2017 (3) TMI 251 - SC - Indian Laws

Public auction sale - Mandate of secured creditor to put the borrower Separate individual notice prior to deciding on the mode of sale of the secured asset - Rule 8 (6) read with Rule 9 of the Security Interest (Enforcement) Rules, 2002 - High Court has quoted or relied upon sub-rule 6 of Rule 8 as dealing with movable secured assets - Held that - There is nothing in the Rules, either express or implied, to take the view that a public notice under sub-rule 6 of Rule 8 must be issued only after the expiry of 30 days from issuance of individual notice by the authorized officer to the borrower about the intention to sell the immovable secured asset. It is permissible to simultaneously issue notice to the borrower about the intention to sell the secured assets and also to issue a public notice for sale of such secured asset by inviting tenders from the public or by holding public auction. The only restriction is to give thirty days time gap between such notice and the date of sale of the immovable secured asset. High Court has committed a manifest error in assuming that the notice of intention of sale to be given to the borrower and a public notice for sale cannot be simultaneously issued. The High Court was also not right in observing that after a notice regarding intention to sell the secured asset under sub-rule 6 of Rule 8 is given by the authorized officer to the borrower, only on expiry of 30 days therefrom can the secured creditor take a decision about the mode of sale referred to in sub-rule 5 of Rule 8 after giving notice to the borrower and then issue a public notice after expiry of further thirty days. By this interpretation, the High Court has virtually re-written the provisions and inevitably extended the time frame of 30 days specified in sub-rule 6 of Rule 8 (atleast in relation to the sale of secured asset by inviting tenders from the public or by holding public auction). There is no need to wait for the expiry of 30 days from issuance of notice of intention to sell the secured asset given to the borrower, for publication of a public notice for sale of such asset. Nor is there any requirement to give a separate individual notice prior to deciding on the mode of sale of the secured asset. To the above extent, the opinion of the High Court in the impugned judgment will have to be overturned. Thus the public auction sale held on 21.11.2015 has not materialized, the appellant may have to resort to a fresh public notice for sale of the secured asset of the respondent no.1, if the outstanding liability is still unpaid and the sale is to be effected either by inviting tenders from the public or by holding public auction.

Summary

Issues Involved:
1. Validity of simultaneous issuance of individual notice and public notice for sale of secured assets.
2. Interpretation of Rule 8(6) and Rule 9 of the Security Interest (Enforcement) Rules, 2002.
3. Compliance with statutory requirements for sale of secured assets under the SARFAESI Act, 2002.

Detailed Analysis:

1. Validity of Simultaneous Issuance of Individual Notice and Public Notice for Sale of Secured Assets:
The appellant bank challenged the High Court's view that Rule 8(6) read with Rule 9 mandates a separate individual notice to the borrower before deciding on the mode of sale of the secured asset. The High Court had held that the secured creditor must provide the borrower with a 30-day notice before deciding on the sale mode, which should be in addition to the public notice. The Supreme Court found this interpretation erroneous, stating that there is no express or implied requirement in the Rules that a public notice must be issued only after the expiry of 30 days from the individual notice to the borrower. The Court clarified that it is permissible to issue both notices simultaneously, provided there is a 30-day gap between the notice and the sale date.

2. Interpretation of Rule 8(6) and Rule 9 of the Security Interest (Enforcement) Rules, 2002:
The High Court's interpretation of Rule 8(6) and Rule 9 was found to be incorrect. The Supreme Court emphasized that Rule 8(6) pertains to immovable secured assets, not movable assets as mistakenly noted by the High Court. The Court reiterated that the possession notice under Rule 8(1) and 8(2) is distinct from the notice of intention to sell under Rule 9(1) read with Rule 8(6). The Court held that the High Court erred in assuming that the notice of intention to sell and the public notice for sale cannot be issued simultaneously. The Supreme Court clarified that the statutory requirement is to provide a 30-day notice to the borrower about the intention to sell, which can be issued concurrently with the public notice for sale.

3. Compliance with Statutory Requirements for Sale of Secured Assets under the SARFAESI Act, 2002:
The Supreme Court referred to its earlier decision in Mathew Varghese v. M. Amritha Kumar, emphasizing the importance of following the statutory mandate under the SARFAESI Act and the Rules. The Court reiterated that a clear 30-day notice must be given to the borrower before the sale of the secured asset. The Court noted that the High Court's interpretation effectively rewrote the provisions and extended the 30-day timeframe, which was not warranted by the Rules. The Supreme Court concluded that the High Court's judgment was flawed in requiring a separate individual notice prior to deciding the mode of sale and in delaying the issuance of the public notice until after the expiry of 30 days from the individual notice.

Conclusion:
The Supreme Court overturned the High Court's judgment, holding that the simultaneous issuance of individual notice and public notice for the sale of secured assets is permissible, provided there is a 30-day gap between the notice and the sale date. The Court clarified that there is no requirement for a separate individual notice before deciding on the mode of sale. The appeal was allowed, and the appellant bank was permitted to proceed with a fresh public notice for the sale of the secured asset if the outstanding liability remained unpaid.