Allowed

K Kandaswamy v. Canara Bank

DRT23 Mar 2026SA/481/2024

Case brief

AI extract

What is this about?

This deed recovery tribunal allowed the tenant's application challenging the possession notice under the SARFAESI Act. The court held that while the applicant was a guarantor and mortgagor for two specific loan facilities, the bank could not proceed to take possession against the encumbered property for outstanding dues relating to other loan accounts lacking such security.

What did the court decide?

The possession notice dated 25.06.2024 is set aside. Liberty is granted to the respondent bank to proceed further in accordance with the law.

K Kandaswamy versus Canara Bank — Contract and Commercial Disputes | DRT (2026)

SA No.481/2024

23.03.2026

IN THE DEBTS RECOVERY TRIBUNAL-III, CHENNAI

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Dated this the 23^rd day of March, 2026

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Present: SMT. S.V. GOWRAMMA Presiding Officer

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SARFAESI APPLICATION No. 481 of 2024

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Mr. K. Kandaswamy, S/o Kannan, No.40, Second Cross Street, Kurinji Nagar, Lawspet, Pondicherry – 605 008. …Applicant

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-Vs-

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The Authorised Officer, Canara Bank, Reddiyarpalayam Branch, No.5, Villupuram Main Road, Pavazha Nagar, Reddiyarpalayam, Puducherry – 605 010. …Respondent

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Counsels on record / appeared:

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Counsel for Applicant : M/s. J. Prince Counsel for Respondent : Mr. S. Parthasarathy

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ORDER ON SA 121 /2024

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The present Securitization Application [SA] is filed under sub section [1] of S.17 of the Securitization and Reconstruction of Financial Asset and Enforcement of Security Interest Act,2002 (for short the ‘Act’) challenging

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the action and the measure taken by the secured creditor under the Security Interest Enforcement Rules, 2002 [for short the Rules].

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The applicant has challenged the Possession Notice dated 25.06.2024 and the outstanding amount due as per Possession notice is

Rs.1,59,15,826.34/-

SA No.481/2024

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3. Pleadings of the applicant:

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3.1 M/s. Grand Home Foods is the borrower, who has availed a sum of Rs.10 lakhs for the OD facility and Rs.60 lakhs for MSME TL in the year of 2022 to which the Applicant is the guarantor and mortgaged the property and executed of all the loan documents favoring the bank. It is contended that respondent bank has enforced the security interest without registering the mortgage before the Central Registry and has invoked the SARFAESI Act inspite of regularly repaying the loan without any default. The respondent has issued the demand notice dated 04.01.2024 under Section 13(2) calling upon to pay a sum of Rs.1,49,26,424.32/- which is not served to the applicant, however the respondent bank officials handed over the notice to the applicant.

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3.2 In 13(2) demand notice it is specifically mentioned that the applicant is guarantor who had offered only to the two facilities OD 125002563870 and TL 170005596615 facility and the bank has claimed the outstanding amount inclusion of some other alleged facilities availed by the borrower to which the applicant never stood as the guarantor.

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3.3 The bank has issued the possession notice on 25.06.2024 which is not served to all the parties the applicant challenged before this Hon’ble Tribunal vide SA No. 280 of 2024.

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3.4 The bank has issued the demand notice dated 22.04.2024, has charged heavy interest and have capitalized the penal interest as against the legal pronouncement of the Apex Court and RBI guidelines. Bank has

SA No.481/2024

23.03.2026

not produced comprehensive bank statement of accounts, even after the demands made by the applicant has not rendered the statement of account.

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3.5 In the grounds, it is contended that the classification of the account as NPA is without any basis and against the RBI norms. The bank without serving the notices cannot initiate further. The possession notice is not delivered to all the parties, nor publish in two newspapers nor affixed and without following the rule 8(1) has proceeded further. Hence, the applicant prays to set aside the possession notice.

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4. Objections of the respondent bank:

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4.1 The Respondent bank has filed the detailed counter contending that the applicant borrowed term loan of Rs.60 lakhs, overdraft of Rs.40 lakh another term loan of Rs.10 lakhs on various dates and executed all the loan documents.

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4.2 The applicant has signed as guarantor and mortgaged the property as collateral security and also executed the personal Guarantee to the repayment of loan availed by M/s Grand Home Foods represented by its Proprietrix, Mrs. K.R.Latha.

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Sl. No.	Nature Facility	Sanction Date	Amount (in Lakhs)	Outstanding in (Rs.)	As on
1.	Term Loan	19.07.2022	60.00	Rs.63,63,519/-	04.10.2024
2.	Overdraft	19.07.2022	40.00	Rs.45,16,816/-	10.10.2024
3.	Term Loan	15.03.2022	10.00	Rs.8,33,178/-	21.09.2024

SA No.481/2024

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Total	Rs.1,17,13,513/-

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4.3 The applicant has created equitable mortgage by way of Memorandum of Deposit of Tittle Deeds registered as document no.23895 of 2022 dated 29.06.2022 as the applicant was irregular in making payment the loan account is classified of NPA as per the guidelines the demanding the total outstanding amount of Rs.1,17,13,513/- as on 10.10.2024. The respondent has issued the Demand Notice dated on 22.04.2024 which was sent RPAD to the borrower which is acknowledged on 27.04.2024 and the cover returned as unserved as unclaimed, hence, notice is published in newspaper having enough circulation in the region on 24.04.2024. Further, the demand notice was affixed in a conspicuous place of the secured asset and the bank have complied with the issuance of the Section 13(2) notice.

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4.4 Applicant failed to discharge the liabilities in full within the period of 60 days, neither rendered any objection to the S.13(2) demand notice. Hence, the bank issued the possession notice dated 25.06.2024 which is sent by registered post on 26.06.2024 which was served on the borrowers and the notice sent to the applicant returned unserved within endorsement un claimed, the possession notice is affixed on the conspicuous place of the property and the photograph depicts in the same. Further, the possession notice is published in English and Tamil dailies on 27.06.2024 and the security interest is registered with a central Registry in accordance with the provision under Section 2 (o) of the SARFAESI Act.

SA No.481/2024

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4.5 The contention account is not classified as NPA as the classification

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of the account as NPA as per Section 2(o) of the Act and also as per the RBI guidelines.

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4.6 Applicant had filed stay application in IA 1359/24 and the Tribunal granted interim order directing applicant to deposit 10% of the actual due within one week and equal sum deposited another 30 days and the noncompliance of these conditions delivered the no stay.

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4.7 However, the applicant not complied with the Interim order and the appeal is liable to be dismissed as the bank has not followed the measures, prays for dismissal of the SA.

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Heard both sides of the Counsels and perused the records of the case.

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5.1 It is manifest from the records that M/s Ground Home Foods is the borrower represented by its Proprietrix Mrs. K.R.Latha and the applicant Mr. K.Kandaswamy, is the guarantor to the OD A/c. No.125002563870 and TL A/c No.170005596615.

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5.2 Applicant has challenged the Section 13(4) notice on two grounds contending that he had stood as guarantor and mortgaged the property as security towards the OD and the Term loan account only. However, the bank has claimed the total outstanding of the loan availed by the borrower is Rs.1,55,76,315.34/-.

SA No.481/2024

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5.3 It is seen in the Section 13(2) demand notice there are 5 loans as follows:

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i. MSME OD/OCC in A/c. No.125002563870 for amount of Rs.40,00,000/- sanctioned on 26.08.2022.

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ii. MSME TL in A/c. No.170004312080 for amount of Rs.10,00,000/sanctioned on 17.03.2022.

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iii. MSME TL in A/c. No.170005596615 for amount of Rs.60,00,000/sanctioned on 03.08.2022. iv. MSME OD/OCC in A/c. No.125003334581 for amount of Rs.10,00,000/-sanctioned on 05.01.2023.

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v. MSME TL in A/c. No.170006963477 for amount of Rs.35,00,000/sanctioned on 21.12.2022.

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and the total outstanding demand is made to all the 5-loan account.

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5.4 The present SA is filed by the guarantor/mortgagor who has stood as guarantor only for the OD facility and the term loan facility. Further there is no dispute with regard to the applicant as being the guarantor and the mortgagor to the credit facility of Term Loan of Rs.10,42,000/- and OCC which ODBD of Rs.40,00,000/- total into Rs.50,42,000/-. The bank has produced the MOTD dated 29.07.2022 at Page No.58 to 65, where it clearly reflects that the applicant has stood as guarantor and mortgager only to the Term Loan and OCC and executed equitable mortgage of the schedule property in favour of the respondent bank by way of Memorandum of Deposit of Title Deeds.

SA No.481/2024

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5.5 It is seen from MOTD that the property mortgaged is a Re-Survey No.312/6 and an area of 2775 sq. ft. out of which 1/3^rd entitled measuring along with the hence first floor 1646 sq.ft, is mortgaged favouring the respondent bank in the description.

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5.6 Though the applicant has raised contention that the mortgage is not registered with Central Registry, the contention is countered by the respondent bank that the security interest is registered before the Central Registry has failed to produce the registration of the charge before the Central Registry.

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5.7 On perusal of Sanction Letter dated 19.07.2022 produced by respondent bank at Page 8 of typed set of documents under the column CGTMSE, it is mentioned as follows:

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“As per Cir 163/2020, “when the borrower provides EMT of title

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deeds of property to the extent of 60%, obtention of CGTMSE cover may be waived”. Since the collateral comfort by the way of EMT available is 50.42%, hence the uncovered portion of the limit should be covered under CGTMSE under Hybrid model”.

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Branch to cover the residual portion of Rs.49.58 lakhs (out of total exposure of Rs.100.00 lakhs) in the proposed limit to be covered under CGTMSE -Hybrid model and to ensure CGPAN No. of the company to be obtained.

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The split up details based on the security provided and CGTMSE hybrid model against the total exposure is computed as below:

SA No.481/2024

23.03.2026

S.No.	Particulars	Total Exposure	Exposure to	be covered with
			EMT Property	CGTMSE Hybrid model
1.	Term Loan Exposure	Rs.60.00 Lakhs	Rs.10.42 lakhs	Rs.49.58 lakhs
2.	OCC / ODBD Exposure	Rs.40.00 Lakhs	Rs.40.00 lakhs	NA
	Total Exposure	Rs.100.00 lakhs	Rs.50.42 lakhs	Rs.49.58 lakhs

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5.8 From the above, it is evident that the applicant had extended his property as mortgage only for Term Loan of Rs.60 lakhs and OCC Limit of Rs.40 lakhs availed by M/s Grand Home Foods represented by its Proprietrix Latha KR. Although the respondent bank in the Section 13(2) Demand Notice had mentioned the same, had issued the Section 13(4) Possession Notice dated 25.06.2024 including the account of M/s Mila Café, represented by its Proprietrix, Latha KR, for which the applicant / mortgagor has not extended his property as security.

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5.9 As there is no mortgage created by the applicant for all the loan availed by the borrower and evidently the mortgage is for OD and term loan facility and not to the other credit facilities mentioned by the respondent bank in the S.13(4) Possession Notice which are pertaining to the credit facilities availed by Ms. Latha as Proprietix of M/s Mila Cafe.

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5.10 The S. 13(2) demand notice was duly sent to the applicant as seen from RPAD and the notice sent to the applicant returned unclaimed, hence as per the procedure bank have published the demand notice in the English and Tamil newspaper as per Page No.35 and 36 of respondent’s counter. The S.13(2) demand notice is affixed on the property as per the photograph

SA No.481/2024

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produced page 37 and 38, which evidences the affixture photograph taken on 22.04.2024. Thus, the respondent has established the due service of the S.13(2) demand notice to the borrower and the guarantor as required under the Act.

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5.11 In spite of receipt of the S.13(2) demand notice neither the borrower nor the guarantor liquidated the liability, hence the bank has proceeded and issued 13(4) Possession notice to the borrower and the guarantor and the notice sent to the borrower represented by proprietrix Mrs. Latha, who has received the same, as per the acknowledgment card produced Page No.42 and 43 and the notice sent to the applicant herein has returned as ‘unclaimed’, however the applicant had produced the Possession Notice in his SA. The respondent bank had also published the Possession Notice in two newspapers English and Tamil as per page 46 and 47 and also affixed on 25.06.2024 in the conspicuous place the schedule property as per photograph of affixture produced at Page 48 and 49. Hence, the respondent bank has issued the S.13(4) Possession Notice as mandated under the Act and have established the due compliance of the procedures in issuing the statutory notices.

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5.12 The applicant had sought for the statement of the account of the loan account which is produced by the respondent bank at Page 68 to 70. On perusal of the documents, it is evident that the applicant is mortgagor and guarantor had mortgaged the property only for the two loan accounts OD A/c. No.125002563870 and TL A/c No.170005596615 and the bank has

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failed to produce any document to support their contention that the

SA No.481/2024

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applicant has mortgaged property or extended the mortgage to all the loan accounts of the borrower. The respondent bank failed to counter the said contention of applicant in the counter or at the time of arguments. Therefore, the respondent bank cannot proceed against the secured asset for the outstanding due in all the loan accounts of the borrower, but only to the extent of outstanding in two loan accounts being the OD and term loan facility as per MOTD.

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5.13 Thus, it is evident the secured creditor has initiated measures in enforcing the secured asset created for OD and Term Loan facility but has claimed the outstanding due for all the loans availed by Mrs. Latha, Proprietrix of M/s Grand Home Foods & M/s Mila Café, and are enforcing the security to all the loans, where there is no mortgage extended to the other facilities availed by the borrower. Though the demand made is for the total outstanding due in all the loan accounts of the borrower, the respondent cannot proceed with the present Possession Notice for taking symbolic possession of the property for all the loan facilities availed by the borrower.

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For the foregoing reasons, SA stands allowed. Possession Notice dated 25.06.2024 is hereby set aside. However, liberty be with respondent bank to proceed further in accordance to law.

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Interim Order granted, if any stands vacated. Pending IAs, if any are disposed of in terms of this final order. No order as to cost.

SA No.481/2024

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A copy of this order be communicated to the parties concerned.

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Sd/- (S.V. GOWRAMMA) PRESIDING OFFICER, DRT-III, CHENNAI

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(Dictated to Steno (Arti), transcribed by her, corrected, signed and pronounced by me on this the 23^rd day of March, 2026)

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ANNEXURES

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LIST OF DOCUMENTS PRODUCED BY THE APPLICANT

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Sl.	Description of Documents	Document
No.		No.
1.	SARFAESI Application dated 20.07.2024	A-1
2.	Impugned Possession Notice dated 25.06.2024	A-2
3.	Vakalat dated 20.07.2024	A-3

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LIST OF DOCUMENTS PRODUCED BY THE RESPONDENTS

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Sl. No.	Description of Documents	Document No.
I	Counter Affidavit dated 14.10.2024	R-1
1.	Sanction Letter dated 19.07.2022	R-2
2.	Demand Notice issued under Section 13(2) of the Act dated 22.04.2024	R-3
3.	Acknowledgement of the Borrower	R-4
4.	Returned Cover of the Applicant as unclaimed dated 04.05.2024	R-5
5.	Paper Publication in Tamil and English dated 24.04.2024	R-6
6.	Affixing of Demand Notice-Photographs	R-7
7.	Possession Notice issued under Rule 8(1) dated 25.06.2024	R-8
8.	Postal Receipts and Acknowledgement cards dated 26.06.2024	R-9
9.	Returned Cover of the Application as unclaimed dated 28.06.2024	R-10

SA No.481/2024

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10.	Paper Publication in Tamil and English dated 27.06.2024	R-11
11.	Affixing of Possession Notice–Photographs	R-12
12.	Settlement Deed stands in the name of 2^nd Defendant in Document No.18621 of 2022 dated 16.06.2022	R-13
13.	Memorandum of Deposit of Title Deeds in Document No.23895 of 2022 dated 29.07.2022	R-14
14.	Statement of Account for Loan A/c. No. 170005596615 along with Certificate under Bankers’Book Evidence Act dated 04.06.2024	R-15
15.	Statement of Account for Loan A/c. No. 125002563870 along with Certificate under Bankers’Book Evidence Act dated 31.05.2024	R-16
16.	Statement of Account for Loan A/c. No. 170004312080 along with Certificate under Bankers’Book Evidence Act dated 21.06.2024	R-17

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SCHEDULE OF PROPERTY

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All part and Parcel of the Land and Building in Puducherry Reg. District, Outgarpet Sub Reg. District, Oulgapet Commune Panchayat, Saram Revenue Village, Venkata Nagar, Re-Survey No.312/6, Cad No.292/2, Plot No: 14, Old Door No.7, New Door No.65

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Extent of Area

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East – West : 37 feet South – North : 75 feet Total Area : 2775 square feet in the One-Third undivided share measuring 925 Square feet along with house in first floor plinth area measuring 1646 Sq.ft.

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Boundaries:

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East of Plot No : 15 West of Plot No : 13 South of Vallalar street

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North of Plot No : 7 and 8

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Sd/(S.V.GOWRAMMA) PRESIDING OFFICER, DRT-III, CHENNAI

K Kandaswamy v. Canara Bank

Case brief

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K Kandaswamy v. Canara Bank

Case brief

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