R. D. Khare, Chairperson
1. The present appeal has been filed under section 18 of the SARFAESI Act, 2002 against the judgment dated 01.11.2021 passed by the DRT, Allahabad, whereby the S.A. No. 496/2019 filed by the borrowers was allowed.
2. The brief facts of the case are that the respondents no. 1 was granted some financial assistance by the appellant-Bank. In order to secure the said facility, the respondent No. 2 stood as guarantor and created equitable mortgage over his property with the Bank. The borrower did not maintain the financial discipline, therefore, the account was classified as NPA on 28.06.2018 and demand notice dated 31.08.2018 under section 13(2) of the SARFAESI Act, 2002 was issued for a sum of Rs. 13,13,294/-. Since the borrower did not pay any heed to the demand raised by the Bank, hence possession notice dated 28.12.2018 was issued under section 13(4) of the SARFAESI Act. Thereafter, the appellant-Bank issued sale notice dated 14.06.2019 scheduling auction of the property on 24.07.2019. The respondents No. 1 and 2 challenged the sale notice dated 14.06.2019 alleging that the possession notice and the sale notice have never been served upon them.
3. During pendency of the S.A., the appellant-Bank obtained an order dated 13.02.2020 from the concerned District Magistrate, which was challenged by the S.A. applicants by filing an I.A. No. 1377/2021, which was allowed and the S.A. was amended accordingly.
4. The Tribunal below has allowed the aforesaid S.A. setting aside the e-auction sale notice dated 14.06.2019 and the auction sale dated 24.07.2019 as well as the Bank has been directed to return the auction amount to the auction purchaser within 15 days. It has further been held that the Bank had got the property valued prior to the symbolic possession, which is illegal in view of Rule 8(5) of the Security Interest (Enforcement) Rules, 2002. Being aggrieved by the said order, the present appeal has been filed by the appellant.
5. Learned counsel for the appellant has drawn attention of this Tribunal to Rule 5 of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as “the Rules, 2002”) regarding valuation of movable secured assets and has argued that for valuation of movable secured assets, it is provided that after taking possession under sub-rule (1) of Rule 4, in any case before sale, the authorized officer shall obtain the estimated value of the movable secured assets and thereafter, if considered necessary, fix in consultation with the secured creditor, the reserve price of the assets to be sold for realization of the dues of the secured creditor, whereas Rule 8(5) of the said Rules provides for immovable property and the said Rule says that “before effecting sale of the immovable property referred to in sub-rule (1) of Rule 9, the authorized officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property”.
6. It was contended on behalf of the appellant that the securitization application filed by the borrower has been allowed by the Tribunal below setting aside the sale solely on the ground that the valuation was obtained before taking symbolic possession of the secured assets, whereas the said ground was never taken by the borrowers before the Tribunal below. It was also contended that the S.A. filed by the borrower was barred by the limitation and the application for condonation of delay was filed along with the S.A., but the Tribunal below without deciding the delay condonation application has decided the said S.A. on merits, hence order impugned is not sustainable, therefore, the appeal may be allowed and the case may be remanded back to the Tribunal below to decide it afresh in accordance with law.
7. Learned counsel for the respondents No. 1 and 2-borrowers submitted that the S.A. was filed on 26.08.2019 before the DRT, Allahabad challenging the sale notice dated 14.06.2019 along with application for condonation of delay. The appellant-Bank had auctioned the property on 24.07.2019 and during pendency of the S.A., the Bank had issued the sale certificate on 22.10.2019 and executed the sale deed on 05.11.2019 in favour of the auction purchaser. It was further submitted that the Bank had obtained an order dated 13.02.2020 under section 14 of the SARFAESI Act, but the respondents are still in possession of the property in question.
8. It was also submitted by the learned counsel for the respondents-borrowers that the loan account was classified as NPA on 28.06.2018 without following the norms of the Reserve Bank of India. It was further submitted that the first demand notice under section 13(2) of the SARFAESI Act was given on 27.03.2018 without mentioning the date of NPA, but in the second demand notice dated 31.08.2018, the date of NPA was shown to be 28.06.2018, which is much after issuance of the first demand notice, which cannot be done.
9. The next argument on behalf of the respondents-borrowers is that two demand notices under section 13(2) were issued, first on 27.03.2018 and the second on 31.08.2018 for the same loan account, which cannot be done. The second demand notice under section 13(2) was issued without withdrawing the first demand notice. There is no provision for multiple demand notices. If any measure, alteration or correction is required, then the first demand notice has to be withdrawn prior to issuance of the subsequent demand notice. As such the appellant-Bank has not followed the provisions of Rule 3(4) of the Rules, 2002 and in as much as neither the borrower nor the guarantor has been served with the said demand notice. It was further contended that it is admitted by the Bank that possession notice was issued, but the same was neither served nor affixed or published in the newspapers with regard to taking over the possession of the secured asset and the Bank has failed to prove the service of possession notice. As such Bank has not complied with the Rules 8(1) and 2) of the Rules, 2002.
10. It was further argued that the appellant had fixed the reserve price as per its own valuation, which is in violation of Rule 8(5) and the Bank had taken the valuation report on 10.07.2018 i.e. much prior to the issuance of possession notice dated 28.12.2018 under section 13(4) of the SARFAESI Act. The auction sale was held on 24.07.2019 on the basis of 11 months old valuation report dated 10.07.2018. The forged and fabricated document was filed by the Bank with its reply to the S.A. In this regard, a reference has been drawn to page no. 107 of the appeal, which is notice dated 14.06.2019 under Rule 8(6) of the Rules, 2002 and further a reference has also been drawn of this Tribunal to the page no. 58 of the paper book, which is the same notice. It is thus argued that two sets of the documents were brought on record, showing receipt by minor. The next argument was that the bank has not produced any proof of dispatch nor any receipt with its reply to the S.A. has been filed and the sale was done on a single bid.
11. It was lastly argued that there have been non compliance of Rule 9(3) and 9(4) of the Rules 2002, as the Bank has failed to produce any proof of deposit of the sale proceeds on time and has failed to show that the auction purchaser has deposited the entire sale consideration with the Bank.
12. Learned counsel for the respondents has relied upon the judgment passed by the Hon’ble Supreme Court in J. Rajiv Subramaniyan and another Vs. M/s Pandiyas and others decided on 14.03.2014 and has argued that the Hon’ble Supreme Court has held that any sale effected without complying with the provisions of Rule 8 and 9 of the Rules, 2002 would be unconstitutional. It was therefore, prayed that the Tribunal below has rightly passed by the order impugned, hence the appeal filed by the appellant-Bank may be dismissed with heavy costs.
13. Learned counsel for the respondent-auction purchaser submitted that he is bonafide purchaser of the property in question and has deposited the entire sale consideration in time with the Bank. The learned counsel has adopted the arguments as advanced on behalf of the appellant-Bank and has prayed that appeal may be allowed and the order impugned may be set aside.
14. Having heard the learned counsels for the parties and on perusal of record, it is undisputed that the borrower had challenged the sale conducted on 24.07.2019 pursuant to the sale notice dated 14.06.2019 and the S.A. was filed on 26.08.2019 along with application for condonation of delay. It is also a matter of record that the borrower has mentioned in the S.A. that the application was within limitation period, but nothing has been shown as to how it was declared to be within limitation. The limitation period for filing the S.A. is 45 days from the date, on which the measures had been taken as provided under section 17(1) of the SARFAESI Act. Thus, ex-facie the securitization application was filed beyond 45 days from the date of sale notice and the date of auction. It was incumbent upon the applicant-borrower to justify it, as to how it was within limitation. It is also observed that no finding whatsoever has been recorded by the Tribunal below with regard to limitation. It is also seen that the SA applicant had filed the application for condonation of delay along with S.A. stating therein that there is no deliberate delay or latches on the part of the SA-applicant and the applicant was diligently pursuing the matter before the Hon’ble High Court, meaning thereby the S.A. filed by the respondents-borrowers was barred by limitation.
15. With regard to the limitation, the Hon’ble Supreme Court has laid down in V.M. Salgaocar and Bros. Vs. Board of Trustees of Port of Mormugao, 2005(4) SCC 613 (Hon’ble Supreme Court) that as per the mandate of section 3 of the Limitation Act, it is the duty of the Court to dismiss any suit instituted after prescribed period of limitation irrespective of the fact that the limitation has not been set up as a defence. In Sunil Kumar Vs. State of U.P., 2016(6) All. LJ 626, the Hon’ble High Court, Allahabad has held that the application cannot be decided on merits, unless the delay is condoned. Thus, in the light of these judgments, it is clear that the Court/Tribunal has to decide the issue of limitation first, even if, there is no application for condonation of delay or any objection from the opposite side and further, a case cannot be decided on merit, unless the issue of limitation is settled.
16. As stated above, the applicant-borrower had filed the application for condonation of delay, but the Tribunal below has not considered this aspect, as was mandatorily required by it. The Tribunal below ought not to have passed the order on merit without deciding the limitation issue. Since the issue of limitation is a mixed question of law and the fact that the Tribunal below has not whispered anything about the limitation despite there being application for condoantion of delay, therefore, I deem it appropriate to remand this matter back to the Tribunal below to decide the limitation aspect after affording opportunity of adducing the evidence and hearing to the parties concerned.
17. In view of the aforesaid, the impugned order dated 01.11.2021 is not sustainable and is liable to be set aside. Hence the order impugned is set aside and the matter is remanded back to the Tribunal below with the direction to decide the limitation issue first, after affording opportunity of adducing the evidence and hearing to the parties concerned and thereafter, if necessary, to adjudicate the matter on merits afresh.
18. Accordingly, the appeal is allowed with no order as to costs.
19. Parties shall appear before the Tribunal below on 31.01.2024.
20. A copy of this judgment be forwarded to the parties as well as to the DRT concerned and be also uploaded on the e-DRT portal.
