2018 (6) TMI 1840 - HC - Indian Laws

Sale and Auction Notices Invalidated for Lack of Notice Period Compliance

Sri Sai Annadhatha Polymers and Ors. Versus The Canara Bank

The court set aside the sale notice dated 01.03.2018 and the auction notice published on 03.03.2018 due to non-compliance with the mandatory thirty-day ... Validity of possession notice - grievance of the petitioners as set out in the writ affidavit is that the bank did not obtain proper valuation of the secured assets which it proposed to sell - HELD THAT:- In the case on hand, it is an admitted fact that a clear thirty day notice period was not maintained, as the notice under Rule 8(6) of the Rules of 2002 was issued on 01.03.2018 and publication of the auction sale notice in newspapers, under Rule 9(1) of the Rules of 2002, was on 03.03.2018. There is, thus, a clear violation of the statutory mandate which vitiates the exercise undertaken by the bank in the context of the Rules - In the case on hand, the demand notice under Section 13(2) of the SARFAESI Act was issued by the bank on 11.07.2017 and the possession notice was issued on 11.09.2017. Therefore, even if the date of the notice, i.e., 11.07.2017, is excluded, more than sixty days gap was maintained before issuance of the possession notice on 11.09.2017. The contention of the petitioners in this regard is therefore without merit and is accordingly rejected. As regards the alleged failure on the part of the bank to consider the representation dated 01.09.2017 made by the petitioner firm, it appears that the only plea advanced thereunder was to extend time till 31.10.2017 to regularize the accounts. Even though the symbolic possession notice, under Section 13(4) of the SARFAESI Act read with Rule 8(1) of the Rules of 2002, was issued shortly thereafter on 11.09.2017, the bank did not take any concrete measures till 01.03.2018, when it issued the notice under Rule 8(6) of 2002. The petitioners did not establish before this Court that any substantial payment was made by them before the end of October 2017 as promised by them. The bank specifically stated in its counter that the petitioners made no such payment to establish their bonafides and the said averment remains unrebutted. However, given the clear violation of the statutory mandate of Rules 8(6) and 9(1) of the Rules of 2002 in the context of the amended Section 13(8) of the SARFAESI Act, the action of the bank in bringing the secured assets of the petitioners to sale under the notice dated 01.03.2018 issued under Rule 8(6) of the Rules of 2002 and the auction sale notice dated 01.03.2018 issued under Rule 9(1) thereof, published in the newspapers on 03.03.2018, cannot be sustained. The impugned notice dated 01.03.2018 issued under Rule 8(6) of the Rules of 2002 and the consequential auction notice dated 01.03.2018 issued under Rule 9(1) thereof, published in the newspapers on 03.03.2018, is set aside - petition allowed. Issues Involved:1. Validity of the possession notice dated 11.09.2017.2. Validity of the sale notice dated 01.03.2018.3. Compliance with the statutory mandate of the SARFAESI Act and the Rules of 2002.4. Consideration of the petitioners' representation dated 01.09.2017.Detailed Analysis:1. Validity of the Possession Notice Dated 11.09.2017:The petitioners challenged the possession notice issued under Rule 8(1) of the Security Interest (Enforcement) Rules, 2002. They argued that the notice was issued before the expiry of the sixty-day period stipulated in the demand notice under Section 13(2) of the SARFAESI Act. However, the court found that the sixty-day period is to be reckoned from the date of the demand notice, not from the date of service. Since the demand notice was issued on 11.07.2017 and the possession notice on 11.09.2017, more than sixty days had lapsed, making the possession notice valid. The petitioners' contention in this regard was rejected.2. Validity of the Sale Notice Dated 01.03.2018:The sale notice was issued under Rule 8(6) and Rule 9(1) of the Rules of 2002. The court noted that the notice under Rule 8(6) was issued on 01.03.2018, but the auction sale notice under Rule 9(1) was published in newspapers on 03.03.2018, failing to maintain the mandatory thirty-day notice period. This was a clear violation of the statutory mandate, rendering the sale notice invalid. The court emphasized that the statutory notice period of thirty days is sacrosanct and any deviation curtails the borrower's right of redemption.3. Compliance with the Statutory Mandate of the SARFAESI Act and the Rules of 2002:The court highlighted the amendments made to Section 13(8) of the SARFAESI Act and the Rules of 2002. The amended Section 13(8) stipulates that the borrower's right of redemption expires upon publication of the notice under Rule 9(1). However, Rule 8(6) remains unaltered, requiring a thirty-day notice period to enable the borrower to redeem the property. The court found that the bank failed to comply with this statutory mandate, as the notice under Rule 9(1) was published before the expiry of the thirty-day period from the notice under Rule 8(6).4. Consideration of the Petitioners' Representation Dated 01.09.2017:The petitioners claimed that the bank did not consider their representation requesting an extension to regularize the loan accounts. The court noted that while compliance with Section 13(3A) of the SARFAESI Act is mandatory, the bank had waited beyond the requested time before taking concrete measures. The petitioners failed to demonstrate any substantial payment by the end of October 2017, as promised. Therefore, the court concluded that the bank's actions did not require a specific written response, and the compliance with Section 13(3A) was deemed manifest.Conclusion:The court allowed the writ petition to the extent of setting aside the impugned notice dated 01.03.2018 issued under Rule 8(6) and the consequential auction notice dated 01.03.2018 under Rule 9(1), published on 03.03.2018. However, the court permitted the bank to initiate fresh action in accordance with the current statutory procedure. Pending miscellaneous petitions were closed, and no order as to costs was made.