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TMI Blog2015 (5) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... the borrower-in-default requiring him 'to discharge in full his liabilities' within 60 days. On the expiry of the said period of 60 days calculated 'from the date of notice' if the default continues, the secured creditor acquires the title to proceed further. - Upon being served with a notice under section 13(2), the borrower is given the liberty, by section 13(3A), to object or make any representation and in the event of such objection or representation, the secured creditor is obliged to consider it and communicate his response (specifying the reasons) within a week. Of course, by virtue of proviso to section 13(3A), the non-acceptance of the objection or representation at this stage does not confer on the borrower any legal remedy in the nature of appeal or application. Mere taking of possession of the secured asset of the borrower in terms of section 13(4A), with the aid of section 14, itself does not immediately lead to the realization of the money due from the borrower; the secured creditor, having taken over the possession of the secured asset, must take certain further steps in the 'manner' prescribed, inter alia, in terms of section 13(12), read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that the entire process undertaken by the third respondent under the colour of authority of section 13 was vitiated. The borrower/mortgager did not have sufficient notice at the crucial stages of the process. His rights were, thus, violated. In the fact-situation noted above, the transfer of his property by way of auction-sale in favour of the fourth respondent was wholly impermissible, unjust and illegal. The manner in which the authorized officer of the third respondent went about putting the property to sale was, to say the least, irresponsible and arbitrarily in flagrant violation of statutory provisions, hardly the conduct expected of a 'trustee'. The petitioner may have been a bona fide purchaser of the subject property from the fourth respondent. But, this cannot be said of the fourth respondent himself. He was the beneficiary of an auction-sale which has been found to be highly suspect, particularly on account of undervaluation for fixing the reserve price and the consideration for which it was sought to be sold (adding just rupee one to the undervalued reserve price). The petitioner, after purchasing the property on 13-12-2007 and having raised further constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raying for a writ in the nature of certiorari or any other writ for quashing the order dated 28.04.2011 passed by Debts Recovery Appellate Tribunal, New Delhi (hereinafter referred to as the DRAT ) and the subsequent communication dated 30.06.2011 issued in its wake by LIC Housing Finance Ltd. (respondent No. 3) calling upon her to surrender property No. 1735, New Gita Colony, Mirzapur Road, Hissar, Haryana (hereinafter referred to as the subject property ) within a period of three months beginning 28.04.2011. 2. It is necessary to trace the background facts at some length. 3. The first respondent was the owner of the subject property during the relevant period when on 16.05.2003 he, along with another, approached the third respondent ( the secured creditor ) for a housing loan. The loan of ₹4,50,000/- was sanctioned against equitable mortgage created in respect of the subject property. The loan amount was re-payable over a period of 15 years with equated monthly installment (EMI) settled at ₹4,919/-. It has been the case of the borrower (the first respondent) that only an amount of ₹2 Lacs was disbursed. The lender invoked the provisions of the Securitiza ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne that the date of NPA or particulars of the account were not mentioned in the notice under Section 13(2); the possession notice/sale notice was not published in the vernacular language; the representation sent in response to notice under Section 13(2) of SARFAESI Act had not been disposed of; the determination of reserve price (₹3,00,000/-) and the auction sale price (₹3,00,001/-) was depressed; and since the valuation of the plot at the time of grant of loan was ₹4,50,000/- and also because construction was carried out thereupon, the sale price should have been higher. Above all, the borrower argued mainly that he learnt about the auction under Section 13(4) SARFAESI Act on 02.01.2008 when attempt was made to take over the physical possession of the subject property forcibly, even while no sale notice or possession notice had ever been served upon him. 6. The petitioner was also impleaded as a party to the securitization application (SA) before DRT. It appears that she resisted the said move of the borrower, inter alia, on the grounds that the application under Section 17 SARFAESI Act was filed beyond the period of limitation of 45 days from the date of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by order dated 29.01.2014, inter alia, holding that the objection would not survive since the petition had already been entertained and Rule DB issued by the court in exercise of its discretion. The order thus passed reads as under:- After some arguments the learned counsel for the respondent fairly stated that while this court has territorial jurisdiction to entertain this writ petition, since it is more convenient for the respondents to have the petition heard before the Punjab and Haryana High Court, therefore this court ought not to entertain this petition any further. Two issues arise at this point. One is the issue of territorial jurisdiction and the other is of convenience. Insofar as territorial jurisdiction is concerned, it has now been conceded by the learned counsel for the respondent that this court has territorial jurisdiction. Even de hors the concession, we are of the view that this court has territorial jurisdiction to entertain this writ petition inasmuch as the impugned order had been passed by the Debt Recovery Appellate Tribunal which is situated in Delhi. That constitutes a part of the cause of action as held by the Supreme Court in Kusum Ingots Alloys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eniens on a petition preferred under Articles 226/227 of the Constitution of India. The said case is no authority to support the contention that the High Court is unexceptionally bound to refuse to exercise the discretionary jurisdiction for such reasons. 14. In our view, the law laid down by the Supreme Court in Kusum Ingots Alloys Ltd. (supra) governs the issue. It is well-settled that even if a small fraction of the cause of action accrues within the jurisdiction of the court, the court may exercise the jurisdiction and since the order of the appellate authority which is the subject matter of challenge constitutes part cause of action to invoke the writ jurisdiction of the High Court, the petition can be maintained before the High Court within the territorial jurisdiction of which the appellate authority is located. This view in Kusum Ingots Alloys Ltd. (supra) was reiterated by Supreme Court in Canon Steels (P)Limited v. Commissioner of Customs (2007) 14 Supreme Court Cases 464. The objection based on the doctrine of forum non-conveniens having already been rejected, the issue cannot be allowed to be re-opened. 15. The first respondent (borrower) defends the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Section 29 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act), inter alia, applies, mutatis mutandis, provisions of the second schedule to the Income Tax Act, 1961 and Income Tax (Certificate Proceedings) Rules (framed thereunder) to the recovery proceedings initiated pursuant to recovery certificates issued by DRT. The High Court of Judicature at Patna, in the case of Sadashiv Prasad Singh (supra), set aside the sale of the property by public auction in favour of the appellant primarily on the basis of holding that there had been flagrant violation on Rule 11(2) of the said rules under the Income Tax Act, inasmuch as the objections initially raised by the brother of the mortgager had not been adjudicated upon. While setting aside the auction sale in favour of the appellant, the Court proceeded to work out the equities between the parties whereunder the money invested by the auction-purchaser, along with interest, were directed to be refunded. 19. In the civil appeal by special leave by the appellant before the Supreme Court, it was contended that property purchased by a third party auction-purchaser, in compliance of a court order, could n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and Enforcement of Security Interest Act, 2002 (SARFAESI Act) was enacted to regulate, inter alia, enforcement of security interest , noting in the statement of objects and reasons that our existing legal framework relating to commercial transactions has not kept pace with the changed commercial practices and finance sector reforms and that unlike international banks the banks and financial institutions in India do not have power to take possession of securities and sell them on which account there has been a slow pace of recovery of defaulting loans and mounting levels of non-performing assets of banks and financial institutions . The law, thus, has conferred on the banks and financial institutions the power to take possession of securities given for financial assistance and sell or lease the same or take over management in the event of default, i.e. classification of the borrower s account as non-performing asset in accordance with the directions given or guidelines issued by the Reserve Bank of India from time to time and, for such purposes, has defined the expression security interest , made incidental provisions including in the nature of remedies in the form of ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e secured creditor are exercisable, by virtue of Section 13(12) through officers duly authorized in such behalf. For such purposes, the legislation sets out an elaborate procedure that begins with a notice under Section 13(2) issued by the secured creditor (giving requisite details of the amount due and the secured assets in which respect the enforcement is intended) and addressed to the borrower-in-default requiring him to discharge in full his liabilities within 60 days. On the expiry of the said period of 60 days calculated from the date of notice if the default continues, the secured creditor acquires the title to proceed further. 29. Upon being served with a notice under Section 13(2), the borrower is given the liberty, by Section 13(3A), to object or make any representation and in the event of such objection or representation, the secured creditor is obliged to consider it and communicate his response (specifying the reasons) within a week. Of course, by virtue of proviso to Section 13(3A), the non-acceptance of the objection or representation at this stage does not confer on the borrower any legal remedy in the nature of appeal or application. 30. In the event of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uter door or at a conspicuous place of the property. The delivery of the possession notice constitutes, under Rule 8(1), the taking of possession of the secured immoveable property. This act, however, is required to be followed by publication of the possession notice in two leading newspapers (at least one of which is in vernacular language), having sufficient circulation in the locality in question. Once possession is taken over by the authorized officer of the secured creditor, he is expected to first take steps for ensuring preservation and protection of the secured asset and obtain valuation of the asset from an approved valuer, inter alia, for purposes of fixing the reserved price in terms of Rule 8(5). 35. For bringing the property to sale, the secured creditor (through its authorized officer) is required, by virtue of Rule 8(6), to issue and serve on the borrower a notice of 30 days for sale of the immoveable secured asset . The notice of sale is also required to be given widest possible publicity, including, in terms of Rule 8(7), by way of affixing on a conspicuous part of the immoveable property, and if deemed fit, by publication on the website of the secured creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objective behind this scheme of things is not difficult to comprehend. The law appreciates that the borrower is bound to be deeply concerned and, thus, might be interested in discharging his liability to the secured creditor otherwise than by having the mortgaged property brought under the hammer, and for such purposes may like to seek redemption. It is with this view that Section 13(8) SARFAESI Act provides as under:- 13(8). If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset. [emphasis supplied] 39. The procedure prescribed by the law, and rules, for enforcement of security interest, as noted above, at the hands of the secured creditor (or its authorized officer) is subject to the remedy of appeal before the Debts Recovery Tribunal (DRT), constituted under RDDBFI Act, in terms of Section 17 SARFAESI Act. As noted earlier, mere non-acceptance of the objection or representation i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he recourse taken by the secured creditor under sub-section (4) of section 13. [emphasis supplied] 41. The law recognizes the primacy of the right of the mortgager to redemption. Section 60 of the Transfer of Property Act, 1882 sets out this right in the following terms:- 60. Right to mortgagor to redeem.-At any time after the principal money has become due, the mortgagor has a right, on payment or tender, at a proper time and place, of the mortgage-money, to require the mortgagee (a) to deliver to the mortgagor the mortgage-deed and all documents relating to the mortgaged property which are in the possession or power of the mortgagee, (b) where the mortgagee is in possession of the mortgaged property, to deliver possession thereof to the mortgagor, and (c) at the cost of the mortgagor either to re-transfer the mortgaged property to him or to such third person as he may direct, or to execute and (where the mortgage has been effected by a registered instrument) to have registered an acknowledgement in writing that any right in derogation of his interest transferred to the mortgagee has been extinguished: Provided that the right conferred by this section has not been extingui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 13(8), any sale or transfer of a secured asset, cannot take place without duly informing the borrower of the time and date of such sale or transfer in order to enable the borrower to tender the dues of the secured creditor with all costs, charges and expenses and any such sale or transfer effected without complying with the said statutory requirement would be a constitutional violation and nullify the ultimate sale. [emphasis supplied] 44. A fact situation similar to the one in Mathew Varghese (supra) came up before the Supreme Court in the case of J. Rajiv Subramaniyan and Another v. Pandiyas and Others, (2014) 5 SCC 651. Besides non-compliance with other requirements of Rule 8 of 2002 Rules, sale effected by the secured creditor in favour of the appellant in that matter by private treaty (one of the methods permitted for enforcing recovery) was held to be null and void, it having been brought about without the terms to such effect being settled between the parties in writing in terms of Rule 8(8). The ruling in Mathew Varghese (supra) was reiterated pointing out that the secured creditor having resort to the extreme measures under SARFAESI Act are expected to take b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted further to dispose of the secured assets in any unreasonable or arbitrary manner in flagrant violation of the statutory provisions. [emphasis supplied] 47. Clearly, the authority to adjudicate and enforce (execute) a private claim (secured asset) placed by the law in the hands of the claimant (secured creditor) itself is indeed an extraordinary measure, particularly because it is in the teeth of the principles of natural justice doctrinal rule wherein it that no one shall be a judge of own cause. Such extraordinary power cannot come but with extraordinary responsibility. The entity so authorized must adhere to the prescribed procedure. Departure from the prescribed procedure cannot be countenanced; the concerned Tribunals or Courts can take appropriate measures to set at naught the entire process undertaken by the private entity (the secured creditor) under the colour of the authority given to it by the law (SARFAESI Act). 48. In allowing the application under Section 17 of SARFAESI Act of the first respondent, the DRT by its order dated 30.11.2010 returned findings to the effect that the representation submitted by the first respondent, under Section 13(3A) of SA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (successor-in-interest of the auction-purchaser) have been given liberty to participate in such re-auction which is, however, subject to the right of the borrower of paying the outstanding dues under Section 13(8) of SARFAESI Act. 50. Neither the third respondent whose action under SARFAESI Act was impeached nor the fourth respondent (the auction-purchaser) have challenged the impugned order of DRAT by any further proceedings. Insofar as they are concerned, the findings have attained finality. 51. On the above facts and in the circumstances, the petitioner, not a party to the proceedings leading to the sale, cannot be allowed the liberty of defending the indefensible. There are consistent findings recorded by the two statutory forums below that the entire process undertaken by the third respondent under the colour of authority of Section 13 SARFAESI Act was vitiated. The borrower/mortgager did not have sufficient notice at the crucial stages of the process. His rights were, thus, violated. In the fact-situation noted above, the transfer of his property by way of auction-sale in favour of the fourth respondent was wholly impermissible, unjust and illegal. The manner in whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons not attributable to her or to her predecessor-in-title (the auction-purchaser). 55. The provisions contained in Section 51 and 63A of the Transfer of Property Act are germane to the issue raised. The said provisions of law read as under: 51. Improvements made by bona fide holders under defective titles.-When the transferee of immoveable property makes any improvement on the property, believing in good faith that he is absolutely entitled thereto, and he subsequently evicted therefrom by any person having a better title, the transferee has a right to require the person causing the eviction either to have the value of the improvement estimated and paid or secured to the transferee, or to sell interest in the property to the transferee at the then market value thereof, irrespective of the value of such improvement. The amount to be paid or secured in respect of such improvement shall be the estimated value thereof at the time of the eviction. When, under the circumstances aforesaid, the transferee has planted or sown on the property crops which are growing when he is evicted therefrom, he is entitled to such crops and to free ingress and egress to gather and carry them. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion which was carried out by the petitioner from her own resources. The petitioner would need to be compensated appropriately for the value addition made by her to the subject property after she had purchased it from the fourth respondent on 13.12.2007. 58. Though the DRAT fixed a timeframe for the petitioner to hand-over the possession of the subject property to the secured creditor (third respondent) and also allowed to the latter the liberty of putting it to reauction (with further right given to retain it till the fresh auction is held), strangely, no time-frame for such further proceedings to be conducted has been specified. With stakes of a third party, a bona fide purchaser from the auction-purchaser, also having come to be involved, some further directions were necessary to balance out the equities. 59. As noted earlier, one of the grievances raised by the first respondent in the SA filed before the DRT was that the representation made in response to notice under Section 13(2) SARFAESI Act had not been disposed of. It appears that the first respondent had questioned the correctness of the calculation of the amount claimed by the third respondent as due, amongst other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) The third respondent shall thereafter offer an opportunity for redemption to the first respondent who will be obliged to deposit with the third respondent, within 15 days of such offer, an amount equivalent to the value at which the subject property has been assessed by the approved valuer or the outstanding dues (the principal loan amount disbursed discounted by amount repaid, if any, with up-to-date interest) owed to the third respondent together with the amount payable to the petitioner, whichever is more; (v) In the event of the first respondent failing to deposit the amount in terms of the preceding clause within the time granted, the third respondent shall offer to sell the subject property in favour of the petitioner for consideration equivalent to the value at which it has been assessed by the approved valuer, reduced by an amount equivalent to the amount payable to the petitioner as above, she being obliged to make such deposit with the third respondent within four weeks of such offer; (vi) In the event of the petitioner failing to deposit the amount in terms of the preceding clause within the time granted, the third respondent shall proceed to put the propert ..... 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