2018 (4) TMI 717 - HC - Indian Laws

High Court Invalidates Sale Notices for Non-Compliance with Security Interest Rules

Sr. V.J. Dhanapal Versus Union Bank of India, Bangalore, Smt. S. Manjula And Mr. Shravan Kumar

Sr. V.J. Dhanapal Versus Union Bank of India, Bangalore, Smt. S. Manjula And Mr. Shravan Kumar - TMI Issues Involved:1. Validity of the sale notices under the SARFAESI Act, 2002.2. Compliance with Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002.3. Jurisdiction of the High Court under Article 226 and 227 of the Constitution of India.4. Rights and obligations of the borrower and the auction purchaser.5. Direction for refund and compensation.Issue-wise Analysis:1. Validity of the Sale Notices:The primary issue was the validity of the sale notices dated 21/9/2013 and 27/9/2013 issued by Union Bank of India. The petitioner contended that these notices did not comply with the mandatory 30-day notice period required under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002. The High Court observed that the sale notices were issued in continuation of an earlier notice dated 29/5/2013, which had lapsed, and thus did not provide the mandatory 30-day notice period. Consequently, the sale notices and the subsequent sale certificates were invalid.2. Compliance with Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002:The Court emphasized the mandatory nature of Rules 8 and 9, which require a clear 30-day notice for the sale of secured assets. The Court referred to the Supreme Court judgments in Mathew Varghese vs. M. Amritha Kumar and Vasu P. Shetty vs. Hotel Vandana Palace, which upheld the necessity of strict compliance with these rules. The High Court ruled that the failure to provide a 30-day notice rendered the sale proceedings invalid and unconstitutional.3. Jurisdiction of the High Court under Article 226 and 227:The Bank raised a preliminary objection regarding the jurisdiction of the Madras High Court, arguing that the properties were situated in Bangalore. However, the High Court overruled this objection, citing its supervisory jurisdiction under Article 227 over the Debts Recovery Appellate Tribunal, Chennai. The Court referenced the Supreme Court's decision in Union of India v. Debts Recovery Tribunal Bar Association, which affirmed the High Court's power of superintendence over DRTs and DRATs within its territorial jurisdiction.4. Rights and Obligations of the Borrower and the Auction Purchaser:The High Court noted that the borrower had the right to challenge the sale notices and that the Bank's failure to comply with the statutory notice period could not be waived by the borrower's alleged dilatory tactics. The Court also found the Debts Recovery Appellate Tribunal's decision contradictory, as it confirmed the sale but also allowed the borrower to redeem the property by paying the entire amount to the Bank for refund to the auction purchaser.5. Direction for Refund and Compensation:The High Court set aside the compensation of Rs. 75,000 awarded by the Debts Recovery Tribunal to the auction purchaser. However, it directed the Union Bank of India to refund the bid amount with 9% interest to the auction purchaser within thirty days. The borrower was also directed to pay the registration charges to the auction purchaser within one month. If the borrower had been dispossessed, the Court ordered the restoration of possession of the property to the borrower.Conclusion:The High Court set aside the order of the Debts Recovery Appellate Tribunal, Chennai, dated 10/2/2017, and the sale notices and sale certificates issued by the Union Bank of India. The Court directed the Bank to refund the bid amount with interest to the auction purchaser and ordered the restoration of possession to the borrower. The Civil Revision Petition was disposed of, and no costs were awarded.