The South Indian Bank Ltd. v. Union of India and Others

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT :** **THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON** **FRIDAY, THE 25TH JUNE 2010 / 4TH ASHADHA 1932** **WP(C).No. 14971 of 2010(V)** **----------------------------------------** **CMP.4435/2009 of C.J.M.,KOZHIKODE** **....................** ## **PETITIONER(S):** **-----------------------** **THE SOUTH INDIAN BANK LTD., A BANKING COMPANY REGISTERED UNDER THE COMPANIES ACT.1956, HAVING ITS REGISTERED OFFICE AT MISSION QUARTERS,T.B.ROAD, THRISSUR- 680 001, REP. BY THE CHIEF MANAGER AND AUTHORISED OFFICER, REGIONAL OFFICE, ERNAKULAM- K.SASIDHARAN PILLAI.** **BY ADV. SRI.K.K.JOHN,SC,SOUTH INDIAN BANK** ## **RESPONDENT(S):** **------------------------** **1. UNION OF INDIA, REPRESENTEDBY THE SECRETARY TO GOVT., MINISTRY OF FINANCE, DEPARTMENT OF ECONOMIC AFFAIRS, (BANKING DIVISION), NEW DELHI-110 001.** **2. SMT.SEENA PRAKASHAN, W/O.SRI.C.K. PRAKASAN PUNATHIL MEETHAL HOUSE, VELLIPARAMBA.P.O, KOZHIKODE-8.** **3. SRI.C.K. PRAKASAN, S/O.GOPALAN, PUNATHIL MEETHAL HOUSE, VELLIPARAMBA.P.O, KOZHIKODE-8.** **R1 BY ADV. MR.T.P.M. IBRAHIM KHAN, ASST. SG OF INDIA. MR.S. JAMAL, CGC R2 & R3 BY ADV. SRI.SAKIR.K.H. , SRI.N.M.SIYAD.** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 25/06/2010,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **WP(C) NO. 14971/2010-V** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** **EXT.P1: COPY OF THE NOTICE UNDER SECTION 13(2) OF TE SARFAESI ACT ISSUED BY THE AUTHORISED OFFICER OF THE PETITIONER TO RESPONDENTS 2 AND 3 DATED 01/07/2009.** **EXT.P2: COPY OF THE POSTAL ACKNOWLEDGMENT SIGNED BY THE SECOND RESPONDENT DATED 11/07/2009.** **EXT.P3: COPY OF THE RETURNED ENVELOPE ADDRESSED TO THE THIRD RESPONDENT.** **EXT.P4: COPY OF THE NOTICE UNDER SECTION 13(2) OF THE ACT DATED 01/07/2009 CONTAINING THE ACKNOWLEDGMENT BY THE THIRD RESPONDENT DATED 10/09/2009.** **EXT.P5: COPY OF THE PETITION FILED BY THE PETITIONER BEFORE HONOURABLE CHIEF JUDICIAL MAGISTRATE, KOZHIKODE DATED 11/12/2009.** **EXT.P6: COPY OF THE ORDER OF THE CHIEF JUDICIAL MAGISTRATE, KOZHIKODE IN C.M.P.NO.4435/2009 DATED 21/12/2009.** ## **RESPONDENT'S EXHIBITS:** **EXT.R1: COPY OF THE NOTICE DATED 19/11/2009 ISSUED BY THE PETITIONER BANK.** **EXT.R2: COPY OF THE POSSESSION NOTICE DATED 21/11/2009 ISSUED BY THE PETITIONER BANK UNDER THE SARFAESI ACT.** **EXT.R3: COPY OF THE ORDER DATED 13/01/2010 IN I.A. NO.118/2010 IN S.A.NO.34/2010 PASSED BY THE DEBTS RECOVERY TRIBUNAL, ERNAKULAM.** **EXT.R4: COPY OF THE COVERING LETTER DATED 23/01/2010 GIVEN TO THE STANDING CONSEL FOR THE PETITIONER BANK BEFORE THE D.R.T.** **EXT.R5: COPY OF THE MEMO DATED 23/01/2010 FILED BEFORE THE D.R.T.** **EXT.P6: COPY OF THE LETTER DATED 29/01/2010 ISSUED TO THE PETITIONER BANK.** **EXT.P7: COPY OF THE POSTAL RECEIPTS NOS. RLAD A RLO 156689001N AND RLAD A RLO 156689131N, EACH DATED 29/01/2010.** **EXT.P8 SERIES: COPY OF THE RECEIPT DATED 17/02/2010 FOR Rs.75,000/RECEIPT DATED 07/04/2010 FOR Rs.75,000/- AND RECEIPT DATED 24/04/2010 FOR Rs.75,000/- ISSUED BY THE SOUTH INDIAN BANK LTD., MAVOOR ROAD BRANCH, KOZHIKODE.** **//TRUE COPY//** **P.S. TO JUDGE** **rs.** **(C.R)** ## **P.R. RAMACHANDRA MENON, J.** .............................................................................. ## **W.P.(C) No. 14971 OF 2010** ......................................................................... **Dated this the 25[th] June, , 2010** ## **J U D G M E N T** The petitioner Bank is challenging the correctness and sustainability of Ext.P6 order passed by the C.J.M., Kozhikode whereby the petition filed under Section14 of the SARFAESI Act seeking to avail the assistance of the learned Magistrate to take possession of the property in question has been turned down, stating that the notice under Section 13 (2) of the Act served 'directly' upon the defaulter/guarantor, who has endorsed the acceptance, is not sufficient so as to constitute proper and valid service under Rule 3 of the Security Interest (Enforcement) Rules. 2. The sequence of events as narrated in the Writ Petition is that a loan was availed by the second respondent from the petitioner Bank on 30.03.2007 creating security interest over the property of nearly 7.5 cents of land. But repayments were not effected on time , which made the Bank to declare the account as NPA and issued Ext. P1 notice dated 01.07.2009 under section **2** ## **W.P.(C) No. 14971 OF 2010** 13(2) of the SARFAESI Act . The notice was sent by registered post to the respondents No.2 and 3 , which was accepted by the second respondent (wife of the third respondent), as borne by the postal acknowledgement card, while, the notice sent to the third respondent, who is the guarantor was returned 'unclaimed'. The authorised officer of the Bank gave a copy of the notice to the third respondent 'directly', against proper acknowledgement on 10.09.2009. Since the said respondents did not choose to clear the due amount, despite receipt of the notice, Ext. P5 application was filed by the Bank under Section 14 of the SARFAESI Act . After considering the said petition, the learned C.J.M. observed that service of the demand notice under Section 13(2) of the SARFAESI Act 'directly' on the third respondent (herein) cannot be accepted as proper service as provided under 'Rule 3' of the Security Interest (Enforcement) Rules and accordingly, the application was rejected, as per Ext. P6, which in turn is under challenge . 3. The respondents 2 and 3 have filed a counter affidavit stating that the petitioner Bank is not justified in filing this Writ **W.P.(C) No. 14971 OF 2010** **3** Petition in view of the subsequent developments . It is also stated that the impugned order is not assailable under any circumstances as 'Rule 3' of the Rules does not provide for personal service, as a mode of service . The learned Counsel for the said respondents submits that challenging the action taken by the petitioner Bank under Section 13(4) of the SARFAESI Act issuing possession notice dated 21.11.2009, necessary proceedings have been filed before the DRT, Ernakulam under Section 17 of the SARFAESI Act, wherein interim stay was granted by the Tribunal as borne by Ext. R3 subject to the condition as specified therein. The learned Counsel further submits that the condition imposed was satisfied, on which event, the interim order was extended further and the matter stands posted to July 2010 for final hearing. It is also brought to the notice of this Court that extension of the interim order was made by the Tribunal, of course, after hearing the learned Counsel for the Bank, as observed in Ext.R3 itself. 4. The learned Counsel for the petitioner Bank submits that the challenge raised in the Writ Petition is with regard to the ## **W.P.(C) No. 14971 OF 2010** **4** course pursued by the C.J.M. and not as to the rights and liberties of the respondent Nos.2 and 3 to have the benefit of Ext.R3 interim order of stay. The specific prayer in the Writ Petition is to declare that 'personal service' of the demand notice under Section 13 (2) of the SARFAESI Act is sufficient compliance of the provisions of 'Rule 3' of Security Interest (Enforcement) Rules, submits the learned Counsel. 5. In connection with the pleadings and prayers raised in the Writ Petition, the learned Counsel for the Bank also submits that the notice was initially sent by 'registered post', to both the respondents and the same was accepted by the second respondent (wife) as revealed from the endorsement on the postal acknowledgement card returned, while the notice to the third respondent/guarantor (husband) was returned unclaimed. The learned Counsel submits that, this by itself causing the postal article returned unclaimed, is liable to be treated as proper service, despite which, the authorised officer of the Bank has also served a copy of the said notice 'personally' to the said respondent against proper receipt and in the said circumstances, **5** ## **W.P.(C) No. 14971 OF 2010** no observation could have been made by the learned C.J.M to the effect that there was no proper service to have declined interference in Ext.P5 petition. The learned Counsel also placed reliance on the decisions rendered by the Apex Court in _**Vinod Shivappa vs. Nanda Belliappa**_ **(2006 (3) KLT 94 (SC)]** and _**Alavi Haji vs. Muhammed**_ **(2007(3) KLT 77 (SC)]** , and also the decisions rendered by this Court in _**Ayishumma v. Hassan**_ **2009 (3) KLT 399 .** 6. It is settled law that, when a notice sent by registered post is returned 'unclaimed', it could very well be treated as 'valid and proper' service. There is no case for the respondents 2 and 3 that the averments raised by the Bank that the notice was initially sent by 'registered post' is not correct; or that the same was not received by the second respondent/borrower and further that it was never caused to be returned 'unclaimed' by the third respondent/guarantor. Similarly, there is no case for the said respondents that the notice was 'not personally served' by the authorised officer on 10.09.2009 as contended by the Bank. This being the position, absolutely no prejudice has been **W.P.(C) No. 14971 OF 2010** **6** caused to the parties concerned and the 'position' has already been let known to the parties, which is the purpose of serving any notice. Then, the only question to be considered is whether the 'personal service' of such notice comes within the purview of 'Rule 3' of the Security Interest (Enforcement)Rules, which gets confined to the realm of academic exercise alone. 7. Rule 3 of the Security Interest (Enforcement) Rules reads as follows: _“3._ _**Demand Notice** :-(1) The service of demand notice as referred to in sub section(2) of Section 13 of the Ordinance shall be made by delivering or transmitting at the place where the borrower or his agent, empowered to accept the notice or documents on behalf of the borrower, actually and voluntarily resides or carries on business or personally works for gain, by registered post with acknowledgement due, addressed to the borrower or his agent empowered to accept the service or by speed post or by courier or by any other means of transmission of documents like fax message or electronic mail service._ **W.P.(C) No. 14971 OF 2010** **7** _Provided that where authorised officer has reason to believe that the borrower or his against is avoiding the service of the notice or that for any other reason, the service cannot be made as aforesaid, the service shall be effected by affixing a copy of the demand notice on the outer door or some other conspicuous part of the house or or building in which the borrower or his agent ordinarily resides or carries on business or personally works for gain and also by publishing the contes of the demand notice in two leading newspapers, one in vernacular language, having sufficient circulation in that locality_ _(2) Where the borrower is a body corporate, the demand notice shall be served on he registered office or any of the branches of such body corporate as specified under subrule (1)._ _(3) Any other notice in writing to be served on the borrower or his agent by authorised officer, shall be served in the same manner as provided in this rule._ _(4) Where there are more than one borrower, the demand notice shall be served on_ **8** ## **W.P.(C) No. 14971 OF 2010** _each borrower/. ”_ 8. By virtue of the wording in the statute, different modes of service are provided so as to give effect to the provisions. 'Registered Post', 'Speed Post', 'Courier service' etc are some of such means. It is also clearly stipulated in the Rules that, it could be by any other means of transmissions of documents like Fax message or Electronic mail service as well. Giving 'purposive interpretation' to the provisions, so as to give effect to the scheme and object of the statute, the purpose/target to be achieved is that, the party be let known as to the proceedings being pursued by the secured creditor . The respondents 2 and 3 have no dispute with regard to the service of notice by 'registered post' to the 2[nd] respondent and the 'personal service' effected on the 3[rd] respondent; whereby the purpose has been achieved. 9. That apart, going by the course and conduct pursued by the third respondent, who has caused the notice returned 'unclaimed', this by itself is liable to be reckoned as proper and **W.P.(C) No. 14971 OF 2010** **9** valid service and no further personal service was necessary . It was in addition to this, that the authorised officer, as a more prudent or precautionary measure, chose to effect service of notice 'personally' as well. It is inspite of satisfying the said requirement as to the service of notice upon the parties concerned, that the learned Magistrate observed that the service of notice is not correct or proper, to be in conformity with the requirement of Rule 3. The observation made by the learned C.J.M. is not correct or sustainable under any circumstances. 10. Yet another aspect to be noted is about the scope of jurisdiction of the learned Magistrate to have rejected the application under Section 14 of the Act, with reference to the course and events as mentioned above. In fact, the role of the Chief Metropolitan Magistrate/District Magistrate, as the case may be, as envisaged under Section 14 of the SARFAESI Act is only with a limited jurisdiction, i.e., to see whether the property is a 'secured asset' or not. The said jurisdiction is only with regard to the assistance to be given to the party/secured creditor to take physical possession of the property, over which **W.P.(C) No. 14971 OF 2010** **10** security interest has been created. The secured creditor is at liberty to take possession of the property even without intervention of the Magistrate. The wordings under Section 14 of the Act are very much significant and do not require no other condition to be satisfied, except the two parameters specified therein and once the Magistrate finds that the above conditions are satisfied, the Magistrate is bound to extend the necessary assistance called for. The scope of jurisdiction of the Magistrate under Section 14 of the Act has already been explained in the decision rendered by a Division Bench of this Court reported in _**Muhammed Ashraf v. Union of India**_ (2008 (4) KLT 1). This Court had further occasion to consider the same and by virtue of the decision reported in _**Ayishumma v. Hassan**_ (2009(3) KLT 399), it cannot be a subject matter of dispute, any further. Since the question of law has been declared by this Court, it was no more open to the learned Magistrate to have pursued such a course as reflected in Ext.R3, which cannot but be deprecated. 11. In the above circumstances, this Court finds that Ext.P6 order passed by the learned Magistrate does not stand **11** ## **W.P.(C) No. 14971 OF 2010** the test of law. Hence the same is set aside. The parties are at liberty to pursue the remedy by raising necessary pleadings and evidence before the DRT, where Ext.R3 proceedings are pending. The Bank is also at liberty to approach the Magistrate by filing a fresh application under Section 14, subject to the decision to be rendered by the DRT, as and when the cause of action becomes mature. The Writ Petition is allowed. No cost. **P.R. RAMACHANDRA MENON, JUDGE.** lk