Canara Bank has no Locus standi to initiate recovery proceedings Maruti Automobiles, Citing Finalised proceedings under SARFAESI Act: DRAT [Read Order]

Canara Bank (erstwhile Syndicate Bank), the appellant filed the appeal under Section 20 of the Recovery of Debts and Bankruptcy Act, 1993 ( "the RDB Act, 1993") against the judgment dated 20.05.2022, wherein the T.A. No. 01/2021 filed by the appellant-Bank has been dismissed.

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The appellant-Bank had granted various credit facilities to the respondent no. 1, Maruti Auto Mobiles. In order to secure the said facilities, the respondents no. 2 to 4 stood as personal guarantors and respondent nos. 1 to 4 created an equitable mortgage over their property in question by depositing title deeds with the appellant-Bank. Since respondent no. 1-borrower failed to maintain the financial discipline, therefore, the loan accounts were classified as NPA and a demand notice dated 14.09.2009 under Section 13(2) of the SARFAESI Act was issued followed by the possession notice dated 03.10.2009 for all the three properties mortgaged with the Bank and the same was published in the newspapers on 10.10.2009.

The respondents-borrowers challenged the proceedings of the Bank by filing S. A. No. 133/2011 before the Tribunal below. After taking physical possession of the properties in question on 18.04.2011, a sale notice dated 30.04.2011 was issued by the Bank scheduling the auction of the properties in question on 31.05.2011 and the properties were sold for a sum Rs. 66.75 lacs, out of which Rs. 16,62,271.49 was adjusted in the loan account of Maruti Automobiles and Rs. 50,12,728.51 was adjusted in the loan account of Maruti Stores. After receipt of entire sale consideration, the appellant-Bank issued sale certificate andhanded the physical possession of the said property to the respondent no. 5-auction purchaser on 16.06.2011.

The auction sale dated 31.05.2011 was challenged by the respondents-borrowers by filing an interim application in the pending S.A. before the Tribunal below on the ground that the property was sold undervalued, which was allowed. The said S.A. was disposed off by the Tribunal below vide order dated 26.03.2012 by the Tribunal below directing the borrowers to pay the actual dues along with interest within 7 days of valuation of property through an expert by the Bank.

The borrower was also directed to pay Rs. 10.00 lacs compensation along with 9% interest, cost of modification and 5% penalty to the auction purchaser and cost of paper publication, legal expenses and costs, against which the respondents-borrowers preferred an Appeal No. 68 of 2012 before Appellate Tribunal, which was disposed off vide order dated 08.07.2013 with a direction upon the appellant-Bank to intimate the full and final amount recoverable by it within 15 days and further directed the appellants to deposit the same within 60 days with the Bank.

It was also directed to refund the amount of Rs. 50.00 lacs, which was deposited with DRAT, Calcutta, to the Bank. It was further stipulated that in case the appellant fails to deposit the amount within 60 days, the Bank shall be free to auction the property in question. In compliance of the said order, the appellant-Bank furnished the statement of account with calculation chart on 20.07.2013 and demanded an amount of Rs. 2,36,11,095/-, as total outstanding dues payable in 19.07.2013 in both the accounts, out of which Rs. 98,67,127/- was against the account of Maruti Automobiles and the remaining amount of Rs. 1,37,43,968/- against Maruti Stores.

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The respondents-borrowers sought modification of the order dated 08.07.2013 passed in Appeal No. 68 of 2012. The Appellate Tribunal vide order dated 03.10.2013 modified the said order and held that the total recoverable amount from the appellant is Rs. 76.00 lacs, which includes the interest as on 13.09.2013 and after adjusting the amount deposited by the appellant, the remaining amount was to be deposited on or before 04.12.2013 as undertaken by the appellant.

The appellant-Bank proceeded for the recovery of its dues and filed Original Application No. 34 of 2014 on 27.02.2014 for Rs. 82,63,120.33/- as on 31.01.2014 along with future interest @19% per annum. During the pendency of the said O.A., an impleadment application was filed, which was allowed by the Tribunal below and the auction purchaser was impleaded as respondent no. 5.

It was contended that the proceeding was initiated under section 19 of the RDB Act, 1993, therefore, the auction purchaser, who has purchased the property in question under the SARFAESI Act, has no locus in the present case. It was further contended that against the demanded amount of Rs. 24,37,233/-, the respondent-borrower has deposited total amount of Rs. 99,10,860/-. It was thus prayed that both the appeals filed by the Bank and the Auction purchaser may be dismissed with cost directing the Bank to restore the possession of the property in question with the respondent-borrower.

Considering the material available on record, undisputedly, the respondents-borrowers challenged the demand notice, possession notice and sale notice before the Tribunal below by filing S.A. No. 133/2011, which was disposed off vide order dated 26.03.2012, whereby the auction sale was set aside and the Bank was directed to get fresh valuation report of the property in question from an approved expert engineer and further the borrowers were also directed to pay 9% Interest and 5% penalty on auction amount to the 10.00 lacs againstand after payment of the amount, the possession of the property shall be returned to the appellant.

The present appeal has been filed by the auction purchaser against the order impugned passed by the Tribunal below in Original Application preferred by the Bank under Section 19 of the RDB Act, 1993 for recovery of its dues, whereas the appellant has purchased the property in question under the SAREAEST Act specifically directed that in case the appellant does not deposit the amount within a period of 60 days, then the Bank shall be free to auction the property, meaning thereby the Bank, if required, could have proceeded for fresh auction and could not have continued with its earlier auction, which has not been done.

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The bench of Justice R. D. Khare, Chairperson concluded that the appellant has no locus to dispute the order impugned, because the dispute pertaining to the proceedings initiated by the Bank under the SARFAESI Act in respect of the property in question, which was purchased by the appellant in auction, had extinguished long back as discussed in the preceding paragraph of this judgment and the present proceedings initiated by the Bank pertains to the recovery of dues under the RDB Act.

Since the auction has been set aside long back, but the appellant-auction purchaser has illegally been enjoying the property in question, therefore, the Bank is directed to return the auction amount to the auction purchaser without any interest within 15 days and shall take back the possession of the property in question.

It is relevant to state that the appellant (auction purchaser) is in possession of the property in question, whereas the auction has been set aside long back and the borrower is deprived from the possession of the property in question and is also paying the interest on the outstanding amount as well as the Bank is enjoying the auction amount, therefore, it would only be appropriate to direct that the Bank shall take into account the auction amount only for the purpose of calculating the interest, which is recoverable from the borrowers.

The order impugned passed by the Tribunal below is modified to the extent that the appellant-Bank is entitled to recover the amount of Rs. 5,99,979.63 along with interest for the delayed period. The Bank is directed to calculate the interest on the basis of reducing balance and intimate the same to the borrowers within 15 days from today and thereafter the borrower shall pay the same within 30 days.

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