Punjab National Bank represented by the Chief Manager Asset Recovery Management Branch, Market Road Ernakulam vs Raju M. Thomas, Soma Raju, and Babu John

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE V.CHITAMBARESH** **MONDAY, THE 2ND DAY OF SEPTEMBER 2013/11TH BHADRA, 1935** ## **OP (DRT).No. 1390 of 2012 (O)** **------------------------------** **AGAINST THE IN SA(IN 50/2006 of DEBT RECOVERY TRIBUNAL, ERNAKULAM DATED 19-05-2008** **PETITIONER(S):** - **--------------------------** **1. PUNJAB NATIONAL BANK REPRESENTED BY THE CHIEF MANAGER ASSET RECOVERY MANAGEMENT BRANCH, MARKET ROAD ERNAKULAM.** ## **2. AUTHORIZED OFFICER,** **PUNJAB NATIONAL BANK, ERNAKULAM.** **BY ADVS.SRI.P.B.KRISHNAN SMT.GEETHA P.MENON SRI.N.AJITH SRI.P.B.SUBRAMANYAN** ## **RESPONDENT(S):** - **----------------------------** ## **1. RAJU M. THOMAS** - **S/O LATE THOMAS THOMAS, MANAGING PARTNER M/S NANDAVANAM TIMES MADATHIL PARAMBIL PUTHENVEEDU THITTAMMEL CHENGANNUR-689 121.** ## **2. SOMA RAJU,** **W/O RAJU M. THOMAS, MADATHIL PARAMBIL PUTHENVEEDU THITTAMMEL, CHENGANNUR-689 121.** ## **3. BABU JOHN,** **S/O. M.V. JOHN, MODIUZHATHIL HOUSE, ANGADICKAL PUTHENCAVU P.O, CHENGANNUR REPRESENTED BY HIS POWER OF ATTORNEY HOLDER-JOHN VARGHESE S/O M.V. JOHN, MODIUZHATHIL HOUSE, ANGADICKAL PUTHENCAVU P.O, CHENGANNUR-689 121.** **R1-R2 BY ADV. SRI.VARGHESE C.KURIAKOSE R1-R2 BY ADV. SMT.RENJINI RAJENDRAN R3 BY ADV. SRI.SIJO GEORGE R3 BY SRI.P.B.KRISHNAN R3 BY SRI.P.B.SUBRAMANYAN** **THIS OP (DEBT RECOVERY TRIBUNAL) HAVING COME UP FOR ADMISSION ON 02-09-2013, ALONG WITH OPDRT. 2835/2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **OP (DRT).No. 1390 of 2012 (O)** ## APPENDIX ## **PETITIONER(S) EXHIBITS :** - **EXHIBIT P1: DATED 19.5.2008, TRUE COPY OF THE ORDER OF THE DEBT RECOVERY TRIBUNAL, ERNAKULAM IN SECURITISATION APPLICATION NO.50 OF 2006.** - **EXHIBIT P2: DATED 13.3.2012, TRUE COPY OF THE ORDER OF THE DEBT RECOVERY TRIBUNAL, CHENNAI IN RA(SA) 55 OF 2008.** - **EXHIBIT P3: DATED 13.3.2012, TRUE COPY OF THE ORDR OF THE DEBT RECOVERY TRIBUNAL, CHENNAI IN I.A.NO.2010 OF 2008 IN RA(SA) 55 OF 2008.** ## **RESPONDENTS' EXHIBITS :** - **R(1) (a): COPY OF NOTICE ISSUED UNDER SECTION 13(2) OF CENTRAL ACT 54 OF 2002.** - **R(1) (b): COPY OF THE APPLICATION GIVEN UNDER THE RIGHT TO INFORMATION ACT.** - **R(1) ©: COPY OF REPLY GIVEN DATED 15.11.2007.** - **R(1) (d): COPY OF LETTER DT. 15.11.2007** - **R(1) (e): COPY OF THE AFFIDAVIT IN R.A.(S.A.) NO. 55 2008 BEFORE DEBTS RECOVERY APPELLATE TRIBUNAL, CHENNAI** - **R(1) (f): COPY OF NOTICE IN TYPED FORM DATED 25.01.2007** **\\ TRUE COPY \\** **PA TO JUDGE** **jm/** ## **V.CHITAMBARESH,J** ## **-------------------------------------** O.P.(DRT).No.1390 OF 2012 and O.P.(DRT).No.2835 OF 2012 ----------------------------------------Dated this the 2[nd] day of September, 2013 ## JUDGMENT Concurrent orders setting aside the sale conducted under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (the SARFAESI Act) are impugned in these two original petitions. OP(DRT) No.1390/2012 has been filed on behalf of the bank and OP(DRT) No.2835/2012 has been filed on behalf of the auction purchaser invoking Article 227 of the Constitution of India. The short question that arises for consideration in these two original petitions is as to whether the sale of the property conducted on 20.6.2007 is in violation of the SARFAESI Act and the Security Interest Enforcement (Rules) 2002. (the 'Rules' for short). It is infact conceded that the guarantor by name Mrs.Soma Raju who is the wife of the borrower was not put on notice under the Rules. The guarantor is very much a 'borrower' as defined under Section 2(f) of the Act which is to the following effect: O.P.(DRT).No.1390 OF 2012 and O.P.(DRT).No.2835 OF 2012 2 _“borrower means any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance”._ 2. Rule 8(6) of the Rules casts a duty on the Authorised Officer to serve a notice on the borrower about the proposed sale of the property at least 30 days ahead. That such a notice has to be served on each of the borrower is evident from Rule 3(3) and Rule 3(4) of the Rules. Ext.R(1)(f) notice in OP(DRT) No.1390/2012 is the one said to have been issued by the bank under Rule 8(6) of the Rules. The name of the borrower Mrs.Soma Raju is conspicuously absent in the notice allegedly dispatched by the bank. It can safely be concluded that one of the borrowers was not served with notice under Rule 8(6) of the Rules which was mandatory. The failure to issue such a notice invalidates the sale _**(See: K.R.S. Latex (India) Pvt. Ltd. v Federal Bank Ltd.2011 (1) KLT 437).**_ O.P.(DRT).No.1390 OF 2012 and O.P.(DRT).No.2835 OF 2012 **==> picture [7 x 9] intentionally omitted <==** ## 3. A reference to Rule 9(1) of the Rules is also opposite and ## the same is extracted hereunder: _“Time of sale, issue of sale certificate and delivery of possession etc-(1) No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule(6) or notice of sale has been served to the borrower”._ Thus a sale can be conducted only if a notice of sale has been served on the borrower or after the expiry of 30 days from the public notice of sale published in newspapers. The manner of publishing the public notice of sale in at least two leading newspapers (one in vernacular language) has been laid down in Rule 8(6) of the Rules. The paper publication was carried out in the Indian Express daily on 22.5.2007 and the Kerala Kaumudi Daily (Malayalam) on 25.5.2007 only. Admittedly there was no 30 days notice between the date of publication and 20.6.2007 which was the date of sale. The sale conducted is therefore in blatant violation of Rule 8(6) as well as Rule 9(1) of the Rules. The Debts Recovery Tribunal as well as the Debts Recovery Appellate Tribunal cannot therefore be faulted with in setting O.P.(DRT).No.1390 OF 2012 and O.P.(DRT).No.2835 OF 2012 **==> picture [7 x 9] intentionally omitted <==** aside the sale for infraction of the Rules. 4. The petitioners have a contention that the Debts Recovery Tribunal has no jurisdiction to set aside the sale and the remedy lies under Schedule II to the Income Tax Act, 1961 only. The borrower had filed the Securitisation Application under Section 17 of the SARFAESI Act on 31.7.2006 complaining of measures taken under Section 13(4) of the Act. But the sale was conducted on 20.6.2007 pending Securitisation Application and subject to its final result. The borrower later filed an application for amendment of the Securitisation Application which was allowed. The prayer challenging the conduct of sale under the SARFAESI Act was also incorporated in the Securitisation Application by way of amendment. This amended Securitisation Application has been dealt with by the Debts Recovery Tribunal and the Appellate Tribunal by the orders impugned. The question whether the Tribunal can go into post Section 13(4) events has been considered by the Supreme Court. The Supreme Court in _**Authorised Officer Indian Overseas Bank and Another v M/s.Ashok Saw Mill AIR 2009 SC 2420**_ posted the question O.P.(DRT).No.1390 OF 2012 and O.P.(DRT).No.2835 OF 2012 5 as follows in para 14 : _“The main question which falls for determination in this appeal is whether the DRT would have jurisdiction to consider and adjudicate with regard to post 13(4) events or whether its scope in terms of S.17 of the SARFAESI Act would be confined to the stage contemplated under S.13 (4), as contended on behalf of the appellants. An additional question with regard to the maintainability of the appeal will have to be taken into consideration while deciding the present appeal”._ The question posted is answered in para 24 as follows: _“We are unable to agree with or accept the submissions made on behalf of the appellants that the DRT had no jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated under S.13(4) of the Act. On the other hand, the law is otherwise and it contemplates that the action taken by a secured creditor in terms of S.13(4) is open to scrutiny and cannot only be set aside but even the status quo ante can be restored by the DRT”._ This judgment has been followed by the High Court of ## Andra Pradesh also in **Bank of India, Mumbai v Development Credit Bank Ltd. AIR 2012 AP 119.** 5. Even otherwise the bank or the auction purchaser is estopped from raising such a contention as regards jurisdiction in O.P.(DRT).No.1390 OF 2012 and O.P.(DRT).No.2835 OF 2012 **==> picture [7 x 9] intentionally omitted <==** view of the judgment inter-parties. The borrower had earlier filed W.P.(C).No.20166/2007 on the file of this Court pending Securitisation Application. The Writ Petition was disposed of by a short judgment which can profitably be extracted hereunder: _“Sale made by the Bank under the securitization proceedings is challenging in this W.P.(C) on account of illegality or impropriety in the sale. Appeal filed by the petitioner is pending before the DRT and DRT has full power to interfere with the sale, if there is any ground. This W.P. (C) is therefore disposed of directing DRT to dispose of the appeal within three months from the date of production of a copy of this judgment by the petitioner”._ Thus the Debts Recovery Tribunal had the full power to interfere with the sale if there was any vitiating factors in view of the judgment inter-parties as well as the decision of the Supreme Court in **Indian Overseas Bank's** case afore-quoted. 6. Neither the Debts Recovery Tribunal nor the Appellate Tribunal has found fault with the act of taking possession of the Secured immovable asset by the bank. There was therefore no necessity for the Tribunals to direct restoration of possession of the immovable property to the borrowers in the final disposal. True it is that the sale conducted in accordance with the O.P.(DRT).No.1390 OF 2012 and O.P.(DRT).No.2835 OF 2012 **==> picture [7 x 9] intentionally omitted <==** SARFAESI Act and the Rules thereunder was found to be wholly vitiated due to the reasons stated _supra._ The tribunals should have therefore directed the bank to conduct a fresh sale of the property after setting aside the sale already conducted. Any interference with the direction setting aside the sale would resurrect the sale conducted illegally by the bank in violation of the SARFAESI Act and the Rules. The fact that there was only one quotation for the sale and that to in e-auction raises many eyebrows. The total liability of the bank (which has now swelled up to Rs.3 crores) does not get discharged even by the sale of the property as was done for Rs.1,31,00,000/-. The property is a commercial premises in the possession of tenants and the bank has to keep the property in its possession till resale. I direct the bank to conduct afresh sale of the property after proper publication as is warranted by the SARFAESI Act and the Rules. It is only proper that a period of three months is granted to the borrower to enable him to raise the necessary money to avert a sale if possible. 7. The auction purchaser laments that he has invested O.P.(DRT).No.1390 OF 2012 and O.P.(DRT).No.2835 OF 2012 **==> picture [7 x 9] intentionally omitted <==** about Rs.1,31,00,000/- and that he should be duly compensated in case the sale is set aside. I should take note of the fact that the auction purchaser did not file an appeal to the Debts Recovery Appellate Tribunal against the order of the Debts Recovery Tribunal. Only the bank filed an appeal to the Tribunal and the auction purchaser has ofcourse joined the bank by filing a separate Writ Petition in this Court. Whether the auction purchaser is entitled to compensation by way of interest and money spent for stamp duty has to be decided in separate proceedings. I leave open the right if any of the auction purchaser to proceed against the bank or the borrowers for realisation of interest or other the amounts due by way of compensation on account of the sale being set aside. The question whether the auction purchaser has since effected any improvements in the property can also be adjudicated in appropriate proceedings. 8. The original petitions are disposed of as follows:- - (i) The setting aside of the sale of the property by the Debts Recovery Tribunal and the Debts Recovery Appellate Tribunal is affirmed. 9 O.P.(DRT).No.1390 OF 2012 and O.P.(DRT).No.2835 OF 2012 - (ii) The direction to restore the property to the borrowers is set aside and is modified by directing the bank to retain possession of the sale. - (iii) The bank is directed to conduct a fresh sale of the property if necessary after a period of three months after adhering to the SARFAESI Act and the Rules thereunder. These Writ Petitions are disposed of. No Costs. ## **V.CHITAMBARESH, JUDGE.** SKV