fixation of the said Notice in the most conspicuous part of the property. As such Respondent Bank has violated Rule 8(1) of Security Interest (Enforcement) Rules, 2002. Accordingly issue No.(ii) is answered . Issue no.(iii):- Whether the Respondent Bank has violated Rule 8(6) of the Security Interest (Enforcement) Rules, 2002?

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The contention of the applicant is that the secured creditor has to issue the notice under Rule 8(6) by giving 30 days time period for redemption of the mortgaged property. After complying with the same, hen only bank can proceed by issuing the notice under rule 9(1) for sale of the immovable assets. In this instant case, the bank has directly issued the sale notice without service the notice under Rule 8(6) giving 30 days time period.

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The contention of the Respondent Bank is that the Respondent Bank put the mortgaged property for auction sale on 24.08.2022 without issuing the clear cut 30 days notice as per Rule 8(6) of the SARFAESI Rules, as the notice as received by the applicant on 30.07.2022.

¶122

From the perusal of the postal receipt filed by the Respondent Bank it is evident that the Respondent Bank has send the notice on 22.07.2022 but no proof of service has been filed regarding service of notice on the applicant. As such it cannot be said that the notices have been served on 30.07.2022 giving clear 30 days period. Accordingly Issue No.(iii) is answered .

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Issue No.(iv): Whether the valuation of the property has been made properly before fixing the reserve price?

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The contention of the applicant is that the Authorised Officer has undervalued the property and sold it at a throw away price to a single bidder. In the sanction letter dated 17.03.2017 relied by the bank, the price of the property is indicating to be Rs.44,08,000/- but it is difficult to understand that how and under what circumstances, the value of the property has been depreciated while fixing the reserve price at Rs.43,83,000/-.

¶125

The contention of the Respondent Bank is that the Respondent Bank has never sold the property at throw away price and the Bank has no intention to grab the property. The auction was made on the fixed date and the highest bidder became the highest bidder in the said auction. The bidder deposited the auction amount before the bank and after receipt of the entire money the Bank has issued the sale certificate.

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From the perusal of the record it is seen that the Bank has not filed proof regarding valuation of the property before putting the property into auction. It is a fact that the value of the property has been fixed at Rs.43,83,000/- which is less than the value obtained at the time of sanction of the loan i.e. Rs.44,08,000/- which shows that the Bank has not valued the mortgage property properly before putting the property into auction. Accordingly Issue No.(iv) is answered .

¶128

Issue No.(v): Whether the applicant is entitled to the reliefs as

¶129

claimed?

¶130

In view of the aforesaid facts and circumstances of the case and the issues already answered in the preceding paragraphs and the decisions relied on by the applicant, Respondent bank and the Respondent No.4, this Tribunal is of the view that the Respondent Bank has violated Rule 8(1), Rule 8(6) and also 8(5) of Security Interest (Enforcement), Rules, 2002. Hence possession notice under Section 13(4) dated 08.02.2022 and so also sale notice dated 21.07.2022 are hereby quashed. Accordingly

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Issue No.(v) is answered.

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O R D E R

¶133

In the result, S.A. No.44 of 2022 filed by the applicant is hereby allowed and possession notice under Section 13(4) dated 08.02.2022 and so also sale notice dated 21.07.2022 are hereby quashed. Respondent Bank is directed to refund the amount deposited by the auction purchaser(Respondent No.4) along with interest @7% within 30 days from the date of this order. Applicant is directed to deposit the auction amount of Rs.43,93,000/- deposited by the Respondent No.4 along with interest @7% with the Respondent Bank within 30 days from the date of this order so as to enable the Respondent Bank to refund the said auction amount along with interest. Registry is directed to return the DDs of 44.00 lakhs lying before the Registry to the applicant within 15 days from the date of this order so as to enable the applicant to deposit the auction amount with interest@7% p.a.

¶134

Since the main SA is disposed of, hence all the IAs, pending, if any, stands disposed of and interim order, if any, stands vacated.

¶135

Let a copy of this order be supplied to the parties forthwith as per rules.

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Let the file of SA No.44 of 2022 be consigned to the record room. This order is dictated and corrected by me and pronounced in the open Court under my signature, this the 24^th day of June, 2025.

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(Jitendra Prasad Singh) Presiding Officer.

Md Kayum v. Karnataka Bank Limited

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Md Kayum v. Karnataka Bank Limited

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