Dismissed

Maninder Kaur and Another v. Au Small Finance Bank Limited and Others

DRT24 Jun 2026SA/165/2026

Case brief

AI extract

What is this about?

The Debt Recovery Tribunal dismissed the security application filed by guarantors challenging bank possession proceedings. The court found no illegality in the bank's enforcement actions, affirming the co-extensive liability of guarantors and finding the notices and registry compliance sufficient on the facts.

What did the court decide?

The security application was dismissed; no other illegalities were found in the bank's arrest of possession.

Maninder Kaur and Another versus Au Small Finance… — Contract and Commercial Disputes | DRT (2026)

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DEBTS RECOVERY TRIBUNAL-III, CHANDIGARH

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ITEM NO. 13

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SA/165/2026 MANINDER KAUR AND ANOTHER Vs. AU SMALL FINANCE BANK LIMITED AND OTHERS

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24.06.2026

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Present: Sh. Arpit Chawla, Advocate for Applicants Sh. K.P.S. Dhillon, Advocate for Respondent No.1 (through VC)

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None for Respondent Nos. 2 to 5

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Affidavit of service filed by applicants in compliance of order dated 17.06.2026 today vide diary No. 11314, which shows that service is sufficient upon respondent Nos. 2 to 5 through publication.

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None is present on behalf of respondent Nos. 2 to 5 despite repeated calls. Therefore, proceeded ex parte against respondent Nos. 2 to 5. Today is fixed for disposal of IA No.1104/2026.

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Sh. Arpit Chawla, Advocate submitted that this IA was moved by applicants for staying and setting aside letter dated 12.06.2026, whereby possession of the secured asset is fixed for 29.06.2026.

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Sh. Arpit Chawla, Advocate further submitted that since reply to SA was already filed by respondent No.1, therefore arguments may be heard on SA. Not opposed by respondent No.1.

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With the consent and request, heard arguments on SA and perused record.

¶12

It was stated in the application that respondent No.1 has wrongly and falsely alleged that the subject property stands mortgaged in its favour, whereas, no equitable mortgage was ever created by applicants in favour of respondent No.1 at any point of time; that applicants are residents of Zirakpur, District Mohali, Punjab and applicant No.1 is the lawful owner of the subject property; that respondent Nos. 2 to 5 are the tenants of the applicants; that on 21.07.2025, applicants were shocked to receive a notice dated 21.07.2025 issued by respondent No.1 claiming it to be pre-SARFAESI notice and further claiming that the subject property stood mortgaged with respondent No.1 in a loan facility availed by respondent Nos. 2 to 5; that applicants had lodged formal police complaint against respondent Nos. 2 to 5 on 25.10.2025 before police authorities, apprising them of the entire sequence of events, including the theft of original title deeds by respondent Nos. 2 to 5 and the creation of forged and fabricated documents in relation to the alleged mortgage, purportedly executed in connivance with the officials of respondent No.1; that the said complaint is pending as on date;

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SA/165/2026 MANINDER KAUR AND ANOTHER Vs. AU SMALL FINANCE BANK LIMITED AND OTHERS

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that respondent No.1 had issued notice under Section 13(2) of the Act dated 15.11.2025 (Annexure A-3); that applicants had raised objections to the said notice, under Section 13(3-A) of the Act on 05.12.2025 contending that no loan or security documents had ever been signed or executed by them in respect of the credit facilities allegedly availed by respondent Nos. 2 to 5; that respondent No.1 without duly considering or dealing with the objections, sent reply on 18.12.2025 along with copies of Deed of Guarantee and Mortgage Deed both dated 30.10.2022 on the basis of which it purported to claim a charge over the subject property; that applicants once again submitted their detailed objections dated 19.01.2026 contending that the alleged equitable mortgage was a product of fraud and was neither validly created nor legally enforceable; that once again, respondent No.1 in a wholly arbitrary and mechanical manner, rejected the objections of the applicants without any proper application of mind or adherence to settled legal principles vide its reply dated 04.02.2026; that thereafter on 08.04.2026, applicants were shocked to receive notice dated 08.04.2026, which was affixed by the recovery agents of respondent No.1 vide which it was claimed that the Receiver pursuant to the impugned order dated 10.03.2026 obtained under Section 14 of the Act from the Ld. CJM would take the physical possession of the subject property on 01.05.2026; that from the application filed under Section 14 of the Act, applicants became aware of the fact that respondent No.1 was claiming to have issued possession notice under Section 13(4) of the Act dated 09.02.2026; that the said possession notice was never served upon applicants as per Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as ‘Rules’ for brevity); that there is no proper registration of security interest under the Central Registry as per Section 26-D of the Act; that all the actions taken by respondent No.1 under the Act are in violation of the provisions of law. Therefore, it was prayed that present SA may kindly be allowed.

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Reply filed by respondent No.1.

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It was stated in the reply that loan facility by way of OD limit of Rs. 51 Lacs was sanctioned vide sanction letter dated 25.12.2021, which was subsequently enhanced to Rs.101 Lac vide sanction letter dated 18.10.2022, which was further enhanced to Rs.170 Lac vide sanction letter dated 27.12.2022; that an additional Term Loan of Rs.12.77 Lacs was sanctioned vide sanction letter dated 13.01.2023 to Firm M/s R.D. Ceramics/respondent No.2 in which applicant No.1 stood as mortgagor/guarantor and applicant No.2 is the guarantor; that Firm is a partnership firm comprising of its two partners respondent Nos. 3 & 4 and in addition respondent Nos. 4 & 5 are the guarantors and mortgagors too; that loan facility was secured against immovable properties owned by applicant No.1 in addition to respondent Nos. 4 & 5; that Memorandum of Deposit of Title Deeds along with declaration dated 30.10.2022 was executed by applicant No.1; that Memorandum regarding extension of previous mortgage by Deposit of

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SA/165/2026 MANINDER KAUR AND ANOTHER Vs. AU SMALL FINANCE BANK LIMITED AND OTHERS

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Title deeds along with declaration dated 29.12.2022 was also executed by applicant No.1; that applicants being guarantors had executed Deed of Guarantee dated 29.12.2022 for securing the total facilities sanctioned to respondent No.2 firm to the tune of Rs.182.77 Lacs; that the present SA has been instituted by the guarantors and mortgagors in their individual capacity however it is settled proposition of law that the liability of the surety is coextensive with that of the principal borrower; that property in question under challenge in this SA is duly registered with the Central Registry as per Section 26-D of the Act; that due to defaults committed, the loan account of respondent No.2 was classified as NPA on 29.10.2025 and notice under Section 13(2) of the Act dated 15.11.2025 demanding a sum of Rs.1,91,16,748/- due as on 13.11.2025 was issued, which was duly served upon applicants; that applicants asserted regarding filing of complaint with the SSP Mohali, which was allegedly filed on 25.10.2025; that bare perusal of the said report reveals that there is no allegation against the bank as it has been asserted by the applicants that the borrowers have defrauded the applicants and also the bank; that in fact, filing of the alleged complaint only came into being after receipt of the legal notice dated 21.07.2025 with the SA, which further strengthens the fact that the applicants are only blowing hot and cold in the same breath as at no point of time they ever raised any protest as is now being raised in the present SA for the very first time; that respondent No.1 duly considered the objections of the applicants and disposed off the same by applying due application of mind vide a wellreasoned and speaking reply dated 18.12.2025 (Annexure A-5); that however, again 2^nd set of objections dated 19.01.2026 was preferred by applicants, though respondent No.1 was not under any statutory obligation to respond to 2^nd set of objections yet it responded to the same with due application of mind and disposed off the same vide its reply dated 04.02.2026 (Annexure A-7); that thereafter, since the 60 days time after issuance of notice under Section 13(2) of the Act had already lapsed and the amounts demanded in the said notice was not tendered, therefore respondent No.1 had issued notice under Section 13(4) of the Act dated 09.02.2026 taking over symbolic possession of the secured assets including the one owned by applicant No.1; that the said notice was duly served upon applicants through registered post, through affixation as well as through publication; that thereafter, respondent No.1 obtained the permission under Section 14 of the Act from Ld. CJM, SAS Nagar, Mohali vide order dated 10.03.2026; that in pursuance to the said order, Sh. Sonu Singh Rana, Advocate was appointed as Receiver to take possession, who issued notice dated 08.04.2026 intimating the date fixed for taking over possession on 01.05.2026; that it was only after receipt of the said notice the present SA has been filed on 16.04.2026 by applicants; that all the actions taken by respondent No.1 under the Act are in accordance with law and there is no

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SA/165/2026 MANINDER KAUR AND ANOTHER Vs. AU SMALL FINANCE BANK LIMITED AND OTHERS

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illegality in it. Therefore, it was prayed that present SA may kindly be dismissed.

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No replication was filed by applicants to the reply filed by respondent No.1.

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It was argued by Sh. Arpit Chawla, Advocate that respondent No.1 has wrongly and falsely alleged that the subject property stands mortgaged in its favour. It was further argued that no equitable mortgage was created by applicants in favour of respondent No.1 at any point of time

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Per contra, Sh. K.P.S. Dhillon, Advocate argued that credit facility was availed by respondent Nos. 2 to 5 and the same was enhanced several times. It was further argued that applicants are guarantors and mortgagors in the said credit facility and property of applicants was also mortgaged as guarantors. It was further argued that in fact, original title deeds of the property in question is with the respondent No.1, therefore it is incorrect to say that no mortgage was ever created. It was further argued that Memorandum of Deposit of Title Deeds along with declaration executed by applicant No.1 dated 30.10.2022 is annexed as Annexure R-2 (Colly) and Memorandum regarding extension of previous mortgage by Deposit of Title Deeds alongwith declaration executed by applicant No.1 is annexed as Annexure R-3 (Colly).

¶24

During the course of arguments, it was admitted by Sh. Arpit Chawla, Advocate that the original title deeds of the property in question is with bank. In fact, the documents relied upon by respondent No.1 i.e., Memorandum of Deposit of Title Deeds alongwith declaration executed by applicant No.1 (Annexures R-2 & R-3 (Colly)) were not disputed by applicants rather it was submitted that signatures on the said documents are forged and fabricated. The said statement of learned counsel for applicants is not believable because when the original title deeds of the property in question is with the bank then it cannot be said the signatures annexed/affixed on the documents are forged/fabricated. Applicants have stated in the application that the title deeds were stolen by respondent Nos. 2 to 5 but during the course of arguments, Sh. Arpit Chawla, Advocate argued that the title deeds were handed over by applicants to respondent Nos. 2 to 5 because respondent Nos. 2 to 5 (tenants) needs the title deeds to verify the title of applicants over the property in question.

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In the considered opinion of this Tribunal, the contradictory submissions and statement in the SA shows that this cock and bull story was prepared after the dispute arised regarding payment of loan. No specific date and place was mentioned either in the SA or in the police compliant as to on which date and from which place the title documents were stolen by respondent Nos. 2 to 5. In absence of such vital fact, prima facie it cannot be relied that the documents were stolen by respondent Nos. 2 to 5.

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SA/165/2026 MANINDER KAUR AND ANOTHER Vs. AU SMALL FINANCE BANK LIMITED AND OTHERS

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It was further argued by Sh. Arpit Chawla, Advocate that applicants are guarantor and mortgagor and not actual borrower, therefore respondent No.1 cannot recover the loan from applicants without attempting to recover loan from actual borrower and respondent No.1 was supposed to proceed against the principal borrower first.

¶28

Per contra, Sh. K.P.S. Dhillon, Advocate argued that as per Section 128 of the Indian Contract Act, 1872 the liability of guarantor is co-extensive with that of the principal borrower.

¶29

Since the liability of borrower and guarantor is co-extensive therefore, applicants are not free to take a plea that respondent No.1 should proceed against the principal borrower first to recover the loan. In fact, respondent No.1 can very well proceed for recovery of loan against the borrower or guarantor or simultaneously as per its choice.

¶30

It was further argued by Sh. Arpit Chawla, Advocate that no notice under Section 13(4) of the Act dated 09.02.2026 was served upon applicants as per Rules.

¶31

Per contra, Sh. K.P.S. Dhillon, Advocate argued that possession notice under Section 13(4) of the Act dated 09.02.2026 was duly served upon applicants as per Rules. It was further argued that the said notice was served through registered post, through affixation as well as through publication in the newspapers as per Rules and copies of the same are annexed as Annexure R-7 to the reply.

¶32

Copy of possession notice dated 09.02.2026, receipts of registered post, photographs of affixation and newspaper publications i.e., one in Yugmarg (English) and one in Punjabi Tribune (Punjabi) are annexed as Annexure R-7 to the reply.

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In light of above factual position and evidences on record, this Tribunal is of the considered opinion that the possession notice was prepared and served upon applicants as per Rules. Nothing is on record which can show that possession notice was defective or not served according to Rules. Except it, it reveals from record that notice under Section 13(4) of the Act was issued and sent on the same address as was mentioned in the notice under Section 13(2) of the Act. As discussed above notice under Section 13(2) of the Act was duly served upon applicants and applicants had also moved representations under Section 13(3-A) of the Act, therefore it may safely presumed that notice under Section 13(4) of the Act was also received by applicants through registered post.

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It was further argued by Sh. Arpit Chawla, Advocate that property in question belongs to applicants was not registered by respondent No.1 with the Central Registry as per Section 26-D of the Act.

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Per contra, Sh. K.P.S. Dhillon, Advocate argued that respondent No.1 has duly created its charge over the property in question as per Section 26D of the Act and copy of CERSAI Registration Certificate is annexed as Annexure R-5 to the reply.

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SA/165/2026 MANINDER KAUR AND ANOTHER Vs. AU SMALL FINANCE BANK LIMITED AND OTHERS

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Copy of CERSAI Registration Certificate (Annexure R-5) shows that property in question was duly registered with the Central Registry as per Section 26-D of the Act and there is no illegality in it.

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It was further argued by Sh. Arpit Chawla, Advocate that application under Section 14 of the Act is dated 21.02.2026 while the affidavit in support of it has been attested only on 20.02.2026, therefore the order dated 10.03.2026 passed by Ld. CJM in a completely arbitrary and mechanical manner is liable to be set aside.

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Per contra, Sh. K.P.S. Dhillon, Advocate argued that Ld. CJM has passed order dated 10.03.2026 under Section 14 of the Act with due application of mind and there is no illegality in it.

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In the considered opinion of this Tribunal, as far as date of application under Section 14 of the Act as 21.02.2026 and affidavit dated 20.02.2026 is concerned it is not an illegality because it may be possible that application under Section 14 of the Act was prepared but date was mentioned on the date of filing of it.

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No other point was argued/pressed.

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After considering the above facts, circumstances and hearing the arguments of both the parties, no illegality/irregularity was shown in the proceedings initiated by respondent No.1 against applicants under the Act.

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Therefore, the present SA is liable to be dismissed.

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Accordingly, SA is dismissed. Any other IA pending stands disposed of accordingly.

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Record be consigned to record room after due compliance.

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(MRIDULESH KUMAR SINGH) Presiding Officer DRT-III, Chandigarh

Maninder Kaur and Another v. Au Small Finance Bank Limited and Others

Case brief

What is this about?

What did the court decide?

Maninder Kaur and Another v. Au Small Finance Bank Limited and Others

Case brief

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