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TMI Blog2010 (8) TMI 1061X X X X Extracts X X X X X X X X Extracts X X X X ..... orms and to consider the need for changes in the legal system in respect of these areas. The provisions of the would enable the banks and financial institutions to realise long-term assets, manage problems of liquidity and asset liability mismatches and to improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction. 3. For getting a decree in usual course before a Civil Court litigants including Banks have to file the suit before a civil court. After service of notice, written statement and trial, the suit would be decided by passing a decree. The decree would possibly be challenged by way of appeal upto Supreme Court and it would take about 5 to 15 years to attain finality. There would be possibility of dismissal of suit on various grounds. After the decree is passed by the competent civil court, the same would be put to execution by filing E.P. The Execution Court after service of notice would bring the property of the debtor/guarantor for sale through auction. To reach this stage, lot of money, especially very long time have to be spent. The above process is dispensed wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44. Simultaneously, the jurisdiction of the civil courts was barred and all pending matters were transferred to the Tribunals from the date of their establishment. For some years, the new dispensation of adjudication worked well. However, with the passage of time, proceedings before the Debts Recovery Tribunals also started getting bogged down due to invoking of technicalities by the borrowers. Faced with this situation, the Government again asked the Narasimham Committee to suggest measures for expediting recovery of debts, etc. due to banks and financial institutions. 45. In its Second Report, the Narasimham Committee observed that the non-performing assets of most of the public sector banks were abnormally high and the existing mechanism for recovery of the same was wholly insufficient. In Chapter VIII of the Report, the Committee observed that the evaluation of legal framework has not kept pace with the changing commercial practice and financial sector reforms and as a result of this the economy has not been able to reap full benefits of the reform process. 46. By way of illustration, the Committee referred to the scheme of mortgage under the Transfer of Property Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interest Act(SARFAESI)2002 and under Section 13(4) was issued. Pursuant to the advertisement, the first petitioner issued an Advocate Notice dated 30.09.2008 to give the details regarding the auction. A reply dated 17-10-2008 was received informing that the auction was conducted on 24.06.2008. A rejoinder dated 03-12-2008 was issued by the first petitioner, for which a reply dated 12.12.2008 was received from the first respondent bank without disclosing the details regarding the sale including the purchaser's name. 8. The petitioners came to know about the purchase of property by the fourth respondent for a sum of ₹ 33,50,000/-. The petitioners have approached this Court challenging the auction and the Sale Deed dated 13-09-2008 and for a direction to restore the possession as the sale of property was vitiated by fraud and not following the procedure contemplated under the Act. 9. The respondents 1 to 3 herein filed a counter affidavit contending that the property was given by way of deposit of title deeds by S.Jayakumar for the loan to M/s. Path Finders Technologies Limited to the tune of ₹ 14,00,000/- on 04-06-1998. As the borrower failed to repay the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e consideration of ₹ 33,50,000/- on 13-09-2008, the outstanding total liability in the said loan account as on 31-10-2009 is ₹ 12,46,521/- . 13. In para 8 of the additional counter affidavit, dated 17.11.2009, it is alleged by the respondent bank that a demand notice dated 02-01-2008 was issued to the borrower in writing, to the effect that S.Jayakumar absconded and the said notice was duly served on the authorized agent, one Md.Thahir. Moreover, the aforesaid notice was also served on M/s. S.J.K.Charitable Trust which was in possession of the secured asset. 14. A reply was filed on behalf of the petitioners on 11-11-2009, reiterating their stand that no notice was issued to the petitioners who are the legal heirs of S.Jayakumar. They further state that in the auction sale notice dated 18-06-2008, it was stated that the liability was only ₹ 19,11,184/- whereas in the additional counter affidavit filed by the bank, it is stated that after adjusting the sale consideration of ₹ 33,50,000/-, still a sum of ₹ 12,46,521/- is due as on 31-10-2009. In paragraph '7', it is stated that the petitioners never authorized the said Ravichandran or any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the Bank, the learned Senior Counsel submitted that there is a violation of principles of natural justice as no notice was served on the legal heirs of the deceased S.Jayakumar and therefore, the entire proceedings are vitiated for violation of principles of the natural justice. In this regard he relied upon the judgment in Nawabkhan Abbaskhan -Vs- State of Gujarat reported in AIR 1974 SC 1471 and the judgment in Smt. Maneka Gandhi -Vs- Union of India and another reported in AIR 1978 SC 597. 18. The learned Counsel further contended that the contention of the bank with regard to the alternative remedy is not sustainable as the auction by the bank violates the principles of natural justice and violates fundamental rights and therefore alternative remedy is not a bar for maintaining the writ. To that effect he relied upon the judgments in Whirlpool Corporation -Vs- Registrar of Trade Marks, Mumbai and others reported in AIR 1999 SC 22, and judgment in Mariamma Roy -Vs- Indian Bank and others reported in 2009 AIR SCW 654 in State of Uttar Pradesh -Vs- Mohammad Nooh reported in AIR 1958 SC 86 and in K.Raamaselvam and two others -Vs- Indian Overseas Bank rep by its Chief Manager ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriate stage and therefore, this Court held that notification cannot be a nullity. He also relied upon the judgment in Industrial Development Bank of India Limited by Deputy General Manager the Authorised Officer, Chennai-15 -Vs- M/s. Kamaldeep Synthetics Limited rep. by its Managing Director, Chennai -17 reported in 2007 (3) LW 834 and a judgment in Bombay Dyeing Manufacturing Co Ltd., -Vs- Bombay Environmental Action Group and others reported in 2006 (3) SCC 434 and a judgment in Haryana Financial Corporation and another -Vs-Kailash Chandra Ahuja reported in 2008 (9) SCC 31. The learned Senior Counsel, in fine, submitted that due procedures were properly followed for auctioning the property and bona fide auction purchaser's rights should be safeguarded. 22. Mr. K.M. Vijayan, learned Senior Counsel appearing for the fourth respondent namely, the auction purchaser, submitted that the fourth respondent is totally a stranger and he might not be in a position to know about the alleged violations. As per the auction notice, he took part in the auction and he was the highest bidder and paid the necessary sale consideration. He also got Sale Certificate and took possessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvention of the court or tribunal, by such creditor in accordance with the provisions of this Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement makes any default in repayment of secured debt or any installment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4). (3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower. (3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation of raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les sale notice was duly affixed on the conspicuous part of the property and also published in two newspapers one in Tamil and another in English on 24.06.2008. In paragraph '12' in the same counter affidavit dated 09-11-2009, it is stated as follows: When the said S. Jayakumar absconded the possession of the secured asset was in the hands of M/s. SJK Charitable Trust and one P.Md.Thahir was occupying the same. The said person produced a Letter of Authorisation from S.Jayakumar to the Bank and claimed himself to be the agent of S.Jayakumar 28. In the counter affidavit filed on 17-11-2009 in paragraph '9' it is stated that the said S.Jayakumar was absconding and the said notice was duly delivered to the authorized agent, one Md.Thahir. The aforesaid contradictory and inconsistent stand of the Bank would prove that the notice under Sections 13(2) and 13(4) of the Act was not served on S. Jayakumar or the legal heirs. 29. How the notice under the act is required to be served? Rule 3 of the Security Interest (Enforcement) Rules 2002 speaks about the Demand Notice. The said Rule 3 of the Act usefully is extracted as follows: Demand notice-(1) The service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent by RPAD. STATUTORY VIOLATION 31. The Security Interest (Enforcement) Rules, 2002, have been framed under the powers conferred by sub-section (i) and clause (b)(ii) of sub-section(2) of Section 38 read with Sub-Sections (4),(10) and (12) of Section 13 of the SARFAESI Act 2002 and therefore, the said rules are subordinate legislation and they have force on the statute. It has been held by the Apex Court in Tamilnadu Electricity vs. Status Spinning Mills Ltd. Reported in 2008 (7) SCC 353 that subordinate legislation validly made may have to be read in the same manner as if it is part of the Act. 32. It is very rudimentary rather elementary that for an action under the SARFAESI Act issuance and service of notice under Section 13(2) and 13(4) is mandatory. The Bank, which is armed with enormous power under the Act to deal with secured asset, should have gone by the Act and not in contravention of the Act. 33. It is the basic principle of law if the power is given to do certain thing in a certain way, the thing must be done in that way or not at all. The following judgments which laid down the above dictum are in Taylor -vs- Tailor reported in 1876 1 Ch.D426, and the jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law that availability of an alternative remedy is not an absolute bar for exercising the writ jurisdiction and it is only a self-imposed restraint on its power. This has been held so in the judgment in State of Uttar Pradesh -Vs- Mohammad Nooh reported in AIR 1958 SC 86, in Whirlpool Corporation -Vs- Registrar of Trade Marks, Mumbai and others reported in AIR 1999 SC 22, and in Mariamma Roy -Vs- Indian Bank and others reported in 2009 AIR SCW 654. Therefore the plea of availability of alternate remedy miserably fails. The petitioners cannot approach the Tribunal, as the measures taken by the Bank were belatedly known to the petitioners and by that time the time prescribed under the Act was over. The Judgement in Hongo India (P) Ltd relied upon by Mr.K.M.Vijayan, in fact, justifies the contention of the petitioners. As per the judgement, Courts cannot extend the time limit prescribed by the Statute. As such the only remedy for the petitioners is to file a writ petition which has been rightly done by them. 37. The Tribunal is not competent to look into violation of fundamental rights and constitutional rights and this Court being a custodian of Constitutional rights is entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation of the letter of authorisation dated 15-07-2005 allegedly given by Jayakumar and every possibility of collusion between P.Md.Thahir and bank officials and the same could not be ruled out. The suspicion gets strengthened because the bank alleges the P.Md. Thahir as authorised agent of Jayakumar and it effected personal service of notice on the alleged authorised person. The said authorisation letter states as if Jayakumar borrowed ₹ 10,00,000/- from the respondent bank, where as the borrower is the M/s.Path finders and Jayakukumar was only a guarantor and the loan amount was ₹ 14 lakhs and not ₹ 10 lakhs as alleged in the authorisation letter. Apart from that the letter speaks about Jayakumar's liability of ₹ 6,50,000/- to Mr.P.Mohammed Thabir. The above statement in an authorization letter is unbelievable and this court doubts the said document authorisation letter. The capacity and status of P.Mohammed Tahir is required to be investigated. Therefore the matter requires high level enquiry. This case would illustrate as to how the bank officials with malafide intention used provisions of SARFAESI Act, which was enacted by the Parliament with an obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nakumar's bid of ₹ 36,33,000/- was changed into 28,00,000/-. The aforesaid tampering of bid amounts raises doubts about the integrity, bonafiders and motives of the bank officials who were involved in the transaction. It is very clear that the tampering was deliberately done to make 4th respondent's bid as higher one and to benefit the third party purchaser which is not in the interest of the bank or guarantor. The bank cannot throw the guarantor's rights to the wind under the guise of proceedings under SARFAESI Act. Therefore, the investigation should cover the above aspect also. 43. In this context it will be worthwhile to refer to a recent decision of the Hon'ble Supreme Court in Eureka Forbes Ltd. vs. Allahabad Bank reported in 2010(6) SCC 193 in which the Apex Court decried about the need for greater responsibility on the part of the Bank officials and held in paragraphs 76,78,79 and 82 as follows: 76. The legislative object of expeditious recovery of all public dues and due protection of security available with the Bank to ensure prepayments of debts cannot be achieved when the officers/officials of the Bank act in such a callous manner. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well. Every public officer is accountable for its decision and actions to the public in the larger interest and to the State administration in its governance. Claim as Bonafide Purchaser 44. With regard to the contention of Mr.K.M.Vijayan, learned Senior counsel that the fourth respondent is a bona fide purchaser, it cannot be true in view of fraudulent alteration, modification and tampering of the bid amounts of other bidders to suit the offer of the fourth respondent. The violations which were deliberately made by design and fraud by the Bank go to the very root of the matter and therefore, no protection or immunity could be available to the fourth respondent. Hence fourth respondent's plea relying upon judgement of the Hon'ble Supreme Court in Janata Textiles case that third party-auction purchaser's right in the auctioned property, continued to be protected, has to be rejected. Therefore, the benefit/right accrued to the fourth respondent through auction sale cannot be sustained. In any event irrespective of as to whether the fourth respondent is bona fide purchaser or not the sale in favour of the fourth respondent should vanish at once when the entire proce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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