Heard Shri Kushal Kant and Shri Raj Kumar Tiwari, learned Advocates appearing for the petitioner and Shri Manoj Kumar Srivastava, learned Advocate for the respondent/bank.
The present petition is directed against the orders dated 11.5.2015 and 25.7.2018 passed in S.A. No. 10 of 2004 (Avshesh Jaiswal vs. Branch Manager, Allahabad Bank and others) and Appeal Sr. No. 121 of 2015 (Avshesh Jaiswal vs. Branch Manager, Allahabad Bank and others) passed by the Debts Recovery Tribunal (In short as "the DRT") and Debts Recovery Appellate Tribunal (In short as the "the DRAT"), Allahabad; respectively.
The brief facts relevant to decide the present petition are that the respondent bank had initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (In short as "the SARFAESI Act, 2002") against the petitioner and a demand notice dated 15.4.2011 under Section 13(2) of the SARFAESI Act, 2002 was issued followed by the possession notice under Section 13(4) of the said Act.
The borrower/petitioner did not make payment and hence the bank proceeded for sale of the mortgaged property i.e. Secured Assets. The first auction sale scheduled on 26.3.2013 could not be materialized and then a fresh notice was published in the newspapers on 27.9.2013 fixing the date of auction as 6.11.2013.
The Secured Asset was sold on 6.11.2013 and sale certificate was issued on 27.11.2013.
The borrower/petitioner filed an application under Section 17 of the SARFAESI Act on 7.1.2014, which was registered as S.A. No. 10 of 2014, before the DRT at Allahabad, challenging the auction proceeding and sale of Secured Assets by the bank, on the ground that the mandatory notice as required under Rule 8(6) readwith Rule 9(1) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as "the Rules, 2002") was not served upon him and the sale of the Secured Asset hence, is illegal.
In the said proceeding, it appears that the borrower had also moved an application under Section 13(8) of the SARFAESI Act, 2002 with the assertion that he was ready and willing to redeem the mortgage by paying the entire dues of the bank. The respondent bank had contested the said application by filing the objection dated 21.1.2014. The proceedings before DRT was culminated with the order dated 11.5.2015, whereby the objections taken by the petitioner/borrower to the validity of the auction sale has been turned down. Resultantly, the securitisation application was dismissed on merits. This order was challenged in appeal which has been dismissed vide order dated 25.7.2018 passed by the DRAT. Hence this petition.
The orders impugned are challenged in the present petition with the assertion that the entire auction sale held on 6.11.2013 was illegal for non-compliance of the mandatory procedure prescribed under Rule 8(6) readwith Rule 9(1) of the Rules, 2002.
It is contended that Rule 8(6) requires service of 30 days clear notice before sale of immovable 'Secured Assets'. Rule 9(1) provides that no sale of immovable property shall take place before the expiry of 30 days from the date on which the public notice of sale has been published in the newspapers or notice of sale has been served to the borrower. As in the instant case, clear 30 days notice has not been given to the borrower neither the requirement of Rule 8(6) nor of Rule 9(1), have been fulfilled. The sale is, thus, unconstitutional and is liable to be set aside.
Reliance placed upon the judgments of the Apex Court in Mathew Varghese vs. M. Amritha Kumar and others1, Vasu P Shetty vs. Hotel Vandana Palace & others2 and J. Rajiv Subramaniyan and another vs. M/s. Pandiyas & others3 to submit that the sale of immovable Secured Assets in absence of service of 30 days notice i.e. without complying with the provisions of Rules 8 and 9(1), would be unconstitutional and has to be held as null & void.
Reference has also been made to the judgment of Kerala High Court in M/s. K.R.S. Latex (India) Pvt. Ltd. and others vs. The Federal Bank Ltd., Kanjirapally & others4 and the judgment of Andhra Pradesh High Court in Haji Abdul Ghani vs. Central Bank of India and others5 to press the same point.
It is further submitted that the mortgagor's right of redemption survives until completion of sale by the mortgagee by a registered deed i.e. until the sale is completed by registration, the mortgagor does not loose right of redemption. The offer given by the petitioner for redemption of mortgage, in the instant case, before the DRT, prior to completion of sale, could not have been ignored.
Further, it is submitted that the notice dated 29.9.2013 was dispatched on 5.10.2013. The next date i.e. 6.10.2013 being Sunday, at the best, it could have been delivered on 7.10.2013. Therefore, even assuming service of notice on 7.10.2013, the auction sale held on 6.11.2013 would not be said to be after expiry of 30 days of service of notice upon the petitioner. As clear 30 days have not been given, the sale is liable to be set aside on this ground alone. Both the DRT and the DRAT had erred in holding that the requirement of Rule 8(6) readwith Rule 9(1) of the Rules, 2002 had been met in the instant case and 30 days notice was served. They have also erred in holding that the petitioner/borrower had not come forward to redeem the mortgage and his right to seek redemption does not survive with the sale of the Secured Assets.
In the said submission, relevant is to note that the legal position regarding the mandatory nature of notice under Rule 8(6) and the requirement of Rule 9(1) of the Rules, 2002, is fairly well settled, inasmuch as, the sale conducted prior to expiry of 30 days notice either from the date of publication or from the date of service on the borrower, cannot survive. The requirement of giving 30 days notice is a clear pre-requisite evident from the plain reading of Rule 8(6). The prohibition imposed under Rule 9(1) though indicates that the computation of period of 30 days can be either from the date of publication or from the date of notice, but by publication of sale in the newspapers the requirement of sub-rule (6) of giving 30 days notice to the borrower cannot be done away or waived.
In the case of Mathew Varghese (supra), the question arose of interpretation of Section 13(8) of the SARFAESI Act readwith Rules 8 and 9 of the Rules, 2002. Having examined the provisions of Section 13(8), it was held therein that the said provision gives right to a borrower to tender to the Secured Creditor, the dues together with costs, charges and expenses incurred by the Secured Creditor at any time before the date fixed for sale or transfer. In the event of such tender, once made as stipulated in the said provision the mandate is that the Secured Asset should not be sold or transferred by the Secured Creditor. This provision, thus says that no further step should be taken by the Secured Creditor for transfer or sale of the Secured Asset. The contingency stipulated therein is that the debtor i.e. borrower shall tender the dues inclusive of the costs, charges etc. before the date fixed for sale or transfer. Thus under Section 13(8) of the SARFAESI' Act, valuable right of a debtor/borrower has been embedded, who is the owner of the Secured Asset and to whom an opportunity has been given to make all efforts to stop the sale or transfer till the last minute before which the said sale or transfer is to be effected.
It has further been held that the said provisions has been engrafted in the the SARFAESI' Act primarily with a view to protect the right of a borrower, inasmuch as, such an ownership right is a constitutional right protected under Article 300A of the Constitution, which mandates that no person shall be deprived of his property save by authority of law. The secured creditor, on the other hand, act as a trustee of the Secured Asset and can dispose it of only in the manner prescribed in the the SARFAESI' Act. Therefore, Secured Creditor should ensure that the borrower was clearly put to notice of the date and time by which either the sale or transfer will be effected in order to provide the required opportunity to the borrower to take all possible steps for retrieving his property or at least ensure that the sale of the Secured Asset derives the maximum benefits and the Secured Creditor or anyone on its behalf, is not allowed to exploit the situation of the borrower by virtue of the proceedings initiated under the SARFAESI Act. More so, under Section 13(1) of the SARFAESI Act, Secured Creditor is given a free hand to resort to sale of the property without approaching the Court or tribunal.
After going through the procedure under Rules 8 and 9 of the Rules, 2002, it was held that the detailed procedure while resorting to a sale of immovable Secured Asset, prescribed under Rules 8 and 9(1) has got a twin objective to be achieved. In the first place, by virtue of stipulation contained in Section 13(1) read alongwith Rules 8(6) and 9(1), the owner/borrower should have clear notice of 30 days before the date and time when the sale and transfer of Secured Asset would be made, as that alone would enable the owner/borrower to take all efforts to retain his or her ownership by tendering dues of the Secured Creditor before that date and time. Secondly, when such a Secured Asset is brought for sale, the intending purchaser should know the nature of the property, the extent of liability pertaining to the said property, any other encumbrances pertaining to the said property, the minimum price below which one cannot make a bid of the total liability of the borrower to the Secured Creditor. Thus, sub-rule (6) also protects the interest of the intending purchaser to know the entire details about the property brought for sale. However, the paramount objective of this provision is to provide sufficient time and opportunity to the borrower to take all efforts to safeguard his right of ownership either by tendering the dues to the creditor before the date and time of the sale or transfer, or ensure that the Secured Asset derives the maximum price and no one is allowed to exploit vulnerable situation in which the borrower is placed. It was further considered that a mere conferment of power to sale without intervention of the Court in the mortgage deed by itself will not deprive the mortgagor of his right to redemption.
The extinction of the right of redemption has to be subsequent to the execution of the registered deed as the equity of redemption is not extinguished by mere contract for sale. The mortgagor's right to redeem will, thus, survive until there has been completion of sale by the mortgagee by a registered deed. The ratio is thus that the power of sale should not be exercised unless and until notice in writing requiring payment of the principal money has been served on the mortgagor .
It was, thus, concluded in paragraph '53' as under:-
"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 the event of any such sale properly notified after giving 30 days clear notice to the borrower did not take place as scheduled for reasons which cannot be solely attributable to the borrower, the SECURED CREDITOR cannot effect the sale or transfer of the Secured Asset on any subsequent date by relying upon the notification issued earlier. In other words, once the sale does not take place pursuant to a notice issued under Rules 8 and 9, read along with Section 13(8) for which the entire blame cannot be thrown on the borrower, it is imperative that for effecting the sale, the procedure prescribed above will have to be followed afresh, as the notice issued earlier would lapse. In that respect, the only other provision to be noted is sub-rule (8) of Rule 8 as per which sale by any method other than public auction or public tender can be on such terms as may be settled between the parties in writing. As far as sub-rule (8) is concerned, the parties referred to can only relate to the SECURED CREDITOR and the borrower. It is therefore, imperative that for the sale to be effected under Section 13(8), the procedure prescribed under Rule 8 read along with 9(1) has to be necessarily followed, inasmuch as that is the prescription of the law for effecting the sale as has been explained in detail by us in the earlier paragraphs by referring to Sections 13(1), 13(8) and 37, read along with Section 29 and Rule 15. In our considered view any other construction will be doing violence to the provisions of the SARFAESI Act, in particular Section 13(1) and (8) of the said Act."
The legal position as stated in Mathew Varghese (supra) has been followed in another judgment of the Apex Court in J. Rajiv Subramaniyan (supra) decided on 14th March, 2014, which has further been followed in Vasu P Shetty (supra).
Relevant paragraphs '12' and '13' of Vasu P Shetty (supra) are to be quoted as under:-
"12. We may point out, at the outset, that the opinion of the High Court on the interpretation of sub-Rules (5)and (6) of Rule 8 of the Rules is flawless. In this behalf it would be pertinent to mention that there is an imprimatur of this court as identical meaning is assigned to these provisions. In the case of Mathew Varghese v. M. Amritha Kumarr & Ors.; 2014 (2) SCALE 331. The aforesaid judgment has been followed by this very Bench of the Court in C.A. No. 3865 of 2014 titled as J. Rajiv Subramaniyan & Anr. v. M/s Pandiyas & Ors. decided on March 14, 2014, wherein the earlier referred case has been discussed in the following manner:-
"12. This Court in the case of Mathew Varghese Vs. M.Amritha Kumar & Ors. examined the procedure required to be followed by the banks or other financial institutions when the Secured Assets of the borrowers are sought to be sold for settlement of the dues of the banks/financial institutions. The Court examined in detail the provisions of the SARFAESI Act, 2002. The Court also examined the detailed procedure to be followed by the bank/financial institutions under the Rules, 2002. This Court took notice of Rule 8, which relates to Sale of immovable Secured Assets and Rule 9 which relates to time of sale, issue of sale certificate and delivery of possession etc. With regard to Section 13(1), this Court observed that Section 13(1) of SARFAESI Act, 2002 gives a free hand to the secured creditor, for the purpose of enforcing the secured interest without the intervention of Court or Tribunal. But such enforcement should be strictly in conformity with the provisions of the SARFAESI Act, 2002. Thereafter, it is observed as follows:-
'27.....A reading of Section13(1), therefore, is clear to the effect that while on the one hand any SECURED CREDITOR may be entitled to enforce the Secured Asset created in its favour on its own without resorting to any court proceedings or approaching the Tribunal, such enforcement should be in conformity with the other provisions of the SARFAESI Act.'
13. This Court further in Mathew Varghese case observed that the provision contained in Section 13(8) of the SARFAESI Act, 2002 is specifically for the protection of the borrowers in as much as, ownership of the Secured Assets is a constitutional right vested in the borrowers and protected under Article 300A of the Constitution of India. Therefore, the secured creditor as a trustee of the Secured Asset can not deal with the same in any manner it likes and such an asset can be disposed of only in the manner prescribed in the SARFAESI Act, 2002. Therefore, the creditor should ensure that the borrower was clearly put on notice of the date and time by which either the sale or transfer will be effected in order to provide the required opportunity to the borrower to take all possible steps for retrieving his property. Such a notice is also necessary to ensure that the process of sale will ensure that the Secured Assets will be sold to provide maximum benefit to the borrowers. The notice is also necessary to ensure that the secured creditor or any one on its behalf is not allowed to exploit the situation by virtue of proceedings initiated under the SARFAESI Act, 2002.
14. Thereafter, in Paragraph 30, this Court observed as follows:-
"30. Therefore, by virtue of the stipulations contained under the provisions of the SARFAESI Act, in particular, Section 13(8), any sale or transfer of a Secured Asset, cannot take place without duly informing the borrower of the time and date of such sale or transfer in order to enable the borrower to tender the dues of the SECURED CREDITOR with all costs, charges and expenses and any such sale or transfer effected without complying with the said statutory requirement would be a constitutional violation and nullify the ultimate sale."
15. 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.
16. In the present case, there is an additional reason for declaring that sale in favour of the appellant was a nullity. Rule 8(8) of the aforesaid Rules is as under:-
"8. (8) Sale by any method other than public auction or public tender, shall be on such terms as may be settled between the parties in writing."
17. It is not disputed before us that there were no terms settled in writing between the parties that the sale can be affected by Private Treaty. In fact, the borrowers - respondent Nos. 1 and 2 were not even called to the joint meeting between the Bank - Respondent No.3 and Ge-Winn held on 8th December, 2006. Therefore, there was a clear violation of the aforesaid Rules rendering the sale illegal.
18. It must be emphasized that generally proceedings under the SARFAESI Act, 2002 against the borrowers are initiated only when the borrower is in dire-straits. The provisions of the SARFAESI Act, 2002 and the Rules, 2002 have been enacted to ensure that the Secured Asset is not sold for a song. It is expected that all the banks and financial institutions which resort to the extreme measures under the SARFAESI Act, 2002 for sale of the Secured Assets to ensure, that such sale of the asset provides maximum benefit to the borrower by the sale of such asset. Therefore, the secured creditors are expected to take bonafide measures to ensure that there is maximum yield from such Secured Assets for the borrowers. In the present case, Mr. Dhruv Mehta has pointed out that sale consideration is only Rs.10,000/- over the reserve price whereas the property was worth much more. It is not necessary for us to go into this question as, in our opinion, the sale is null and void being in violation of the provision of Section 13 of the SARFAESI Act, 2002 and Rules 8 and 9 of the Rules, 2002."
13. Thus, when the matter is to be examined from this angle it cannot be said that the view of the High Court is perfunctory or flawed. Procedure contained in the aforesaid Rules was admittedly not followed. Notwithstanding this position, Mr. Ranjit Kumar, learned Senior Counsel appearing for the appellant submitted that a contrary view is taken by this Court in General Manager, Sri Siddeshwara Cooperative bank Limited and Anr. v. Ikbal & Ors.; (2013) 10 SCC 83 wherein it is held that the mandatory provision of 30 days notice can be waived by the borrower and in such an eventuality, the sale cannot be voided."
In the light of the aforesaid legal position, the facts of the instant case are to be appreciated.
In the instant case, the notice for auction sale held on 6.11.2013 was sent through registered post/speed post on 5.10.2013. The copy of the receipt of speed post issued from the post office on 5.10.2013 at 9:40 AM had been filed before the DRT alongwith an application at the time of final hearing of the present secutirization application proceedings. The said document was admitted in evidence by the DRT vide order dated 22.9.2014. The order passed by the DRT to admit the said documents on record as has been extracted in the order dated 11.5.2015, reads as under.
"I have heard the counsel for the parties and also gone though the records. The Bank has specifically placed on record by way of certain documents vide I.A. No. 767 of 2014 to place on record compliance of Rule 8(6) i.e. notices along with postal receipts. The said documents were taken on record vide order dated 22.9.2014. I would like to refer the order of said date which is relevant for adjudication of matter in issue on merits which is read as under:-
Counsel for the applicant filed reply to the urgency application and affidavit.
Copy served.
Counsel for the applicant submitted that although the bank has no right to place on record such document but to get decide the matter on merits in a judicious way he has no objection if documents may be taken on record subject to cost and opportunity to rebut the same.
I have heard the counsel for the parties and in view of the statement of counsel for the applicant. The document and affidavit as filed vide I.A. No. 767/14 are taken on record, subject to payment of cost of Rs. 5000/-.
At this stage, counsel for the applicant submitted he has already filed counter affidavit today and same may be taken on record.
The said documents were taken on record as counsel for the applicant submitted his no objection and opportunity was granted to the applicant to rebut the said documents but in rebuttal the applicant had failed to produce any documents. At the time of final arguments and his written submission, the counsel for the applicant submitted that for the want of pleadings, the said documents cannot be considered and further submitted that the said documents are manipulated as on the postal receipts, time of preparation of three postal receipts is 09.40 AM and it appears that the said documents are manipulated one.
I have considered the submissions made on behalf of the applicant. The speed post receipts were issued by postal department and for punching a receipt it takes few seconds and in a minute receipt counter could easily issue three receipts in 60 seconds and as such it is not abnormal or unusual event if Dak Receipt Clerk of postal department issued three receipts with same timings of 9.40 AM. The receipts are otherwise genuine having their parcel code etc. Even otherwise the applicant has failed to place on record any material to rebut the genuineness and authenticity of so produced postal receipts till date."
The DRT has further recorded in paragraph '6' of the order dated 11.5.2015 that the counsel for the applicant submitted that no objection to the said documents taken on record was filed despite opportunity being granted to him to rebut the same. In rebuttal, the applicant has failed to produce any document. At the time of final arguments and in his written statement, the counsel for the applicant only submitted that said documents could not be accepted for want of pleadings and further that they were manufactured/manipulated as three postal receipts could not contain one and the same time of issuance i.e. as 09:40 AM.
The said objections taken by the applicant/borrower have been dealt with by the DRT. It has categorically recorded that the rebuttal of the applicant to assail the genuineness of the receipts cannot be accepted, inasmuch as, they being computerized receipts, it was possible that three receipts could be taken out at the same time i.e. 09:40 AM. Further no other document had been filed by the applicant to assail the genuineness or authenticity of the postal receipts despite sufficient time granted to him, while accepting the same vide order dated 22.9.2014.
Further from the date of dispatch in the said receipts i.e. dated 5.10.2013, considering that the month of October has 31 days, it was held that 30 days clear notice had been served upon the applicant/borrower. The assertion of the borrower regarding impossibility of service of notice on the next date i.e. 6.10.2013 being Sunday, has also been given due consideration.
The appellate tribunal affirmed the findings of the DRT with a different perspective. However, crux of the matter is that the bank had proved sending of notice under Rule 8(6) on 5.10.2013 through speed post. The presumption is of service of notice on the same date. The borrower has not denied that the notice was served on him and he has not disclosed the date on which, it was actually served upon him rather he is trying to assail the service of notice on two grounds as noted below:-
(i) That the notice sent on 5.10.2013 through speed post could not have been delivered on the same day at the local address.
(ii) The next day i.e. 6.10.2013 being Sunday, at the best, notice could have been served on 7.10.2013.
On both these arguments, the date of dispatch of notice i.e. 5.10.2013 being not in dispute and the month of October having 31 days, the assertion of the borrower that clear 30 days notice had not been served upon him, cannot be accepted. The presumption with regard to a notice sent through speed post is of service on the same day on the local address. The burden was upon the borrower/petitioner to rebut the same. No factual situation or documentary evidence had been brought on record by the applicants/borrowers before the tribunal disclosing the date of actual service upon him or to rebut the genuineness/authenticity of the receipts filed by the bank.
The assertion of the applicant/borrower that he came to know about the auction held on 16.11.2013, when he went to the bank on 17.12.2013 for depositing/paying back the outstanding dues in the loan account to redeem his mortgage property is, thus, found to be wholly false.
In such situation, the plea of borrower that the auction sale was hit by Rule 8(6) readwith Rule 9(1) of Rules, 2002, is not worthy of consideration.
As far as the plea of the petitioner/borrower seeking right of redemption of the mortgage prior to the confirmation of sale as per Section 13(8) of the SARFAESI Act, 2002, no material has been brought on record to establish that the entire dues together with all costs, charges and expenses incurred by the Secured Creditor, was tendered to it at any time before the date fixed for sale or transfer. And as such, action of the Secured Creditor to proceed with the auction sale of the Secured Asset on 6.11.2013, cannot be said to be illegal or in contravention of the procedure provided under the Rules, 2002.
It would not be out of place to mention here that as per the disclosure made in the present petition, the outstanding dues of the bank as indicated in the newspapers publications, was Rs. 16 Lakhs and odd with interest till the date of realization and costs, charges and expenses. Whereas even before the DRT, the borrower had deposited an amount of Rs. 10 Lakhs. Rs. 5 Lakhs deposited by him before the appellate tribunal to maintain his appeal, cannot be taken as the deposits made by him to liquidate the debt. Thus, even from taking the total amount of Rs. 15 Lakhs having been deposited by the borrower during the course of proceedings before DRT and DRAT, it cannot be said that he had tendered the entire amount under Section 13(8) of the SARFAESI Act, 2002, to claim for being entitled for redemption of the property/Secured Assets.
On both the counts, the present petition is found devoid of merits and hence dismissed.