TaxTMI 
TaxTMI 
2015 (1) TMI 461
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....d 'Jerry Merry Exports Private Limited'. As guarantors, the 1st and 2nd Respondents created an EQUITABLE MORTGAGE in favour of 4th Respondent-Bank by depositing the title deeds of their property bearing Survey No.l50/12A (40.20 cents), Survey No.l50/12C (11 cents) and Survey No.150/13 (26 cents) totalling 77.20 cents situated in Padivattom Kana, Edappally South Village, Kanayanoor Taluk, Ernakulam District Kochi, Kerala (hereinafter referred to as "the mortgage property"). When the transaction became a NON-PERFORMING ASSET the 4th Respondent-Bank filed O.A. No.31 of 2002 for recovery of Rs. 33,77,053/- along with interest @ 18% per annum. The 4th Respondent-Bank also issued a notice under Section 13(2) of the SARFAESI Act on 11.08.2006 for a sum of Rs. 70,77,590/-. On 20.02.2007, the 4th Respondent-Bank is stated to have taken possession of the mortgaged property by invoking Section 13(4) of SARFAESI Act, read along with Rules 8 and 9 of the Rules, 2002. 5. The 1st and 2nd Respondents filed a Securitisation Application i.e. S.A. No.20 of 2007, before the Debt Recovery Tribunal (hereinafter referred to as "the DRT") Ernakulam, challenging the possession notice dated 20.02....
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....ant to the said Order dated 20.09.2007, the sale which was scheduled to be held on 25.09.2007 was postponed. In fact, though the six weeks period prescribed in the Order dated 20.09.2007 expired by 10.11.2007, it is stated that even thereafter the sale was not effected. Pursuant to the said order, the 1st and 2nd Respondents stated to have deposited the sum of Rs. 10,00,000/- with the 4th Respondent-Bank. On 27.12.2007, the DRT passed Orders in S.A. No.20 of 2007 dismissing the said application with costs. On the next day i.e. on 28.12.2007, the 4th Respondent-Bank accepted the tender of the Appellant who offered a sum of Rs. 1,27,00,101/- and asked the Appellant to deposit 25% of the amount i.e. Rs. 31,75,025/- on that day itself and pay the balance amount within 15 days. The Appellant is stated to have deposited the 25% of the total bid amount offered by it with the 4th Respondent-Bank. The Appellant is also stated to have deposited the balance amount on 11.01.2008. After deposit of 25% of the bid amount on 31.12.2007, the 4th Respondent-Bank confirmed the sale in favour of the Appellant and gave further time of 15 days for depositing the balance amount. 9. After depositing th....
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....ade, as directed, the sale in favour of the Appellant would stand confirmed and the Writ Appeal would automatically stand dismissed. In the event of the payment of Rs. 2,00,00,000/- being made in the form of a Demand Draft, the Appellant was directed to hand over the original sale deed obtained by him from the Bank to enable Respondents 1 and 2 to approach the Sub-Registrar and Revenue Authorities for cancellation of registration, consequent mutation, etc. 11. There was also a direction to the Sub-Registrar to restore the property in the name of the 1st and 2nd Respondents. On payment of the sum of Rs. 2,00,00,000/-, the Bank was directed to remit the excess amount available with them to the Tax Recovery Officer in pursuance of the demand already made by it and to credit the said amount in the account of Respondents 1 and 2. Liberty was also given to Respondents 1 and 2. to claim for refund, if they were eligible for any. Additionally, liberty was also given to Respondents 1 and 2 to refund the stamp duty, if they were eligible for such refund. The period of two months granted by the Division Bench for Respondents 1 and 2 to deposit a sum of Rs. 2,00,00,000/- expired by 08.05.20....
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....High Court, the requirement of Section 13(8), as well as corresponding Rules were duly taken care of and the outer date for sale was prescribed in the said order itself and once the debtor, namely, Respondents 1 and 2 failed to avail the said opportunity extended by the High Court, they cannot be allowed to complain about the ultimate sale effected on 28.12.2007. The learned Senior Counsel contended that in the Order dated 20.09.2007, the High Court while directing the DRT to hear the parties and dispose of the O.A. and S.A. without any delay gave an option to Respondents 1 and 2 to settle the dues by making the payment of Rs. 55,00,000/-, which was the OTS offered by the 4th Respondent-Bank with an observation that in the event of Respondents 1 and 2 making the said payment, the 4th Respondent-Bank should consider waiving interest on the said amount. 15. According to the learned Senior Counsel, when the 1st and 2nd Respondents failed to avail the said opportunity offered in the Order dated 20.09,2007, by which order, the sale which was scheduled to be held on 25.09.2007 was directed to be postponed by six weeks, the 1st and 2nd Respondents cannot subsequently be heard to compla....
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....h dated 18.06.2010 in I.A. No.437 of 2010 and the order dated 08.07.2010 in LA. No.507 of 2010, cannot be sustained. 17. As against the above submissions made on behalf of the Appellant, the submission of Mr. Shyam Divan, learned Senior Counsel for the 8th Respondent was six-fold. According to Mr. Divan, the mortgagor's right of redemption is a statutorily recognized one and continues till the time of registration of the sale, that the said general principle is engrafted in Section 13(8) of the SARFAESI Act read with Rules 8 and 9 of the Rules, 2002, that it is incumbent upon the Bank to have informed the borrower about the date and time of the sale, which is implicit in the provision, that admittedly no notice was given by the Bank with reference to the sale held on 28.12.2007, that in any case since there was a postponement of the original sale scheduled, there ought to have been a fresh notification and, therefore, the High Court's conclusion about non-issuance of sale notice was well justified. The learned senior counsel contended that eventually the order of the Division Bench of the High Court was equitable and, therefore, does not call for interference. Mr. Divan,....
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....Bank was dated 02.02.2008, which only said that surplus amount over and above the money due to the Bank was adjusted and, therefore, the said notice was not in consonance with the provisions of the SARFAESI Act and the other statutory provisions required to be complied with and, therefore, the judgment of the Division Bench of the High Court does not call for interference. The learned Senior Counsel drew our attention to various grounds raised in the writ petition wherein the above contentions of the borrower have been set out. 2l. Supporting the submissions made by Mr. Shyam Divan, Mr. C.U. Singh, learned Senior Counsel for the Respondents No.1 and 2, submitted that the non-obstante clause in Section 13(1) of the SARFAESI Act read along with Section 60, as well as, Sections 69 and 69A of the T.P. Act, would show that under Section 13(1) of the SARFAESI Act the non-obstante clause is restricted to Section 69 or 69A of the T.P. Act, and that the implication of Section 60 of the T.P. Act would apply in full force. According to the learned Senior Counsel, while the 4th Respondent-Bank made no mention about the other bidders in the High Court and merely submitted that the bid submit....
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....ch security interest is created; 2(zf) "security interest" means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31; 13. Enforcement of security interest.- (1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or Tribunal, by such creditor in accordance with the provisions of this Act. (8). If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset. Rule 8. Sale of immovable secured assets. - (1) Where the secured asset is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice pre....
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.... the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property. Rule 9. Time of sale, issue of sale certificate and delivery of possession, etc.- (1) No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower.' 24. Under Section 13(1) it is provided that any security interest created in favour of the SECURED CREDITOR may be enforced without the intervention of the Court and Tribunal by such creditor in accordance with the provisions of this Act. The non-obstante clause in the opening set of expressions contained in Section 13(1), as pointed out by Mr. Singh learned Senior Counsel for the borrowers, is restricted to Section 69 or Section 69A of the T.P. Act. Apart from noting the said statutory impediment, to be noted in Section 13(1), the more important feature to be noted is that a free hand is given to the SECURED CREDITOR for the purpose of enforcing any security interest created in favour of SECUR....
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....in favour of the borrower, who is the owner of the SECURED ASSET and who is extended an opportunity to take all efforts to stop the sale or transfer till the last minute before which the said sale or transfer is to be effected. Having regard to such a valuable right of a debtor having been embedded in the said sub-section, it will have to be stated in uncontroverted terms that the said provision has been engrafted in the SARFAESI Act primarily with a view to protect the rights of a borrower, inasmuch as, such an ownership right is a Constitutional Right protected under Article 300A of the Constitution, which mandates that no person shall be deprived of his property save by authority of law. Therefore, de hors, the extent of borrowing made and whatever costs, charges were incurred by" the SECURED CREDITOR in respect of such borrowings, when it comes to the question of realising the dues by bringing the property entrusted with the SECURED CREDITOR for sale to realize money advanced without approaching any Court or Tribunal, the SECURED CREDITOR as a TRUSTEE cannot deal with the said property in any manner it likes and can be disposed of only in the manner prescribed in the SARFAESI A....
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....blic notice of sale is published in the newspapers. Therefore, the requirement under Rule 8(6) and Rule 9(1) contemplates a clear 30 days individual notice to the borrower and also a public notice by way publication in the newspapers. In other words, while the publication in newspaper should provide for 30 days clear notice, since Rule 9(1) also states that such notice of sale is to be in accordance with proviso to sub-rule (6) of Rule 8, 30 days clear notice to the borrower should also be ensured as stipulated under Rule 8(6) as well. Therefore, the use of the expression 'or' in Rule 9(1) should be read as 'and' as that alone would be in consonance with Section 13(8) of the SARFAESI Act. 29. The other prescriptions contained in the proviso to sub-rule (6) of Rule 8 relates to the details to be set out in the newspaper publication, one of which should be in 'Vernacular language' with sufficient circulation in the locality by setting out the terms of the sale. While setting out the terms of the sale, it should contain the description of the immovable property to be sold, the known encumbrances of the SECURED CREDITOR, the secured debt for which the propert....
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....ssession of. Under sub-rule (1) of Rule 8 the prescribed manner in which the possession is to be taken by issuing the notice in the format in which such notice of possession is to be issued to the borrower is stipulated. Under sub-rule (2) of Rule 8 again, it is stated as to how the SECURED CREDITOR should publish the notice of possession as prescribed under sub-rule (1) to be made in two leading newspapers, one of which should be in the vernacular language having sufficient circulation in the locality and also such publication should have been made seven days prior to the intention of taking possession. Sub-rule (3) of Rule 8 really casts much more onerous responsibility on the SECURED CREDITOR once possession is actually taken by its authorised officer. Under sub-rule (3) of Rule 8, the property taken possession of by the SECURED CREDITOR should be kept in its custody or in the custody of a person authorized or appointed by it and it is stipulated that such person holding possession should take as much care of the property in its custody as a owner of ordinary prudence would under similar circumstances take care of such properly. The underlining purport of such a requirement is t....
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....gage money, to require a mortgagee to restore the property to the mortgagor with all' rights prescribed as it stood prior to the mortgage. Under the proviso, the only impediment would be that if such a right of a mortgagor stood extinguished by act of the parties or by the decree of a Court. Certain other conditions are also stipulated in the said provision for the mortgagor to seek for redemption of the mortgaged property. Dealing with the said provision, this Court held as under in paragraphs 34 and 35. Paragraphs 34 and 35 are as under: "34. The right of redemption which is embodied in Section 60 of the Transfer of Property Act is available to the mortgagor unless it has been extinguished by the act of parties. The combined effect of Section 54 of the Transfer of Property Act and Section 17 of the Indian Registration Act is that a contract for sale in respect of immovable property of the value of more than one hundred rupees without registration cannot extinguish the equity of redemption. In India it is only on execution of the conveyance and registration of transfer of the mortgagor's interest by registered instrument, that the mortgagor's right of redemption wil....
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....d 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 T.P. Act, this Court has envisaged the situation where such mortgage deed providing for resorting to the sale of the mortgaged property without the intervention of the Court. Keeping the said situation in mind, it was held that the right of redemption will 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 loose the right of redemption. It was also made clear that it was erroneous to suggest that the mortgagee would be actin....
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.... 38. Here again we find that even if there were some difference in the amount tendered by the borrower while exercising his right of redemption under Section 13(8), the question of difference in the amount should be kept open and can be decided subsequently, but on that score the right of redemption of the mortgagor cannot be frustrated. Elaborating the statement of law made therein, we wish to state that the endeavour or the role of a SECURED CREDITOR in such a situation while resorting to any sale for the realisation of dues of a mortgaged asset, should be that the mortgagor is entitled for some lenience, if not more to be shown, to enable the borrower to tender the amounts due in order to ensure that the Constitutional Right to property is preserved, rather than it being deprived of. 39. In Ram Kishun (supra), paragraphs 13, 14 and 28 are relevant for our purpose, which are as under: "13. Undoubtedly, public money should be recovered and recovery should be made expeditiously. But it does not mean that the financial institutions which are concerned only with the recovery of their loans, may be permitted to behave like property dealers and be permitted further to dispose of ....
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....993 (51 of 1993) or any other law for the time being in force. Section 29 - Application of certain provisions of 1 Income-tax Act:- The provisions of the Second and Third Schedules to the Income-tax Act, 1961 (43 of 1961), and the Income-tax (Certificate Proceedings) Rules, 1962, as in force from time to time shall, as far as possible, apply with necessary modifications as if the said provisions and the rules referred to the amount of debt due under this Act instead of to the income-tax: Provided that any reference under the said provisions and the rules to the assessee shall be construed as a reference to the defendant under this Act. Sch. II Part I Rule 15 - Adjournment or Stoppage of Sale:- (1) The Tax Recovery Officer may, in his discretion, adjourn any sale hereunder to a specified day and hour; and the officer conducting any such sale may, in his discretion, adjourn the sale, recording his reasons for such adjournment: Provided that, where the sale is made in, or within the precincts of, the office of the Tax Recovery Officer, no such adjournment shall be made without the leave of the Tax Recovery Officer. (2) Where a sale....
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....f the provisions of the RDDB Act. We are also fortified by our above statement of law as the HEADING of the said Section also makes the position clear that application of other laws are not barred. The effect of Section 37 would, therefore, be that in addition to the provisions contained under the SARFAESI Act, in respect of proceedings initiated under the said Act, it will be in order for a party to fall back upon the provisions of the other Acts mentioned in Section 37, namely, the Companies Act, 1956, the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992, the Recovery of Debts Due to Banks and Finances Institutions Act, 1993, or any other law for the time being in force. On this aspect, it would be apposite to refer to a principle set down in Eastern Counties etc.. Railway v. Marriage [1861] 9 HLC 32, as stated in Craies on Statute Law, Seventh Edition, p.207. The proposition of law as regards the HEADINGS of a provision has been succinctly stated as under: '"These various headings", "are not to be treated as if they were marginal notes, or were introduced into the Act merely for the purpose of classifying the enactments. Th....
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....n 29 of the RDDB Act, the mode and method by which a recovery of income tax can be resorted to under the Second and Third Schedule to the Income-tax Act and the Income Tax Rules, 1962 have to be followed. Therefore, a reading Section 37 of the SARFAESI Act and Section 29 of the RDDB Act, the only aspect which has to be taken care of is that while applying the procedure prescribed under Rule 15 of the Income-tax Rules, 1962, no conflict with reference to any of the provisions of the SARFAESI Act, takes place. 47. Mr. Shyam Divan, learned Senior Counsel, also referred to Order XXI Rule 64 to 69 of the Civil Procedure Code in support of his submission that by virtue of Section 37 of SARFAESI Act, as it states that the provisions of SARFAESI Act will be in addition to and not in derogation of any other law for time being in force apart 1 from Companies Act, RDDB Act etc., the provisions contained in CPC can also be imparted to support the stand of the Respondents 1 & 2. Since we have held that by applying Section 37 of SARFAESI Act, read along with Section 29 of the RDDB Act, the requirement of the statutory prescription under Section 13(8) read along with Rule 8 and 9(1) of the Sec....
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....rower, no sale or transfer can be resorted to by a SECURED CREDITOR. In the event of any such sale properly notified after giving 30 days clear notice to the borrower did not take place as scheduled for reasons which cannot be solely attributable to the borrower, the SECURED CREDITOR cannot effect the sale or transfer of the SECURED ASSET on any subsequent date by relying upon the notification issued earlier. In other words, once the sale does not take place pursuant to a notice issued under Rules 8 and 9, read along with Section 13(8)[for which the entire blame cannot be thrown on the borrower, it is imperative that for effecting the sale, the procedure prescribed above will have to be followed afresh, as the notice issued earlier would lapse. In that respect, the only other provision to be noted is sub-rule (8) of Rule 8 as per which sale by any method other than public auction or public tender can be on such terms as may be settled between the parties in writing. As far as sub-rule (8) is concerned, the parties referred to can only relate to the SECURED CREDITOR and the borrower. It is, therefore, imperative that for the sale to be effected under Section 13(8), the procedure pre....
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....r of the Appellant and by way of further process, directed the Appellant to deposit the 25% of the amount on that very day and also directed to deposit the balance amount within 15 days, which was deposited by the Appellant on 11.01.2008. In fact, after the deposit of the 25% of the amount on 28.12.2007, the 4th Respondent-Bank stated to have confirmed the sale in favour of the Appellant on 31.12.2007. After the deposit of the balance amount on 11.01,2008 by communication dated 02.02.2008, the 4th Respondent-Bank informed the 1st and 2nd Respondents about the confirmation of sale and thereby, provided no scope for Respondents 1 and 2 to tender the dues of the SECURED CREDITOR, namely, the 4th Respondent-Bank with all charges, expenses etc., as has been provided under Section 13(8) of the SARFAESI Act. Therefore, the whole procedure followed by the 4th Respondent-Bank in effecting the sale on 28.12.2007 and the ultimate confirmation of the sale on 11.01.2008, stood vitiated as the same was not in conformity with the provisions of the SARFAESI Act and the Rules framed thereunder. Though, such a detailed consideration of the legal issues was not made by the Division Bench while settin....
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....for the appellant to claim refund, if eligible for him. (iv) We leave it open to the appellant to claim refund of stamp duty, if refund is eligible. However, we make it clear that in view of the above judgment, if there is eligibility for refund of stamp duty, the same V should be the appellant." 54. In the High Court, the Appellant herein was arrayed as the 5th Respondent. The Division Bench taking into account the amount remitted by the Appellant, namely, Rs. 1,27,00,101/- and the stamp duty and registration charges of Rs. 23,00,000/- in all Rs. 1,50,00,101/- directed Respondents 1 and 2 to pay a lump sum of Rs. 2,00,00,000/- to the Appellant for cancelling the sale. The amount of 2,00,00,000/- was arrived at taking into account the rate of interest at 18% per annum and the stamp duty and registration charges spent by the Appellant. However, the direction number (i) made it clear that while the sale in favour of the Appellant would stand set aside and invalidated on a condition that Respondents 2 and 3 forwarded a Demand Draft of Rs. 2,00,00,000/- from a local branch of a Nationalised Bank in favour of the Appellant by handing it over to him within 2 months from....
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....ivision Bench to the Appellant, the Writ Appeal stood dismissed without any further reference to anyone, even to the Court. In fact, since the application for extension, namely, LA. 437 of 2010 came to be filed only on 10.06.2010, it should be held that there was no right in Respondents 1 and 2 or for the 8th Respondent herein to seek for any further indulgence before the Division Bench for further extension of time. It is relevant to note that the two months period expired on 08.05.2010. Thereafter, Respondents 1 and 2 took their own time to file the application for extension, namely, after more than 30 days, by which time the writ appeal stood dismissed and there was no right available with Respondents 1 and 2 or with the 8th Respondent herein to seek for any relief for claiming any right in favour of the 8th Respondent, much less for cancellation of the sale already effected in favour of the Appellant herein. 56. When we refer to the said order dated 18.06.2010 to examine the reasons which weighed with the Division Bench, we find that the sum and substance of the grievance expressed on behalf of Respondents 1 and 2 herein was that they had to raise funds by arranging for the ....
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....03,00,000/-deposited by the 8th Respondent remains with the 4th Respondent-Bank. 58. In the light of our conclusion that the Judgment passed in Writ Appeal No.1555 of 2009 dated 08.03.2010, was a self contained one and due to the failure of the 1st and 2nd Respondents in not handing over the Demand Draft for Rs. 2,00,00,000/- to the Appellant within the stipulated time limit, namely, on or before 08.06.2010, the sale effected in favour of the Appellant stood confirmed Inasmuch as we have found there was absolutely no justifiable grounds for the Division Bench to grant further time in its Order dated 18.06.2010, we are of the view that it will be travesty of justice if the earlier Judgment dated 08.03.2010, which worked itself out on 08.05.2010, is to be reversed for the flimsy grounds raised by the 1st and 2nd Respondents that they could not raise funds in spite of two months time granted to them for paying a sum of Rs. 2,00,00,000/- in favour of the Appellant. We have also found that while the time granted by the Division Bench expired by 08.05.2010, the application for extension was filed 40 days later, i.e. on 10.06.2010. Therefore, for such a recalcitrant attitude displayed ....
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....with the provisions of the SARFAESI Act. Since the proper procedure for effecting the sale was not followed, it will have to be held that the price fetched through the Appellant cannot be held to be the correct price for the mortgaged property involved in these proceedings. Further, the very fact that in the year 2010 the property could fetch Rs. 2,03,00,000/-, we are of the view that in all fairness even while confirming the Order of the Division Bench, by which the sale in favour of the Appellant came to be confirmed, the difference in the sale price should be directed to be paid by the Appellant. While the price paid by the Appellant was Rs. 1,27,00,101/-, the price ultimately fetched at the instance of the 1st and 2nd Respondents was Rs. 2,03,00,000/-. Therefore, after giving credit to Rs. 1,27,00,000/-, the Appellant would still be liable to pay a further sum of Rs. 76,00,000/- to the 1st and 2nd Respondents. 60. Accordingly, while disposing of these appeals as directed above, we pass the following Order: (A) The 4th Respondent-Bank shall refund a sum of Rs. 2,03,00,000/- deposited by the 8th Respondent, along with 18% interest. Such refund shall ....