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SUPREME COURT OF INDIA
SANJIV KHANNA, DIPANKAR DATTA, JJ.
Bombay Mercantile Cooperative Bank Ltd. Through Its Authorized Signatory – Appellant
Versus
M/s U.P. Gun House & Ors. – Respondents
Civil Appeal Nos. 6244-6245 of 2021
Decided On : 22-01-2024
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Section 13(4) – Security Interest (Enforcement) Rules, 2002 – Rules 8 and 9 – Constitution of India – Article 142 – Non-Performing Asset – Auction sale of secured asset – Service of notice in terms of Rules 8 and 9 of 2002 Rules is mandatory – There is lapse on part of appellant, as they did not maintain proper records of service of notice – Parallely, Court cannot be oblivious to the fact that respondent was entirely aware of auction process in terms of notice – Auction purchaser had constructed flats which had been sold to various third parties – Exercising our power under Article 142 of Constitution of India, directed that appellant -Cooperative Bank will pay amount of Rupees fifty four lakhs only to respondent in full and final settlement of his claims – Impugned orders set aside and sale by appellant in favour of auction purchaser upheld and confirmed. (Paras 25, 26 and 27)
Facts of the case:
Appellant handed over possession of property to auction purchaser, and a sale deed was executed in his favour on 21.03.2013. The auction purchaser had constructed flats on the property, which have been sold and transferred to third parties. Respondent had challenged service of auction notice dated 30.11.2012, which plea has been accepted by Debts Recovery Tribunal at Lucknow, by quashing the auction vide judgment and order dated 30.10.2017. This order has been upheld by the Debts Recovery Appellate Tribunal at Allahabad and High Court.
Findings of Court:
In case, payment is not made by appellant within aforesaid period, they shall be liable to pay an interest on Rs.54,00,000/-, at the rate of 12% (twelve percent) per annum, from date of this order till date of actual payment.
Result : Appeals allowed.
ORDER :
1. We have heard learned counsel for the appellant -Bombay Mercantile Cooperative Bank Ltd.,1[For short, “Cooperative Bank” or “appellant”.], Saeedul Hasan Khan, the sole proprietor of respondent no. 1 -M/s. U.P. Gun House,2[For short, “Gun House” or “respondent”.], who appears in person and Mr. Shubhranshu Padhi, learned amicus curiae.
2. The facts of the present case are peculiar.
3. In 1996, Saeedul Hasan Khan, sole proprietor of the Gun House took loan of Rs. 2,00,000/-(rupees two lakhs only) from the Cooperative Bank to establish a firearms business. The loan was secured by mortgaging immovable property,3[Measuring 3300 square feet, situated at Plot Nos. 25 and 26, Khasra no. 419, Nagaria, Radhagram Yojna, Thakurganj, Lucknow, Uttar Pradesh (for short, “the property”).].
4. On 30.02.2002, the loan was declared a Non-Performing Asset, as an amount of Rs.2,39,812.41 (rupees two lakhs thirty nine thousand eight hundred twelve and forty one paisa only) was due and payable.
5. One-time settlement offer did not materialise due to the respondent’s failure to pay.
6. On 22.03.2006 notice in re the property was issued under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002,4[For short, “SARFAESI Act”.]. By then, the outstanding amount had increased to Rs.6,23,809/-(rupees six lakhs twenty three thousand eight hundred nine only).
7. On 09.07.2009, upon the respondent’s failure to pay, Cooperative Bank took symbolic possession of the property. On 22.07.2009, possession notice was published in the newspaper, namely, Rashtriya Sahara.
8. The appellant approached the Court of District Magistrate/Collector, at Lucknow by filing a petition,5[Petition No. 499/2010.] under Section 14 of the SARFAESI Act for taking physical possession. Despite service, the respondent did not appear and an ex parte order was passed on 02.12.2010. The respondent filed an application,6[Petition No. 16/2011.] for recall of this order, which was dismissed on 07.07.2011, observing that the respondent had been granted sufficient time to make payment but had failed.
9. Pursuant to the respondent’s request letter dated 03.11.2011, the appellant accepted the respondent’s One Time Settlement,7[For short, “OTS”.] proposal of Rs.6,36,860/-(rupees six lakhs thirty six thousand eight hundred sixty only). At that time, the total outstanding amount was Rs.15,37,083.41 (rupees fifteen lakhs thirty seven thousand eighty three and forty one paisa only). The respondent made initial payment of Rs.50,000/-(rupees fifty thousand only), but failed to pay the balance amount of Rs.5,86,860/-(rupees five lakhs eighty six thousand eight hundred sixty only), which was due and payable on or before 29.03.2012.
10. On 07.04.2012, the appellant informed the respondent that the OTS proposal stood revoked and the respondent was as on 31.03.2012 liable to pay Rs.15,91,424/-(rupees fifteen lakhs ninety one thousand four hundred twenty four only).
11. On 14.07.2012, the appellant took possession of the property, and inventory of the immovable assets was made.
12. A valuation report estimated the value of the property to be Rs.29,70,000/-(rupees twenty nine lakhs seventy thousand only). However, the forced sale value of the property was fixed at Rs.22,28,000/-(rupees twenty two lakhs twenty eight thousand only).
13. On 30.11.2012, the appellant states that they had sent an auction notice to the respondent, indicating that an auction of the property was scheduled to be held on 31.12.2012. On 30.11.2012 itself, auction sale notice was published in two newspapers.
14. On 14.12.2012, the respondent challenged the auction sale by filing a writ petition,8[Writ Petition No. 10530 (M/B)/2012] before the Lucknow Bench of the High Court of Judicature at Allahabad. The writ petition was dismissed vide order dated 20.12.2012 as not maintainable.
15. At this stage, we must notice, that the respondent disputes service of notice dated 30.11.2012 f
Auction sale of secured asset – Service of notice in terms of Rules 8 and 9 of 2002 Rules is mandatory.
SARFAESI sale notice must be individually served on borrower with 30 days notice and full property description including buildings; defective notice and excessive sale of divisible assets vitiate pro....
The court affirmed the validity of auction proceedings under the SARFAESI Act, emphasizing compliance with mandatory notice provisions is essential, and that prior acknowledgment of debts restricts o....
The demand notice issued under Section 13(2) of the SARFAESI Act must comply with the requirements of Rule 3(5) and Section 13(8) of the Act, which includes inviting the attention of the borrower to ....
Mandatory compliance with procedural requirements under the SARFAESI Act is essential; failure to adhere prejudices borrowers' rights and invalidates auction proceedings.
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