This Case Commentary is written by Anantha mounika, a Fifth Year Law Student of Telangana social welfare residential

CASE DETAILS:

COURT: HIGH COURT OF ORISSA

BENCH:2 BENCH JUDGES, B.S. CHAUHAN, C.J. AND B.N. MAHAPAYRA, JJ.

DECIDED ON: 88.01.2009

PARTIES:

APPELLANT: SWASTIK AGENCY AND ORS

RESPONDENT: STATE BANK OF INDIA, MAIN BRANCH AND ORS.

CITATION:AIR 2009 Ori 147

Abstract

The case of Swastik agency and ors vs. State Bank of India, main branch & ors was decided by the High Court of Orissa. This case is on matter of the Debt Recovery Tribunal and was decided on 08.01.2009. This landmark judgment case on the matter of the Debt Recovery Tribunal about the sale certificate of auctioned property which is secured to the Bank. The Bank auctioned the mortgaged property due to default in repayment of the loan by the petitioner and the Bank acted under the SARFAESI ACT. Such Bank actions as well as the sale of mortgage property were challenged before the courts (High Court of Orissa, DRT, DRAT, high court of Orissa) by the Borrower. The petitioner appealed to the courts on the judgment by the Debt recovery tribunal ordered date on 7.6.2006 in O.A.Nos. 29 of 2006. In this writ petition, the court ordered to set aside the sale of the auctioned property because the bank didn't follow the provisions properly. The petitioner is liable to pay the total amount within the given period including the amount to refund the auction purchaser of the property.

Facts of this case

In this case, the Swastik agency and Ors is the Appellant/ petitioner. State Bank of India, main branch & ors is Respondent. Petitioners 2 and 3 are the guarantors. Opposite party 4 is the person who purchased the property in the auction sale. The Borrower availed a cash credit loan from the bank of Rs.2,00,000/- in the year 1997 for its business. Later on, the Borrower failed to repay the loan and the Bank acted under sections 13(2)&(4) of the SARFAESI ACT by the M/s Lalitha Chambers & construction as the bank's enforcement agency.

The first bank issued notice to the petitioner on 24.5.2004 under section 13(2) of SARFAESI ACT. Again, the bank issued another notice on 8.10.2004 under section 13(4) of the SARFAESI ACT. The Bank published in Sambad newspaper on 10.11.2005 on fixing the auction on 17.12.2005. The petitioner suggested paying the one-time settlement and paid 40,000. Later bank issued a letter to the petitioner for a fresh settlement in OTS. Petitioner offered to pay the 2,20,000 to the bank. Opposite party 2 intimated the petitioner to pay the payment on 5. 12.2005 of 25% of the total amount. Because of the auctioned dye on 17.12.2005. The total due amount the petitioner is to pay is 4,96,369.66. However, the petitioner paid the above 25% until the auction date. Even though all the payments were made by the petitioner the bank sold the property to the opposite party 4.

The petitioner filed the WP before this court by challenging the sale notice. But this court ordered by giving liberty to the petitioner to file objections before the bank authorities and directing the authorities to decide the same. The petitioner approached the bank by filing an objection but the bank rejected it because it had already sold to the opposite party 4. The petitioner approached DRT on the vide order date on 7.6.2006 which was dismissed by the court and again appealed to DRAT on the order 7.6.2006, but it was dismissed by the court. Hence he approached to High Court of Orissa in the writ petition.

Issues raised in this case

1. Whether proceedings had been conducted and concluded by the statutory rules, and if not, what are the consequences?

2. Whether an auction sale be quashed after it stood confined and a sale certificate has been issued?

Contention on behalf of the Appellant

● The petitioner is not able to pay the loan amount as per the terms. But he offered OTS of 2,20,000 to the bank. The bank issued a letter to pay 25% amount and he paid more than the amount but still, the property was sold.

● The property value of Rs.30 lakhs shouldn't be put on sale at the reserve price of Rs.3.95 lakhs and Rs.4.12 lakhs.

● The bank didn't approve the offer of OTS by the petitioner and rejected it right away.

● The Bank didn't meet the requirements of sub-section 5 of Rule 8 under SARFAESI ACT.

● The order dated 2.1.2006 just brushed off that the property is already sold but the petitioner is still in actual and physical possession of the property as interim relief has been granted in the order dated 8.9.2006 by the district collector and order dated 16.5.2008

● The auction of sale has not been conducted according to the statutory provisions and the petitioner is still willing to pay the decretal amount, but still the proceedings of the sale are liable to be quashed.

Contention on behalf of the Respondent

● The petitioner didn't pay the outstanding dues therefore recovery proceedings were initiated.

● The total due was 4.96 lakhs covering all legal and recovery expenses but the petitioner was only able to pay the 99,000.

● The matter has already been submitted before the DRT and DRAT of issues and evidence and it's not permissible to reopen that case to replicate the evidence.

● Sale had concluded giving strict adherence to the statutory provisions.

● After the sale, the bank gave a cheque of Rs.9,11243 which it not received and got back to the bank and the petition is liable to be dismissed.

Related provisions

1. Securitization and Reconstruction of Financial Asset and Enforcement of Security Interest Act,2002 are-

● Default in repayment of loan -

Section 13(2): It allows the secured creditor (typically a bank or financial institution) to issue a notice to the borrower if they have defaulted in repaying the loan. The notice gives the borrower 60 days to repay the outstanding dues.

Section 13(4): If the borrower fails to repay within 60 days, the secured creditor can take possession of the secured asset, sell or lease it, or appoint a manager to manage the asset to recover the dues.

2. Rule 8-Sale of Immovable Secured Assets

● possession notice (Rule 8(2)):

the possession notice should be published in 2 leading newspapers, 1 in vernacular language that is sufficient for the locality.

● Notice of Sale (Rule 8(6)):

The secured creditor must issue a public notice of the intended sale. This notice should be published in two newspapers (one in the local language and one in English) and should also be posted at a conspicuous place on the property.

The notice must contain details like the description of the property, the reserve price, and the date and time of the auction.

● Valuation of Property (Rule 8(5)):

The secured creditor should obtain a valuation of the property from an approved valuer before issuing the sale notice.

They should also fix a "reserve price" below which the property cannot be sold. Which will not be fair to the Borrower. The sale of the property can be whole or part by any method under this subsection.

Other Provisions:

The sale can be by public auction, private treaty, or tender, and the borrower is entitled to redeem the secured asset up to the date of sale by paying the outstanding dues.

3. Rule 9-Time of Sale, Issue of Sale Certificate, and Delivery of Possession, etc.-

1. Time of Sale (Rule 9(1)):

No sale should take place before 30 days from the date of public notice is published in newspapers. The sale should be completed within seven days of the confirmation of the sale by the secured creditor.

2.Conformation of sale :

The sale of property shall be confirmed by the authorized officer as well as the bank in favour of the purchaser in the auction sale. No sale can be confirmed if the sale price is less than the reserve price.

3. Payment Terms (Rule 9(3)):

The purchaser must deposit 25% of the sale price on the date of sale and pay the remaining 75% within 15 days.

If the purchaser defaults on the balance payment, the amount deposited is forfeited, and the property may be resold.

4. Sale Certificate (Rule 9(6)):

After the full payment of the sale price, the secured creditor must issue a sale certificate to the purchaser and hand over possession of the property.

5. Delivery of Possession (Rule 9(7)):

Once the sale certificate is issued, the secured creditor is required to deliver physical possession of the property to the purchaser.

Related cases

● In Dr. Rajbir Singh Dalai (supra), Divya Manufacturing Company (p) Ltd and Anr(supra) and Valhi Khimjiand Company by the apex court held that not giving wide publication of the auction notice itself is a good ground for quashing the confirmed sale.

● S.L.Kapoor v.Jagmohan and Ors. And the state of D.P. v. Shatrughan lal and anr. The proof of prejudice is unnecessary where the requirement of a statutory provision is mandatory. “It ill comes from a person who has denied justice that the person who has been denied justice is not prejudiced.”

● Lachhman Dass v. Jagat Ram and Ors recognize of right to property and shouldn't be deprived.

Key elements of Judgement

● The mandatory requirements of provisions shall be followed by the secured creditor and authorized officer under the SARFAESI ACT.

● No one should violate the statutory provision of the SARFAESI ACT.

● All proceedings after notice under section 13(4) of the ACT,2002 being in flagrant violation of the statutory provisions are liable to be quashed.

● Rule 8 (6) shall be required to follow for the auction notice that 30 days is required mandatory, which is breached.

● The authorized officer shall be published in 2 newspapers(1 in English and the other in vernacular language). Before 30 days from the auctioned date under Rule 9(1).

● As per section 13(8) under SARFAESI Act any sale of auctioned property without complying with the requirements is null and void. It includes Rules 8 and 9(1) and shall comply if such sale is unconstitutional, null, and void.

Conclusion

The case Swastik agency and ors v. state bank of india, main branch and Ors was decided by the High court of orissa. The high court of orissa ordered to set aside the auction sale of property purchased by the opposite party 4 or auctioneer. In any case everyone shall follow the mandatory requirements specified under the law(SARFAESI ACT).The court gave orders to the borrower/ petitioner to pay the due amount to the bank within the time period. The petitioner shall refund the amount to the opposite party 4 with 10% interest per annum. Directed the court recalculate the amount which the petitioner have to pay within 4 weeks from the date of the notice issued.The Bank is not entitled to claim legal expenses or recovery expense because they proceed illegally and can claim against petitioner if he fails to pay the amount on time..The appeal was allowed by this court on the violation of the section 13(4) of the SARFAESI ACT.

Reference

● Swastik agency and ors vs. state bank of india,main branch and ors, Case mine, https://www.casemine.com/judgement/in/56b49020607dba348fff94d9, accessed on 22 October 2024