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SUPREME COURT OF INDIA
L. NAGESWARA RAO, HEMANT GUPTA, AJAY RASTOGI, JJ.
M/s. L&T Housing Finance Limited - Appellant
Versus
M/s. Trishul Developers And Anr - Respondent
Civil Appeal Nos. 3413 of 2020 (Arising out of SLP(C) Nos. 18360 of 2019)
Decided On : 27-10-2020
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Sections 13(4) and 14 – Recovery of debt – Possession notices – Respondents from initial stage are aware of procedure which is being followed by appellant in its correspondence while dealing with its customers and that is same practice being followed by appellant when demand notice was served at a later stage – No objection was indeed raised by respondents in regard to defect if any, in demand notice which was served by secured creditor in compliance to provisions of SARFAESI Act or in furtherance to proceedings initiated at behest of appellant under Section 13(4) read with Section 14 of Act – Respondents (borrower) did not deny advancement of loan, execution of Facility Agreement, their liability and compliance of procedure being followed by secured creditor (appellant) prescribed under SARFAESI Act – When action has been taken by competent authority as per procedure prescribed by law and person affected has knowledge leaving no ambiguity or confusion in initiating proceedings under provisions of SARFAESI Act by secured creditor, such action taken thereof cannot be held to be bad in law merely on raising a trivial objection which has no legs to stand unless person is able to show any substantial prejudice being caused on account of procedural lapse – No interference in demand notice by High Court in its limited scope of judicial review was called for – Impugned judgment passed by High Court quashed and set aside. (Paras 16, 17, 18, 19, 20, 21 and 22)
Facts of the case:
Instant appeal is directed against impugned judgment and order passed by the Division Bench of High Court of Karnataka at Bengaluru in Writ Petition wherein High Court while reversing the finding returned by Debt Recovery Appellate Tribunal in its order dated 16th April, 2019, upheld order of Debt Recovery Tribunal quashing demand notice served on respondents (borrower) under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 followed with possession notices.
Findings of Court:
Objection raised by the respondents was trivial and technical in nature and the appellant (secured creditor) has complied with procedure prescribed under the SARFAESI Act. At the same time, objection raised by the respondents in the first instance, at the stage of filing of a Securitisation Application before DRT under the SARFAESI Act is a feeble attempt which has persuaded the Tribunal and the High Court to negate proceedings initiated by the appellant under the SARFAESI Act, is unsustainable.
Result : Appeal allowed.
Certainly. Based on the provided legal document, here are the key points:
The Court emphasized that debt recovery proceedings should not be halted or interdicted without justifiable reasons. Procedural compliance by the secured creditor is crucial in initiating and continuing proceedings under the SARFAESI Act (!) .
When the competent authority has taken action following the prescribed legal procedures, and the affected person has clear knowledge of the proceedings, such action cannot be deemed invalid solely on trivial procedural objections that lack substantive merit. Unless substantial prejudice is demonstrated, procedural lapses do not invalidate the proceedings (!) (!) .
The case involved a secured creditor (a housing finance company) who followed the correct procedure for recovery under the SARFAESI Act, including issuing demand notices and serving them on the borrower based on a valid Facility Agreement. The use of a common letterhead by the creditor, despite a minor human error in the company name, was considered a technical lapse that did not affect the validity of the proceedings (!) (!) .
The borrower was aware of the proceedings, and there was no denial of the loan, execution of the security agreement, or liability by the borrower. The objection raised regarding the technicality of the company name on the notice was deemed trivial and not sufficient to invalidate the recovery process (!) (!) .
The Court held that procedural irregularities that do not cause substantial prejudice or confusion should not impede the enforcement process. The secured creditor's actions, taken in accordance with the law, were considered valid, and the proceedings should not be invalidated on technical grounds alone (!) (!) .
The Court noted that the High Court's interference, based on minor procedural issues, was unwarranted, and the appeal should be allowed to uphold the validity of the recovery process initiated under the SARFAESI Act (!) .
Ultimately, the Court set aside the impugned judgment of the High Court, reaffirming that procedural compliance and the absence of substantial prejudice are key factors in validating debt recovery actions under the SARFAESI framework (!) .
Would you like me to prepare a specific legal opinion or advise based on these points?
JUDGMENT :
AJAY RASTOGI, J.
1. The instant appeal is directed against the impugned judgment and order dated 27th June, 2019 passed by the Division Bench of the High Court of Karnataka at Bengaluru in Writ Petition No.22137 of 2019 wherein the High Court while reversing the finding returned by the Debt Recovery Appellate Tribunal in its order dated 16th April, 2019, upheld the order of the Debt Recovery Tribunal dated 23rd March, 2018 quashing the demand notice dated 14th June, 2017 served on the respondents (borrower) under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the “SARFAESI Act”) followed with the possession notices dated 09th November, 2017 and 10th November, 2017.
2. Brief facts of the case are that the appellant is a Housing Finance Company under National Housing Bank Act, 1987 and is notified as Financial Institution by the Department of Finance (Central Government) in exercise of the powers conferred by subclause (iv) of clause (m) of subsection (1) of Section 2 of the SARFAESI Act. The appellant indeed falls within the definition of “secured creditor” under the provisions of the SARFAESI Act and is entitled to initiate measures under the provision of the SARFAESI Act for enforcement of security interest created on the secured assets by the respondents (borrower/guarantor) in favour of the appellant (secured creditor).
3. Section 2(zd) of the SARFAESI Act which defines “secured creditor”, reads as follows:
….
(zd) “secured creditor" means
(i) any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause (l);
(ii) debenture trustee appointed by any bank or financial institution; or
(iii) an asset reconstruction company whether acting as such or managing a trust set up by such asset reconstruction company for the securitisation or reconstruction, as the case may be; or
(iv) debenture trustee registered with the Board appointed by any company for secured debt securities; or
(v) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created by any borrower for due repayment of any financial assistance.
….”
4. The first respondent is a partnership firm registered under the Partnership Act, 1932 and is dealing in the real estate construction business as alleged and the second respondent is the partner of first respondent firm. The first respondent and its partners in carrying out its business obligations approached the appellant for seeking financial assistance and submitted a request to the appellant vide application dated 15th May, 2015 for term loan of Rs.20 crores for completion of its project (“Mittal Palms, Phase-I”).
5. The appellant taking note of the request made by the respondents sanctioned Term Loan Facility to the tune of Rs. 20 crores towards completion of the project vide sanction letter dated 07th August, 2015 on such terms and conditions as set out in the sanction letter and for availing the above credit facility, the respondents executed Facility Agreement dated 11th August, 2015 along with security documents by mortgaging the various immovable properties as a security for creating security interest in favour of the appellant. It may be relevant to note that the sanction letter dated 07th August, 2015 (P1) duly signed by the authorised signatory of “L&T Housing Finance Ltd.” for execution of the Facility Agreement and effecting all compliance as required to the satisfaction of the lender was accepted and signed by the authorised signatory on behalf of the first respondent and also by the guarantors clearly demonstrates that on the top of the letterhead towards right, the name of the company is mentioned “L&T Finance (Home Loans)” and in the
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