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2021 (12) TMI 173 - SC - Indian LawsSale of the mortgaged asset - violation of the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Security Interest (Enforcement) Rules, 2002 - obligation to comply with Section 13(3A) of the Act - Time Limitation - validity of separate valuation of machinery in the subject property when it obtained the valuation before it sold the property to the 2nd respondent - incumbent on the part of the 1st respondent to obtain a fresh valuation certificate in view of the long gap between the valuation report and the e-auction sale or not. Whether the 1st respondent Bank had an obligation to comply with Section 13(3A) of the Act and give a response to the petitioners representation dt.01.11.2016 and whether the Debts Recovery Tribunal was correct in holding that there was no such obligation on the part of the 1st respondent Bank? - HELD THAT - The Bank had proceeded to issue possession notice on 3rd March 2017 under Section 13(4) of the SARFAESI Act long after receipt of the representations dated 1st/6th November 2016, but without making any reference to the aforesaid representation. Accordingly, on the first point, the High Court concluded that there had been a violation by the Bank of its mandatory statutory duty under Section 13(3A) of the SARFAESI Act. Whether any of the reliefs claimed in the O.A. by the petitioners is barred by limitation? - HELD THAT - In the present case, it is clear from a bare perusal of the letter dated 7th November 2016 sent by the Bank to its Zonal Manager that the Bank actively considered the Borrower s request for extension of the moratorium period. The Borrower did not submit the viability report and failed to bring in ₹ 45,00,000/- (Rupees forty five lakhs only). Post this default also there were negotiations with assurances and promises by the Borrower. Displaying forbearance, the Bank granted indulgence as action under the SARFAESI Act was deferred for nearly one year from 7th November 2016 till 6th October 2017. Thereafter, negotiations were held on 30th October 2017, 6th November 2017 and 8th November 2017 - in the present case, the Borrower has waived and is estopped from challenging violation of Section 13(3A) of the SARFAESI Act and hence, the first issue is decided in favour of the Bank. Given the aforesaid position, we do not think we are required to examine the second point, i.e. whether in an application under Section 17 of the SARFAESI Act, which can be filed when a Borrower is aggrieved by any of the measures referred to in sub-section (4) to Section 13 within forty five days from the date such measures are taken, the Borrower can challenge other measures, steps and procedures which preceded the ultimate sale even if barred by the limitation period of forty five days. Whether it was proper for the 1st respondent Bank not to separately value the machinery in the subject property when it obtained the valuation before it sold the property to the 2nd respondent? - HELD THAT - Auction sale as confirmed was at a price higher than the fair market valuation of the land, the building and the machinery. Whether or not the price of the machinery should be accounted for the purpose of payment of stamp duty on a composite sale wherein the land, the building and the machinery located in the building are sold, would not be of any relevance and importance as the issue in question does not concern payment of stamp duty and the principles applicable. On the other hand, the law recognises that the lender knows its interests and how to secure best value of the property given the fact that the mortgaged property had to be sold for recovery of the debts due and payable to the Bank. Whether it was incumbent on the part of the 1st respondent to obtain a fresh valuation certificate dt.19.02.2018 in view of the long gap between the valuation report and the e-auction sale held on 11.09.2018? - HELD THAT - The valuation certificate or report is dated 19th February 2018. As held above, attempts to sell the property were made thereafter on 28th March 2018 and 14th June 2018 but without success as there were no bidders. Accordingly, it was decided to reduce the reserve price from ₹ 2,78,10,000/- to ₹ 2,60,00,000/-. However, in the fourth auction the successful bid given by Basa Chandramouli was for ₹ 2,91,20,000/-, which is much higher than the reserve price of ₹ 2,60,00,000/- or the fair market value of ₹ 2,73,80,000/- in terms of the valuation report. The order passed by the Debts Recovery Tribunal dated 1st July 2019 upholding the procedure and sale of the Subject Property under the SARFAESI Act is upheld - petition dismissed.
Issues Involved:
1. Obligation of the Bank to comply with Section 13(3A) of the SARFAESI Act. 2. Bar of limitation on the reliefs claimed in the O.A. 3. Separate valuation of machinery in the subject property. 4. Requirement of a fresh valuation certificate due to the time gap between the valuation report and the e-auction sale. 5. Entitlement of the petitioners to any relief. Issue-wise Detailed Analysis: 1. Obligation of the Bank to comply with Section 13(3A) of the SARFAESI Act: The High Court held that the Bank failed to comply with Section 13(3A) of the SARFAESI Act, which mandates a response to the Borrower's representations dated 1st/6th November 2016. The Bank's stance that these representations were not responses to the notice under Section 13(2) dated 1st August 2016 was rejected. The Borrower had pleaded difficulties in repaying the loan and sought more time. The High Court concluded that the Bank violated its mandatory statutory duty under Section 13(3A). 2. Bar of limitation on the reliefs claimed in the O.A.: The High Court held that the Borrower could challenge the measures taken by the secured creditor under Section 13(4) of the SARFAESI Act, including possession notice, symbolic possession, physical possession, sale notice, and sale certificate, as they form part of the same cause of action. Therefore, the challenge to actions prior to 2nd July 2018 was not barred by limitation. 3. Separate valuation of machinery in the subject property: The High Court's finding that the machinery should have been separately auctioned was rejected. The valuation report dated 19th February 2018 valued the land, building, and machinery separately. The auction sale confirmed a price higher than the fair market valuation, showing no prejudice or loss to the Borrower. The Bank's discretion in selling the property as a composite unit was upheld. 4. Requirement of a fresh valuation certificate due to the time gap between the valuation report and the e-auction sale: The valuation report dated 19th February 2018 was still relevant despite the failed auction attempts on 28th March 2018 and 14th June 2018. The reserve price was reduced, and the successful bid in the fourth auction was higher than both the reduced reserve price and the fair market value. Therefore, the Borrower's argument on the need for a fresh valuation was dismissed. 5. Entitlement of the petitioners to any relief: Given the Borrower's conduct, including repeated assurances and failure to fulfill promises, the Borrower was found to have waived and was estopped from challenging the violation of Section 13(3A) of the SARFAESI Act. The Borrower's actions led to delays and third-party rights being created. The Bank's indulgence and the Borrower's dilatory tactics were noted, leading to the dismissal of the Borrower's claims. Conclusion: The appeals were allowed, and the High Court's order was set aside. The writ petition was treated as dismissed, and the Debts Recovery Tribunal's order upholding the procedure and sale under the SARFAESI Act was upheld. No order as to costs was made.
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