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2012 DIGILAW 66 (AP)

Haji Abdul Ghani v. Central Bank of India

2012-01-23

G.KRISHNA MOHAN REDDY, V.V.S.RAO

body2012
Judgment :- V.V.S.Rao, J The petitioner is a partner of the firm M/s.Seema Trading Company. The said firm availed credit facilities from the first respondent bank. The debt was secured by equitable mortgage created by the petitioner in respect of a flat situated in Diwandevdi, Hyderabad. The loan account became Non-Performing Asset (NPA). The first respondent, therefore, filed O.A.No.191 of 2002 before the Debts Recovery Tribunal (DRT), Hyderabad. While the same was pending, the Parliament enacted the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the Act, for brevity). The first respondent then issued notice dated 07.08.2002 under Section 13(2) of the Act demanding the borrower to discharge the debt within 60 days. Aggrieved by the same, the petitioner questioned the vires of the Act by filing W.P.No.21734 of 2003, which was dismissed on 21.04.2004 following the judgment of the Supreme Court in Union of India v Mardia Chemicals Limited (2004) 4 SCC 311 . Immediately thereafter the petitioner instituted O.S.No.7134 of 2005 on the file of the Court of the Junior Civil Judge, City Civil Courts, Hyderabad, and obtained interim injunction against the first respondent from proceeding under the Act. After getting the said ad interim injunction vacated on 28.11.2005, the first respondent issued possession notice on 22.12.2005 under Section 13(4) of the Act. On the same day, the notice under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 (the Rules, for brevity) was issued to the borrower informing that the property would be sold if the amount due was not repaid. This was followed by publication of auction sale notices in newspapers on 08.05.2006, 12.12.2006 and 20.11.2007. These facts are not disputed. 2. The bank issued yet another notice under Rule 8(6) on 21.11.2007 to the borrower for sale of the immovable secured assets by public auction. On 27.11.2007, the property was put to public auction and the second respondent became the highest bidder by quoting Rs.12,71,000/-. Assailing the same, the petitioner filed S.A.No.222 of 2007 under Section 17 of the Act, before the DRT. The said appeal was allowed on 09.06.2008. The first respondent then filed R.A.(S.A.).No.113 of 2010 before the Debts Recovery Appellate Tribunal (DRAT), Chennai. By impugned order, dated 26.07.2011, the DRAT allowed the same recording a finding that the bank complied with the Rules 8(6) and 9(1) and had not contravened any provisions of the Act. 3. The said appeal was allowed on 09.06.2008. The first respondent then filed R.A.(S.A.).No.113 of 2010 before the Debts Recovery Appellate Tribunal (DRAT), Chennai. By impugned order, dated 26.07.2011, the DRAT allowed the same recording a finding that the bank complied with the Rules 8(6) and 9(1) and had not contravened any provisions of the Act. 3. The counsel for the petitioner relies on an unreported decision of the learned Single Judge of this Court in W.P.No.4914 of 2007, dated 12.03.2007 (P. Kanaka Durga Raju v Punjab National Bank, Zonal Office) and submits that the auction sale conducted before the expiry of the notice period of thirty days as contemplated under Rule 8(6) of the Rules is vitiated by illegality. He would point out that the borrower was issued notice under Rule 8(6) on 21.11.2007 giving thirty days time, but the auction was conducted on 27.11.2007 before the expiry of the notice period itself. 4. The Standing Counsel for the first respondent bank would submit that the auction was initiated against the borrower as well as the sureties on 07.08.2002 followed by the possession notice under Section 13(4) of the Act on 22.12.2005. He would urge that when the notice under Rule 8(6) was issued on 22.12.2005 itself, the sale conducted on 27.11.2007 is not vitiated by any contravention of law. He would further submit that the publication was made on three occasions before conducting the auction and Rule 9(1) must be construed as directory when a notice was served under Rule 8(6) on the borrower. 5. The two points that fall for consideration are in relation to the construction of Rules 8 and 9 of the Rules and the validity of the auction conducted by the first respondent on 27.11.2007 pursuant to the notice issued under Rule 8(6) and publication of auction sale notice in the newspapers. Rules 8 and 9 of the Rules: 6. Rule 8 deals with sale of immovable secured assets and Rule 9 contains the procedure with regard to time of sale, issuance of sale certificate and delivery of possession and other connected matters. A perusal of sub rules (1) to (4) of Rule 8 would show that the authorised officer shall take possession of the immovable secured asset by delivering the possession notice to the borrower and publishing the same in two leading newspapers, one of which shall be in vernacular language. A perusal of sub rules (1) to (4) of Rule 8 would show that the authorised officer shall take possession of the immovable secured asset by delivering the possession notice to the borrower and publishing the same in two leading newspapers, one of which shall be in vernacular language. After taking possession, it is open to the authorised officer to keep the asset in his custody or in the custody of any person appointed by the authorised officer. In either event, necessary steps shall be taken for preservation of the secured asset if necessary by entrusting the property to someone else till it is sold or otherwise disposed of. 7. Sub rules (5) to (8) are relevant, which are quoted below. (5) Before effecting sale of the immovable property referred to in sub-rule (1) of Rule 9, the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:- (a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested by buying such assets; or (b) by inviting tenders from the public; (c) by holding public auction; or (d) by private treaty. (6)The authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5): Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include,- (a) The description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor; (b) the secured debt for recovery of which the property is to be sold; (c) reserve price, below which the property may not be sold; (d) time and place of public auction or the time after which sale by any other mode shall be completed; (e) depositing earnest money as may be stipulated by the secured creditor; (f) any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property. (7) Every notice of sale shall be affixed on conspicuous part of the immovable property and may, if the authorised officer deems if fit, put on the web-site of the secured creditor on the Internet. (8) Sale of any method other than public auction or public tender, shall be on such terms as may be settled between the parties in writing. Sub-rules (1) to (4) of Rule 8 are omitted herein. 8. We may also quote sub-rule (1) of Rule 9 as below. 9. Time of sale, issues 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. Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of Rule 9: Provided further that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price. 9. 9. The authorised officer shall take or cause to be taken possession pursuant to the possession notice in the form given in Appendix IV to the Rules dealt with in the manner provided in sub-rule (5). After taking possession, the authorised officer shall obtain valuation of the property by an approved valuer in consultation with the secured creditor. He will then fix the reserve price of the property and in his discretion he may sell the whole or part of the property, either by obtaining quotations from the persons dealing with similar secured assets; by inviting tenders from the public; by holding public auction or by private negotiations. 10. In case the authorised officer decides to sell the property inviting tenders or by holding public auction, as per the proviso under Rule 8(6), it is mandatory to cause publication of notice in two leading newspapers, one of which shall be in vernacular language, having sufficient circulation in the locality. Such sale notice shall contain the particulars mentioned in the proviso including the particulars regarding the time and place of public auction or the time after which sale by any other mode shall be completed. 11. As per Rule 9, the sale by inviting tenders or by public auction shall not be affected before the expiry of thirty days from the date of publication of the sale notice as referred to in the proviso to Rule 8(6). In either case, whether the property is sold by inviting tenders or by public auction or by any other mode, Rule 8(6) mandates the issuance of notice of thirty days of immovable asset to the borrower. Even in this case, if the property is sold otherwise than by inviting the tenders or by public auction, a notice of thirty days to the borrower is mandatory. 12. The submission of the counsel for the first respondent that Rule 9 is only directory when a notice was already issued or published in newspapers and therefore the auction conducted before the expiry of thirty days of notice under Rule 8(6) is valid cannot be accepted. A careful reading of sub-rules (5) and (6) of Rules 8 and 9 would show the following steps to be followed by the authorised officer for sale of the immovable secured asset. A careful reading of sub-rules (5) and (6) of Rules 8 and 9 would show the following steps to be followed by the authorised officer for sale of the immovable secured asset. (1) After taking possession of the secured asset, the authorised officer shall obtain the valuation of the property by an approved valuer in consultation with the secured creditor. (2) He shall then fix the reserve price of the property and sell the whole or part of the property in the following manner. (i) by obtaining quotations from the interested buyers dealing with similar assets; (ii) by inviting tenders from the public; (iii) by holding public auction; or (iv) by private treaty. (3) Whatever be the method of sale of immovable secured asset, the authorised officer shall serve to the borrower a notice of thirty days for sale of the property. (4) If the authorised officer decides to sell the secured asset by inviting tenders from the public or by holding public auction, he shall publish the notice in two leading newspapers including one of which shall be in vernacular language. (5) The auction shall be conducted only after expiry of thirty days from the date of public notice of sale published in newspapers. (6) In case the sale is otherwise than by public auction, even then the authorised officer has to wait for thirty days after issuing notice under Rule 8(6). 13. In the case on hand, significantly the bank would contend that the notice under Rule 8(6) was issued on 22.12.2005 followed by publication of notices in newspapers in May and December, 2006 as well as November, 2011. Whether this would be sufficient compliance with the requirements of sub-rules (5) and (6) of Rules 9(1)? The question had not been adverted to by the learned DRAT. It is not clear from the order as to whether the bank had placed all the necessary material in substantiation of their contention that all the notices were duly issued which would be sufficient compliance with the requirement of Rule 8(6) and Rule 9(1), which as rightly pointed out by the counsel for the bank, are to be read together. 14. The submission of the counsel for the bank that Rule 9(1) is directory is devoid of any merit. It is well settled that any provision requiring the issue of notice has to be interpreted as mandatory. 14. The submission of the counsel for the bank that Rule 9(1) is directory is devoid of any merit. It is well settled that any provision requiring the issue of notice has to be interpreted as mandatory. Therefore, if any public auction is conducted before the expiry of thirty days, it would be non-compliance with the law. Similarly, as already held by us supra, whatever be the method of sale of secured asset, the issuance of notice to the borrower under Rule 8(6) is mandatory. The decision of the learned Single Judge of this Court and the decision of Kerala High Court in M/s.K.R.S. Latex India Pvt. Ltd. V. The Fedaral Bank Ltd AIR 2011 Kerala 78 are to the same effect. 15. In the result, for the above reasons, the writ petition is allowed and the impugned order of the learned Debts Recovery Appellate Tribunal, Chennai, in R.A. (S.A.).No.113 of 2010 is set aside and the matter shall stand remitted to the learned Debts Recovery Appellate Tribunal for fresh consideration in accordance with law. There shall be no order as to costs.