TaxTMI 
TaxTMI 
2015 (5) TMI 12
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....evant period when on 16.05.2003 he, along with another, approached the third respondent ("the secured creditor") for a housing loan. The loan of Rs.4,50,000/- was sanctioned against equitable mortgage created in respect of the subject property. The loan amount was re-payable over a period of 15 years with equated monthly installment (EMI) settled at Rs.4,919/-. It has been the case of the borrower (the first respondent) that only an amount of Rs.2 Lacs was disbursed. The lender invoked the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "the SARFAESI Act") by initiating action under Section 13 classifying the loan account as Non-Performing Asset (NPA). It is stated that on being served with demand notice, the borrower raised objection under sub-section (3A) of section 13 by way of reply dated 09.09.2005 mainly on the ground that full loan amount had not been disbursed and so the EMIs calculated on the total disbursable amount were not payable and thus the loan amount could not have been classified as NPA. 4. On 13.03.2006, on an application moved by the secured creditor under Section....
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....t on 02.01.2008 when attempt was made to take over the physical possession of the subject property forcibly, even while no sale notice or possession notice had ever been served upon him. 6. The petitioner was also impleaded as a party to the securitization application (SA) before DRT. It appears that she resisted the said move of the borrower, inter alia, on the grounds that the application under Section 17 SARFAESI Act was filed beyond the period of limitation of 45 days from the date of the measures under Section 13 (leading to the public auction) was not maintainable and also urged that she was a bona fide purchaser from the auction-purchaser. She questioned the truthfulness of the contention of the borrower stating he was not in possession of the subject property since possession had been taken over much earlier in the course of process under Section 13 of SARFAESI Act by the secured creditor. 7. The proceedings arising out of the SA under Section 17 of SARFAESI Act (moved by the borrower before the DRT) were also resisted on the additional ground that the auction-purchaser had not been made a party which vitiated the said proceedings due to non-joinder. The fact, however, re....
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....rial jurisdiction is concerned, it has now been conceded by the learned counsel for the respondent that this court has territorial jurisdiction. Even de hors the concession, we are of the view that this court has territorial jurisdiction to entertain this writ petition inasmuch as the impugned order had been passed by the Debt Recovery Appellate Tribunal which is situated in Delhi. That constitutes a part of the cause of action as held by the Supreme Court in Kusum Ingots & Alloys Ltd. v. Union of India and Anr.,(2004) 6 SCC 254. Insofar as exercise of discretion on the question of convenience is concerned, we feel that the respondent cannot now raise the issue because the matter was already admitted for hearing by virtue of an order dated 28.02.2008 when another Division Bench of this court had directed the issuance of "Rule DB". In other words this court had exercised its discretion to hear this matter. This point had already been taken in the counter affidavit filed on behalf of the respondent No.1 at the point of time when rule DB was issued. Therefore, there is no occasion for the respondent to raise the issue of exercise of discretion of this court to entertain this petition ....
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....aintained before the High Court within the territorial jurisdiction of which the appellate authority is located. This view in Kusum Ingots & Alloys Ltd. (supra) was reiterated by Supreme Court in Canon Steels (P)Limited v. Commissioner of Customs (2007) 14 Supreme Court Cases 464. The objection based on the doctrine of forum non-conveniens having already been rejected, the issue cannot be allowed to be re-opened. 15. The first respondent (borrower) defends the impugned orders of the DRT and the DRAT on the application under Section 17 SARFAESI Act on the ground that the entire process was vitiated and the proceedings under Section 13 SARFAESI Act initiated by the secured creditor having been set at naught, it is only just and proper that status quo ante be revived and the parties restored to their respective positions prior to such action. Reliance is placed on Mathew Varghese v. M. Amritha Kumar & others (2014) 5 SCC 610 to contend that any sale or transfer of secured asset under SARFAESI Act in violation of the mandatory requirements of law and rules framed thereunder is bound to be treated as invalid and, therefore, has rightly been so held by the authorities below. It is argue....
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....d not been adjudicated upon. While setting aside the auction sale in favour of the appellant, the Court proceeded to work out the equities between the parties whereunder the money invested by the auction-purchaser, along with interest, were directed to be refunded. 19. In the civil appeal by special leave by the appellant before the Supreme Court, it was contended that property purchased by a third party auction-purchaser, in compliance of a court order, could not be interfered with on the basis of success or failure of parties to a proceeding, if auction-purchaser had bona fide purchased the property. Reliance was placed, inter alia, on Ashwin S. Mehta & Anr. v. Custodian & Ors., (2006) 2 SCC 385 and Janatha Textiles & Ors. v. Tax Recovery Officer & Anr., (2008) 12 SCC 582. 20. In Ashwin S. Mehta & Anr. (supra), the Supreme Court had ruled thus:- "In that view of the matter, evidently, creation of any third-party interest is no longer in dispute nor the same is subjected to any order of this Court. In any event, ordinarily, a bona fide purchaser for value in an auction-sale is treated differently than a decree-holder purchasing such properties. In the former event, even if such....
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....ossession of securities given for financial assistance and sell or lease the same or take over management in the event of default, i.e. classification of the borrower's account as non-performing asset in accordance with the directions given or guidelines issued by the Reserve Bank of India from time to time" and, for such purposes, has defined the expression "security interest", made incidental provisions including in the nature of remedies in the form of appeal, etc. 24. The expression "security interest" as defined in Section 2(1)(zf) SARFAESI Act 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". Similarly, in terms of Section 2(1)(zc) SARFAESI Act, the expression "secured asset" means "the property on which security interest is created." For purposes of this special law, "banks" and "financial institutions", defined in Section 2(1)(c) and (m) respectively, qualify, as per Section 2(1)(zd), to be treated as "secured creditor". 25. Under the general law, by virtue of Section 69 of the Transfer of Property Act, 1882....
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....on 13(3A), to object or make any representation and in the event of such objection or representation, the secured creditor is obliged to consider it and communicate his response (specifying the reasons) within a week. Of course, by virtue of proviso to Section 13(3A), the non-acceptance of the objection or representation at this stage does not confer on the borrower any legal remedy in the nature of appeal or application. 30. In the event of failure on the part of borrower to discharge his liability in full, in terms of the notice under Section 13(2), the secured creditor is permitted, by Section 13(4), to take recourse to any of the measures indicated in the said clause "to recover his secured debt". The measures include taking of the "possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset". Noticeably, Section 13(4) broadly indicates the said measures, pursuit whereof requires compliance with the procedure that is laid out in detail thereafter. 31. It is pertinent to add here that since taking over the possession of the secured asset is such action as is expected invariably to meet wit....
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....e secured creditor (through its authorized officer) is required, by virtue of Rule 8(6), to issue and serve on the borrower "a notice of 30 days for sale of the immoveable secured asset". The notice of sale is also required to be given widest possible publicity, including, in terms of Rule 8(7), by way of affixing on a conspicuous part of the immoveable property, and if deemed fit, by publication on the website of the secured creditor. 36. There are several modes of disposal of the property at the hands of the secured creditor for purposes of realization of its dues. Barring agreement of parties (necessarily the secured creditor and borrower) for sale by some other method, the mode of sale through "public auction" or "public tender" are the modes compulsorily required to be adopted in terms of Rule 8(8). In this view, in terms of proviso to Rule 8(6), the sale by "public auction" or "public tender" must be preceded by publication of a public notice published in two leading newspapers (at least one in vernacular language) having sufficient circulation in the locality setting out the terms of sale which necessarily would include not only the description of the immoveable property in....
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....t secured asset." [emphasis supplied] 39. The procedure prescribed by the law, and rules, for enforcement of security interest, as noted above, at the hands of the secured creditor (or its authorized officer) is subject to the remedy of appeal before the Debts Recovery Tribunal (DRT), constituted under RDDBFI Act, in terms of Section 17 SARFAESI Act. As noted earlier, mere non-acceptance of the objection or representation in response to the initial notice under Section 13(2) does not confer the right of challenge through appeal. The remedy of appeal becomes available as soon as effective action, including taking over of possession of the secured asset (and further process in the nature of sale, etc.) commences. The test to which the process undertaken by the secured creditor is subjected by DRT is indicated in Section 17(2) as under:- "17(2). The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder." [emphasis supplied] 40. Noticeably, the insistence of the law is that the secured cred....
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.... cost of the mortgagor either to re-transfer the mortgaged property to him or to such third person as he may direct, or to execute and (where the mortgage has been effected by a registered instrument) to have registered an acknowledgement in writing that any right in derogation of his interest transferred to the mortgagee has been extinguished: Provided that the right conferred by this section has not been extinguished by act of the parties or by decree of a Court. The right conferred by this section is called a right to redeem and a suit to enforce it is called a suit for redemption. Nothing in this section shall be deemed to render invalid any provision to the effect that, if the time fixed for payment of the principal money has been allowed to pass or no such time has been fixed, the mortgagee shall be entitled to reasonable notice before payment or tender of such money. Redemption of portion of mortgaged property.-Nothing in this section shall entitle a person interested in a share only of the mortgaged property to redeem his own share only, on payment of a proportionate part of the amount remaining due on the mortgage, except only where a mortgagee, or, if there are more mort....
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....y private treaty" (one of the methods permitted for enforcing recovery) was held to be null and void, it having been brought about without the terms to such effect being "settled between the parties in writing" in terms of Rule 8(8). The ruling in Mathew Varghese (supra) was reiterated pointing out that the secured creditor having resort to the extreme measures under SARFAESI Act are expected to take "bona fide measures", inter alia, to ensure that the borrower is clearly put on notice of the impending sale or transfer so that he can take all possible steps for retrieving his property, also to ensure that the secured asset is sold to provide maximum benefit and indeed that neither the secured creditor nor anyone on his behalf is able to "exploit the situation". Noticeably, the Supreme Court equated the secured creditor with a "trustee" vis-à-vis the secured asset. 45. In J. Rajiv Subramaniyan (supra), the sale in favour of the purchaser (in SARFAESI Act proceedings) having been set aside, the relief was moulded so as to protect his interest as well. 46. The SARFAESI Act confers upon the secured creditor a right of enforcement of far-reaching import. The secured creditor is....
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.... at naught the entire process undertaken by the private entity (the secured creditor) under the colour of the authority given to it by the law (SARFAESI Act). 48. In allowing the application under Section 17 of SARFAESI Act of the first respondent, the DRT by its order dated 30.11.2010 returned findings to the effect that the representation submitted by the first respondent, under Section 13(3A) of SARFAESI Act had not been disposed of and that mandatory requirement of Rule 8(1)(2) of the Security Interest (Enforcement) Rules, 2002 had not been complied with. It found fault with the classification of the account of the first respondent as NPA observing that this had been done "without application of mind" and further that even the notice under Section 13(2) SARFAESI Act was deficient since the factum of the account having been declared NPA or the date of NPA had not been indicated. The DRT upheld the contention of the first respondent with regard to the reserve price based on the valuation at Rs. 3 Lacs against the backdrop of the fact that at the time of sanction of the loan the property had been valued for Rs. 4.50 Lacs, holding the sale proceedings to be suspect on account of t....
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....espondent under the colour of authority of Section 13 SARFAESI Act was vitiated. The borrower/mortgager did not have sufficient notice at the crucial stages of the process. His rights were, thus, violated. In the fact-situation noted above, the transfer of his property by way of auction-sale in favour of the fourth respondent was wholly impermissible, unjust and illegal. The manner in which the authorized officer of the third respondent went about putting the property to sale was, to say the least, irresponsible and arbitrarily in flagrant violation of statutory provisions, hardly the conduct expected of a "trustee". The petitioner may have been a bona fide purchaser of the subject property from the fourth respondent. But, this cannot be said of the fourth respondent himself. He was the beneficiary of an auction-sale which has been found to be highly suspect, particularly on account of undervaluation for fixing the reserve price and the consideration for which it was sought to be sold (adding just rupee one to the undervalued reserve price). 52. The case of auction-purchaser under SARFAESI Act cannot be equated with that of an auction-purchaser in a sale monitored by a court of la....
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....ch improvement. The amount to be paid or secured in respect of such improvement shall be the estimated value thereof at the time of the eviction. When, under the circumstances aforesaid, the transferee has planted or sown on the property crops which are growing when he is evicted therefrom, he is entitled to such crops and to free ingress and egress to gather and carry them." "63A. Improvements to mortgaged property.-(1) Where mortgaged property in possession of the mortgagee has, during the continuance of the mortgage, been improved, the mortgagor, upon redemption, shall, in the absence of a contract to the contrary, be entitled to the improvement; and the mortgagor shall not, save only in cases provided for in sub-section (2), be liable to pay the cost thereof. (2) Where any such improvement was effected at the cost of the mortgagee and was necessary to preserve the property from destruction or deterioration or was necessary to prevent the security from becoming insufficient, or was made in compliance with the lawful order of any public servant or public authority, the mortgagor shall, in the absence of a contract to the contrary, be liable to pay the proper cost thereof as an ad....
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....9. As noted earlier, one of the grievances raised by the first respondent in the SA filed before the DRT was that the representation made in response to notice under Section 13(2) SARFAESI Act had not been disposed of. It appears that the first respondent had questioned the correctness of the calculation of the amount claimed by the third respondent as due, amongst others, for the reason the interest has been calculated on the total amount of loan sanctioned which was not fully disbursed. Neither DRT nor DRAT considered this aspect in their respective orders. 60. Having regard to the facts and in the circumstances of the case, while upholding the directions of the DRT and DRAT in setting aside the auction sale in favour of the fourth respondent, we direct as under:- (i) The DRT is directed to determine the liability of the first respondent towards the third respondent in the context of loan availed, by adjudicating upon the contentions raised in the SA in such regard. Having regard to the need for expedition, DRT shall render its findings within two months from the date of this judgment. For such purposes, the first respondent and the third respondent shall appear before the DRT ....
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.... reduced by an amount equivalent to the amount payable to the petitioner as above, she being obliged to make such deposit with the third respondent within four weeks of such offer; (vi) In the event of the petitioner failing to deposit the amount in terms of the preceding clause within the time granted, the third respondent shall proceed to put the property to sale through public auction in accordance with the provisions of SARFAESI Act read with the Security Interest (Enforcement) Rules 2002 wherein the value of the subject property as assessed in accordance with above-mentioned directions shall be treated as the reserve price. Needless to add, the first respondent (borrower/mortgager) and the petitioner shall also be allowed to participate in such auction proceedings; (vii) The statutory right of the first respondent (borrower) to redeem the mortgaged property is protected to the effect that he shall be entitled to discharge his liability towards the third respondent in terms stated above at any point of time before the sale of the subject property in favour of the petitioner or a purchaser in the re-auction is confirmed in accordance with the law and rules indicated above; (v....