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IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
M.S. RAMACHANDRA RAO, JASJIT SINGH BEDI, JJ.
M/s Hoshiarpur Roller Flour Mills Private Limited and Another – Petitioners
Versus
Punjab National Bank, Hoshiarpur and Others – Respondents
CWP No. 14440 of 2021
Decided On : 10-12-2021
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Non-Compliance with Rule 9(1) of the Rules - Summary of Acts and Sections: Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [Section 13(2), Section 13(4), Section 13(8)], Security Interest (Enforcement) Rules 2002 [Rule 9(1)]
Fact of the Case:
The petitioners challenged the sale of their mortgaged properties by the bank, citing non-compliance with Rule 9(1) of the Rules. The court found that the bank violated the provisions of the Act and Rules, and the presiding officer of the Tribunal ignored the court's observations, leading to the sale being set aside.
Finding of the Court:
The court found that the bank's actions violated the mandatory provisions of the Act and Rules, and the presiding officer of the Tribunal failed to consider the court's observations, leading to a violation of Article 14 of the Constitution of India.
Issues: Non-compliance with Rule 9(1) of the Rules, violation of mandatory provisions of the Act and Rules, failure of the presiding officer of the Tribunal to consider court's observations
Ratio Decidendi: The violation of mandatory provisions of the Act and Rules, and the failure of the presiding officer of the Tribunal to consider court's observations led to the setting aside of the sale.
Final Decision: The Writ Petition was allowed, setting aside the orders of the Tribunal and the sale of the properties, and directing the bank to refund the amount paid by the auction purchaser with interest, restore possession of the properties, and conduct a fresh sale in compliance with the Act. The bank was also ordered to pay costs to the petitioners.
JUDGMENT :
M.S. RAMACHANDRA RAO, J.
1. In this writ petition the petitioners have challenged orders dated 10.5.2021 and dated 17.07.2021 passed by the Debt Recovery Appellate Tribunal-I, Chandigarh-respondent No. 3 [for short ‘the Appellate Tribunal’].
Background Facts
2. Petitioner No. 1 is a Company registered under the Companies Act, 1956. Petitioner No. 2 is a partnership firm.
3. Petitioner No. 1 had availed three cash credit limits, an over draft and a term loan totalling Rs.13.40 crore from the Punjab National Bank (respondent No. 1) [for short ‘the Bank].
4. Likewise petitioner No. 2 had also availed credit facilities of Rs.1.10 crore.
5. These loan accounts were declared as Non-Performing Assets on 28.02.2018 by respondent No. 1 (Bank).
6. Notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [for short ‘the Act’] was issued on 22.03.2018 demanding a sum of Rs.12,17,78,873.20 in the loan account of petitioner No. 1 and Rs.1,10,66,996.67 in the loan account of petitioner No. 2.
7. There was settlement between the Bank and petitioner No. 1 on 06.06.2018 to keep the proceedings under the Act on hold subject to the petitioner No. 1 paying without default Rs.13,58,00,000/- with interest at 9.15%.
8. But the settlement did not fructify.
9. Respondent No. 1 (Bank) took symbolic possession of the mortgaged properties on 21.11.2018 invoking Section 13(4) of the Act.
10. Respondent No. 1 (Bank) prepared a sale notice dated 27.11.2020 proposing to sell the mortgaged properties of the petitioners on 15.12.2020, but the same was put in registered post for service on the petitioners by respondent No. 1 on 12.12.2020 three days prior to the sale. It reached the petitioners on 15.12.2020 the date of sale.
CWP-1452-2021
11. Petitioners questioned the action of respondent No. 1 by filing CWP-1452-2021 contending that the sale is null and void.
12. On 21.01.2021, notice was issued and interim stay was granted of all further proceedings pursuant to the said sale notice.
13. The writ petition came to be disposed of on 16.2.2021. The Court recorded the contention of the petitioners that the sale of the property was fixed for 15.12.2020, but notice to the petitioners was put by registered post on 12.12.2020 and the Bank had fragrantly violated the provisions of Rule 9(1) of the Security Interest (Enforcement) Rules 2002 [for short ‘the Rules’].
14. Respondent No. 1 (Bank) raised a plea that since the auction was conducted (though not confirmed), the petitioners have the remedy before the Debt Recovery Tribunal [for short ‘the Tribunal’].
15. The Division Bench recorded a finding that the registered notice was put in the post only on 12.12.2020, and in the written statement filed in the writ petition, this fact had not been denied by respondent No. 1 and had been tried to be explained by claiming it to be a technical error.
16. While observing that the petitioners have an effective and efficacious remedy, the Division Bench recorded a finding that there is no doubt that the registered notice to the petitioners was put in the post only on 12.12.2020 while the auction was fixed for 15.12.2020.
17. It, however, relegated the petitioners to the remedy before the DRT and directed them to file an application before the Tribunal within seven days along with an application for stay, and directed that there shall be stay of further proceedings in the auction till such time as the said application is decided by the Tribunal as per law.
SA No. 40 of 2021
18. The petitioners then filed SA No. 40 of 2021 before the DRTI, Chandigarh (respondent No. 3).
19. The interim stay granted by this Court in CWP-1452-2020 was continued by the Tribunal and so the Bank did not confirm the sale though it had received the single bid of respondent No. 2.
20. A written statement was filed by respondent No. 1 (Bank) before the Tribunal without disputing that the notice was put in post only on 12.12.2020 when the date
The main legal point established in the judgment is the interpretation of Rule 9(4) and 9(5) of the Security Interest (Enforcement) Rules, 2002, highlighting the requirement for the purchaser to pay ....
The right of redemption is available to the mortgagor until the sale is complete by registration of sale, and the violation of statutory rules may entitle the borrower to redeem the property.
The court established that strict adherence to notice requirements under the Securitization Act is essential to protect a borrower's right of redemption.
Compliance with statutory notice requirements is imperative in mortgage auctions; failures may invalidate the sale, preserving the mortgagor's right of redemption until formal sale registration.
The main legal point established in the judgment is the mandatory requirement of a 15-day notice for subsequent sales under Rule 9(1) of the SARFAESI Act and the importance of clear notice to the bor....
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