1. The Applicant has filed this application under Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (The SARFAESI Act, 2002) challenging the action taken by the Respondent Bank under The SARFAESI Act.
2. Briefly stated facts are that the Applicant Co. was incorporated in the year 1976 with a purpose to develop the industrially backward area of State of Punjab covering its part referred to as Malwa Region. PSIC had entered into a joint venture agreement with OWM Group of Ludhiana to set up a spinning unit at Barnala. Later on Resp. No. 2 in association with IDBI, IFCI and LIC had extended Term Loans facilities for setting up of aforesaid unit. PSIDC thereafter had withdraw its equity. The Applicant Co. expanded its business and set up expansion unit at other places too.
It has been stated that three properties situated at Paonta Sahib, Barnala and Machhiwara are alleged to have been equitably mortgaged with the Resp. IFCI. The Applicant has stated that the properties at Paonta Sahib and at Machhiwara was not legally permissible and only simple mortgage by way of registered mortgage deed, without claim against possession was permissible.
It has been stated that upto the year 1999-2000, the working of the Applicant Company was par excellence. However, during 2000-01, Applicant Co. started incurring losses due to circumstances prevailing globally and in the market being beyond its control. The Respondent FIs were also charging exorbitant rate of interest. It has been stated that the Applicant Co. had approached the Respondent FIs to restructure the loan facilities and IFCI vide letter dt.29.03.2001, IDBI vide letter dt.30.03.2001 (Exh. A3 and Exh. 4) sanctioned restructure of debts due to them but since losses of the Applicant Co. was much the relief was not sufficient because of higher rate of interest which was burden on the Applicant Co. Later on situation for whole of the Textile Industry worsened and Ministry of Textiles announced Debt Restructuring Scheme to be followed by Banks and FIs(Exh. A5). The Applicant Co. approached its lenders who restructured their debts (Exh. A6 to Exh. A8). It has been stated that during the year 2004-05, the condition of the Applicant improved and in order to facilitation smooth operation of Unit at Paonta Sahib, the applicant let out built up sheds measuring 18246 sq. ft. to Respondent No. 3 on 15.07.2005 and rent deed dt.23.07.2005 was duly prepared. The Respondent No. 3 company used to regularly pay the annual rent to the Applicant Co. (Exh. A9 and Exh. A10). The fact of tenancy was in the knowledge of Respondent IFCI. The Applicant Co. had in year 2006 taken bills discounting facility from SIDBI and in the year 2007 had rented out additional area of 13787.5 sq. ft to the Respondent No. 3 on 12.03.2007 and supplementary rent deed was prepared. In 2007-08, performance of Applicant Co. was again hit by market conditions. The lenders as per RBI guidelines restructure the facilities in 2009. Accordingly three properties situated at Paonta Sahib, Barnala and Machhiwara had pari passu charge to be shared by the lenders though the title deeds were lying with the IFCI as per initial credit facilities having been sanctioned. However, as agreed, CDR facilities were not extended to the Applicant Co. in time. It has been stated that after various CDR Monitoring meetings, Master Restructuring Agreement was made out to extend credit facilities to the Applicant Co. Even then the IFCI had not released the facilities in time and delayed the disbursements which proved very costly to the Applicant Co. The Applicant Co. had alleged that it had completed its part of terms and conditions of CDRs but the IFCI was not behaving properly. As per CDR terms and conditions, the Applicant Co. sold its property at Ludhiana and for the properties at Mumbai there was very good offer of Rs. 3.41 crores but the lenders had objected to the sale at such price. Later on in the year the said property was sold at Rs. 3.41 crore. Thereafter, the facilities were enhanced and PNB the leader of the consortium wrote to the IFCI for its enhanced sanction. But the IFCI either did not release the funds or when released it was too late which had bad impact on the Company performance. Later on ICI unilaterally revoked CDR packaged vide letter dt.08.02.2013(Exh. A47) and issued recall notice dt.18.03.2013 (Exh. A49) which was not only unfortunate but also against the law, ethics and contractual obligations. The Applicant Co. had short fall of net profit of Rs. 182.21 crores which it has right to demand and recover from IFCI. During the year 2013, the Applicant Co. became sick and as its net worth had fully eroded, therefore, vide letter dt.18.04.2013 the Applicant Co. made reference under Sec. 15(1) before BIFR (EXh.A51). Thereafter the lenders started issuing Demand Notices under Sec. 13(2) of The SARFAESI Act (Exh. A54 to Exh. A60) which show an outstanding amount of Rs. 705.66 crore in all the accounts with all the lenders. The Applicant made reference to BIFR on the basis of balance sheet as on 31.03.2013 whereby Rs. 3120.725 crores were outstanding towards all the seven FIs/Banks (Exh. A52). Therefore, the difference is too excessive which shows that the claim of the lenders is not bonafide. The Applicant had objected to the claim made by the IFCI particularly listing out the amount paid to it by interest or otherwise stating that the Applicant Co. had already paid Rs. 114.11 crore and hence IFCI in no way is looser (Exh. 61A). It has also been stated that in its reply to Notice under Sec. 13(2) vide objections dt.03.06.2013 the Co. had made it clear that the IFCI had issued notice wrong, invalid and untenable in the eyes of law (EXh.A62) to which IFCI had replied on 14.06.2013(Exh. A63) which is sham reply. Further, the IFCI on 31.03.2014 early in the morning falsely claiming to be authorized officers forcibly without taking an order under Sec. 14 of The Act took over actual possession of the properties which include agriculture properties and through separate 8 notices of different dates, the Respondent IFCI had shown its intent to sell 8 properties, including agriculture properties/farm house. The Applicant has stated that the Company, well prior to taking action by IFCI under Sec. 13(4) had made reference under Sec. 15 of SICA and that there is complete bar under Sec. 22(1) of SICA for taking action under Sec. 13(4) except taking permission of BIFR but no such permission was taken by the IFCI from BIFR before taking such action. Moreover, IFCI has not taken permission of other lenders before initiating such action against the Applicant and thus is barred under The SARFAESI Act since its share is much less than 60% of lending. The Applicant has also raised certain questions about mortgage right of the IFCI upon some properties since they are lying mortgaged/or claimed by other lenders. Thus the Applicant has prayed that notices issued under Sec. 13(2) and Section 13(4) be quashed and SA be allowed.
3. The Respondent Bank in its Reply has stated that this Tribunal has no jurisdiction to either entertain or adjudicate upon the present SA as the properties pertain to states of Delhi, Uttrakhand, Uttar Pradesh, West Bengal, Rajasthan and Punjab. It has been submitted that the Applicant No. 2 is a guarantor with regard to loans availed by Applicant No. 1 from IFCI, Applicants No. 3 and 4 are directors of Company and have not executed any Deed of Guarantee in favour of answering Resp. In fact Applicants No. 3 & 4 are not proper parties to the present case as IFCI has not taken any action against the said Applicants under The SARFAESI Act.
Denying the allegations of the Applicant that IFCI does not have the requisite consent, the Respondent has stated that it has the requisite sanction/consent by various other secured creditors, which accounts for 90.90% of stakeholders, for initiating action under Section 13(4) of The Act. As the Respondent IFCI has requisite consent of more than 75% of the Secured Creditors, the proceedings before the BIFR necessarily abate. The protection under Sec. 22 is thus, no longer available to the Applicant Co. In fact the answering Respondent has already filed an application before BIFR seeking abatement of reference in terms of proviso to Section 15 of SICA (Exh. R-1/2).
The answering Respondent has stated that it has initiated action under Sec. 13(4) by taking physical possession of three of eight properties mortgaged by Applicant No. 1, viz. New Delhi, Dehra Dun Uttrakhand and Bilwara (Rajasthan). With regard to remaining properties, IFCI has only taken symbolic possession. The Respondent IFCI has also denied that the property at Mehrauli is an agriculture property. In fact the answering Respondent had got the said property evaluated from valuation agency promoted by ICI Ltd., SIDBI, SBI and PSU Banks and SFCs. As per the report, the property has been classified as "farmhouse" and there is no evidence of any agricultural activity being carried thereon (Exh. R1/3). The answering Respondent has further stated that the Applicant cannot take two remedies at a time since it has also filed CWP before the Hon'ble Punjab and Haryana High Court challenging the action of the Respondent against the property of Delhi. Moreover, the Applicant Co. has also filed independent SAs against two of its lenders in DRT-II, Chandigarh wherein the Applicant has not been able to get any interim relief.
The Respondent IFCI has stated that Applicant No. 2 has given undertaking on behalf of the Applicant Co. that all properties mortgaged are free from any kind of charge, lien or encumbrance with a further assurance to IFCI that the Co. is the absolute owner thereof and possess complete title therein and that no encumbrance would be created on the said properties without express permission from IFCI in order to induct Resp. No. 2 and 4 as tenants (Exh. R1/5) and if such tenancy, which is an afterthought, exists the same is illegal, not enforceable and thus would not impact the action of the answering Resp.
The answering respondent has also stated that the Application deserves to be dismissed on the ground of nonjoinder of necessary parties. Since the Applicant has levelled various allegations against other lenders, but they have not been impleaded as parties to the present case.
It has been further stated that a Asset Sale Committee(ASC) was formed comprising representatives from PNB, SBI, IFCI and IDBI for deciding on sale of surplus assets (Ludhiana and Mumbai properties) but the Applicant without the consent and knowledge of ASC soled the Ludhiana property at a price below its valuation which was opposed by ASC and CDR-EG. The ASC also objected to the Applicant move to sell Mumbai property without the consent/knowledge of ASC. The Applicant has continuously misguided ASC and has made baseless allegations against ASC. The Respondent FI has denied that the lenders have issued their respective notices under Sec. 13(2).
The Respondent FI has further stated that the SARFAESI Act 2002 does not envisage issuance of any notice before initiation of action under Sec. 13(4). The secured creditors are within their right to take any of the measures mentioned in Section 13(4) in case borrower fails to discharge its liability within the period specified in Section 13(2) of The Act. The Respondent FI has further stated that since the Respondent has acted strictly as per rules and provisions of the Act from declaration of account as NPA, issuance of notice under Sec. 13(2) and reply to the objections filed under Sec. 13(3A) and then proceeding under Sec. 13(4) of The Act, therefore, the SA should be dismissed.
4. The Applicants have marked Exh. A1 to Exh. A83 whereas Respondent Nos. 1 and 2 has marked Exh. R1/1 to R1/11 on their side.
5. I have heard arguments of both the Counsel and perused the record.
Before the prayer of the Applicant could be considered, it has been found that the Applicants who had made numerous applications during the pendency of the proceedings, the main issue qua agriculture land as well as other issues have already been decided vide order dt.13.10.2015 which is reproduced as under:
Item No. 78
IA 898 of 2015
The Applicants have prayed for staying the e-auction to be held on 16.10.2015 for the property which they claim to be an agriculture land measuring 12 bigha and situated at Village Bharthal, Tehsil Mahrouli, New Delhi, purchased by Registered Sale deed dt.02.06.1995 for which actual physical possession of the said land along with farm house partaking the nature of agriculture property has clandestinely been taken on 31.03.2014 by Respondent IFCI. Now the same has been put to sale without following due procedures and against the principle of natural justice. The whole arguments of the counsel for the Applicants involved issue that the land is agriculture land and thus is exempted under Sec. 31(i) of The Act. To support his arguments, he pointed out towards Annexure AA1, i.e., sale notice dt.09.09.2015 whereby the publication was issued for the said land and farm house, Annexure A80 which is copy of jamabandi showing land as an agriculture land and Annexure A81 which is sale deed dt.02.06.1995 clearly stating that the land measuring 12 bigha having boundary wall, farm house as well as tube well etc. as an agriculture land deal. Counsel for the Applicants has pointed out that even from this fact it can be judged that the land is an agriculture land and that the "lagaan" imposed was duly paid every year by the Applicants. The counsel for the Applicants further pointed out towards Annexure A82, i.e., valuation report which itself shows that it is agriculture farm house. To further support his arguments, he also pointed out towards Annexure A83 which is valuation report dt.14.07.2009 whereby the evaluator of the Bank itself has also described it as an agriculture land. Counsel for the Applicants has further stressed that since it is a huge chunk of land on the outskirts in the Delhi NCR, it cannot be used for any other purpose except for the same as it was at the time of mortgage. Moreover, the Bank which knew well that it is agriculture land, did not get the registered mortgage created when the property was mortgaged. The counsel for the Applicants further argued that there is no charge recorded in the Revenue Record. He also stated that from the very beginning the land is in the shape of agriculture farm house, the use of which never changed and that the nature of the land remained the same till date. The status now cannot be changed itself by the passage of time unless if someone does a specific change therein. Therefore, the action of the Bank should be stayed.
Another contention of the counsel for the Applicants is that the Applicants were never issued any personal notice in compliance of Order 8(6) and it was only letter dt.21.09.2015 by which the Applicants were informed about the sale having been fixed for 16.10.2015 meaning that no 30 days notice has been issued to the Applicants whereas only the sale notice has been published. Further argument of the counsel for the Applicants was that since the matter is pending before BIFR and pointed out one letter issued by IFCI to the BIFR, asking for the permission to initiate SARFAESI proceedings itself reflects that the action under Securitisation cannot take place. He further pointed out that on 31.03.2015 a reference was made to BIFR which has been duly registered.
Other argument of the counsel for the Applicants was that apart from these objections the Applicants have also approached the consortium member particularly, IFCI asking for restructuring of the account. The counsel for the Applicants further emphasized that the Applicants had earlier given OTS proposal for Rs. 80 crore on 16.08.2014 which has been enhanced to Rs. 115 Crore on 21.04.2015. The Applicants had deposited Rs. 5 crore through DD with the proposal as upfront money which has been duly withdrawn by the IFCI, meaning thereby that the Resp. FI has impliedly given its consent but has not conveyed the decision to the Applicants.
Hence, the Counsel for the Applicants pointed out that the action of the Resp. FI being illegal and against the provisions and rules made under the Act be stayed as on the one hand side they are withdrawing the upfront money but on the other hand side at the back of the Applicants they have published the notice for sale of the mortgaged property, not even duly informed and served by clear 30 days notice.
Counsel for the Applicants in fact has pointed out that they have already approached consortium members one by one through proposal for which they are hopeful that their proposal will be materialized. As the properties of the Applicants are sufficient with the Bank, therefore, now they should be protected at this stage particularly qua this farm house.
The counsel for the Applicants has also taken support of citations Anil Kumar Khanna and Ors. v. The Indian Tourism Dev. Corp. Ltd., Smt. Dr. Renuka Datla and Ors. v. Bilogical E. Ltd. and Ors., Commissioner of Income Tax Gujarat-ii v. Siddharth J. Desai, M/s. Asian Health and Nutri Foods v. The Debts Recovery Tribunal.
On the other hand side, counsel for the Bank vehemently opposing all the arguments firstly took objection that since the property is situated at Delhi, this court has no jurisdiction to adjudicate upon the case and has taken support from case Amish Jain v. ICICI Bank Ltd. : (2012) 132 DRJ 69 and prayed that on this very ground the stay should not be granted and the SA should be dismissed.
Going further, the counsel for the Resp. FI has pointed out that the claim of the Applicants that the property is an agriculture land, gets redundant as he has placed on record government notification whereby this property has been described as residential area whereby it has been mentioned that villages containing existing farm houses clusters are notified as "Low Density Residential Area" and the property of the Applicants is situated and covered at Sl. No. 22 of Para 18.104.22.168(D), of said notification. Therefore, it cannot be considered as agriculture land. The counsel for the Respondent FI has also pointed out in his detailed arguments that since there are no agriculture activity going on the farm house and in the light of the notification it cannot be considered agriculture land particularly when no agriculture income is being generated and prayed that the interim prayer be dismissed.
I have heard lengthy arguments of both the counsel for more than 2 days.
Firstly so far as the objection raised by the Respondent FI about the jurisdiction is concerned, I am not inclined to accept the arguments of the Bank as in case of Amrit Jain v. ICICI Bank there was only single property at single location. Here, the properties of the Applicants are at different locations particularly Delhi, Bhilwara, Kanpur, Calcutta, Himachal Pradesh, Punjab and UT, the Applicants cannot be put to run to file different SAs at different locations and pay court fee at all different stations for the same cause of action whereas the Applicants who have received a common notice. Therefore, argument of jurisdiction part of the Applicants is accepted and this court is fully competent to adjudicate the matter.
Now coming on the main issue of agriculture land, this property which was in the shape of huge chunk of land was certainly agriculture land as the farm house is existing on the land which remains a tradition since history in a country which is known as country of villages. But with the passage of time it was only a new concept when the humans after finding themselves confined to the concrete jungle route back towards green natural farms, and in this so called society, the size of farm houses were narrowed down. The Applicants' arguments were dully supportive that when the property was mortgaged, it was agriculture land and it has also been duly proved by the Applicants that they have not changed the land use or started any other activity which could convert the nature of the land. Now the question arises whether the land yields any agriculture income? The Applicants failed to show any such document which could prove the same and at the same time on another hand bank too failed to prove that the Applicants has even changed the nature of the land. Rather the Applicants have proved that they are paying lagaan on the land and further the nature of land being tube well existing there which is part and parcel of the agriculture activity and that the farm house too exists without any change. In fact all these arguments cannot hold much weight, particularly in the light of the gazette notification issued by the Govt. whereby it has already been described the area as "low density residential area" which might have been given status going through all the environmental or taking care of other factors. But this only argument is not sufficient to decide each and every aspect of agriculture land as it varies from case to case rather through the supportive arguments and other factors that the Applicants themselves have approached the Bank enhancing their proposal with upfront money, duly withdrawn by the Bank then there was no reason in saying 'No' to the proposal, once the amount is accepted and no communication has yet been conveyed. In fact senior officer of the Respondent FI who was present when asked that why they did not chose to reply their proposal, no satisfactory reply came forward. In fact they have admitted having withdrawn the amount of Rs. 5 crore deposited by the Applicants. The Applicants are trying their best to get the matter resolved amicably and to save property on the ground being agriculture land and on the other hand side their settlement is still pending with FIs for decision. Further finding on one side that proper 30 days notice has not been served on applicants as per the rules, admittedly the Resp. FI having published the notices, but on the other hand when the Respondent FI has already fixed the sale, prima facie satisfied that efforts of the Applicants before Resp. FI to be serious and they are expecting amicable result, I do not want to halt the sale process at this stage and to facilitate the recovery of the institution in an amicable manner, it is directed that the Authorised Officer of the Resp. FI shall go ahead with the sale but shall not confirm the sale till further orders and the sale proceedings should be placed on record on the next date of hearing. The Authorised Officer is directed to place on record decision taken on the proposals submitted by the Applicants to the various consortium members.
IA disposed of accordingly."
The Applicants during the proceedings have already approached various forums and to the Banks for getting the account settled which at the initial stage observing offer of the Applicants were rejected. Now the Applicants have pleaded that as the matter has been settled with few first line lead institutions lender banks vide letter dt.09.11.2016, the issues for the settlement has now become infructuous as the Applicants themselves have now undertook to pay as per settlement, after paying the upfront money to the tune of Rs. 5 crore which too was admitted by both the parties and the applicants despite of this settlement and giving undertaking that they will honour the same, have refused to withdraw the same to decide other issues.
I am in full agreement with the counsel for the Bank so far as procedure adopted by the Financial Institution is concerned that Notice under Sec. 13(2) along with Notice under Sec. 13(4) and subsequent to sale notice has been found in order. The Bank has duly proved its case by placing on record proof of service, affixation and publication and I do not find any irregularity on the part of the Respondent Bank in possession notice qua property which the Applicant has earlier taken support for being agriculture in nature that has already been discussed while deciding IA 1042 of 2015 and other IAs vide order dt.03.12.2016 which is reproduced below and shall remain part of this order too.
"IA 1096 of 2016, IA 1178 of 2016 and IA 1455 of 2016
The above IAs were filed by the auction purchaser as well as Applicant SA for placing on record their respective documents in support of their arguments on the issue of agriculture land. The Applications are disposed by taking the documents on record.
6. The first issue raised by the Applicant is that their property put to sale was an agriculture land and is duly exempted under Sec. 31(i) of The Act. Counsel for the Applicant has stated that against the consortium finance, the Applicant had mortgaged agricultural property situated at Village Bharthal, New Delhi which was purchased by the Applicant Co. vide Sale Deed No. 4778 dt.02.06.1995 (Exh. A81) and since it is an agriculture property, therefore, is exempted under Sec. 31(i) of The SARFAESI Act. Further, the valuation report of the Punjab National Bank who got the property evaluated also assessed on 14.07.2009 the property as "agricultural farm house land". The Applicant has further stressed that as Farm House is an agricultural property yet as per Delhi Municipal Corp. Act if it is situated within Delhi is subject to House Tax because Municipal Tax is not exigible to buildings only but also to lands.
The Applicant has also alleged that the PNB and IFCI had forced the Applicant to create registered mortgage of the property instead of equitable mortgage which cost the Applicant extra amount and has taken support of case laws:
1. Sri babu Ram Alias Durga Prasad v. Sri Indra Pal Singh (dead) by lrs. : AIR 1998 SC 3021
2. P.R. Deshpande v. Maruti Balram haibatti : AIR 1998 SC 2979
3. Nagubai Ammal and Ors v. B. Shama Rao and Ors. : AIR 1956 SC 593
4. C. Beepathuma and Ors. v. Velasari Shankaranarayana Kadambolithaya and Ors : AIR 1965 SC 241,
5. M/s. Cauvery Coffee v. M/s. Hornor Resources.,
6. I.P. Muhammed Basheer v. The Deputy General Manager, and
7. Eshwar Purushothaman Gardens Versus Authorised Officer Indian Bank.
The issue of property being agriculture land relying upon the documents have already been discussed vide order dt.13.10.2015 and apart from that another IA No. 1096 of 2016 was filed by the Applicant for placing on record one show cause notice issued to the SA Applicant under Sec. 154 of the Daily municipal Corporation Act 1957 for evasion of property tax to the tune of Rs. 55,28,000/- is another supportive and strengthening document whereby this notice itself shows that the property which is situated in the municipal corporation limits is accessible to the property tax.
The counsel for the Respondent Bank who has already argued well and is reflecting from previous orders, after considering all the prayers, I am of the considered view that the land shown at the time of granting facilities may be an agriculture land but an agriculture land cannot be considered as agriculture land for ever as "change of land user", can change its status. May be the same has been shown as an agriculture land at the time of taking facilities as is reflected through the respective sale deeds or valuation reports, which were deposited with the Bank and even thereafter asking by the Respondent Bank to mortgage it by way of registered mortgaged deed, this only argument is not sufficient to decide that this land is an agriculture land as being stick to the findings in the previous orders dt.13.10.2015 and further on the supportive documents filed by the Respondent Bank whereby the notice issued by the Municipal Corporation and the existing notification issued by the Govt. whereby it has already been described an area as "low density residential area", the said property cannot be considered as an agriculture land.
Since this issue of agriculture land has already been decided and this supportive document along with Annexure 1/1 and Annexure 3 are clear in affirming earlier orders that the properties cannot be considered as an agriculture land and are being in the residential area subject to the assessment of municipal corporation under farm house is residential house and not a agriculture land.
Hence, the issue is decided in favour of the Respondent Bank that the properties cannot be considered as an agriculture land.
Now, the only precise question at this stage is to decide issues whereby confirmation part of the sale which was held on 16.10.2015 was to be stayed on the grounds that whether the sale notice issued by the Bank has been served as per Rules.
The lengthy arguments of the parties which were concluded on previous dates were on the issue of sale conducted by the Bank for which Applicant borrower company took a specific objection that while selling its property the Bank has not duly followed procedure and the procedure followed by the bank has not been in consonance with the rules and particularly no 30 days notice was served upon the Applicant as per Rule 8(6).
But before proceeding further, it has been observed that third party Applicant/Auction Purchaser who has been impleaded as party has moved one IA for vacation of stay on confirmation part of sale so that the rest of the amount could be deposited after confirmation of sale in his favour as he has already deposited 25% of the amount as required under rule.
The Applicant has pointed out that the bank who has claimed to have published sale notice on 09.09.2015 cannot be considered Notice under Sec. 8(6) as the property which the Bank has already taken in its possession, the Applicant had no knowledge for the same. In fact the Applicant has vehemently opposed publication of Resp. Bank stating that by merely inducting another paragraph does not comply with Rule 8(6) as the same is mandatory to be given to the Applicant particularly once physical possession of the property is with the Bank and cannot be construed as a notice to the Applicant by any stretch.
Counsel for the Applicant further argued that the Bank is under a legal mandate to follow and abide by Rules 3,8 and 9 of Security Interest (Enforcement) Rules while putting the property on auction.
The counsel for the Applicant elaborated that the IFCI while putting the property on auction published the same in Economic Times dt.09.09.2015 for the sale to be held on 16.10.2015 but failed to issue and deliver individual auction notice to the borrowers as required and mandated under Rules 8(6) and has taken support of Law Case Manoj D. Kapasi and Anr. v. The Union of India 7 Ors.
The Applicant after taking support from the above case laws, also referred to the below citations:
1. Mathew Varghese v. M. Amritha Kumar & Ors.
2. Manoj D. Kapasi and Anr. v. The Union of India.
3. Vasu P. Shetty v. M/s. Hotel Vandana Palace & Ors.
4. Some Papers & Industries Ltd. v. Bank of India & Ors.
5. Sahebrao Marutrao Patil & Another v. Dr. Annarsaheb Chougule Urban Co-op. Bank Ltd. & Anr.
6. State Bank of India v. Hon'ble Debts Recovery Appellate Tribunal & Ors.
7. Sheeba Philominal Merline & Anr. v. The Repatriates Co-op., Finance & Development Bank Ltd. & Ors.
8. Bharatbhai Kamalshi Mehta & Anr. v. The Kapol Cooperate Bank Ltd. & Anr.
9. IAA Hospital Pvt. Ltd. and Another v. The Authorised Officer, UCO Bank.
10. M. Rajendran v. The Authorised Officer.
11. Swastik Agency and Ors. v. State Bank of India
12. J. Rajiv Subramaniyan & Anr. v. Pandiyas & Ors.
13. The District Collector v. K.K. Dinakaran.
14. Goldkist Mobile Academy Pvt. Ltd. v. Jammu & Kashmir Bank.
15. Smt. R. Vimala v. State Bank of India
16. Urmila Kumar v. Om Prakash Jangra & Ors.
17. Gujarat State Financial v. Lotus Hotels Pvt. Ltd.
18. KRS Latex (India) Pvt. Ltd. v. The Federal Bank Ltd.
19. Authorised Officer State Bank of India v. R. Krishnasamy
20. Hotel Sharada Paradise v. Secretary to the Govt. of India, Department of Finance, New Delhi
21. GM, Sri Siddeshwara Coop. Bank v. Sri Ikbal & Ors.
22. Transcore v. Union of India & Anr.
23. Raja Associates, A Partnership v. Union of India (UOI)
24. Desh Bandhu Gupta Versus N.L. Anand and Another.
25. Krishna Chowdhury and Others v. State of West Bengal
26. Sravan Dall Mill P. Limited v. Central Bank of India
27. Hemalatha Ranganathan v. The Authorised Officer Indian Bank.
The Counsel has further raised objections to subsequent letter dt.21.09.2015 by which the bank claims that it is information to sale which cannot be considered compliance of Rule 8(6) as this notice was not a 30 days notice.
On the other hand side, counsel for the Respondent Bank and Auction purchaser too have raised their respective arguments as per the replies and documents annexed and further emphasized that the Bank has issued public notice on 09.09.2015, incorporating specific paragraph in public sale notice which was rightly 30 days personal notice, the said paragraph is reproduced hereunder:
"STATUTORY 30 DAYS NOTICE UNDER SRFA&ESI ACT, 2002
This publication is also 30 days notice to the above mentioned borrower and also to the guarantors as required under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002. The borrower/Guarantors/Mortgager are hereby notified to pay the outstanding dues along with interest, cost, other monies and charges till the date of payment of all the secured creditors before the date of public auction failing which the property will be auctioned/sold for recovery of dues."
The counsel for the Respondent Bank taking a support from the provision under Rule 8(6) has drawn my attention towards the fact that there is no breach of Rule 8(6) read with Rule 9 as the Authorised Officer has already given adherence to the same rule by specifically mentioning in the said publication qua sale. The contention of the Bank that borrower who is also a part of public, this notice is not an ordinary notice but specific averments to the same. Countering the argument of the Applicants that the judgment law should have to be served, the counsel for the Bank has clarified that once the sale notice fixing the sale on 16.10.2015 was issued on 09.09.2015, it is a clear 30 days notice. Moreover, the property was sold for a considerable over and above the reserve price, the same is to be treated as due compliance particularly. The argument of the Applicant pointing out towards rule 3(3) where a demand notice has also to be served to the borrowers in individual, the Counsel for the Bank argued that the provision is clear qua service of the notices be affected by affixing a copy and through publication which is duly considered as service.
Since now this is an admitted fact by both the parties that Rule 8(6) has not been complied with in so far as serving individual notice is concerned, but now whether this adding of a para in the publishing can be considered as an adherence to Rule 8(6) mode of service.
After going through the lengthy arguments of this issue and reliance put forth by the Applicants, I am of the considered view that it is not an ordinary case where the Bank/FI was not aware about the procedure rather being fully aware has specifically mentioned that this publication is also for the Applicants.
Here in this case, both the parties have admitted of being not serving sale notice individually to the Applicants as per Rule 8(6).
Now, on a plain reading of Rule 8(5) & (6) it is clear that service of 30 days notice with respect to sale to be conducted under sub-rule (5) is mandatory, especially in view of the word 'shall' used in sub-rule (6).
The Supreme Court in Mathew Varghese v. M. Amritha Kumar : (2014) 5 SCC 610 considered the provisions of SARFAESI ACT and the mandatory nature of Rules 8 and 9(1). The Supreme Court in the said judgment very clearly observed that it is the constitutional and human right of a person to hold property and that in the event of a fundamental procedural error occurred in a sale, the same can be set aside. The Supreme Court indicated the mandatory nature of the publication and statutory period before the date of notification and sale in the following words:
"53. We, therefore, hold that unless and until a clear 30 days notice is given to the borrower, no sale or transfer can be resorted to by a secured creditor."
In J. Rajiv Subramaniyan & Anr v. M/S Pandiyas & Ors on 14 March, 2014 the Hon'ble Supreme Court after referring to the judgment in Mathew Varghese v. M. Amritha Kumar observed:
""14. As noticed above, this Court also examined Rules 8 and 9 of the Rules, 2002. On a detailed analysis of Rules 8 and 9(1), it has been held that any sale effected without complying with the same would be unconstitutional and, therefore, null and void"
Admittedly personal notice was not given. The Bank says it was specifically stated in the notice by publication that the notice shall be construed as personal notice. With regard to the mode of service Rule 3 (3) is relevant which says any other notice in writing to be served on the borrower or his agent by authorized officer, shall be served in the same manner as provided in this rule. That takes us to Rule 3 (1). Notice shall be by registered post or by speed post or by courier or by any other means of transmission of documents like fax message or electronic mail service. The proviso to the rule indicates that where authorized officer has reason to believe that the borrower or his agent is avoiding the service of the notice or that for any other reason, the service cannot be made as aforesaid, the service shall be effected by affixing a copy of the demand notice (in the case on hand the sale notice) on the outer door or some other conspicuous part of the house or building in which the borrower or his agent ordinarily resides or carries on business or personally works for gain and also by publishing the contents of the demand notice (in the case on hand the sale notice) in two leading news papers, one in vernacular language, having sufficient circulation in that locality. Notice by publishing can be resorted along with affixation because the word used is "and" and not "or". Notice by affixture in the mortgage property is not sufficient for the purpose of Rule 8 (6) since that property has been taken possession by the authorized officer and the borrower is not in possession of the property. Affixture is not done on the outer door or some other conspicuous part of the house or building in which the borrower or his agent ordinarily resides or carries on business or personally works for gain. Affixture of sale notice on the immovable property is as contemplated under rule 8(7). It can never be a substitute for the notice contemplated under rule 8(6). When the law commands certain thing to be done in a particular manner it has to be done in that manner alone and there is no reason for the authorized officer to deviate from the prescribed procedure.
In M/S. K.R.S. Latex (India) Pvt. Ltd. v. The Federal Bank Limited on 13 January, 2011 in WP(C). No. 30611 of 2010(B) the Hon'ble High Court of Kerala held:
"The prohibition imposed under Rule 9(1) only insist that the sale shall not be conducted before expiry of 30 days either from the date of publication or from the date of service of notice on the borrower. It indicates that the computation of period can be either from the date of publication or from the date of service of notice. But it does not in any way indicate that once the publication is there the requirement under sub-rule (6) can be waived".
Since rule 8 (6) is held to be mandatory by the Hon'ble Supreme court in Mathew Varghese v. M. Amritha Kumar : (2014) 5 SCC 610 and in J. Rajiv Subramaniyan & Anr v. M/S Pandiyas & Ors. and as the mandatory requirement of notice to the borrower of 30 days prior to sale of immovable security assets is not complied by the authorized officer the sale is vitiated for non compliance of rule 8(6).
Therefore, in the present case, the bank who has not only limited to non compliance of the Rule 8(6) but has gone to the extent of getting the proviso interpreted and executed in its own, but has created its own rules could not be sustained way as if it has itself enacted the provisions at its own.
Hence, the sale cannot be confirmed and is hereby set aside, with a direction to the Bank who has conducted the sale and subsequently got the account compromised to refund the amount to third party auction purchaser with all benefits/interest within 15 days from this order."
Hence, the issue of agriculture land and justification has already been settled.
Earlier contention of the Applicant was that the Financial Institutions who have initiated action against the Applicant do not have consent of majority share holders and hence they cannot proceed against them and now the Applicants have shifted their stand that once the first line lender institutions have settled the matter, the others are already in line of settlement, their SA should be allowed, is now irrelevant rather show the conduct and attitude of the Applicant to repay the dues.
The documents placed on record by the Respondent Bank have duly proved that the prope
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rties are free from encumbrance rather under clear charge and lien of FIs and if any tenancy has been projected the same is after thought and subsequent to the mortgage. In the whole process, we have found that FIs who were compelled to follow this unending litigation before various forums have initiated process of recovery with common action. Since the Respondent FIs have duly proved its case qua service of notices under Sec. 13(2) and 13(4), the proceedings initiated by the FIs are found to be in order as per rules and provisions made under the Act. Having examined the averments made by the respective counsel of the parties and documents and evidence filed by them in support of their pleadings, I have come to the conclusion that the action taken by the Bank is absolutely in accordance with law just and proper 6. Accordingly this SA is dismissed. Any application pending stands disposed of. 7. Order Dasti to the concerned parties. 8. File be consigned to record. Order dictated, corrected, signed and pronounced by me in the open court. Before the prayer of the Applicant could be considered, it has been found that the Applicants who had made numerous applications during the pendency of the proceedings, the main issue qua agriculture land as well as other issues have already been decided vide order dt. ______ which is reproduced as under: The Applicants during the proceedings have already approached various forums and to the Banks for getting the account settled which at the initial stage observing offer of the Applicants were rejected. Now the plea of the Applicants about settlement of the account, the Applicants themselves have stated that the matter has been settled ultimately with few Financial Institutions first line lender banks vide letter dt.09.11.2016. Therefore, the issues for the settlement has now become infructuous as the Applicants themselves have now undertook to pay as per settlement who otherwise despite of settlement and giving undertaking that they will honour the same have refused to withdraw the same to decide other issues. I am in full agreement with the counsel for the Bank so far as procedure adopted by the Financial Institution is concerned that Notice under Sec. 13(2) along with Notice under Sec. 13(4) and subsequent to sale notice has been found in order. The Bank has duly proved its case by placing on record proof of service, affixation and publication and I do not find any irregularity on the part of the Respondent Bank in the sale notice qua property which the Applicant has earlier taken support for being agriculture in nature has already been discussed while deciding IA ____ which is reproduced below and shall remain part of this order too. Hence, the issue of agriculture land has duly been settled. Earlier the issue of Applicant that the Respondent Bank does not have requisite consent from other FIs has also been negated that Applicant FI along with other first line lender institutions have settled the matter and therefore, the issue raised by the Applicants that they do not have consent of 75% is now have become infructuous as the Applicant cannot say that while settling the issues, the FI has no consent of others and once the Applicant himself has admitted that the main FIs have settled the matter he cannot deny that the FIS/Resp. No. 1 is fully empowered to proceed against the property having consent of other institutions. The documents placed on record by the Respondent Bank has duly proved that the properties are free from encumbrance rather under clear charge and lien of FIs and if any tenancy has been projected the same is after thought and subsequent to the mortgage. In fact since from the declaration of the account as NPA till the last date the Applicant who are making hue and cry to project illegalities and irregularities in the process has not started arguing that since the matter has already been settled with the main lender FIs and others are already in line to settle, we did not find any such ground whereas the FIs who were compelled to follow this unending litigation before various forums has initiated process of recovery with common deficiency. Since the Respondent FIs have duly proved its case qua service of notices under Sec. 13(2) and 13(4), thereafter efforts to recover dues without any such irregularity except where the sale was fixed and the same was decided vide order dt.____, the proceedings initiated by the FIs are found to be in order as per rules and provisions made under the Act and hence, finding no merit the SA is dismissed.