2019 (1) TMI 2055 - HC - Indian Laws

Publication of possession notice - Applicability of provisions of Rule 8(2) of the Security Interest (Enforcement) Rules, 2002 - award of interest at the rate of 8% per annum. Whether the notice dated 31.03.2011 issued, and subsequently published, by the Petitioner, satisfies the statutory requirement under section 13(4) of the SARFAESI Act and Rule 8 of the Rules 2002? - HELD THAT - Though the secured creditor has been statutorily empowered to enforce the security interest without intervention of the Court or the Tribunal, yet the statutory provisions prescribing the manner in which the security interest is to be enforced, are required to be scrupulously observed. If the provisions of Section 13(4) of the SARFAESI ACT are read in juxtaposition with Rules 2002, especially sub-Rule (1) to (4) and (6) of Rule 8 and sub-Rule (1) of Rule 9, it becomes explicitly clear that the secured asset, upon its turning into a non performing asset, cannot be dealt within a highhanded manner and disposed of in a casual manner, without adhering to the procedure prescribed by the Act and Rule 2002. It is evident that the possession notice dated 13.04.2010 was not published in the newspaper, as is envisaged by Rule 8(2). Thus, there is total noncompliance of Rule 8(2) of the Rules 2002. The publication of the notice dated 31.03.2011, thus, does not salvage the position. Award of interest at the rate of 8% per annum - HELD THAT - The justifiability of the claim of interest at 30% per annum is required to be appreciated. There are two impediments which the petitioner needs to surmount. Firstly, the learned Presiding Officer, DRT, observed, more than once, that the parties had consented that the rate of interest which may be determined by the Tribunal would be acceptable to both of them. Even in the operative part of the impugned order in OA No. 31 of 2010, the learned Presiding Officer, DRT, made it abundantly clear that the rate of interest was determined in view of the consent given by both the parties - the Petitioner would now be precluded from the challenging the grant of interest at the rate of 8% per annum, based on the consent and concession made by the Petitioner as well. The learned Chairperson, DRAT observed that the learned PO, DRT, exercised the discretion to award interest at the rate of 8% per annum correctly and not arbitrarily. It is required to agree with the learned Chairperson, DRAT. In the totality of the facts and circumstances, the award of interest at the rate of 8% per annum is just and proper. Thus the challenge to the impugned order on this count also falls through. Thus, no interference is warranted by this court in exercise of writ jurisdiction. The Petitions, therefore, deserve to be dismissed.

Summary

Issues Involved:

1. Whether the provisions of Rule 8(2) of the Security Interest (Enforcement) Rules, 2002 regarding the publication of possession notice are mandatory or directory.
2. Whether the Petitioner is entitled to claim interest at the rate of 30% per annum in the event of default, as opposed to the 8% awarded by the DRT and upheld by the DRAT.

Issue-wise Detailed Analysis:

1. Compliance with Rule 8(2) of the Security Interest (Enforcement) Rules, 2002:

The primary issue was whether the publication of possession notice under Rule 8(2) of the Security Interest (Enforcement) Rules, 2002, was mandatory or directory. The Petitioner argued that the provision was directory, suggesting that the seven-day time frame for publication was not mandatory since no penal consequence for non-compliance was prescribed. The Petitioner relied on precedents where similar provisions were held directory, such as Clarity Gold Pvt. Ltd. Vs. State Bank of India and Topline Shoes Ltd. vs. Corporation Bank.

However, the court found that the possession notice dated 31.03.2011 did not satisfy the statutory requirements under section 13(4) of the SARFAESI Act. The DRT had observed that the notice was not issued to the borrower and did not conform to the prescribed form, thus it could not be considered a valid possession notice. The court emphasized that the secured asset's possession was taken on 13.04.2010, and the failure to publish this notice as required by Rule 8(2) constituted total non-compliance with the statutory requirement. Therefore, the publication of the notice dated 31.03.2011 did not rectify the situation, leading to the quashing of the Petitioner's action for the sale of secured assets.

2. Award of Interest Rate:

The second issue concerned the interest rate applicable in the event of default. The Petitioner contended that the interest rate should be 30% per annum, as allegedly agreed in the letter of acceptance. However, the DRT and DRAT awarded an interest rate of 8% per annum. The court noted that the consent terms filed in the DRT did not include a stipulation for a 30% interest rate. Instead, it was recorded that the interest rate determined by the Tribunal would be acceptable to both parties.

The court observed that the grant of interest is discretionary under section 34 of the Code of Civil Procedure, and the DRT had exercised this discretion appropriately. The court referred to the Supreme Court's judgment in Central Bank of India vs. Ravindra, which established that the award of interest pendente lite and post-decree is at the court's discretion. The DRAT's decision to uphold the 8% interest rate was found to be neither arbitrary nor unjust, and the court agreed with this conclusion, dismissing the Petitioner's challenge on this ground.

Conclusion:

Based on the analysis of the issues, the court concluded that the Petitions lacked merit and dismissed them, affirming the decisions of the DRT and DRAT. The court held that the statutory provisions for the enforcement of security interest must be strictly complied with, and the determination of interest rates was within the discretion of the Tribunal, exercised fairly in this case.