1. The Applicant filed the present Securitisation Application under Section 17 of The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002) challenging the proceedings initiated by the Respondent Bank in pursuance of E-Auction Notice dated 07.01.2019 fixing the date of auction on 15.02.2019 issued by the respondent bank against the Securitisation Application scheduled property.
2. The case of the applicants in brief, is that, the respondent no. 3 is a private limited company promoted by Mr. P. Sunil and Smt. P. Kavitha and the applicants have offered their properties as collateral security for the loan facility of the respondent bank. The applicant no. 1 is the owner and possessor of the Application "A" Schedule Property, the applicant no. 2 is the owner and possessor of the Application "B" Schedule Property, the applicant no. 3 is the owner and possessor of the Application "C" Schedule Property and the applicant no. 4 is the legal heir of the Application "D" Schedule Property inherited from her husband Late Jalagam Jagdeeshwar Rao who died on 30.03.2018. The respondent bank has sanctioned Term Loan of Rs. 15.00 crores for setting up a Diary Unit with 1200 cows to respondent no. 3 company. The applicants submit that there were internal disputes between the shareholders and the Directors of the respondent no. 3 company and there was a change in the management of the respondent no. 3 company and Mr. V. Srinivas and Mr. V. Ramesh were inducted as Directors in management. The said change in management was not to the knowledge of the applicants and the respondent bank has accepted the change without intimating to the applicants. The applicants therefore submit that the said course of action is a variance in the terms and conditions and the applicants are discharged from the guarantee and the collateral security is not enforceable for realizations of the alleged outstanding in the loans defaulted by the respondent no. 3 company.
While things stood thus, the respondent bank has issued a demand notice dated 01.01.2018 under Section 13(2) of SARFAESI Act, 2002. The applicants have raised certain objections against the Demand Notice dated 01.01.2018 and the same was acknowledged by the respondent bank. The respondent bank has proceeded to issue a possession notice dated 14.03.2018 and had approached Hon'ble CJM, Karimnagar vide Crl.M.P. No. 64 of 2018 for taking physical possession of the application schedule properties. The respondent bank has issued a E-Auction Sale Notice dated 12.07.2018 fixing the date of auction as 24.04.2018. Against the said measures, the applicants had filed W.P. No. 28854 of 2018 before the Hon'ble High Court of Telangana and the said W.P. was disposed off vide orders dated 23.11.2018. In respect of the Application "D" Schedule property, the owner of the property Sri Jalagam Jagdeeshwar Rao died on 30.03.2018 i.e., after issuance of the demand notice. The respondent bank without issuing a fresh demand notice, issued the present Auction notice which is illegal. Thus, the respondent bank violated rule 8(1), (2), (5), (6) and (7) and rule 9(1) of the Security Enforcement Rules, 2002.
3. Per contra, It is submitted by the respondent bank that at the request of the defendant no. 3, the respondent bank has sanctioned Term Loan of Rs. 15.00 crores and the applicants and other directors offered their personal guarantees and properties as collateral security for the said loan availed by respondent no. 3 company. The respondent no. 3 company failed to repay the loan amount and the loan account was classified as NPA and the respondent bank was constrained to initiate recovery proceedings by issuing a demand notice on 01.01.2018 under sec. 13(2) of the SARFAESI Act, 2002 calling upon the borrowers/guarantors/mortgagors to repay the outstanding loan within the stipulated period of 60 days. The averment that applicants submitted objections to the said demand notice but the bank proceeded to issue Possession Notice dated 14.03.2018 are false and incorrect as no such objections were received by the bank. The respondent bank continued SARFAESI measures by approaching Hon'ble CJM, Karimnagar in Crl.M.P. No. 64 of 2018 for taking physical possession of schedule properties and also for sale of the secured assets and at this stage the applicants approached Hon'ble High Court in W.P. No. 28854 of 2018 which was disposed of vide orders dated 23.11.2018 giving liberty to the respondent bank to proceed by issuing fresh sale notice under rule 9(1) of SARFAESI Rules and accordingly, the respondent bank issued fresh sale notice dated 07.01.2019 slating the auction sale on 14.02.2019. Challenging the said sale notice, the applicants filed the present S.A. and in view of interim conditional order of stay, no auction sale was held. The respondent bank also filed OA 612/2018 and orders were issued on 21.10.2019 in favour of the respondent bank. To drag the proceedings further, the applicants have filed IA no. 352 of 2019 and the Hon'ble Tribunal was pleased to grant interim stay in IA. No. 352 of 2019 on the condition that applicants shall deposit a sum of Rs. 60.00 lakhs with the Hon'ble DRT and in compliance of the said orders, the applicants have deposited Rs. 60.00 lakhs with the Hon'ble DRT.
The respondent bank, therefore, prays that the Hon'ble Tribunal may be pleased to dismiss the S.A. as well as I.A. No. 352 of 2019 and order for releasing the amount deposited by applicants in pursuance of orders dated 13.02.2019 in I.A. No. 352 of 2019 so that the same would be credited to the loan account of the respondent no. 3
4. The points for consideration are as follows:
(i) Whether the E-Auction Sale Notice dated 07.01.2019 fixing the date of auction on 15.02.2019 under challenge are sustainable in law?
(ii) Whether the respondent bank has followed the procedure as contemplated under law?
(iii) Whether the applicant is entitled to the relief sought for in the present SARFAESI Application.
Heard both the parties and perused the material documents filed by them.
It is the contention of the applicant that they stood as guarantors to the credit facilities sanctioned to respondent no. 3. They have not been informed of the changes in Board of Directors of respondent no. 3. The objections raised against the demand notice dated 01.01.2018 were not answered by the respondent bank. The applicants further submit that the respondent bank violated rule 8(1), (2), (5), (6) and (7) and rule 9(1) of the Security Enforcement Rules, 2002. The applicant no. 4 being LR for the Application "D" Schedule Property, no fresh Demand Notice is issued.
Per Contra, the respondent bank filed its counter and filed set of documents denying each and every averment of the applicant herein. The respondent bank submitted that the alleged letter sent by the applicants raising certain objections to the notice dated 01.01.2018 sent under Section 13(2) of the Act was not received by the respondent bank. The respondent bank issued possession notice dated 12.03.2018 under Section 13(4) of the Act much before the death of Sri Jalagam Jagdeshwar Rao who died on 30.03.2018. Since no repayment is forthcoming the respondent bank proceeded further under SARFAESI Act, 2002. The grounds raised by the applicants are not tenable and the respondent bank has strictly complied with the procedure contemplated under the SARFAESI Act and rules made thereunder. Therefore the SA is liable to be dismissed.
Points (i) & (ii).
With regard to first contention of the applicants that they have not been informed of the changes in the Board of Directors, I am of the opinion that the applicants extended their guarantee/mortgage to the respondent no. 3 i.e., a private limited company, which is recognized as a separate legal entity. Hence, change of directors will not amount to discharge of the liability of the guarantors i.e., present applicants.
The respondent bank has filed documents i.e., postal receipts regarding service of possession notice dated 12.03.2018, photographs evidencing affixture of the possession notice, publication in "The Indian Express-English" and "Namaste Telangana-Telugu" both dated 17.03.2018. Thus the respondent bank has demonstrated that it had followed the procedures contemplated under the provisions of the SARFAESI Act and the rules made thereunder.
The applicants contend that the respondent bank failed to reply to the objections of the applicants, hence violated section 13(3A) of SARFAESI Act, 2002. Above contention is already dismissed by Hon'ble High Court of Telangana in Writ Petitions No. 27225 and 28854/18. Relevant extracts of the orders are reproduced below.
"For a Court to appreciate the above contention, the minimum requirement to be satisfied by the petitioners is (1) to plead the date of receipt of the demand notice under Section 13(2) and (2) to plead the date on which objections were raised to the demand notice. But the affidavit in support of the writ petition does not say the date on which the demand notice was received by the writ petitioners. It does not also say the date on which objections were filed to the demand notice. In the material papers filed along with the writ petition, neither a copy of the demand notice nor a copy of the objections nor even a copy of the possession notice under Section 13(4) are enclosed. In fact, the time given to the borrower under Section 13(2) to respond to the demand is only 60 days. Unless the date of receipt of the demand notice and the date of filing of objections is mentioned, it is not possible to test the correctness of the contention regarding non-consideration of objections in terms of Section 13(3A).
Though the petitioners in W.P. No. 28854 of 2018 have not stated the date of receipt of the demand notice, the petitioners in the other writ petition have stated that the demand notice was published on 10.01.2018. Therefore, the period of 60 days would have expired by 11.03.2018, the possession notice is dated 12.03.2018. Actually, the petitioners in W.P. No. 28854 of 2018 have made a very strange claim that the possession notice was dated 14.03.2018. Therefore, it is clear that the Bank issued the possession notice only after 60 days. The obligation to pass orders under Section 13(3A) would arise only if objections are filed within 60 days to the demand notice. In the absence of any specific pleading with respect to (1) the date of receipt of demand notice; and (2) the date of filing of objections, the defence taken in terms of Section 13(3A) is very shallow and cannot be entertained."
From the above it is made clear by the Hon'ble High Court of Telangana that there is no violation of Section 13(3A) of SARFAESI Act, 2002.
Since the mortgagor/guarantor to Application "D" Schedule Property died after service of possession notice dated 12.03.2018, I am of the opinion that the respondent bank is not liable to issue fresh Demand Notice and Possession Notice to respondent no. 4.
However, respondent bank already issued notice to respondent no. 4 as LR in the sale notice, there is no violation of SARFAESI provisions.
The respondent bank submitted proof of publication of E-auction sale notice dated 07.01.2019 in "Indian Express-English" and "Eenadu-Telugu" newspapers on 07.01.2019.
The respondent bank submits that the proposed auction on 15.02.2019 could not take place because of the stay orders granted by the Hon'ble Tribunal. Point No. iii
Since the respondent bank has followed the procedure as contemplated under the Act and the Rules made thereunder, this SARFAESI Application is devoid of any merits and the applicant failed to establish any infirmity in the procedure adopted by the respondent
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bank as secured creditor and hence this SA is liable to be dismissed. 5. In view of the above discussion and facts and circumstances of the case, I find that the Applicants have failed to make out valid grounds for quashing the measures initiated under SARFAESI Act and rules made thereof by the Respondent Bank against the SA Schedule Property as such SA is liable to be dismissed. The respondent bank submits that the proposed auction on 15.02.2019 was not conducted in view of the interim stay orders given by the Hon'ble DRT in IA No. 352 of 2019. Since no cause of action survives, the SA is liable to be dismissed as infructuous. 6. The respondent bank filed Memo dated 16.01.2020 for release of Rs. 60.00 lakhs deposited with the Tribunal as conditional amounts in I.A. No. 352/19. Registry is directed to refund Rs. 60.00 lakhs along with interest to the respondent bank. 7. In the result, SA is dismissed as infructuous. However, the respondent bank is at liberty to proceed further with SARFAESI measures duly following the rules and guidelines framed in the Act. 8. Communicate a copy of this order to the parties concerned. (Dictated to P.A., transcribed by him, corrected, signed and pronounced by me in the open Court on this the 5th day of February, 2020)