Invalidating Sale on ground processing of valuation report as per SARFAESI Act is not Maintainable in Absence of Changes in Valuation: DRAT rules in favour of SBI

The Chennai bench of the Debt Recovery Appellate Tribunal (DRAT) in a ruling in favor of SBI, has held that invalidating sale on ground of processing a valuation report as per the SARFAESI Act is not maintainable in absence of changes in valuation.

State Bank of India, filed the appeal under Section 18 of the SARFAESI Act against the order passed in SA No.620/2023 by Presiding Officer,

DRT, Madurai on 15.5.2024. Counsel for the appellant submitted that the aforesaid SA was filed by respondents 1 to 3 challenging the Possession Notice dated 16.9.2023 and the Sale Notice dated 29.3.2023. Presiding Officer after perusing the records and hearing the submissions of Counsel appearing for parties, allowed the SA.

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It is further submitted that SA was allowed on following grounds, that there is only a short interval between the possession notice and the sale notice.

Notice sent to Mrs. Jeevitha returned with remarks “ left India” but the appellant bank had not taken any steps to complete the service in respect of one of the legal heirs of deceased Mr. Guruva Reddy. Authorised Officer has not taken Panchanama in respect of movable properties. No valuation report was obtained by the Authorised Officer.

Counsel for appellant bank further submitted that Presiding Officer failed to observe that all the legal heirs of deceased Guruva Reddy except Mrs. Jeevitha, challenged the measures initiated under the SARFAESI Act by the appellant bank. No intimation was given to the bank by the other legal heirs that Mrs. Jeevitha was not residing in the address given by the bank but residing in a Foreign country. It is further submitted that Mrs. Jeevitha has not chosen to challenge the SA measures.

When the measures were challenged by other Legal heirs, it is as good as challenge by the Legal heirs, who has not challenged the measures. The demand notice, after returned unserved, was duly affixed, published in tune with Rule 3(1) of Security Interest (Enforcement) Rules and that was overlooked by the Learned Presiding Officer. Demand Notice, Possession Notice and Sale Notice had all been sent to the address given to the bank. Bank is not expected to contact and enquire and investigate with regard to residential details of Mrs. Jeevitha especially when her brothers failed to inform about her whereabouts.

It is further submitted that the first respondent firm is represented by its Managing partner, the second respondent and other partners. They are carrying on day to day operations of the business of first respondent firm.

Every measure taken under the SARFAESI Act, gives rise to a fresh cause of action. In SARFAESI application, possession notice and sale notice had been challenged. Challenge to possession notice was made beyond the period of 45 days, therefore, that was barred by limitation. However, Presiding Officer, chose to set aside all the measures including the measure of taking possession.

The Authorised Officer to bring the movable assets for E-Auction sale. The Presiding Officer failed to observe that Item No.3 of the property described in the Possession Notice dated 16.9.2003 had not been brought for sale in the E-Auction Sale Notice dated 29.9.2023. This pleading has not been raised in the grounds of the SARFAESI Application. Possession Notice was issued as per Appendix IV under rule 8(1) of Security Interest (Enforcement) Rules. The presiding officer failed to take note of the fact that physical possession of movable item No.3 was not taken. Valuation report was taken within a period of one year prior to the date of sale.

Counsel for the appellant bank submitted that without considering the facts available in proper perspective and the legal position, Presiding Officer allowed the SA. Thus contending, Counsel prayed for dismissal of the SA by allowing the appeal.

As per the direction of this Tribunal, appellant bank official produced originals of demand notice, possession notice, sale notice. proof of its postal service, publication in English and Vernacular language and affixture by producing colour photographs.

If the presiding officer found that dates are not legible in photographs filed in proof of affixture of possession and sale notice, she ought to have summoned the originals. Without doing so, allowing the SA on the ground that dates are not legible in the photographs filed in proof of affixture of possession and sale notices cannot be accepted. From the evidence produced, it is clear that affixture of notices had been properly done.

In so far as non-service of notice to Jeevitha Reddy is concerned, it is the case of the Counsel for appellant that no intimation was given to the bank by other legal heirs of deceased Guruva Reddy that Mrs. Jeevitha was not residing in the address given and she was residing elsewhere in a foreign country. That is the reason why notice was taken to Mrs. Jeevitha to the address given in the loan documents.

Notice taken to Jivitha had been returned with a remark ‘Left India”. Without informing the correct address, it is not possible for the bank to take notice to a Foreign country.

The tribunal comprising Justice G. Chandrasekharan Chairperson viewed that when there is change of address of one of the legal heirs and when SARFAESI measures were sought to be taken against the LRs of deceased borrower, it is expected that correct address of Ms. Jeevitha has to be given to the appellant bank by other legal heirs who had received notices and challenged the SARFAESI measures, so that bank can take notices to the correct address of Mrs. Jeevitha.

When that was not done, respondents cannot complain about non-service of notice under Section 13(2) and Section 13(4) of SARFAESI Act to Mrs. Jeevitha. Other legal heirs of Guruva Reddy namely respondents 2 and 3 are representing the estate of deceased Guruva Reddy. Therefore, the Tribunal is of the view that setting aside the measure on the ground that notice under the SARFAESI Act was not taken to Mrs. Jeevitha to the correct address is not correct.

From the sale notice, it is seen that what was brought for sale is only immovable properties and not the hypothecated movables, therefore, not taking inventory cannot be a ground for allowing the SA. Sale notice is dated 29.9.2023. Valuation reports dated 20.6.2023, 8.9.2023 and 21.9.2023 were taken within the permitted period prior to the sale. It is seen that valuation is not challenged on any other grounds. Therefore, setting aside the sale on the ground that valuation report has not been taken as per the provisions of SARFAESI Act, is not correct.

Considering the documents produced and submissions of Counsel for appellant bank the Tribunal finds that the appellant bank has taken measures for sale of the property, after following the procedures enumerated under SARFAESI Act, 2002. The order of the Presiding Officer, DRT, Madurai is set aside and Appeal is allowed with the costs of appellant bank.

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