Smt. Swati Patel vs Bank of India and others

The challenge in the present writ petition is to an order passed by the Debts Recovery Appellate Tribunal, Allahabad, (in short ""the Tribunal"") on

30.11.2012 whereby the challenge to the proceedings initiated by the District Magistrate under Section 14 of the Securitisation Reconstruction of

Financial Assets & Enforcement of Security Interest Act, 2002 (for short ""the Act"") remained unsuccessful.

The petitioner availed housing loan of Rs.12,00,000/- which was sanctioned on 26.12.2003. The requisite documents were executed including

document to mortgage the house. The petitioner defaulted in making payment of installments which led the Bank to declare the account of the

petitioner as Non Performing Assets on 19.10.2009. Thereafter, a notice under Section 13 (2) of the Act was issued on 06.11.2009 calling upon

the petitioner to pay a sum of Rs.10,67,236/- along with interest as mentioned herein within a period of 60 days. However, the petitioner did not

pay the amount nor filed any objections as contemplated under Section 13 (3A) of the Act. Thereafter, the Bank issued a notice under Section 13

(4) of the Act on 01.02.2010. Such notice was published in the daily newspaper ''Dainik Bhaskar'' and ''DeshBandhu'' on 07.02.2010. Thereafter

the auction notice for the sale of the secured assets was published on 13.08.2010 in two newspapers. The auction was to be conducted on

13.09.2010. The auction did not materialize as the petitioner filed an application before the Debts Recovery Tribunal against the notice issued

under Section 13(4) of the Act which was registered as S.A.No.137/2010. The said application was dismissed on 13.12.2010 as the cheque for

Rs.3,50,000/- deposited by the petitioner was dishonoured. Thereafter, a fresh tender notice was published on 12.11.2010 in two daily

newspapers ''Patrika'' and ''Deshbandhu'' to conduct auction of the property on 22.11.2010. The auction was conducted on that date and the

property was sold in the sum of Rs.30.62 Lacs. The said amount was deposited by the auction purchaser. The Bank vide communication dated

28.12.2010 after adjusting the loan amount, sent a cheque in the sum of Rs.9,63,387/- to the petitioner under Registered AD post. Such amount

was encashed by the petitioner on 22.01.2011 as is communicated by the Bank in the document Annexure R-30. It is thereafter, the sale

certificate was issued in favour of the auction purchaser.

In the meantime, the petitioner affected sale of the mortgage property 13.01.2011. The petitioner filed an application against the action taken by

the District Magistrate under Section 14 of the Act. During the pendency of the said application, the petitioner filed interlocutory application to

challenge the auction proceedings in pursuance of notice published on 12.11.2010. The challenge to auction proceedings by way of amendment

was declined on 22.09.2012 by a separate order. The order arising out of action taken by the District Magistrate was not interfered with in appeal

before the Tribunal vide the impugned order dated 30.11.2012.

The argument of the learned counsel for the petitioner is that the auction has been conducted in violation of Rule 8 and 9 of the Security Interest

(Enforcement) Rules, 2002 (for short ""the Rules"") which contemplates that auction can be conducted only after expiry of 30 days. But the auction

has been conducted within 10 days of the publication of the notice; therefore, the auction conducted is in violation of the statutory provisions. The

petitioner relies upon the Supreme Court judgment in the case of Mathew Varghese Vs. M.Amritha Kumar and others, (2014) 5 SCC 610 and

Vasu P.Shetty Vs. Hotel Vandana Palace and others, (2014) 5 SCC 660.

Learned counsel for the petitioner has further argued that the auction purchaser has not deposited the sale consideration within 15 days.

Therefore, the auction conducted is not legal.

On behalf of the respondents, it is argued that the auction notice published on 12.11.2010 was not the first notice for the conduct of auction. In

fact the first notice was published on 13.08.2010 with the auction date as 13.09.2010. Since the auction could not materialize, it was second

notice of auction which was published on 12.11.2010. It is also argued that the petitioner has accepted the balance auction amount after

adjustment of the loan amount; therefore, the petitioner is estopped to challenge the auction in the writ petition, when the auction was not

challenged in accordance with the procedure prescribed under the Act. It is also conducted that the petitioner has never challenged the auction

within 45 days of the conduct of auction on 22.11.2010.

Learned counsel for the respondents/auction purchasers relied upon the Supreme Court judgment in the case of Chilamkurti Bala

Subrahmanyam Vs. Samanthapudi Vijaya Lakshmi and another, AIR 2017 SC 2443 to contend that there is no material irregularity or fraud

causing substantial injury to judgment-debtor. Thus, the auction conducted has rightly not been interfered with by the Authorities under the Act

and, therefore, such order does not warrant any interference in the present petition.

We have heard learned counsel for the parties and find that the writ petition does not merit acceptance.

The property was mortgaged in the year 2003. However, on account of default committed, the account of the petitioner was declared Non

Performing Assets in 2009. A notice under Section 13 (2) of the Act was issued on 06.11.2009 followed by notice under Section 13 (4) of the

Act on 01.02.2010. Such notice was published in the newspaper as well on 07.02.2010. At no stage, the petitioner attempted to settle the loan

account. Thereafter, auction notice was published on 13.08.2010 to conduct auction on 13.09.2010. Such auction notice was in compliance of

provisions of Rules 8 and 9 of the Rules. In fact a cheque for payment of part of loan amount stand dishonoured. Since the auction could not

materialize, the second auction notice was published on 12.11.2010 and the auction was conducted on 22.11.2010. After the auction was

conducted, the petitioner was paid the amount received in auction after adjusting the loan amount. Such amount was encashed by the petitioner on

22.01.2011 as well. It is thereafter, the petitioner filed an application to challenge the proceedings taken by the District Magistrate but still omitted

to challenge the auction proceedings. In the meantime, after the surplus amount was paid to the petitioner, the petitioner sold the property on

13.01.2011.

Learned counsel for the petitioner relies upon the Supreme Court judgment in Mathew Varghese''s case (supra). The Court held that the

creditor should ensure that the borrower was clearly put on notice of the date and time by which either the sale or transfer will be effected in order

to provide the required opportunity to the borrower to take all possible steps for retrieving his property. It has been also held that Rules 8 and 9 of

the Rules has got a twin objective to be achieved. The first that the borrower should have clear notice of 30 days, as that the borrower could take

all efforts to retain his ownership by tendering the dues of the secured creditor before that date and time and secondly, that the intending

purchasers should know the nature of the property, the extent of liability pertaining to the said property. The relevant extract from the judgment

reads as under :-

29.4. Therefore, the creditor should ensure that the borrower was clearly put on notice of the date and time by which either the sale

or transfer will be effected in order to provide the required opportunity to the borrower to take all possible steps for retrieving his

property or at least ensure that in the process of sale the secured asset derives the maximum benefit and the secured creditor or

anyone on its behalf is not allowed to exploit the situation of the borrower by virtue of the proceedings initiated under the SARFAESI

Act. More so, under Section 13 (1) of the SARFAESI Act, the secured creditor is given a free hand to resort to sale of the property

without approaching the court or Tribunal.

Such a detailed procedure while resorting to a sale of an immovable secured asset is prescribed under Rules 8 and 9 (1). In our

considered opinion, it has got a twin objective to be achieved :

33.1. In the first place, as already stated by us, by virtue of the stipulation contained in Section 13 (8) read along with Rules 8 (6) and

9 (1), the owner/borrower should have clear notice of 30 days before the date and time when the sale or transfer of the secured asset

would be made, as that alone would enable the owner /borrower to take all efforts to retain his or her ownership by tendering the

dues of the secured creditor before that date and time.

33.2. Secondly, when such a secured asset of an immovable property is brought for sale, the intending purchasers should know the

nature of the property, the extent of liability pertaining to the said property, any other encumbrances pertaining to the said property,

the minimum price below which one cannot make a bid and the total liability of the borrower to the secured creditor. Since, the

proviso to sub-rule (6) also mentions that any other material aspect should also be made known when effecting the publication, it

would only mean that the intending purchaser should have entire details about the property brought for sale in order to rule out any

possibility of the bidders later on to express ignorance about the factors connected with the asset in question.

33.3. Be that as it may, the paramount objective is to provide sufficient time and opportunity to the borrower to take all efforts to

safeguard his right of ownership either by tendering the dues to the creditor before the date and time of the sale or transfer, or ensure

that the secured asset derives the maximum price and no one is allowed to exploit the vulnerable situation in which the borrower is

placed.

The said judgment was considered in the case of J.Rajiv Subramaniyan and another Vs. Pandiyas and others, (2014) 5 SCC 651, wherein it

was held that the sale affected without complying with Rules 8 and 9 of the Rules would be null and void.

The Supreme Court in General Manager Sri Siddeshwara Cooperative Bank Ltd. v. Ikbal, (2013) 10 SCC 83 held that it is settled position in

law that even if a provision is mandatory, it can always be waived by a party (or parties) for whose benefit such provision has been made. In the

said case, the borrower was found to be a consenting party to the auction sale which was conducted not strictly in terms of Rule 8 and 9 of the

Rules. The extract from the judgment reads as under:-

There is no doubt that Rule 9(1) is mandatory but this provision is definitely for the benefit of the borrower. Similarly, Rule 9(3) and Rule 9(4)

are for the benefit of the secured creditor (or in any case for the benefit of the borrower). It is settled position in law that even if a provision is

mandatory, it can always be waived by a party (or parties) for whose benefit such provision has been made. The provision in Rule 9(1) being for

the benefit of the borrower and the provisions contained in Rule 9(3) and Rule 9(4) being for the benefit of the secured creditor (or for that matter

for the benefit of the borrower), the secured creditor and the borrower can lawfully waive their right. These provisions neither expressly nor

contextually indicate otherwise. Obviously, the question whether there is waiver or not depends on the facts of each case and no hard-and-fast rule

can be laid down in this regard.

The aforesaid judgments were considered in the judgment of Vasu. P. Shetty''s case (supra) as to whether there could be a waiver of the

aforesaid mandatory condition contained in Rules 8 and 9 of the Rules. The Court held that there is no conflict between the judgments of Mathew

Vargese''s case, J.Rajiv Subramaniyan''s case and in Ikbal''s case. The Court has held as under :-

This Court in Ikbal case (supra), after interpreting the provisions of Rule 9, returned a categorical opinion that the said provision

is mandatory in nature. It was further held that even though this Rule is mandatory, that provision is for the benefit of the borrower.

The Court held that it is a settled position in law that even if a provision is mandatory, it can always be waived by a party (or parties)

for whose benefit such provision has been made. The provision in Rule 9(1) being for the benefit of the borrower and the provisions

contained in Rule 9(3) and Rule 9(4) being for the benefit of the secured creditor (or for the benefit of the borrower), the secured

creditor and the borrower can lawfully waive their rights. These provisions neither expressly nor contextually indicate other wise.

Obviously, the question whether there is waiver or not depends on the facts of each case and no hard and fast rule can be laid down

in this regard.

In the facts of Ikbal''s case it was found that the letter dated 13.11.2006 sent by the borrower to the Bank clearly depicted that

the borrower had waived his right under Rule 9(1) and the provisions contained in Rule 9(3) and Rule 9(4) as well. It was also found

that at the time of auction sale on 11.1.2006, the borrower was present but did not object to the auction being held before expiry of

30 days from the date of which public notice of sale was published. Not only this, he agreed that the bid given by the auction

purchaser, which was the highest bid, be accepted as the auction purchaser happened to be his known person. Another important

feature which was noted was that the borrower expressly gave consent in writing that the balance sale price may be accepted from

the auction purchaser even when tendered after some delay and the sale certificate be issued to him. There was a written agreement

between the borrower and the Bank for extension of time upto 15.4.2006 within which the auction purchaser had made the payment.

On these facts, the court came to the conclusion that condition in Rule 9(4) viz. ""such extended period as may be agreed upon in

writing between the parties"" would be treated as substantially satisfied. Again, pertinently, the writ petition was filed by the borrower

more than 4 years after the issuance of the sale certificate. On these facts the court concluded that there was a waiver of the aforesaid

mandatory provisions by the borrower.

It can, thus, be seen that there is no conflict between the two sets of judgments namely Mathew Varghese case followed in J.

Rajiv Subramaniyan case on the one hand and Ikbal''case on the other hand. In the first set of cases the interpretation given to Rule 8

and 9 of the Rules hold that these Rules are mandatory. It is so held even in Ikbal case. However, Ikbal case proceeds further to lay

down the principle that since these provisions are for the benefit of the borrower, borrower can always waive those procedural

requirements. This latter aspect never fell for consideration in the earlier two judgments. Therefore, we see no force in the contention

of the learned Senior Counsel of the appellant that judgment in Mathew Varghese goes contrary to the law laid down in Ikbal case.

The only question, therefore, is as to whether it can be held that the borrower in the present case had also waived the mandatory

provisions of Rules 8 and 9 of the Rules. We may remark that it is expressly clarified in Ikbal case itself that the question whether

there is a waiver or not depends on the facts of the each case and no hard and fast rule can be laid down in this regard.

In the light of the aforesaid judgments, the question required to be examined is: whether the petitioner has waived her right to dispute the

auction in not depositing the amount after the notice under Section 13 (2) was issued on 06.11.2009 and withdrawing the excess amount over the

outstanding dues against the petitioner on 22.01.2011? We find that the petitioner has waived her right inasmuch as she has accepted the excess

amount over the loan outstanding. Still further, in terms of Mathew Vargese''s case, the purpose of Rules 8 and 9 is to give sufficient time to the

borrower to settle the outstanding loan amount. However, the loan amount was not settled after the notice under Section 13 (2) was issued on

06.11.2009. The petitioner did not file any objections under Section 13 (3A) of the Act as well. The petitioner deposited a cheque in the sum of

Rs.3,50,000/- but the said cheque was dishonoured. Not only that, the petitioner has not challenged the auction in a separate proceedings before

the Debts Recovery Tribunal but was satisfied to file an interlocutory application in a challenge to proceedings under Section 14 of the Act. Thus,

the conduct of the petitioner is of non-compliance of the provisions of the statute one after another.

Therefore, we do not find that the order passed by the Tribunal warrants any interference in the writ petition.

Consequently, we do not find any merit in the present petition. Dismissed.