DRAT directs Borrowers to pay to Canara Bank Rs.10.50 Cr towards Loan Due [Read Order]

The Chennai bench of the Debts Recovery Appellate Tribunal(DRAT) directed the borrowers to pay to Canara Bank Rs.10.50 Cr towards loan due considering the fact that the borrowers by not taking any positive steps for settling the loan amount when the loan account was classified as NPA even in the year 2018.

The First Respondent is a Holiday Resort, and the Second Respondent is its Proprietor. They availed loan facilities from the Appellant Canara Bank. The third Respondent is the Guarantor to the Loans. In the sale held, the security asset was purchased by the Auction Purchaser, Mr. Sathish Darvin Sekar. For easy understanding, the bank is referred to as the appellant, borrowers/guarantors are referred as respondents and the auction purchaser is referred to as auction purchaser.

An application has been filed by borrowers/respondents challenging Sale Notice dated 13.05.2022, postponement of Sale Notice dated 01.06.2022; restraining the Bank from taking action under SARFAESI Act including but not limited to confirmation of any sale and e-auction held on 20.06.2022.

The borrowers/respondents challenged the order of CJM, Chengalpattu in Crl. M.P No. 5009/2022 dated 30.06.2022 under Section 14 of the SARFAESI Act, 2002 and the Advocate Commissioner Notice dated 30.07.2022. Challenging the orders passed in these Securitisation Applications, Canara Bank filed Appeals.

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It is the case of the respondents that they availed three loan facilities of Rs.50 Lakhs under Secured Overdraft Loan, Rs.4.92 Crores under Term Loan-I, Rs.1.85 Crores under Term Loan-II. The third respondent is the guarantor to the loans. A Mortgage was created in respect of the properties mentioned in the Schedule. As against the sanctioned loan of Rs.7.27 Crores, the appellant bank released only Rs.6.66 Cores. First Respondent is a Holiday Resort. Due to the COVID-19 pandemic-related lockdown, there was not much business, and the repayment as scheduled, could not be followed.

The bank issued a Demand Notice dated 14.11.2019 under Section 13(2) of SARFAESI Act, 2002. Respondents sent representation under Section 13(3A) of the SARFAESI Act, 2002. The appellant bank issued a Possession Notice dated 22.01.2020 and took symbolic possession.

Appellant’s earlier attempt to sell the property was challenged by filing Securitisation Applications. Appellant issued Sale Notice dated 13.05.2022 scheduling the sale on 04.06.2022. Appellant tried to sell the movable assets which are not described in the Schedule. On 24.05.2022, the respondents sent a communication offering to pay Rs.8.50 Crores under OTS. The appellant bank sent a Notice dated 01.06.2022 postponing the sale to 20.06.2022.

On 17.06.2022, appellant sent an e-mail at 15.10 hours informing that respondents’ OTS proposal was accepted and respondents were directed to make initial down payment of 10% before conveying permission, failing which, it was informed that sale would be conducted as scheduled.

Respondents were given only one day to pay Rs.85 Lakhs. Therefore, down payment could not be made and the property was sold. Without considering the bonafide intention of the respondents, property was sold. Therefore, the aforesaid Securitisation Application was filed.

The Application was filed mainly on the ground that when the borrowers had been taking effort to settle the loan due, the bank had, behind their back, moved CJM Court under Section 14 of the SARFAESI Act, 2002 and secured police protection for taking possession of the property. On the basis of order passed by CJM, Advocate Commissioner, highhandedly and illegally, took possession of the properties, including the properties not hypothecated, with the help of recovery agents. Orders under Section 14 of the SARAFAESI Act, 2002 was obtained without following the procedure, especially, without informing in the Affidavit about payments made by the borrowers.

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Since the parties in these Appeals are the same, and that the properties involved in these Appeals are the same properties and the issues involved overlap with each other, the Tribunal decided to take all the matters together for disposal, by a common order.

Counsel for appellant submitted that the Borrowers filed challenging the measures taken for the sale of the property under SARFAESI Act, 2002 and SA 367/2022 challenging the order passed under Section 14 of the SARFAESI Act, 2002. Borrowers sent a Letter seeking OTS by paying Rs.1 Crore. The bank replied on 24.05.2022 itself stating that the payment of Rs.1 Crores cannot be considered as part of the OTS amount, and they were informed that in the event of approval of OTS, respondents will be informed.

The impugned Sale Notice was issued on 13.05.2022 fixing the sale on 04.06.2022. Sale Notice was properly served, affixed and published. A corrigendum was issued on 02.06.2022 to the Sale Notice dated 13.05.2022, postponing the sale from 04.06.2022 to 20.06.2022. All other terms and conditions of the Sale Notice dated 13.05.2022 was retained.

The respondents have not paid the 10% down payment, and therefore, sale was held on 20.06.2022. It is further submitted that the original date of sale on 04.06.2022 was postponed only at the request of borrowers on the basis of their letter dated 30.05.2022 seeking OTS. Therefore, the bank cannot be found at fault with the sale held on 20.06.2022. Sale Certificate was issued on 18.08.2022. Borrowers have not taken any steps for redeeming the property prior to sale, especially, prior to issuance of publication of Sale Notice. The property was sold after following the procedure contemplated under SARFAESI Act, 2002.

Counsel for the Bank and the auction purchaser on the ground that except the auction purchaser, there were no other bidders. On the request of the auction purchaser, time was extended to the auction purchaser to pay the balance sale consideration on or before 19.08.2022. The auction purchaser, his Firm, his wife and father had made these payments in time. Thus, there is no illegal or irregular in paying the balance sale consideration.

It is seen from an undated letter issued by bank to the auction purchaser, that the auction purchaser requested by his letter dated 04.08.2022 seeking extension of time for remitting the balance amount and thus time was extended till 19.08.2022. The statement of account shows that on 21.05.2022, the auction purchaser company paid a sum of Rs.84,67,700/-, then from 20.06.2022 to 18.08.2022, various amounts had been paid by Auction Purchaser’s Company and Mrs. Nancy and Mr. Sekar. It is claimed that the Auction Purchaser is owner of M/s.Carewell Medical Systems, M/s. Casio Surgicals, M/s.SS Enterprises and M/s. SN Traders and Mrs. Nancy is his wife and Mr. Sekar is his father.

Taking note of the fact that there are material violations in the conduct of sale and irregularities and violations in taking possession of the property. Also, considering the fact that the borrowers by not taking any positive steps for settling the loan amount when the loan account was classified as NPA even in the year 2018, and that previous two sale attempts failed for want of bidders, and that when they were prepared to pay Rs.8.50 Crores towards the OTS settlement, they could not even mobilize 10% of this amount and keep ready, this Tribunal wants to strike a balance while deciding the case in protecting the interests of all the parties concerned.

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The bench of Mr. Justice G. Chandrasekharan viewed that the borrowers should be given an opportunity to redeem their property. The property was sold for Rs.8,47,77,000/- on 20.06.2022. There must have been at least minimum of 20% of escalation of this amount now, so also the loan due to the bank.

The tribunal directed the borrowers to pay to the Bank a sum of Rs.10.50 Crores, towards the loan due, within the period of one month from the date of uploading of this order and on such payment, the sale in favour of Auction Purchaser is set aside.

The Bank is directed to refund the sale consideration to the Auction Purchaser with interest at 12% p.a. (simple). This interest amount shall be shared between the Bank and Borrowers at 6% each. The stamp duty charges, registration charges along with interest at 12% p.a. (simple) should be paid to the Auction Purchaser by the Bank and Borrowers, at 50% each.

On compliance of these conditions by the Borrowers, the Bank/Auction Purchaser is directed to re-deliver the possession of the property to the borrowers, including the unhypothecated goods taken possession of. If the borrowers fail to pay the amounts as directed, the sale held in favour of the auction purchaser is upheld and the Appeals in RA (SA) 12/2023 and R.A(S.A) 52/2023 are allowed and SA No. 311/2022 is dismissed. The borrowers are entitled to get the return of un-hypothecated goods alone from the bank/auction purchaser.

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