Ashok Menon, Chairperson
1. The Central Bank of India is in appeal challenging the order dated 22.02.2015 allowing Securitisation Application (S.A) No. 4 of 2014 on the files of the Debts Recovery Tribunal- I, Ahmedabad (D.R.T) filed under Sec. 17(1) of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (“SARFAESI Act”, for short) by respondent No.1 challenging Sarfaesi measures concerning the secured assets.
2. The first respondent is the borrower/guarantor/mortgagor who availed an overdraft facility of ₹50 lakhs for his business by creating an equitable mortgage on 17.02 .2012 in respect of Shop No. 5, Adm. 2068 sq. ft. 3rd floor, Sardar Patel Mall, Mauje Nikol, Naroda Road, Ahmedabad (the subject property). The debt was not repaid in time resulting in the classification of the account as a non-performing asset (NPA) on 16.10.2012 followed by the issuance of a demand notice under Sec.13(2) of the SARFAESI Act on 19.10.2012 demanding an outstanding debt of ₹52,14,924/- together with interest. Respondent No.1 did not make any representation nor raise any objections as under sec. 13(3-A) of the SARFAESI Act. Thereafter, symbolic possession of the subject property was taken on 17.01.2013 followed by the publication of a possession notice in two newspapers. After an order obtained from the District Magistrate under Sec. 14 of the SARFAESI Act, on 02.02.2013, physical possession of the property was taken.
3. Thereafter, the appellant issued an auction sale notice on 28.11.2013 for the auction sale of the subject property scheduled on 30.12.2013 at a reserve price of ₹45 lakhs. The auction notice was published in two newspapers including one in vernacular.
4. On 02.12.2013 the first respondent approached the appellant with a letter undertaking to settle the entire debt stating that after taking possession of the subject property a sum of ₹5,12,500/- was paid to the bank between March 2013 to June 2013. He agreed to pay ₹47 lakhs towards a full and final settlement of the debt. Towards this agreed sum, he undertook to pay ₹20 lakhs upfront on 12.12.2013 and the balance of ₹27 lakhs on 22.12.2013. He also undertook that in case he fails to deposit the amount as agreed, the bank would be at liberty to continue the recovery proceedings. On payment of the entire amount, he requested that the recovery proceedings be stopped and the possession of property restored to him and a ‘No Objection Certificate’ (NOC) be issued. The first respondent could not comply with this undertaking.
5. On submissions made before D.R.T. on 15.01.2014, it was observed that the highest bidder had already deposited 25% of the bid amount and the balance 75% remains to be paid. Given the interest evinced by the borrower to redeem the property, the D.R.T. opined that the proposal being good the bank should accept it. Thus, ₹55 lakhs was calculated as the approximate outstanding amount of debt. A detailed breakup of the outstanding dues was directed to be submitted by the bank in seven days to enable the borrower to deposit the entire amount within 15 days i.e., on or before 31.01.2014. The borrower was directed to deposit at least ₹15 lakhs on or before 25.01.2014 to prove his bonafide. Given the submissions made, the bank was directed to hold itself from accepting the balance 75% of the bid amount. It was made clear that in the event of the borrower failing to deposit ₹15 lakhs on or before 25.01.2014, the authorized officer was at liberty to proceed further with the auction.
6. The borrower did not comply with the undertaking made before the D.R.T. to pay the amount and accordingly the sale was made absolute and the sale certificate was issued in favour of the second respondent on 25.02.2014.
7. The first respondent applied for amendment of the S.A. incorporating a challenge to the auction sale and the sale certificate issued. In the impugned order, the D.R.T. held that the objection regarding non-service of demand notice under Sec. 13(2) of the SRAFAESI Act on the borrower is not sustainable. Nevertheless, the objection regarding the failure to publish notice of taking over physical possession of the property was upheld as fatal. The bank was also found at fault for not serving a notice of the auction on the borrower. Respondent No.2 who is the auction purchaser of the subject property intervened during the pendency of S.A.
8. The DRT also found fault with the bank for having charged ₹1,71,766/- towards charges paid to the enforcement agency. For the foregoing reasons, the Sarfaesi action taken by the bank was ordered to be quashed and the sale was set aside, and the possession of the property was directed to be restored to the borrower. Aggrieved, by the order, the bank is in appeal.
9. The two major objections taken by the applicants in the S.A. are first that the publication was not made after taking actual possession of the subject property. Secondly, that notice was not affixed or served on the borrower 30 days before conducting the sale.
10. There is no dispute that there is no dichotomy between symbolic and actual possession of the property. Rule 8(2) Security Interest (Enforcement) Rules, 2002, reads thus:
“(2) the possession notice as refers to sub-rule (1) shall also be published, as soon as possible, in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorized officer.”
11. A reading of the sub-rule indicates that, where the secured asset is an immovable property, the authorized officer shall take or cause to be taken possession, by delivering a notice to the borrower, by fixing the possession notice on the property, and by publishing in newspapers. No separate publication is required while taking physical possession of the property if compliance is made after taking symbolic possession. Sub-rule (3) to Rule 8 relating to taking possession of the immovable property actually by the authorised officer does not contemplate a further publication in newspapers. Under the circumstances, I find that publication of notice need not be repeated while taking actual possession if sufficient compliance of sub-rule (2) is made after taking symbolic possession of the property. I find support in the decision of the Hon’ble Supreme Court in Standard Chartered Bank vs. V. Noble Kumar & Ors. (2013) 9 SCC 620 wherein, it is held that where the secured creditor gives requisite notice under Rule 8(1) and does not meet with any resistance, the authorised officer can proceed to take steps as stipulated under Rule 8(2) and take possession and, thereafter, for sale of the secured asset and the mechanism to approach the Magistrate to take the physical possession under Sec. 14 would arise only if it is necessary. The Magistrate in ordering possession need not give notice to the borrower.
12. Coming to the objection regarding non-service of a notice on the borrower about the auction sale, it has to be noted that publication in two newspapers, one of which is in the vernacular was made on 28. 11.2013 and the auction sale was on 30.12.2013. There is sufficient compliance concerning that. However, the relevant portion of sub-rule (6) of Rule 8 reads thus:
“ (6) The authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule 5:
Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers, one in vernacular language having sufficient language in the locality--- ------"
13. A reading of the sub-rule would indicate that publication of notice in newspapers is over and above the personal service of notice on the borrower. The decision of the Hon’ble Supreme Court in Mathew Varghese vs. Amritha Kumar & Ors 2014 SCC OnLine SC 115 also would insist on serving a thirty days notice on the borrower before conducting the auction sale. The bank has not produced any documents to establish service of personal notice on the borrower. Hence, there appears to be a part violation of sub-rule (6) of Rule 8 as opined by the D.R.T. in the impugned order.
14. Now it is to be examined whether a waiver of the mandatory provision under sub-rule (6) is possible. In Shri Siddeshwar Co-operative Bank Vs. Ikbal (2013) 10 SCC 83 the Hon’ble Supreme Court held thus:
“19. There is no doubt that Rule 9 (1) is mandatory but this provision is definitely for the benefit of the borrower. Similarly, Rule 9(3) and 9(4) are for the benefit of the secured creditor (or in any case for the benefit of the borrower). It is settled position in law that even if a provision is mandatory, it can always be waived by a party (or parties) for whose benefit such provision have been made. The provision in Rule 9(1) being for the benefit of the borrower and the provisions contained in Rule 9(3) and 9(4) being for the benefit of the secured creditor (or for that matter for the benefit of the borrower), the secured creditor and the borrower can lawfully waive their rights. These provisions neither expressly nor contextually indicate otherwise. Obviously, the question whether there is waiver or not depends on facts of each case and no hard-and-fast rule can be laid down in this regard.”
15. Applying the above principles to the case in hand, it has to be observed that the first respondent had waived the challenge to Rule 8(6) because soon after the auction notice was published on 28. 11.2013, he had approached the bank with a letter on 02.12.2013 offering a settlement. He did not comply with that undertaking and then again after the sale had concluded, he approached the D.R.T. with an offer to pay off the debt. The D.R.T. vide order dated 15.01.2014 directed the bank not to proceed to receive 75% of the balance bid amount from the auction purchaser allowing the borrower to pay the amount and redeem the property. Liberty was granted to the bank to confirm the sale and to accept the balance sale consideration in case the borrower failed to make payment as undertaken. The borrower again failed to make any payment and consequently, the balance sale consideration was accepted from the auction purchaser, and a sale certificate was issued on 25.02.2014. It is only by way of an amendment that a challenge to the sale was raised by the borrower in the S.A. Given the offer made by the borrower to the appellant, it has to be assumed that he had waived his challenge to the Sarfaesi measures preceding the sale.
16. The Hon’ble Supreme Court has ARCE Polymer Pvt Limited Vs. Alphine Pharmaceuticals and Ors (2022) 2 SCC 221 held thus:
“14. Waiver is an intentional relinquishment of a known right. Waiver applies when a party knows the material facts and is cognizant of the legal rights in that matter, and yet for some consideration consciously abandons the existing legal right, advantage, benefit, claim or privilege. Waiver can be contractual or by express conduct in consideration of some compromise. However, a statutory right may also be waived by implied conduct, like, by wanting to take a chance of a favourable decision. The fact that the other side has acted on it, is sufficient consideration. It is correct that waiver being an intentional relinquishment is not to be inferred by the mere failure to take an action, but the present case is of repeated positive acts post the notices under sections 13(2) and (4) of the SARFAESI Act. Not only did the borrower not question or object to the action of the bank, but it by express and deliberate conduct had asked the bank to compromise its position and alter the contractual terms. The borrower wrote repeated request letters for restructuring of loan, which prayers were considered by the bank by giving indulgence, time and opportunities. The borrower, aware and conscious of its rights, chose to abandon the statutory claim and took its chance and even procured favourable decisions. Even if we are to assume that the borrower did not waive the remedy, its conduct had put the bank in a position where they have lost time, and suffered on account of delay and laches, which aspects are material. Action on the subject property was delayed by more than a year as at the behest of the borrower, the bank gave them a long rope to regularize the account. To ignore the conduct of the borrower would not be reasonable to the bank once third party rights have been created. In this back ground, the principle of equitable estoppel as a rule of evidence bars the borrower from complaining of violation.”
Applying these principles to the case in hand, it has to be held that the borrower is estopped from raising any challenge to the Sarfaesi measures including the sale because of his voluntary act of offering to settle the dues in a time-bound manner and then failing to comply with that.
The D.R.T. was therefore not justified in allowing the S.A. Hence, the appeal is allowed and the impugned order is quashed and set aside.
