Swamy Thankappan v. Housing Development Finance Corporation Ltd. and others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE** ## **FRIDAY, THE 29TH DAY OF JULY 2016/7TH SRAVANA, 1938** **WP(C).No. 31495 of 2009 (F) --------------------------------------------** **PETITIONER(S) : --------------------------** ## **SWAMY THANKAPPAN, KALANGARAVILA, MARUTHATHOOR, CHENKOTTUKONAM P.O.** **BY ADVS. SRI.R.T.PRADEEP SRI.V.VIJULAL** **RESPONDENT(S) :** - **-----------------------------** **1. THE AUTHORISED OFFICER, HOUSING DEVELOPMENT FINANCE CORPORATION LTD.,, VAZHUTHACAUD, THIRUVANANTHAPURAM- 695 001.** **2. THE MANAGER, HOUSING DEVELOPMENT FINANCE CORPORATION LMITED, VAZHUTHACAUD, THIRUVANANTHAPURAM- 695 001.** **3. THE DISTRICT COLLECTOR, THIRUVANANTHAPURAM- 695 001.** **4. RAJESH K. ANUJAN, VALLUVEEDU, EAST PATTOM, THIRUVANANTHAPURAM- 695 004.** ## *** ADDITIONAL R5 IMPLEADED** **5. K.V.ASHOK KUMAR, AGED 43 YEARS, S/O.KANAKAPPAN, ENNAVIAL VEEDU, KARODE DESOM, KARODE VILLAGE, THIRUVANANTHAPURAM, PIN- 695 506.** - **ADDITIONAL R5 IS IMPLEADED AS PER ORDER DATED 11.06.2014 IN I.A.NO.7146 OF 2014** **R1 & R2 BY SRI.K.K.CHANDRAN PILLAI (SENIOR ADVOCATE) ADV. SRI.A.S.SAJUSH PAUL R3 BY GOVERNMENT PLEADER SRI.LIJU V.STEPHEN R4 BY ADV. SRI.SUMAN CHAKRAVARTHY ADDL. R5 BY ADV. SRI.SHAJIN S.HAMEED** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 07-06-2016, THE COURT ON 29-07-2016 DELIVERED THE FOLLOWING:** Msd. **WP(C).No. 31495 of 2009 (F) --------------------------------------------** ## **APPENDIX** ## **PETITIONER(S)' EXHIBITS :** **EXHIBIT P1: TRUE COPY OF DISBURSEMENT OF LOAN DATED 25.06.2004 BY HOUSING DEVELOPMENT FINANCE CORPORATION LTD., THIRUVANANTHAPURAM.** **EXHIBIT P2(A): TRUE COPY OF RECEIPT.** **EXHIBIT P2(B): TRUE COPY OF RECEIPT.** **EXHIBIT P2(C): TRUE COPY OF RECEIPT.** **EXHIBIT P2(D): TRUE COPY OF RECEIPT. EXHIBIT P2(E): TRUE COPY OF RECEIPT. EXHIBIT P2(F): TRUE COPY OF RECEIPT. EXHIBIT P2(G): TRUE COPY OF RECEIPT.** **EXHIBIT P3: TRUE COPY OF REPRESENTATION.** **EXHIBIT P4: TRUE COPY OF REPRESENTATION DATED 15.02.2010 BY PETITIONER BEFORE THE 2ND RESPONDENT WHICH CONTAIN THE ENDORSEMENT OF 2ND RESPONDENT.** **EXHIBIT P5: TRUE COPY OF PHOTOGRAPH OF FRONT PORTION OF SECURED ASSET.** **EXHIBIT P5(A): TRUE PHOTOGRAPH OF HOUSE SITUATED IN SECURED ASSET.** ## **RESPONDENT(S)' EXHIBITS & ANNEXURES :** **ANNEXURE 1: TRUE COPY OF THE NOTICE SENT TO THE PETITIONER UNDER SECTION 13(2) OF THE SARFAESI ACT DATED 03.01.2006.** **ANNEXURE 2: TRUE COPY OF THE ACKNOWLEDGMENT CARD SIGNED BY THE PETITIONER ON 09.01.2006.** **ANNEXURE 3: TRUE COPY OF THE REQUEST GIVEN BY THE PETITIONER FOR RELEASE OF MOVABLE ITEMS IN THE TAKEN OVER SECURED ASSET DATED.** **ANNEXURE 4: TRUE COPY OF THE RECEIPT ISSUED BY THE PETITIONER AFTER ACCEPTING THE MOVABLE ITEMS IN THE SECURED ASSET DATED 12.09.2007.** **ANNEXURE V: COPY OF THE POSSESSION NOTICE PUBLICATION IN MATHRUBHUMI DAILY DATED 27.09.2007.** **WP(C).No. 31495 of 2009 (F) --------------------------------------------** |**ANNEXURE VI:**|**COPY OF THE SALE NOTICE PUBLISHED IN THE HINDU**| |---|---| ||**DAILY DATED 06.10.2007.**| |**ANNEXURE VII:**|**COPY OF THE SALE NOTICE PUBLISHED IN**| ||**THE MATHRUBHUMI DAILY DATED 06.10.2007.**| |**EXHIBIT R4(A):**|**TRUE COPY OF THE SALES CERTIFICATE**| ||**DATED 14.02.2008.**| ||**//TRUE COPY//**| ||**P.S.TO JUDGE.**| Msd. ## **A.M.SHAFFIQUE, J * * * * * * * * * * * *** W.P.C.No.31495 of 2009 ---------------------------------------Dated this the 29[th] day of July 2016 ## **J U D G M E N T** This writ petition is filed seeking for a direction to respondents 1 to 3 to re-deliver the secured asset which is the subject matter of the loan transaction on payment of the amount due to the Bank along with the reasonable compensation to the 4[th] respondent. 2. The short facts involved in the writ petition would disclose that the petitioner availed of the loan from Housing Development Finance Corporation Ltd. (for short 'HDFC') for purchasing 10 cents of property with the building thereon. The loan was sanctioned on 25/06/2004. Petitioner agreed to repay the amount in monthly instalments of Rs.6,185/- for a period from 01/07/2004 to 30/06/2011. Petitioner also created collateral security by way of equitable mortgage on the property purchased by availing the loan. According to the petitioner, he had remitted about Rs.2,24,000/- towards repayment of loan. In the meantime, a suit came to be filed to recover Rs.1,65,000/- from the petitioner W.P.C.No.31495/2009 2 and the above property was also attached. Since the petitioner could not repay the amount as per the agreed terms, SARFAESI proceedings were initiated by the Bank. The property was taken possession in January 2008. According to the petitioner, he was not served with any notice under Section 13(2) and 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'the Act'). Petitioner further submits that the Bank had clandestinely sold the property to the 4[th] respondent. According to him, the property would worth more than Rs.15 lakhs. Offering to pay the entire amount due to the Bank, this writ petition is filed. 3. The writ petition is filed on 04/11/2009. When the writ petition was originally filed, petitioner has sought for restoring possession of the secured asset. Later, the writ petition was amended when it was known that the property was sold in favour of the 4[th] respondent. The additional 5[th] respondent was subsequently impleaded at his instance. He is the person who had filed suit as O.S.No.193/2006 against the petitioner before the Sub Court, Neyyattinkara. According to him, the suit was W.P.C.No.31495/2009 3 decreed on 22/06/2007. 4. Statement has been filed on behalf of respondents 1 and 2 wherein it is stated that there is no bona fides in the writ petition as no attempt has been made by the petitioner to settle the matter with the Bank and there was no deliberation with the 4[th] respondent also. It is stated that, after sale of the property, sale certificate was issued in the name of the 4[th] respondent on 14/02/2008. According to them, notice under Section 13(2) of the Act was accepted by the petitioner on 09/01/2006 as evident from Annexure II acknowledgment card and since the amount was not paid, possession was taken on 12/09/2007. Thereafter, the property was sold to the 4[th] respondent. Petitioner has requested the HDFC for removing the movables from the property as per his letter dated nil which is produced as Annexure III and he had received the movables on 12/09/2007 as evident from Annexure IV. It is also stated that possession notice was published as per the Rules. 5. The 4[th] respondent has filed Counter affidavit stating that he had purchased the property after participating in the auction conducted by the Bank. He denied the allegation of W.P.C.No.31495/2009 4 collusion. He further stated that, after obtaining the sale certificate, he conducted various maintenance works and he is still in possession of the building. He denies the allegation that he is having real estate business. He had purchased the property for residing in the building and the present attempt of the petitioner is only to hike the value of the property. 6. A reply affidavit has been filed by the petitioner reiterating the fact that he was not served with any notice and there was no publication, as contemplated under the Rules. He reiterates that he is ready and willing to pay all charges and expenses incurred by the secured creditor. 7. An additional statement is filed by respondent 1 and 2 wherein they have produced the publication in Mathrubhumi daily and Hindu daily showing the particulars regarding publication of notice for taking possession of land and the publication regarding public notice of sale of immovable property. 8. Learned counsel for the petitioner submits that in so far as there is non-compliance of statutory requirements, by issuance of notice as contemplated under the Act and the Rules, the sale is liable to be set aside. Learned counsel for the W.P.C.No.31495/2009 5 petitioner places reliance upon judgment of the Supreme Court in **Mathew Varghese v. M.Amritha Kumar and Others** _[(2014) 5 SCC 610]_ . That was a case in which the Apex Court considered the scope and effect of Section 13(8) of the Act read with Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002. In that case, the guarantors created equitable mortgage in favour of the Bank by depositing title deeds. When the account became Non Performing Asset the bank took steps under the SARFAESI Act, after issuing notice under Section 13(2) and possession was taken invoking Section 13(4) of the Act. The guarantors filed securitisation application before the Debts Recovery Tribunal (hereinafter referred to as 'the Tribunal')challenging the possession notice. There were attempts to have a one time settlement which did not fructify. Bank took steps for sale of the secured assets and necessary publications were made. Tenders were submitted by a few parties. In the meantime, a writ petition was filed before the High Court wherein a direction was issued to the Tribunal to dispose of the cases pending before it. Direction was also issued to defer the sale on certain conditions of remitting certain amounts before a stipulated date. The Tribunal dismissed W.P.C.No.31495/2009 6 the securitisation application, pursuant to which, on 28/12/2007, the Bank accepted one of the tenders and the tenderer was asked to deposit 25% of the amount on the same day and to pay the balance within 15 days. They complied with the said direction. On deposit of 25% of the bid amount on 31/12/2007, the Bank confirmed the sale and gave the tenderer further 15 days time to deposit the balance amount. Another writ petition was filed by the guarantors challenging the vires of the Rules on the ground that it violated the right of redemption by denying them adequate opportunity and time to repay the loan amount. Writ petition was dismissed on 12/06/2009 on the ground that they had an alternate efficacious remedy under the Act. A Writ Appeal was filed on 16/07/2009. In the meantime, on 24/06/2009, the Bank transferred the property in favour of the appellant under a duly registered certificate of sale. The Division Bench, however, held that sale was not conducted in a fair and proper manner. When the sale was initially postponed by six weeks on 24/09/2006, the Bank ought to have notified the sale or extended the time for receiving further tenders. It was also held that the guarantors were not informed about the sale and they were informed only W.P.C.No.31495/2009 7 after confirmation of sale. Sale was therefore set aside on the condition of the guarantors remitting Rs.2 Crores to the purchaser. It was further held that, if the payment is not made, the sale shall stand confirmed. It was further directed that, if the amount is paid, the guarantors were permitted to approach the Sub Registrar and revenue authorities for cancellation of registration, consequent mutation etc. The Apex Court held at paragraphs 38 and 39 as under: _**38.** On a reading of the above paragraphs, we are able to discern the ratio to the effect that a mere conferment of power to sell without intervention of the court in the mortgage deed by itself will not deprive the mortgagor of his right to redemption, that the extinction of the right of redemption has to be subsequent to the deed conferring such power, that the right of redemption is not extinguished at the expiry of the period, that the equity of redemption is not extinguished by mere contract for sale and that the mortgagor’s right to redeem will survive until there has been completion of sale by_ W.P.C.No.31495/2009 8 _the mortgagee by a registered deed. The ratio is also to the effect that the power to sell should not be exercised unless and until notice in writing requiring payment of the principal money has been served on the mortgagor. The above proposition of law of course was laid down by this Court in Narandas Karsondas[7] while construing Section 60 of the TP Act. But as rightly contended by Mr Shyam Divan, we fail to note any distinction to be drawn while applying the abovesaid principles, even in respect of the sale of secured assets created by way of a secured interest in favour of the secured creditor under the provisions of the SARFAESI Act, read along with the relevant Rules. We say so, inasmuch as, we find that even while setting out the principles in respect of the redemption of a mortgage by applying Section 60 of the TP Act, this Court has envisaged the situation where such mortgage deed providing for resorting to the sale of the mortgage property without the intervention of the Court. Keeping the said situation in mind, it was held that the right of redemption will_ W.P.C.No.31495/2009 9 _not get extinguished merely at the expiry of the period mentioned in the mortgage deed. It was also stated that the equity of redemption is not extinguished by mere contract for sale and the most important and vital principle stated was that the mortgagor’s right to redeem will survive until there has been completion of sale by the mortgagee by a registered deed. The completion of sale, it is stated, can be held to be so unless and until notice in writing requiring payment of the principal money has been served on the mortgagor. Therefore, it was held that until the sale is complete by registration of sale, the mortgagor does not lose the right of redemption. It was also made clear that it was erroneous to suggest that the mortgagee would be acting as the agent of the mortgagor in selling the property._ _**39.** When we apply the above principles stated with reference to Section 60 of the TP Act in respect of a secured interest in a secured asset in favour of the secured creditor under the provisions of the SARFAESI Act and the relevant Rules applicable,_ W.P.C.No.31495/2009 10 _under Section 13(1), a free hand is given to a secured creditor to resort to a sale without the intervention of the court or tribunal. However, under Section 13(8), it is clearly stipulated that the mortgagor i.e. the borrower, who is otherwise called as a debtor, retains his full right to redeem the property by tendering all the dues to the secured creditor at any time before the date fixed for sale or transfer. Under sub-section (8) of Section 13, as noted earlier, the secured asset should not be sold or transferred by the secured creditor when such tender is made by the borrower at the last moment before the sale or transfer. The said sub-section also states that no further step should be taken by the secured creditor for transfer or sale of that secured asset. We find no reason to state that the principles laid down with reference to Section 60 of the TP Act, which is general in nature in respect of all mortgages, can have no application in respect of a secured interest in a secured asset created in favour of a secured creditor, as all the abovestated principles apply on all_ W.P.C.No.31495/2009 11 _fours in respect of a transaction as between the debtor and secured creditor under the provisions of the SARFAESI Act.”_ 9. He also placed reliance on another judgment in **J.Rajiv Subramaniyan and Another v. Pandiyas and Others** _[2014 (5) SCC 651]_ wherein the Apex Court held at paragraphs 12 and 13 as under: _“_ _**12.** This Court in Mathew Varghese v. M. Amritha Kumar examined the procedure required to be followed by the banks or other financial institutions when the secured assets of the borrowers are sought to be sold for settlement of the dues of the banks/financial institutions. The Court examined in detail the provisions of the SARFAESI Act, 2002. The Court also examined the detailed procedure to be followed by the bank/financial institutions under the 2002 Rules. This Court took notice of Rule 8, which relates to sale of immovable secured assets and Rule 9 which relates to time of sale, issue of sale certificate and delivery of possession, etc. With regard to Section 13(1), this Court observed that_ W.P.C.No.31495/2009 12 _Section 13(1) of the SARFAESI Act, 2002 gives a free hand to the secured creditor for the purpose of enforcing the secured interest without the intervention of court or tribunal. But such enforcement should be strictly in conformity with the provisions of the SARFAESI Act, 2002. Thereafter, it is observed as follows: (SCC p. 632, para 27)_ _“27. … A reading of Section 13(1), therefore, is clear to the effect that while on the one hand any secured creditor may be entitled to enforce the secured asset created in its favour on its own without resorting to any court proceedings or approaching the Tribunal, such enforcement should be in conformity with the other provisions of the SARFAESI Act.”_ _**13.** This Court in Mathew Varghese case[4] further observed that the provision contained in Section 13 (8) of the SARFAESI Act, 2002 is specifically for the protection of the borrowers inasmuch as, ownership of the secured assets is a constitutional right vested in the borrowers and protected under Article 300-A of the Constitution of India. Therefore, the secured_ W.P.C.No.31495/2009 13 _creditor as a trustee of the secured asset cannot deal with the same in any manner it likes and such an asset can be disposed of only in the manner prescribed in the SARFAESI Act, 2002. Therefore, the creditor should ensure that the borrower was clearly put on notice of the date and time by which either the sale or transfer will be effected in order to provide the required opportunity to the borrower to take all possible steps for retrieving his property. Such a notice is also necessary to ensure that the process of sale will ensure that the secured assets will be sold to provide maximum benefit to the borrowers. The notice is also necessary to ensure that the secured creditor or anyone on its behalf is not allowed to exploit the situation by virtue of proceedings initiated under the SARFAESI Act, 2002.”_ 10. Reference is also made to the judgment in **K.R.S Latex (India) Ltd. v. Federal Bank Ltd.** _[2011 (1) KLT 437]_ wherein the learned Single Judge of this Court held that service of 30 days notice with respect to sale should be conducted under W.P.C.No.31495/2009 14 Rule 8(5) of the Rules is mandatory. 11. In the case on hand, the first ground raised in the writ petition is that there is collusion between the 4[th] respondent and HDFC. First of all, there is no such material to arrive at such a conclusion. Hence such a contention cannot be accepted. 12. The other ground raised is there is non-compliance of notice under Sections 13(2) and 13(4) of the Act. The Bank had filed a statement producing the notice under Section 13(2) which was sent by registered post with acknowledgment due and the acknowledgment card duly signed by the petitioner is also produced. Therefore, it cannot be stated that notice under Section 13(2) was not served on the petitioner. In regard to notice under Section 13(4), it does not contemplate any further notice. Section 13(4) clearly indicates that, if the borrower fails to discharge the liability within the specified period of sixty days, as contemplated under Section 13(2) of the Act, the secured creditor may take possession of the secured asset of the borrower including the right to transfer. It is stated by the respondent Bank that possession was taken through the District Magistrate by invoking Sec.14 of the Act. That apart, they have produced W.P.C.No.31495/2009 15 documents to indicate that the petitioner was aware of the said fact as he had even requested for removing the movable properties from the building and he had acknowledged receipt of the same. Therefore, it cannot be stated that there is noncompliance of Sec.13(2) and 13(4) of the Act. Further, statement has been filed by the Bank producing Annexure V which is a publication dated 27/09/2007 in Mathrubhumi daily intimating the public regarding possession being taken by HDFC. Annexure VI is the public notice published in Hindu Daily on 06/10/2007. The auction was proposed to be held on 07/11/2007. Annexure VII is the publication made in Mathrubhumi daily on 06/10/2007 regarding the sale. Pursuant to the said notice, the sale certificate was issued on 14/02/2008. 13. Though the petitioner has contended that there is noncompliance of Section 13(8) of the Act read with Rules 8 and 9 of the Rules and placed reliance upon the judgments aforesaid, no such ground had been taken in the writ petition. It was only in the reply affidavit filed and that too on 01/07/2014, that such contentions had been raised. It is a settled position of law that the averments in the reply affidavit do not form part of the W.P.C.No.31495/2009 16 pleadings. Even otherwise, the Bank, in their statement, had stated that since such contentions have been raised after a substantially long period, they are unable to trace the records and they only got the publication made in the newspaper. On account of the public notice issued for conduct of sale of the property, it cannot be stated that there is no publication, as contemplated under the statute. The petitioner has not taken any contention in the writ petition that there was no personal service of notice as contemplated under Section 13(8) of the Act and the Rules framed thereunder. In the absence of any such contention, I do not think that this Court should endeavour to consider such issues at this point of time. That apart, the materials placed on record clearly indicate that the proposal to sell the property was published in two newspapers, one in vernacular and the other in English. Therefore, it has to be assumed that the petitioner was put to notice of the sale of property. The Act provides for a remedy for a borrower to set aside the sale by approaching the Tribunal under Section 17 of the Act. In so far as the petitioner had not availed of the remedy, I do not think that this Court will be justified in undertaking a probing enquiry into the validity or W.P.C.No.31495/2009 17 otherwise of the sale especially when different contentions are raised at different point of time. 12. In the above circumstances, I do no think that the petitioner is entitled for any direction, as sought for. Further, the writ petition is filed after more than one year from the date of issuance of the sale certificate. Petitioner, having known about the possession being surrendered to the Bank, cannot plead ignorance that he was not aware of the sale of property. In the above circumstances, I do not think that the petitioner is entitled for any discretionary relief in the present writ petition and accordingly, the writ petition is dismissed. (sd/-) ## **(A.M.SHAFFIQUE, JUDGE)** jsr