AI Structured Summary
Not yet generated for this judgment
Judgment
This Securitization Application (for short - 'the SA') is filed on 13.07.2020 seeking to set aside the alleged auction sale proceedings held on 13.11.2019 and 28.11.2019; to hold the possession notice as void and stay all proceedings initiated by the Respondent under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (for short - 'the Act').
The 1st applicant is the partnership firm and applicants 2 to 4 are the partners/mortgagors and surety to the loan availed by the 1st applicant; the respondent is the secured creditor.
The amount due to the respondent bank as per Sale notice dated 30.09.2019 is Rs.3,82,62,966.15/- [Rupees Three Crores Eighty-Two Lakhs Sixty-Two Thousand Nine Hundred Six and paisa Fifteen only]
The case and contentions of the applicant in the SA are briefly stated hereunder:
The 1st Applicant is a partnership firm established in the year 2009 and the firm was formed with the 2 partners namely Smt. C. Nirmala and Shri Sridhar Varma vide Partnership Deed dt.31.07.2009. Subsequently, two new partners were inducted namely Sri S. Sriveer and Smt. S. Sridevi were vide Reconstitution Partnership Deed dated 03.10.2016.
The applicant firm is running a mechanized rice mill on an industrial plot allotted by the Karnataka Industrial Areas Development Board (KIADB) on the basis of lease-cum-sale basis vide Lease-cum Sale Agreement dated 11th August 2010. The applicant is also into the business of agro based, agriculture produce oriented, which falls under the priority sector.
The applicant had availed working capital and had also requested for additional credit facilities of Rs.3.20 crore from the erstwhile State Bank of Hyderabad (SBH) now State Bank of India; and had approached the Syndicate Bank for takeover of their liability from the State Bank of Hyderabad and for enhancement of credit facilities.
It is contended that the Respondent bank sanctioned 2 term loans of Rs.1,41,66,000/- and Rs.1,09,85,000/- each and OD facility of Rs.1.00 crore, totally Rs.3.50 crores instead of Rs.6.00 crores as assured by them and did not release the balance amount of Rs.60.00 lakhs. However, the applicant by investing more than Rs.5.00 crores had constructed the industrial building, infrastructure and installed plant and machinery.
The founder partners Smt. C. Nirmala and Sri Sridhar Varma due to some differences had filed an Arbitration Suit No.1/2017 before the Sole Arbitral Tribunal and an award dated 07.07.2017 came to be passed. Subsequently, Smt. C. Nirmala and Sri Sridhar Varma filed a suit in OS No.87/2017 before the Hon'ble Court of the Principal Civil Judge, Raichur for permanent injunction against the other partner Smt. Savithri Srikanth and the Hon'ble Civil Court passed an Order on 22.07.2017 granting permanent Injunction.
The Respondent bank sanctioned only3.50 Crores and due to demonetization, GST and on account of the severe draught for a couple of years, there occurred a delay in servicing the loan and the applicants are not willful defaulters. However, the bank has classified the account as NPA on 28.09.2017 and issued Notice on 7.12.2017 demanding to make payment of Rs.3,00,66,582.33 with interest and cost from 07.12.2017. The respondent in the S. 13(2) notice has mentioned all the names of the borrowers /partners and guarantors. However, in the subsequent notice they have deliberately omitted the names of the newly inducted partners.
The S.13(4)-notice dated 03.08.2018 is published in the newspapers on 07.08.2018; the Respondent bank has not served the statutory notice in particular to the other partners, who retired as per the Arbitration Award; Sec. 13(4) notice is not published in the newspaper and the bank has not registered its charge in the Central Registry as per the recent gazette Notification.
The bank has approached the Deputy Commissioner and District Magistrate, Raichur under Section 14 and took the physical possession of the industrial and residential properties on 22nd and 23rd August 2018. It is contended that the Respondent bank could have taken over the management of the unit and could have run the same till the recovery of the dues.
Further the Respondent bank issued Auction Sale Notice dated 03.09.2018 under Section 8(6) of the SARFAESI Act [mistakenly mentioned in the SA as Section 8[6] instead of Rule 8[6] and claims to have published the notice in newspaper intimating that the schedule property to be sold on 13.11.2019 and 28.11.2019 without serving notice to the borrower and the guarantor. The publication of the notice is on 02.10.2019 which is a public holiday. The respondent bank without serving the sale notice to all the partners and without affixture and publication of the sale notice and has sold the Schedule No.2 residential property to one of their identified borrower purchaser for a lesser value.
The applicant had approached the Hon'ble High Court of Karnataka, Gulbarga bench in WP No.204904/2019 aggrieved by the issuance of sale notice; and the Hon'ble High Court granted an Interim order not to confirm the sale and directed the applicant to approach DRT. On these grounds, the applicant prays to quash/set aside the alleged auction held on 13.11.2019 and 28.11.2019, pursuant to the sale notice dated 30.09.2019.
The respondent bank has filed detailed objections along with 6 documents interalia contending that the Applicant No.1 is a partnership firm represented by its partners The Applicant No. 2 & 3 being Smt. Savitri and Smt. Shridevi Savitri as Partners and borrowers and Sri R. Vishwamis a guarantor.
The case of the respondent bank is that the applicants had approached the Syndicate Bank, presently known as Canara Bank for availing the credit facilities and availed a term loan for plant and machinery with State Bank of Hyderabad earlier and on request of the applicant, the term loan was taken over from State Bank of Hyderabad by Syndicate Bank, Raichur Branch, vide three loan accounts bearing (i) A/c No.18001400000252, (ii) A/c. No.6070SME153340001 and (3) A/c No.6070SME153340002.
The applicant agreed to the terms and conditions of take over and affixed their signatures and mortgaged the properties as collateral security towards the credit facilities by way of simple mortgage deed as per Annexure-R-1 dated 28.12.2015. Since the borrower and guarantor failed to pay the regular EMI, hence the account was classified as NPA on 28.09.2017 as per the guidelines.
Consequent to classification of account as NPA, the bank has issued Annexure R-2,S.13(2) notice dated 07.12.2017, demanding to pay the outstanding amount of Rs. 3,00,66,582.33 within 60 days. The S.13(2) notice was duly received by the borrower and guarantor as per the acknowledgments. Hence, the respondent bank issued S.13(4) notice dated 03.08.2018 and took symbolic possession of the property. The possession notice was also affixed on the property and the copy of the S.13(4) notice and the photos for affixing is at Annexure -R-3 collectively. The Respondent bank has published the possession notice in Deccan Herald daily and in Prajavani dated 08.08.2018 and Annexure -R-4 is the paper publications.
Since the liability was not liquidated by the applicants, the Respondent bank has proceeded under Section 14 which came to be allowed by the District Magistrate vide Order dated 23.01.2019 directing the Tahsildar for handing over the physical possession of the property to the bank. The Tahsildar vide letter dated 13.08.2019 took possession of the property.
Further the Respondent bank has issued the sale notice dated 30.09.2019 fixing the e-auction on 13.11.2019 in respect of industrial property for a reserve price of Rs.5,11,14,000/- and e-auction on 28.11.2019 in respect of residential property for a reserve price of Rs.51,10,000/-. The auction sale notice is published in Deccan Herald and in Prajavani on 02.10.2019 and Annexure -R-5 is the paper publication.
Pursuant to the gazette notification No.155 dated 04.03.2020 the Syndicate bank is merged with Canara Bank. Hence, it is specifically asserted that the erstwhile Syndicate bank has taken all the steps for recovery of amount of Rs.4,35,00,000/- due on 30.06.2020. On these grounds the respondent bank prays for dismissal of the SA.
The question that falls for determination in this SA -Whether the applicant has established that the respondent has failed to follow all the procedures under S.13[4] of the Act?
On the perusal of the available records and considering the submissions put forth by both the Ld. Counsels appearing for their respective parties; the admitted fact are that the 1st applicant is a partnership firm and applicants No.2 to 4 are borrowers/guarantors,/mortgagors and surety to the credit facilities availed by the firm.
It is self-confessed fact of the applicants that the credit facilities is secured by mortgage of industrial plot No.34/A in the Sy.No.95,105,106 situated at Raichur Growth centre, Industrial Area, Chicksugur, Raichur measuring 8092 Sq.ft. and the residential property bearing No. Plot No.15, bearing MPL No. 12-1-73 (Old) No.12-1-99(new) situated at Gunj Area, near Chandrakanth Talkies, Raichur standing in the name of Sri C. Venkataraju alias Venkateswaralumeasuring 1650 Sq.ft.as collateral security. Concededly, the initial loan availed by State Bank of Hyderabad is taken over by Syndicate bank and consequent to the gazette notification, the Syndicate Bank is merged with Canara bank.
The first issue raised by the applicant is that the respondent bank had issued Sec. 13(2) notice dated 07.12.2017 to all the partners/borrowers/guarantor of the firm namely (1) C. Sridhar Varma, (2) Sriveer Savitri, (3) Sridevi Savitri, (4) Sree Laxmi Venkatagiri Industries, (5) C. Nirmala, (6) R. Vishwam and (7) Venkata Raju C. Subsequently, the names of the newly inducted partners Sri S. Sriveer and Smt. S.Sridevi are not mentioned in the S.13(4) notice and takes the Tribunal to Annexure A-3, partnership deed dated 31.07.2009 and to Annexure A-5, the Reconstitution partnership deed dated 03.10.2016.
On examination of the Annexure A-3, partnership deed dated 31.07.2009 and Annexure A-5, the Reconstitution partnership deed dated 03.10.2016, it is obvious that (1)C. Nirmala (2) C. Sridhar Varma, (3) Sriveer Savitri and (4) Smt. Sridevi are the partners of the reconstituted partnership and (1)C. Nirmala (2) C. Sridhar Varma are the continuing partners and at Clause-2 of the Reconstitution Partnership Deed,it clearly mentions that the partnership firm and its business will continue with the fresh deed of partnership which will be affective from 03.10.2016.
It is palpable from the Annexure-R-2, the S.13(2)-notice dated 07.12.2017, AnnexureR-3,the S.13[4] possession notice dated 03.08.2018 and Annexure R-5 - sale notice dated 30.09.2019, it is evident that the notices are addressed to (1) C. Sridhar Varma, (2) Sriveer Savitri, (3) Sridevi Savitri, (4) Sree Laxmi Venkatagiri Industries, (5) C. Nirmala, (6) R. Vishwam and (7) Venkata Raju C.
Hence, the contention of the applicants that no notice was issued to the partners is only to be discarded, as per the specific pleadings averred are otherwise. As per Annexure A6, lease cum sale agreement dated 11.08.2018, at clause 12[ii] at page 83 of the SA, it reads that the lesseefirm shall not constitute the firm without previous permission and consent of the lessor [KIADAB] and on the contrary the Arbitration award dated 07.07.2017 in Arbitration case No.1/2017 on has dissolved the firm.
It is evident from the records that the Respondent bank has issued S.13(2) notice dated 07.12.2017 by RPAD to M/s. Shree Laxmi Venkatagiri Industries, Smt. C. Nirmala, Sri C. Venkataraju, Sri Sridhar Verma and Sridevi Savitri as per the postal receipts register and the notices are received by the applicants as per the postal acknowledgements.
Since the amount demanded in the Sec.13(2) notice was not liquidated by the applicants, the respondent bank has issued the Sec. 13(4) notice dated 30.09.2019 and the same is sent to all the partners/guarantors, mortgagor by registered post. The notice sent to the applicants have returned unserved with an endorsement as addressee left/without intimation. The respondent bank has affixed the possession notice on the conspicuous part of the secured asset namely the residential plot and industrial shed as per the photos of affixtures at Page No.55 and 56 of Annexure -R¬3. Further, the bank has published the possession notice in English Daily Deccan Herald and Prajavani a Kannada daily at Annexure -R-4.
The respondent bank has also issued the sale notice dated 13.09.2019 scheduling the industrial plot and the residential building for auction. AnnexureR-5 is the sale notice dated 13.09.2019, its postal receipts at Page No.67 and the unclaimed covers at page No.69,71, 73 to 82 of the objections filed by the bank. The sale notice is also published in Prajavani and Deccan Herald, the copies at Page No.83 & 84. Further, the sale notice is also affixed at the residential and the industrial unit as evidenced at page No.85 to 87. Therefore,the contention of the applicant that the respondent bank has not issued statutory notice to the borrower, guarantor and sureties is duly countered by the Respondent bank as per the Annexure -R-2 and R-5 respectively.
Yet another contention of the applicant that the property is sold for a lower price and there is no valuation for the plant and machinery. The respondent bankhas produced Annexure-R-6, the valuation report from the approved valuer is obtained separately for the industrial plot along with land and buildings, plant and machinery and for residential property considering the various aspects. The valuer has valued the industrial unit with building and other amenities at Rs. 273,35,000.00; resalable value at Rs.232,00,000/- and is the forced sale value at Rs.205,00,000/- The plant and machinery are valued at Rs. 237,79,000/-. The residential land, building and amenities are valued Rs.51,07,000.00/-; resale value at Rs43,40,000/- and force sale value at Rs.38,00,000/-Therefore, the contention of the applicant that no proper valuation is being done is also distorted.
The third contention that the mortgage is not registered in the Central Registry and bank cannot enforce the rights of the secured creditor is only to be brushed aside, the collateral security of the property is registered by way of simple mortgage dated 28.12.2015 before the Office of Concerned Sub Registrar. Furthermore, the Amendment to Chapter III came into force on 26.12.2019. Hence the said contention is only to brushed aside, the mortgagee having registered the mortgage by deposit of title deed cannot deny the registration of charge by making vague averments.
Going by the aforestated factual and material evidence the Tribunal arrives at a definitive conclusion that the applicant could not substantiate his contentions with regard to any legal infirmities in the procedures followed by the respondent bank as enumerated under the SARFAESI Act and Rules made there under. On the other hand, the respondent bank has countered all the contentions raised by the applicant in the SA about the measures initiated under the Act with cogent evidence. In absence any non-compliances of procedures in terms of S.13(4) and the auction sale held under SARFAESI Act, the contentions of the applicants made otherwise does not sustain.
For the forgoing reasons, the SA is only to be dismissed directing the respondent bank to proceed further pursuant to the auction sale held on 13.11.2019 in accordance with law. Ergo the SA fails and stands dismissed. Consequently, the status quo order passed by this Tribunal vide proceeding dated 24.07.2020 stands vacated and pending IA/s if any stands disposed off. No order as to costs.
(Dictated to the Stenographer (SR), after its transcription and necessary corrections, signed and pronounced by me in the Open Court on this 1st October, 2020)
DESCRIPTION OF THE SA SCHEDULE PROPERTIES
SA - SCHEDULE - I - MOVEBALE PROPERTIES
Plant and machinery with equipments belonging to Rice Mill
SCHEDULE - II - IMMOVABLE PROPERTY
All that piece and parcel of land and building, measuring 8092 Sq.feet of Rice Mill situated at Plot No.34/A, in Sy. No.95,105,106 situated at Raichur Growth Centre, Industrial Area, Chicksugur, Raichur.
SCHEDULE - III - IMMOVABLE PROPERTY
All that piece and parcel of residential building, Ground Floor, Plot No.15, bearing MPL No.12-1-73 (Old) No. 12-1-99 (new) situated at Gunj Area, near Chandrakanth Talkies, Raichur standing in the name of Sri C. Venkataraju alias Venkateswaralu
APPENDIX
LIST OF DOCUMENTS PRODUCED BY THE APPLICANT
SI No.
Date
Particulars
Annexure
01
02.10.2019
Auction Sale Notice
Al
02
16.06.2019
Hon'ble High Court order in WP No.204904/2019
A2
03
31.07.2009
Partnership Deed
A3
04
21.08.2009
Certificate of Registration of Firm
A4
05
03.01.2016
Deed of Reconstitution of Partnership
A5
06
11.08.2010
Lease-cum-Sale Agreement executed by KIADB
A6
07
07.07.2017
Arbitration Award
A7
08
22.07.2017
Order of Principal Civil Judge Raichur in OS No.87/2017
A8
09
07.12.2017
Demand Notice issued by the respondent bank
A9
10
07.08.2018
Possession Notice
Al0
11
27.11.2019
Objections filed by the Respondent Bank in WP No.204904/2010
A11l
LIST OF DOCUMENTS PRODUCED BY THE RESPONDENTS
SI No.
Date
Particulars
Annexure
01
28.12.2015
Copy of the Simple Mortgage Deed
R1
02
07.12.2017
Copy of the Notice issued U/s 13(2) of SARFESI Act along with acknowledgements
R2
03
03.08.2018
Copy of the Possession Notice, Postal receipts, returned cover and Affixture.
R3
04
08.08.2018
Copy of the paper publication issued under Sec 13(4) of SARFESI Act.
R4
05
30.09.2019
Copy of the Sale Notice, Postal receipts, returned cover, Affixture and paper publication.
R5
06
24.08.2019
Copy of the Valuation Report in regard to the sale.
R6