Calcutta HC sets aside order passed under SARFAESI Act citing Compliance of S. 13 by Secure Creditor [Read Order]

In a recent case, the Calcutta High Court has held that the secured creditor has duly complied with all the mandatory provisions under Section 13 of the SARFAESI Act, 2002, and Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002. The Single Judge, however, overlooked the entire gamut of proceedings and erroneously allowed the writ petition. Consequently, the impugned order dated 11th December, 2018, is unsustainable in law and is liable to be set aside.

Dr. Tushar Kanti Karmakar, the petitioner is purchaser of mortgaged property and Secured Creditor, State Bank of India assailed the impugned Judgment and Order dated 11th December, 2018 passed by Single Bench of the High Court in Shilabati Hospital Private Limited & Ors. Vs. State Bank of India & Ors.by filing two separate appeals.

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The issues involved particularly arising from the sale of a mortgaged property under the provisions of The Securitisation And Reconstruction Of Financial Assets And Enforcement of Security Interest Act, 2002 ( ‘SARFAESI Act, 2002’) and The Security Interest (Enforcement) Rules, 2002 ( ‘the said Rules, 2002’) thereof.

The Writ Petitioners/Borrowers, being the Directors of M/s Shilabati Hospital Pvt. Ltd. (Private limited company within the meaning of Companies Act, 2013), approached the State Bank of India seeking a loan to facilitate medical treatment for the public through their hospital, namely, M/s Shilabati Hospital Pvt. Ltd. Companies Act

The Bank sanctioned credit facilities as term loan of Rs. 200 lakhs to the Writ Petitioners on 23rd July, 2003, upon mortgaging properties consisting of two adjacent Plots of land. The hospital building was erected on the first part of the borrower's land, and the second part belonged to the Guarantor of the loan, Smt. Tanushree Manna, who also held 50% ownership in the 1st part of the land. Smt. Tanushree Manna also took a separate loan against the second part of the property.

The Loan account was, subsequently, classified as a Non-Performing Asset (NPA) on 31st March, 2004, due to non-repayment of the term loan availed by the mortgagors. The Bank’s approved valuer assessed the combined value of the Hospital Building & Property of Tanushree Manna, i.e,. both properties at Rs. 1,77,22,000.00/- as on 17th June, 2006. A demand notice was issued under Section 13(2) of the SARFAESI Act, 2002 on 28th June, 2006 to the Writ Petitioners asking them to discharge the liability of Rs. 3,70,90,320.00/- in full within 60 days, but they failed.

The Bank issued a possession notice under Section 13(4) of the Act, maintaining all due process of law under the SARFAESI Act, 2002 on 16th December, 2006, covering both the hospital property and the adjacent land owned by Smt. Manna. Pursuant to Rule 8 of the said Rules, notice was published in Bengali and English Newspapers “Ajkal” and “The Statesman” on 22nd December, 2006. Rule 8 provides for the sale of immovable secured assets after compliance of necessary provision of the said SARFAESI Act, 2002. On 23.12.2006, writ petitioners handed over the physical possession of property to the Bank without any objection.

A fresh valuation was conducted on 11.01.2007 by Engineers and Valuers Collaborated, assessing the value at Rs. 1,85,97,000.00/- for Land & Building and Rs. 1,64,00,000.00/- for Plant & Machinery (Total Rs. 3,50,57,000.00/-) on 11th January, 2007 and after getting such valuation report of the properties, Bank issued notice for public auction as per Rule 8(5) of Rules, 2002 at a reserve price of Rs. 3,75,00,000/- on 23rd February, 2007. However, no bids were received.

The writ petitioner had offered to the bank a one-time settlement at a full and final value of Rs. 155 Lakhs on 28th August, 2008, but the said offer was rejected by the Bank on 15th November, 2008, as the value of properties was higher than the offer price. A third Valuation Report was sought from the Bank’s approved valuer on 15th November, 2008. It was valued at Rs. 207.47 Lakhs for Land & Building and

Rs. 60.76 Lakhs for Plant & Machinery of both properties (Total Rs. 268.23 Lakhs).

The appellant failed to comply with the provisions of Section 13(8). The statute mandates that it is only where the dues of the secured creditor are tendered together with costs, charges and expenses before the date fixed for sale or transfer that the secured asset is not to be sold or transferred. The appellant was aware of the proceedings initiated by the Bank for asserting its right to recover its dues by selling the property. The appellant moved the DRT in Securitisation Application No. 176 of 2015. During the pendency of those proceedings, orders were passed by the Tribunal on 1-2-2016 and 3-2-2016.

While the appellant deposited an amount of Rs 7,00,000 with the Bank, he failed to deposit the balance in accordance with the provisions of Section 13(8). Even after the writ proceedings before the High Court were withdrawn, the appellant did not deposit the balance due together with the costs, charges and expenses.

The sale was confirmed, a sale certificate was issued and a registered sale deed was executed on 12-4-2016. The appellant failed to ensure compliance with Section 13(8). The right to redemption stands extinguished on the execution of the registered sale deed.

The failure on the part of the borrower in tendering the entire dues including the charges, interest, costs, etc. before the publication of the auction-notice as required by Section 13(8) of the SARFAESI Act, would also sufficiently constitute extinguishment of right of redemption of mortgage by the act of parties as per the proviso to Section 60 of the 1882 Act. Furthermore, in the case on hand, there was no claim for right of redemption by the borrower either before the publication of the auction-notice or even thereafter.

The borrowers entered into the fray only after coming to know of the confirmation of auction. Be that as it may, once Section 13(8) stage was over and auction stood concluded, it could be said that there was an intentional relinquishment of his right of redemption under Section 13(8), whereby the Bank declared the appellant as the successful auction-purchaser having offered the highest bid in accordance with the terms of the auction-notice.

A division bench of Justice Rajasekhar Mantha and Justice Ajay Kumar Gupta observed that the secured creditor has duly complied with all the mandatory provisions under Section 13 of the SARFAESI Act, 2002, and Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002. Sufficient opportunities were afforded to the writ petitioners, which they failed to avail.

The Single Judge, however, overlooked the entire gamut of proceedings and erroneously allowed the writ petition. Consequently, the impugned order dated 11th December, 2018, is unsustainable in law and is liable to be set aside.

The writ petition was filed without impleading Dr. Karmakar, despite the sale certificate having already been registered in his favour on 07.06.2010. The Tribunal, meanwhile, did not interfere with the proceedings initiated by the Bank under the SARFAESI Act, which had attained finality.

It was viewed that the writ petition could not have been entertained merely on the grounds that the Bank falls within the ambit of Article 12 of the Constitution or that the petition had been pending for a considerable period. The single Judge further erred in entertaining the writ petition even on the ground that the secured creditor had rejected the petitioners’ settlement offer.

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