2020 (10) TMI 1058 - SC - Indian Laws

Enforcement of security interest created on the secured assets by the respondents - HELD THAT - When the action has been taken by the competent authority as per the procedure prescribed by law and the person affected has a knowledge leaving no ambiguity or confusion in initiating proceedings under the provisions of the SARFAESI Act by the secured creditor, in our considered view, such action taken thereof cannot be held to be bad in law merely on raising a trivial objection which has no legs to stand unless the person is able to show any substantial prejudice being caused on account of the procedural lapse as prescribed under the Act or the rules framed thereunder still with a caveat that it always depends upon the facts of each case to decipher the nature of the procedural lapse being complained of and the resultant prejudiced if any, being caused and there cannot be a straitjacket formula which can be uniformly followed in all the transactions. Adverting to facts of the instant case, we are of the view that the objection raised by the respondents was trivial and technical in nature and the appellant (secured creditor) has complied with the procedure prescribed under the SARFAESI Act. At the same time, the objection raised by the respondents in the first instance, at the stage of filing of a Securitisation Application before DRT under the SARFAESI Act is a feeble attempt which has persuaded the Tribunal and the High Court to negate the proceedings initiated by the appellant under the SARFAESI Act, is unsustainable more so, when the respondents are unable to justify the error in the procedure being followed by the appellant (secured creditor) to be complied with in initiating proceedings under the SARFAESI Act. Appeal allowed.

Summary

Issues Involved:
1. Validity of the demand notice under Section 13(2) of the SARFAESI Act.
2. Procedural compliance under the SARFAESI Act.
3. Impact of technical defects in legal notices.
4. Jurisdiction of the High Court under Article 226 & 227 of the Constitution.

Issue-wise Analysis:

1. Validity of the demand notice under Section 13(2) of the SARFAESI Act:
The core issue was whether the demand notice dated 14th June 2017, served on the respondents under Section 13(2) of the SARFAESI Act, was valid. The Debt Recovery Tribunal (DRT) quashed the demand notice on the grounds that it was issued in the name of "L&T Finance Ltd." instead of "L&T Housing Finance Ltd." The High Court upheld this finding, emphasizing that the defect was not curable. However, the Supreme Court found that the notice was served on the same letterhead used for all correspondence, which included both names, and the authorized signatory was the same for both companies. The Court concluded that this technical defect did not invalidate the notice, as it did not cause any substantial prejudice to the respondents.

2. Procedural compliance under the SARFAESI Act:
The appellant had complied with the procedural requirements of the SARFAESI Act, including serving a demand notice and taking subsequent actions under Sections 13(4) and 14. The respondents did not dispute the loan, the Facility Agreement, or their liability. The Supreme Court emphasized that procedural lapses must be significant and cause substantial prejudice to invalidate actions under the SARFAESI Act. In this case, the procedural compliance was deemed sufficient.

3. Impact of technical defects in legal notices:
The Supreme Court addressed the issue of whether a minor technical defect, such as the incorrect company name on the seal, could invalidate a legal notice. The Court held that such trivial and technical objections should not negate proceedings unless they cause substantial prejudice. The respondents were aware of the secured creditor's identity and did not raise any objections initially. The Court concluded that the technical defect did not affect the validity of the proceedings initiated by the appellant.

4. Jurisdiction of the High Court under Article 226 & 227 of the Constitution:
The Supreme Court criticized the High Court for reversing the DRAT's finding in its extraordinary jurisdiction under Article 226 & 227 of the Constitution. The Court noted that unless the findings were perverse, the High Court should not have interfered with the DRAT's decision. The Supreme Court emphasized that the High Court's interference was unwarranted and set aside its judgment.

Conclusion:
The Supreme Court allowed the appeal, quashing the High Court's judgment and upholding the validity of the demand notice and subsequent proceedings initiated by the appellant under the SARFAESI Act. The Court emphasized that minor technical defects should not invalidate legal proceedings unless they cause substantial prejudice. The judgment reinforces the importance of substance over form in legal compliance.