SARFAESI possession notice compliance and discretionary interest under settlement terms were both upheld

Under the SARFAESI enforcement scheme, compliance with possession notice requirements must be real and substantive; a document that is not itself a valid possession notice cannot be treated as cured merely by later publication, and total non-compliance with the statutory mode of enforcement vitiates the action. On interest, where consent terms left the future rate to the Tribunal and no agreed penal rate was proved, the grant of 8% per annum was treated as a discretionary determination under Section 34 CPC and was not interfered with as arbitrary or perverse. The writ challenge therefore failed on both grounds.

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Issues: (i) whether the challenge to the sale proceedings under the SARFAESI regime could succeed on the ground of non-compliance with the possession notice requirements in Rule 8(2) of the Security Interest (Enforcement) Rules, 2002; (ii) whether the award of interest at 8% per annum in the settlement-related order called for interference.

Issue (i): whether the challenge to the sale proceedings under the SARFAESI regime could succeed on the ground of non-compliance with the possession notice requirements in Rule 8(2) of the Security Interest (Enforcement) Rules, 2002.

Analysis: The operative question was not merely whether publication within seven days was mandatory or directory, but whether the notice relied upon by the petitioner was itself a valid possession notice under Section 13(4) of the SARFAESI Act, 2002. The notice dated 31.03.2011 was found to be a declaration of assignment and surrogate possession, not a notice addressed to the borrower in the manner contemplated by the Rules. The earlier possession notice of 13.04.2010, which reflected actual compliance with the statutory scheme, had not been published. In that situation, publication of the later notice could not cure the defect, and there was total non-compliance with the statutory requirement governing enforcement of security interest.

Conclusion: The challenge to the SARFAESI action failed, and the finding that the enforcement measures were invalid was upheld against the petitioner.

Issue (ii): whether the award of interest at 8% per annum in the settlement-related order called for interference.

Analysis: The consent terms placed before the Tribunal did not contain any agreed rate of penal interest at 30% per annum for default, and the record showed that the parties had left the rate of future interest to the Tribunal's determination. The recorded concession regarding acceptance of whatever rate the Tribunal fixed was treated as binding, and the award of future interest was a matter of judicial discretion under Section 34 of the Code of Civil Procedure, 1908. On the facts, the discretion exercised to grant 8% per annum was neither arbitrary nor perverse.

Conclusion: The award of interest at 8% per annum was sustained and the petitioner's challenge on this issue was rejected.

Final Conclusion: The writ petitions did not disclose any ground for interference in supervisory jurisdiction, as the statutory enforcement challenge and the challenge to the rate of interest both failed.

Ratio Decidendi: In enforcement under the SARFAESI Act, statutory steps for possession and publication must be complied with in substance and in form, and a notice that is not itself a valid possession notice cannot be used to validate later publication; likewise, a recorded concession on interest and the grant of future interest remain subject to judicial discretion under Section 34 of the Code of Civil Procedure, 1908.

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