A clear 30 days’ individual notice to the borrower and also a public Sale notice by way of publication in newspapers are mandatory – Authorized Officer, Chief Manager, Allahabad Bank Vs. M/s Shankar Rice Products – DRAT Allahabad Bench

I. Case Reference Case Citation : (2020) ibclaw.in 153 DRAT Case Name : Authorized Officer, Chief Manager, Allahabad Bank Vs. […]

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I. Case Reference

Case Citation : (2020) ibclaw.in 153 DRAT
Case Name : Authorized Officer, Chief Manager, Allahabad Bank Vs. M/s Shankar Rice Products
Appeal No. : Appeal Sr. No. 91/2016, Appeal Sr. No. 79/2016
Judgment Date : 07-Jan-20
Court/Bench : DRAT Allahabad Bench
Act : SARFAESI Act 2002
Present for Appellant(s) : Shri M. K. Srivastava, Advocate
Present for Respondent(s) : Shri Rajneesh Kesarwani, Advocate, Shri Vikram Bhalla, Advocate holding brief of Shri Arvind Srivastava, Advocate
Chairperson : Mr. Justice R. S. Kulhari

II. Full text of the judgment

JUDGMENT
Date of Decision: 07.01.2020

R. S. KULHARI, CHAIRPERSON

1. Both these appeals have been preferred under section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of the Security Interest Act, 2002 (hereinafter referred to as “The SARFAESI Act”) against the order dated 04.03.2016 passed by the DRT, Allahabad, whereby the S.A. filed by the borrowers was allowed, hence are being decided by this common order.

2. The essential facts of the matter are, that the Allahabad Bank (Appellant in Appeal Sr. No. 91/2016) granted cash credit limit to the borrower-M/s Shanker Rice Products through its partners respondents No. 2 to 5. The loan was secured by mortgage of immovable properties belonging to the respondents No. 2 to 5. Since the borrower did not adhere to the repayment plan, hence the Bank classified the account as NPA and issued demand notice dated 27.11.2009 under section 13(2) of the SARFAESI Act, 2002 demanding a sum of Rs. 81,90,509/-. Thereafter, the possession notice dated 11.03.2010 was issued under section 13(4) of the SARFAESI Act, 2002 and symbolic possession of the property was taken.

3. The borrowers challenged the possession notice dated 11.03.2010 by filing writ petition No. 19165 of 2010 before the Hon’ble High Court which was dismissed vide order dated 08.04.2010 on the ground of alternative remedy. The appellant-Bank issued sale notice dated 28.10.2010 scheduling the auction for 30.11.2010, but the same could not be materialized for want of bids. Thereafter, the appellant-Bank issued another sale-notice dated 09.12.2010 fixing the auction on 22.12.2010 and the property was sold for a sum of Rs. 35,68,000/-. The sale certificate was issued on 22.03.2011 and the sale-deed was executed on 16.04.2015 in favour of the auction purchaser, who is Appellant in appeal Sr. No. 79/2016.

4. The borrowers challenged the auction sale notice dated 09.12.2010 by filing S.A. No. 49/2011 before the Tribunal below, which was allowed and the sale was set aside vide impugned order holding that Rules 8(6) and 9(1) of the Security Interest (Enforcement) Rules, 2002 were not complied with by the Bank. Being aggrieved by the said order, the Appeal Sr. No. 91/2016 was filed by the Bank and the Appeal Sr. No. 79/2016 was filed by the auction purchaser.

5. During the pendency of the appeals, the auction purchaser sold the property to the respondents no. 7 to 10 of the Appeal Sr. No. 91/2016, therefore, they were arrayed as party in both the appeals being subsequent purchasers.

6. Learned counsel for the appellant-Bank submitted that the sale in question was a subsequent sale. A clear 30 days’ notice had been served to the borrowers for earlier sale, therefore, there was no necessity to serve again 15 days or 30 days’ notice before auction of the property. The borrowers have admitted the receipt of sale notice, therefore, they were having knowledge of the sale. Thus, no infirmity has been caused by the Bank in following the procedures. The Tribunal below has erred in setting aside the auction sale on the basis that only 12 days’ notice was served, which was not sufficient, therefore, the appeal be allowed.

7. Learned counsel for the auction purchaser adopted the arguments as advanced on behalf of the Bank and further added that there was no fault of the auction purchaser, therefore, the right of the auction purchaser and the subsequent purchasers be protected.

8. On the contrary, the learned counsel for the borrowers submitted that indisputably, the sale notice was published on 9.12.2010 and the sale was conducted on 22.12.2010. Thus, it was a notice for 12 days only, whereas the Bank was required to serve 30 days’ notice as per provision prevalent at the relevant time. The Bank has failed to serve the mandatory notice, therefore, the Tribunal below has rightly set aside the sale in view of the judgment passed by the Hon’ble Supreme Court in Mathew Varghese Vs. M. Amritha Kumar and others, (2014) 5 Supreme Court Cases 610 and the judgment of Andhra Pradesh High Court in Shyam Trading Company Vs. M. Krishna and others, 2010(4) ALT 97.

9. Having heard the learned counsels for the parties and considering the material available on record, it is undisputed that the earlier sale notice was issued on 28.10.2010. However, the said sale could not be effectuated for want of bid, so the sale notice became infructuous. As such the sale notice in question was a second sale notice. It is also admitted case of the Bank that the sale notice was published in newspaper on 9.12.2010 and the sale was conducted on 22.12.2010. Thus, the property was auctioned only within 12 days from the service and publication of the sale notice. Rule 8(6) read with Rule 9(1) of the Security Interest (Enforcement) Rules, 2002 prescribes the mandatory provision of 30 days’ sale notice to the borrower, so that he, if so wishes, may arrange the funds for redemption of the property. Before amendment w.e.f. 4.11.2016, there was no distinction between the first and second sale with regard to time span of service of sale notice. However, after amendment, a 15 days’ sale notice is sufficient in case of subsequent sale. The sale in question was conducted on 22.12.2010 before amendment, hence the Bank was required to serve 30 days’ notice to the borrowers.

10. The Hon’ble Supreme Court in Mathew Varghese Vs. M. Amritha Kumar (Supra) has held that a clear 30 days’ individual notice to the borrower and also a public notice by way of publication in newspapers are mandatory. Further, the Hon’ble Andhra Pradesh High Court in Shyam Trading Company Vs. M. Krishna (Supra) has observed that the sale notice is required to be served in case of every subsequent sale. The Tribunal below has rightly relied upon both these judgments, which squarely cover the controversy of the present matter.

11. Since the Bank has failed to follow the mandatory provision of service of sale notice, so the sale was bound to be set aside. As such I find no illegality or infirmity in the impugned order. The auction purchaser and subsequent purchasers are enjoying the possession of the property, therefore, they are not entitled for any interest or compensation.

12. In view of the aforesaid, both the appeals are dismissed with no order as to costs.

13. A copy of this judgment be supplied to the parties as well as to the DRT concerned.

CHAIRPERSON

Date: 07.01.2020

All corrections have been made/incorporated in the order/judgment.

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