IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 19.04.2011
CORAM
THE HONOURABLE MR.JUSTICE D.MURUGESAN
AND
THE HONOURABLE MR.JUSTICE K.K.SASIDHARAN
W.P.No.537 of 2011
P.Vinodh Kumar .. Petitioner
-vs-
1. The Recovery Officer
Debts Recovery Tribunal-2
Chennai
2. The Manager
Indian Bank, ARMB-II
Ethiraj Salai
Chennai 600 028
3. D.Mohan
(R3 impleaded as per order dt.21.2.11
passed in M.P.No.3/11 in W.P.No.537/11) .. Respondents
Petition under Article 226 of the Constitution of India, praying for the issue of a Writ of Certiorarified Mandamus, to call for the records of the 1st respondent in issuing the auction sale notice dated 01.11.2010 in respect of the properties situate at No.12, Annamalaichery Village, Ponneri Taluk in various survey numbers and quash the same and thereby forbear the respondents from in any manner whatsoever proceeding with the sale notice dated 01.11.2010.
For Petitioner :: Mr.S.R.Rajagopal
For Respondents :: Mr.Jeyesh B.Dolia for R2
Mrs.R.Gowri for R3
ORDER
D.MURUGESAN, J.
The question raised in this writ petition is as to whether the purchaser of a property, knowing fully well that the property is a secured asset of the bank, could challenge the action taken by the bank to sell the property as a measure to recover the dues of the borrower under the provisions of the SARFAESI Act?
2. An extent of 9.24 acres of agricultural land in various survey numbers situate in Annamalaicherry Village, Ponneri Taluk was allegedly purchased by the petitioner by a sale deed dated 23.10.2007 from the erstwhile owner of the property, namely, Thiru S.Sathyanarayana through his power agent. There is no dispute that at the time when the above extent of land was purchased, the petitioner was aware that the said land was mortgaged by the owner in favour of the second respondent bank and that the owner of the land had given an undertaking to the petitioner agreeing to release the property from the bank from and out of the sale consideration. The petitioner had claimed that he, bona fide believing the words of the owner, had purchased the said extent of land.
3. On the ground that the owner, who mortgaged the property and availed the loan from the second respondent bank, had failed to repay the amount, proceedings were initiated under the SARFAESI Act by filing an application in T.A.No.360 of 1997 before the Debts Recovery Tribunal-I, Chennai and the bank obtained a decree. As the said decree was not questioned by the borrower, it had become final. Hence, the Recovery Officer issued a recovery certificate in D.R.C.No.201 of 2003 and thereafter re-numbered as D.R.C.No.32 of 2009 directing the Recovery Officer to recover the amount due under the decree. In the meantime, the lands listed in the certificate including the land in question were attached in the year 2003 itself. In order to recover the money, the lands covered in item nos.1 & 2 were brought for sale by issuance of auction sale notice fixing the date of sale on 6.10.2009 for recovery of a sum of Rs.80,20,102/-.
4. Questioning the same, the petitioner filed M.A.No.147 of 2009 before the Recovery Officer to raise the order of attachment and also to defer the sale of item no.2 of property disclosed in the auction notice. In that application, the petitioner expressed his willingness to redeem the mortgage over the property by negotiating with the second respondent bank. The Recovery Officer, in order to give one more opportunity to the petitioner, directed the deferment of auction and gave three weeks time to the petitioner for settling the matter. The Recovery Officer also directed the petitioner to pay a sum of Rs.1,00,000/- to show his bona fides, which amount was also deposited by the petiitoner and the bank also appropriated the said amount. The petitioner offered to purchase the property for a sum of Rs.15,00,000/- apart from one P.Sriram who offered a sum of Rs.35,00,000/- to purchase the property owned by him. According to the petitioner, as against the upset price, the petitioner and P.Sriram had offered Rs.15,00,000/- + Rs.35,00,000/- to purchase the properties. However, the said offer was not properly responded to by the second respondent bank and it had proceeded to sell the properties by fixing the auction on 14.12.2010 with the upset price of Rs.80,20,102/-. At that time, the petitioner enhanced his offer to Rs.20,00,000/- and P.Sriram enhanced his offer to Rs.50,00,000/- totalling in all to Rs.70,00,000/- as against the upset price of Rs.80,20,102/-. In fact the said P.Sriram also deposited Rs.5,00,000/- by way of demand drafts to show his bona fides.
5. The grievance of the petitioner is that in spite of the above, the second respondent bank did not accept the offer but proceeded with the sale, which made him to approach this Court questioning the auction sale notice.
6. We have heard Mr.S.R.Rajagopal, learned counsel for the petitioner and Mr.Jeyesh B.Dolia, learned counsel for the second respondent bank. At the time when the writ petition was pending, on the ground that the properties have been purchased by one D.Mohan in the auction conducted on 14.12.2010 for a sum of Rs.86,25,000/- and the sale certificate has also been issued after confirmation, the petitioner took out an application in M.P.No.3 of 2011 to implead the said D.Mohan as the third respondent to the writ petition, which was ordered on 21.1.2011. We have also heard Mrs.R.Gowri, learned counsel for the third respondent/auction purchaser.
7. The contention of Mr.S.R.Rajagopal is that though the petitioner purchased the property knowing fully well that the property was already mortgaged to the second respondent bank, the second respondent bank ought to have accepted the offer and permitted the petitioner to redeem the property. Without doing so, the second respondent bank should not have brought the property for sale.
8. Let us now consider the question raised in this writ petition. Chapter III of the SARFAESI Act deals with the enforcement of security interest. By virtue of sub-section (1) of Section 13, notwithstanding anything contained in Section 69 or 69-A of the Transfer of Property Act, 1882, any security interest created in favour of any secured creditor may be enforced, without the intervention of the Court or tribunal, by such creditor in accordance with the provisions of the SARFAESI Act. By that provision, the right of the secured creditor to enforce the security interest without the intervention of the Court or tribunal is safeguarded. For enforcement of the provisions, the secured creditor should classify the debt as Non Performing Asset and thereafter issue notice under Section 13(2) requiring the borrower to discharge in full his liabilities within sixty days from the date of the notice. In this context, we may refer to the judgment of a Division Bench of this Court in M/ s Signal Apparels Pvt. Ltd. and another v. Canara Bank and another, 2010 CIJ 257 CLJ, wherein it has been held that the bank must strictly follow the directions or guidelines relating to the asset classification issued by the Reserve Bank of India from time to time and such asset classification is a pre-condition for issuance of notice under Section 13(2). In this context, we may also refer to the following observation of the Supreme Court in Transcore v. Union of India, 2006 (5) CTC 753, which reads thus:
“Reading the scheme of Section 13(2) with Section 13(4), it is clear that the notice under Section 13(2) is not a mere show cause notice and it constitutes an action taken by the bank/FI for the purposes of the NPA Act. Section 13(6) inter alia provides that any transfer of secured asset after taking possession or after taking over of management of the business, under Section 13(4), by the bank/FI shall vest in the transferee all rights in relation to the secured assets as if the transfer has been made by the owner of such secured asset. Therefore, Section 13(6) inter alia provides that once the bank/FI takes possession of the secured asset, then the rights, title and interest in that asset can be dealt with by the bank/FI as if it is the owner of such an asset. In other words, the asset will vest in the bank/FI free of all encumbrances and the secured creditor would be entitled to give a clear title to the transferee in respect thereof.”
9. In the event, the demand made under Section 13(2) is not complied with, the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4) of Section 13. In this context, we may refer to the following provisions for consideration of the above point. Section 13(4)(d) of the SARFAESI Act reads as follows:-
“13(4). In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:–
(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.”
Section 13(13) of the SARFAESI Act reads as follows:
“13(13). No borrower shall, after receipt of notice referred to in sub-section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor.”
10. Sub-section (4) of Section 13 confers a right on the secured creditor to take recourse to one or more of the measures to recover the secured debt, namely, to take possession of the secured asset of the borrower including the right to transfer by way of lease, assignment or sale or realising the secured asset. The said right includes the right to take over the management of the business of the borrower and the right to transfer by way of lease, assignment and for sale for realising the secured asset. By that provision, a right is conferred on the secured creditor not only to take possession, but also the right to transfer the secured asset by way of lease, assignment or sale in order to realise the secured asset. The said section assumes importance in view of the fact that once a notice under Section 13(2) of the Act is served on the borrower, such borrower shall not transfer the secured asset by way of sale, lease or otherwise without prior written consent of the secured creditor. This provision creates an important safeguard for the secured creditor, namely, once the notice under Section 13(2) is served on the borrower, the sale automatically gets freezed on any transfer by way of sale, lease or otherwise of the secured asset referred to in the notice. There are two exceptions to the provision, namely, it would not be applicable in case of transfer made in the ordinary course of business of the borrower and secondly, such transfer could be effected by the borrower with the prior written consent of the secured creditor. There is no absolute bar for the borrower to transfer the secured asset either by way of sale, lease or otherwise, since the provision authorises the borrower to make transfer with the prior consent of the secured creditor in writing. Nevertheless, if sub-section (13) of Section 13 is read together with sub-section (4)(d) of Section 13, the right of the borrower to transfer by way of sale, lease or otherwise under sub-section (13) of Section 13 shall be subject to the right of the secured creditor, as the right of the secured creditor to take possession of the secured asset and to transfer the same by way of lease, assignment or sale for realising the secured asset is primary under the Act. By the provisions of sub-section (4)(d) of Section 13, the secured creditor is also entitled to require at any time by notice in writing any person who has acquired any secured asset from the borrower and from whom any money is due or may become due to the borrower to pay the secured creditor so much of the money as is sufficient to pay the secured debt. Hence, the right to take measures to recover the dues of the borrower is available to the secured creditor as against the subsequent purchaser as well. We may also point out that the Supreme Court in the Transcore case, while considering the scope of Section 13(13) together with Section 13(2) of the Act, has observed as follows:-
“Section 13(13) states that, no borrower shall, after receipt of notice under Section 13(2), transfer by way of sale, lease or otherwise any of his secured assets referred to in the notice, without prior written consent of the secured creditor. Thus, Section 13(13) further fortifies our view that notice under Section 13(2) is not merely a show cause notice. In fact, Section 13(13) indicates that the notice under Section 13(2) in effect operates as an attachment/injunction restraining the borrower from disposing of the secured assets and, therefore, such a notice, which in the present case is dated 06.01.2003, is not a mere show cause notice but it is an action taken under the provision of the NPA Act.”
11. In view of the above provisions, the purchaser of secured asset, that too after knowing fully well as to the security created over the property, cannot challenge the measures taken by the secured creditor against the borrower or the guarantor, as the case may be, for recovery of the debt. If at all he could make a grievance, it could be only against the borrower under other laws, namely, the owner of the property who, in contravention of the provisions of sub-section (13) of Section 13, sold the secured asset to the purchaser. Hence, the petitioner cannot question the auction sale notice in this writ petition. The point raised in the writ petition is answered accordingly.
12. Even on merits, it is to be seen that though the properties in question were sought to be redeemed not only by the petitioner but also by one P.Sriram, the said P.Sriram has not approached this Court questioning the sale notice. The petitioner, who has offered a sum of Rs.15,00,000/- and deposited Rs.1,00,000/- as directed by the Recovery Officer vide his order dated 6.10.2009, has not shown any further interest to redeem the property within a period of three weeks granted by the Recovery Officer, except stating that the matter was referred to Lok Adalat and the second respondent bank did not evince any interest and in spite of the repeated requests, the bank did not adhere to his request. No materials are produced to show that the petitioner was really interested to settle the matter. Even assuming that the petitioner had expressed his willingness to redeem the mortgaged property, the second respondent bank is not obligated to accept the said offer when it is very low as against the due in a sum of Rs.80,21,122/- on the date of notice under Section 13(2), which was even prior to the year 2003. The petitioner, therefore, cannot compel the bank to accept his offer and to redeem the property in question.
13. As per the provisions of the SARFAESI Act, the bank would be entitled to take all measures to recover the money by following the provisions of Chapter III relating to the enforcement of security interest. The right of redemption is available only to the borrower or guarantor, as the case may be by honouring the notice under Section 13(2) or on the basis of the order of the Tribunal or Court. The petitioner though had obtained an order from the Tribunal with liberty to approach the bank for settlement as early as on 6.10.2009, there is nothing on the record to show that the petitioner took earnest efforts to redeem the property until the auction was conducted on 14.12.2010 followed by the issuance of sale certificate and the confirmation order on 27.1.2011 in Document No.567 of 2011 in favour of the third respondent/auction purchaser. In these circumstances, the petitioner cannot question the auction proceedings in this writ petition. Accordingly, the writ petition fails and the same is dismissed. Consequently, M.P.Nos.1,2 and 4 of 2011 are also dismissed. No costs.
ss
To
1. The Recovery Officer
Debts Recovery Tribunal-2
Chennai
2. The Manager
Indian Bank, ARMB-II
Ethiraj Salai
Chennai 600 028