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SUPREME COURT OF INDIA
Dipak Misra, A.M. Khanwilkar, Mohan M. Shantanagoudar, JJ.
Canara Bank – Appellant
Versus
M. Amarender Reddy & Anr. – Respondents
Civil Appeal No. 3411 of 2017 (Arising out of S.L.P. (C) No. 19118 of 2016)
Decided On : 02-03-2017
(B) Security Interest (Enforcement) Rules, 2002 – Rule 8 (6) read with Rule 9 – Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Section 13(2) – Sale of secured asset – Requirement of notice to borrower by secured creditor – Only restriction placed on secured creditor is to serve a notice of 30 days on borrower intimating him about its intention to sell immovable secured asset and mode and date fixed for sale; and also to issue a public notice in two leading newspapers if sale of such secured asset is effected either by inviting tenders or by holding public auction notifying date of sale after 30 clear days from such notice – There is no need to wait for expiry of 30 days from issuance of notice of intention to sell secured asset given to borrower for publication of a public notice for sale of such asset – Nor is there any requirement to give a separate individual notice prior to deciding on mode of sale of secured asset – In present case, as public auction sale has not materialized, appellant may have to resort to a fresh public notice for sale of secured asset of respondent if outstanding liability is still unpaid and sale is to be effected either by inviting tenders from public or by holding public auction. (Paras 12, 14 and 15)
Facts of Case:
Present appeal by appellant bank questions view expressed by Division Bench of High Court of Judicature at Hyderabad for State of Telangana and State of Andhra Pradesh in Writ Petition to the extent it has held that Rule 8 (6) read with Rule 9 of Security Interest (Enforcement) Rules, 2002 mandates that secured creditor must put borrower on a separate individual notice prior to deciding on mode of sale of secured asset. Further, such notice should be in addition to the notice of 30 days duration to be given by secured creditor conveying its intention to put secured asset on sale which is mandatory.
Findings of Court:
High Court has committed a manifest error in assuming that notice of intention of sale to be given to borrower and a public notice for sale cannot be simultaneously issued. High Court was also not right in observing that after a notice regarding intention to sell secured asset under sub-rule 6 of Rule 8 is given by authorized officer to borrower, only on expiry of 30 days therefrom can secured creditor take a decision about mode of sale referred to in sub-rule 5 of Rule 8 after giving notice to borrower and then issue a public notice after expiry of further thirty days. By this interpretation, High Court has virtually re-written provisions and inevitably extended time frame of 30 days specified in sub-rule 6 of Rule 8 (at least in relation to sale of secured asset by inviting tenders from public or by holding public auction).
Result : Appeal allowed.
The legal document clarifies that under the relevant statutes and rules governing the enforcement of security interests, there is no statutory requirement for a secured creditor to issue a separate individual notice to the borrower prior to deciding on the mode of sale of the secured asset. The key mandatory notice is a 30-day notice of intention to sell, which must be served to the borrower, and this notice can be issued simultaneously with a public notice of sale, provided there is a clear 30-day gap before the sale date. The purpose of these notices is to inform the borrower of the impending sale and the mode of sale, such as inviting tenders or conducting a public auction, so that the borrower and potential bidders are adequately informed. It is also emphasized that the sale of immovable secured assets must be conducted in accordance with prescribed procedures, including proper notices and preservation measures, to ensure the sale is valid and legally compliant. The high court's view that a separate individual notice is mandatory prior to deciding the mode of sale has been overturned, affirming that the existing legal framework permits issuing notices concurrently and does not mandate a separate individual notice apart from the statutory 30-day notice of sale.
JUDGMENT
A.M. Khanwilkar, J.
This appeal by the appellant bank questions the view expressed by the Division Bench of the High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh in Writ Petition No.39735 of 2015 dated 11.04.2016 to the extent it has held that Rule 8 (6) read with Rule 9 of the Security Interest (Enforcement) Rules, 2002 (for short `the said Rules') mandates that the secured creditor must put the borrower on a separate individual notice prior to deciding on the mode of sale of the secured asset. Further, such notice should be in addition to the notice of 30 days duration to be given by the secured creditor conveying its intention to put the secured asset on sale, which is mandatory. The relevant portion of the High Court decision, which is impugned in this appeal reads thus:
".. . . . . . . . . .
The Supreme Court has clearly enunciated that a reading of sub-rule (6) of Rule 8 and sub-rule (1) of Rule 9 of the Rules together, the service of individual notice to the borrower specifying a clear 30 days time gap for effecting sale of immovable secured asset is a Statutory mandate. Hence, use of the expression `or' found in Rule 9(1) of the Rules is only appropriate to be read as `and', as that alone would be in consonance with sub-section (8) of Section 13 of the Act.
We may also add that a notice of intended sale by providing a clear 30 days time to the borrower preceding any decision to sell away the secured asset would, in fact, be in consonance with the mandate of the provision contained in sub-section (8) of Section 13 of the Act, as it is too well known that the Rules made under a Statute are only essentially intended to secure effective implementation of the provisions contained in the Statute. In our opinion, therefore, putting the borrower on notice of 30 days duration by the secured creditor conveying the intention to put the secured asset to sale is mandatory. Such notice would be applicable even if the secured creditor later on decides to adopt any one of those four methods provided in clauses (a) to (d) of sub-rule (5) of Rule 8 of the Rules. As was already noticed supra, in cases of obtaining quotations from persons dealing with similar secured assets and also by entering into a private treaty, may not require publication of the intended sale in newspapers. Hence, without, first of all, putting the borrower on notice, threatening that the prospects of liquidation of the secured asset by any of the methods specified under sub-rule (5) of rule 8 of the Rules would not only sub-serve the object behind sub-section (8) of Section 13 of the Act, but would, in fact, enhance the efficacy of realizing/securitizing the secured asset. As was already held by us, the secured asset is liable to be sold only in the event of default persisting in liquidating the liability. In other words, only when the borrower commits a default in payment of the outstanding liability, in spite of the notice threatening with intended sale of the secured asset, the actual sale notification can follow, but not otherwise.
In the instant case, the secured creditor has put the borrower on one single notice of sale, which was also published in two newspapers, but, he has not put the borrower on a separate individual notice prior to deciding on the mode of sale of the secured asset. For this reason, we are of the opinion that the sale undertaken pursuant to the sale notification is vitiated for want of not providing the opportunity of 30 days clear time before undertaking the actual sale".
(emphasis supplied)
2. On that reasoning, the High Court concluded that the subject sale notification issued by the appellant did not conform to the stated mandatory requirement and was thus vitiated on that count. The High Court, however, preserved the remedy of the appellant bank to proceed further, including to resort to sale of the secured asset, if the borrower has failed to clear the outstanding liability, by publish
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