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2025 DIGILAW 320 (KER)

C. A. RAJAN S/o. ABRAHAM v. SOUTH BANK LIMITED

2025-02-19

GOPINATH P.

body2025
JUDGMENT : 1. This original petition has been filed challenging Ext.P13 order dated 07.02.2025 in S.A.No. 462 of 2023 issued by the Debts Recovery Tribunal-II, Ernakulam. The brief facts:- 2. The petitioners availed credit facilities from the respondent bank. On default being committed, proceedings were initiated against the petitioners under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the ‘SARFAESI Act’). The property of the petitioners which was mortgaged to secure the repayment to the respondent bank was brought to sale. The sale was scheduled to be held on 22.11.2023. The petitioners had filed S.A.No. 462 of 2023 challenging the proceedings of taking physical possession of the secured assets and thereafter, the Securitization Application was amended impugning the sale proposed to be held on 22.11.2023. Ext.P7 interim order was issued by the Tribunal on 22.11.2023 and that order to the extent relevant reads thus; “2. The learned counsel for the applicants submitted that sale is scheduled to be held on today. If the stay is not granted the applicants would face hardship. Hence stay of the Annexure A6 sale notice as well as the Annexure A8 order passed by the Chief Judicial Magistrate may be stayed. On the other hand learned counsel for the defendants submitted that there are bidders for the sale. There is absolutely no defect or illegalities in the sale proceeding. Hence sale scheduled to be held today may not be stayed. 3. It is seen from the sale notice that the sale is scheduled to be held at 11.30 AM today. No prima-facie material illegality or irregularity is pointed out by the learned counsel for the applicants. Keeping in view of the quantum of amount due and in absence of any prima-facie illegality in the sale proceeding, I am not inclined to stay the sale at this moment. No prima-facie material illegality or irregularity is pointed out by the learned counsel for the applicants. Keeping in view of the quantum of amount due and in absence of any prima-facie illegality in the sale proceeding, I am not inclined to stay the sale at this moment. The defendants may proceed with the sale of the secured asset, but for the interest of justice sale certificate shall not be issued in favour of the bidder before hearing of the IA on merit and also shall not take any coercive step in respect of the secured asset till next date subject to condition that the applicants shall deposit 25% of the total outstanding with the defendants in two equal installments i.e. the 1 st installment shall be deposited on or before 01.12.2023 and 2nd installment shall be deposited on or before 01.01.2024 which shall be kept in a separate no-lien account. It is further clarified that by depositing the said amount, no right will be accrued in favour of the applicants in staying further measure in securitization proceeding. In case of non compliance of the order the defendants may proceed in issuing sale certificate in favour of the auction purchaser and may also proceed for further measure in the securitization proceeding. List the case on 01.01.2024 for filing the amended SA and for hearing of the IA.3706/2023.” Since the Tribunal did not grant any stay of sale, the bank conducted the sale on 22.11.2023. However, the sale certificate was not issued to the auction purchaser. It is not disputed that the auction purchaser had remitted the bid amount by remitting a sum of Rs.37,28,200/- on 22.11.2023 (as EMD), Rs.51,21,800/- on the same day after the bid was confirmed and the balance amount of Rs.2,80,50,000/- on 22.01.2024 after an extension of time was granted by the Authorized Officer. In terms of the directions contained in Ext.P7 order, the petitioners also remitted amounts to comply with the condition imposed for the grant of the interim order. Though the learned counsel appearing for the respondent bank has a case that the amounts directed to be paid in terms of Ext.P7 order were not remitted within the time permitted by the Tribunal, the fact remains that the interim order was not vacated by the Tribunal. Though the learned counsel appearing for the respondent bank has a case that the amounts directed to be paid in terms of Ext.P7 order were not remitted within the time permitted by the Tribunal, the fact remains that the interim order was not vacated by the Tribunal. It appears that thereafter the petitioners remitted further amounts and including the amounts paid to comply with the condition of the interim order a total amount of Rs.3,00,16,969/- was received by the Bank from the petitioners pending the Securitization Application. It is also not disputed that the amounts paid by the petitioners were adjusted against liabilities under the loan account. According to the learned counsel for the respondent bank, though the amounts remitted by the petitioners were initially maintained in a no- lien account, pursuant to the request of the petitioners, the amounts were later credited to the loan account. 3. While matters stood thus, the Securitization Application came up for consideration before the Tribunal on 07.02.2025. The Tribunal, on the same day, issued Ext.P13 order, which reads thus: “Advocate Jijo Thomas learned counsel for the applicant and Advocate Devyani learned counsel for the defendant nos.1 and 2 are present. Advocate Vikranth learned counsel for the defendant no.3 is also present. It is seen that the sale was held in the year 2023 and due to interim order, the sale certificate is not yet issued. Since the auction purchaser deposited considerable amount, the defendant nos.1 and 2 may take steps in issuing the sale certificate to the auction purchaser. However, it is clarified that such sale is subject to final outcome of the S.A. List the case for hearing the S.A. on 25.03.2025.” A reading of Ext.P13 order does not show that the Tribunal was considering any application for modifying or vacating the earlier order dated 22.11.2023 or that the Tribunal had considered the merits of any contention taken by either side and had decided that the interim order directing that the sale certificate shall not be issued had to be vacated. The Tribunal also did not consider the fact that the petitioners had remitted the entire loan liability. Yet the Tribunal proceeded to pass a cryptic order vacating the order directing that the sale certificate shall not be issued and permitting the bank to issue the sale certificate. 4. The Tribunal also did not consider the fact that the petitioners had remitted the entire loan liability. Yet the Tribunal proceeded to pass a cryptic order vacating the order directing that the sale certificate shall not be issued and permitting the bank to issue the sale certificate. 4. When this Original Petition came up for consideration before this Court on 10.02.2025 (the next working day after 07.02.2025), the learned counsel appearing for the respondent bank informed this Court that, pursuant to the order dated 07.02.2025, the sale certificate had already been issued by the bank. The submissions:- 5. The learned counsel appearing for the petitioners referred to the facts and circumstances noticed above and submitted that the act of the Tribunal in hurriedly issuing the proceedings dated 07.02.2025 permitting the issuance of the sale certificate cannot be justified in law. It is submitted that there was no application before the Tribunal to vacate the interim order dated 22.11.2023 and yet the Tribunal without considering the merits of any contention taken by either side proceeded to vacate the interim order dated 22.11.2023. It is submitted that the Securitization Application under Section 17 is to be decided like a suit going by the law laid down by the Hon’ble Supreme Court in Mardia Chemicals Ltd. v. Union of India , (2004) 4 SCC 311 . It is submitted that the procedure adopted by the Tribunal cannot be accepted and the Tribunal has clearly erred in law in passing the order of 07.02.2025. 6. The learned counsel appearing for the respondent bank and the learned counsel appearing for the 3 rd respondent auction purchaser would vehemently contend that the Tribunal had issued the order dated 07.02.2025 as the Securitization Application itself had been heard by the Tribunal in detail. It is submitted that the Tribunal also took into consideration the fact that the auction purchaser had remitted a huge sum of money and was yet to obtain a sale certificate. It is submitted that on the issuance of sale notice, the right of redemption had been lost and therefore, no illegality could be attached to the order of the Tribunal on 07.02.2025. It is submitted that on the issuance of sale notice, the right of redemption had been lost and therefore, no illegality could be attached to the order of the Tribunal on 07.02.2025. However, it is submitted that the Tribunal can be directed to issue final orders on the Securitization Application after hearing all parties and status quo as of today can be maintained till final orders are passed by the Tribunal on S.A. No. 462 of 2023, pending before the Debts Recovery Tribunal-II, Ernakulam. 7. Having heard the learned counsel appearing for the petitioners, the learned counsel appearing for the respondent bank and the learned counsel appearing for the 3 rd respondent auction purchaser, and taking into consideration the concession made by the learned counsel appearing for the bank and the learned counsel appearing for the auction purchaser (as recorded above), I am of the view that this original petition can be disposed of, directing that status quo shall be maintained in all respects till final orders are passed on S.A. No. 462 of 2023, pending before Debts Recovery Tribunal-II, Ernakulam and the 3 rd respondent can be directed not to encumber or alienate the property till final orders are passed on S.A.No. 462 of 2023. It can also be directed that the sale certificate shall not be registered and no mutation shall be effected on the basis of the sale certificate issued to the 3rd respondent on the basis of the order dated 07.02.2025 issued by the Tribunal. 8. However, this judgment would not be complete without making some observations regarding the manner in which the Tribunal conducted itself in issuing the proceedings dated 07.02.2025. As rightly pointed out by the learned counsel appearing for the petitioners, going by the law laid down by the Hon’ble Supreme Court in Mardia Chemical Ltd. (supra), the Tribunal is a Court of instance and the Securitization Application filed under section 17 of the SARFAESI Act is to be tried like a suit where all contentions had to be properly considered and appreciated. This is not the first instance where this Court had to make observations regarding the manner in which the Debts Recovery Tribunal is conducting itself. In Jimmy Thomas v. Indian Bank , 2023 (3) KLT 630 , I noticed the stereotyped manner in which interim orders were being issued by the Tribunal. It was held:- “10. This is not the first instance where this Court had to make observations regarding the manner in which the Debts Recovery Tribunal is conducting itself. In Jimmy Thomas v. Indian Bank , 2023 (3) KLT 630 , I noticed the stereotyped manner in which interim orders were being issued by the Tribunal. It was held:- “10. The SARFAESI Act is a very harsh legislation (See Sami K. v. Branch Manager, Bank of India & Ors. ( 2011 (3) KLT 554 ). I have held earlier in Vinu Thomas (supra) that under the provisions of the SARFAESI Act, the bank/financial institution is the claimant, the adjudicator and the executioner. Practically, the only remedy open to a person aggrieved by the proceedings initiated by the bank is to make an application to the Tribunal, having jurisdiction, under the provisions of Section 17 of the SARFAESI Act. Considering the drastic nature of the powers conferred on the banks/financial institutions under the provisions of the SARFAESI Act, this Court must expect that the Tribunal will apply its mind to the contentions taken in the Securitisation Application and a decision on whether or not an interim stay should be granted will be taken on wellsettled principles governing the grant of interim relief. The Supreme Court in Mardia Chemicals (supra) has held that proceedings under Section 17 of the Act, in fact, are not appellate proceedings. It has been held that an application under Section 17 is the initial action which is brought before a forum as prescribed under the Act, raising grievance against the action or measures taken by one of the parties to the contract and that the proceedings under Section 17 of the Act are in lieu of a civil suit. Therefore it was held that the requirement of pre-deposit of any amount at the first instance renders the remedy illusory and nugatory. Interestingly, it was also held in paragraph 62 as follows:- “As indicated earlier, the position of the appeal under Section 17 of the Act is like that of a suit in the court of the first instance under the Code of Civil Procedure. Interestingly, it was also held in paragraph 62 as follows:- “As indicated earlier, the position of the appeal under Section 17 of the Act is like that of a suit in the court of the first instance under the Code of Civil Procedure. No doubt, in suits also it is permissible, in given facts and circumstances and under the provisions of the law to attach the property before a decree is passed or to appoint a receiver and to make a provision by way of interim measure in respect of the property in suit. But for obtaining such orders a case for the same is to be made out in accordance with the relevant provisions under the law. There is no such provision under the Act.” This finding of the Supreme Court, in my view, emphasises the fact that in the initial stage of proceedings under the SARFAESI Act, there is absolutely no adjudication. This view of the Supreme Court also makes it clear that when an application is brought before the Tribunal, under Section 17 of the Act, the Tribunal must be alive to the fact that the Bank/Financial Institution has initiated the proceedings without any adjudication and that the powers conferred under the Act are drastic and can have disastrous consequences for the borrower. This is all the more reason for the Tribunal to apply its mind with reference to the contentions taken before it (even at the interim stage) before deciding to grant or reject a prayer for interim relief. 11. The contentions taken by the petitioners in these cases before the Tribunal have been briefly noticed above. The orders issued by the Tribunal, to the extent they reflect a consideration of the matter have also been extracted. The interim orders issued by the Tribunal (DRT-I) and which are under challenge in O.P. (DRT) No.360 of 2022, W.P.(C) No.31891/2022 and O.P.(DRT) No.438 of 2022 are identical in terms. To say the least, the orders are clearly of the ‘cut, copy, paste’ category and does not reflect any application of mind by the Tribunal. This is not palatable to our judicial ethos. The order impugned in O.P.(DRT) No.486 of 2022 also does not consider any contention taken except the contention that there was some mistake in the Sy.No. of the property mentioned in the order of the Chief Judicial Magistrate/notice of the Advocate Commissioner. This is not palatable to our judicial ethos. The order impugned in O.P.(DRT) No.486 of 2022 also does not consider any contention taken except the contention that there was some mistake in the Sy.No. of the property mentioned in the order of the Chief Judicial Magistrate/notice of the Advocate Commissioner. All the impugned orders record that the Tribunal is not entering into the merits of the matter at all. This is clearly a failure on the part of the Tribunal to exercise a jurisdiction vested in it.” It is deplorable that the Tribunal still continues to issue orders in a casual manner. It was incumbent on the part of the Tribunal when proceedings are challenged before it under Section 17 of the SARFAESI Act to be diligent, to be mindful of the contentions raised and to be mindful of the facts and circumstances of the case before it. The facts of this case indicate clearly that the Tribunal is not exercising the jurisdiction vested in it in a proper manner. The list of dates and events filed by the learned counsel for the respondent bank before the Tribunal indicates that the auction purchaser had deposited the balance amount payable by him in terms of the provisions contained in Rule 9(4) of the Security Interest (Enforcement) Rules, after extension of time. The impugned proceedings dated 07.02.2025 do not even consider the question as to whether the deposit made by the auction purchaser was within time or whether it was within the extended time permissible in terms of the provisions contained in the said Rules. 9. In the light of the above, this Original Petition is disposed of directing that the Tribunal shall consider S.A.No. 462 of 2023 after hearing the parties before it and considering all the contentions that may be raised before it by either side. Status quo shall be maintained in all respects regarding the property in question till final orders are passed on S.A. No. 462 of 2023, pending before Debts Recovery Tribunal-II, Ernakulam. The 3 rd respondent is directed not to encumber or alienate the property till final orders are passed on S.A.No. 462 of 2023. It also directed that the sale certificate shall not be registered and no mutation shall be effected on the basis of the sale certificate issued to the 3rd respondent on the basis of the order dated 07.02.2025 issued by the Tribunal. It also directed that the sale certificate shall not be registered and no mutation shall be effected on the basis of the sale certificate issued to the 3rd respondent on the basis of the order dated 07.02.2025 issued by the Tribunal. It is made clear that if this Court were to again notice such a callous approach by the Tribunal, it would be forced to take suitable corrective action in the matter. I reluctantly refrain from making any further observations on the matter. 10. Taking into consideration the submission of the learned counsel for the 3 rd respondent, that on the basis of the interim order issued by this Court in this original petition, the petitioners are interfering with the business of the 3 rd respondent which is being conducted in the building in question, it is also made clear that the petitioners shall not in any manner interfere with the conduct of business by the 3 rd respondent. 11. The original petition is ordered accordingly.