PNB Appeal Succeeds: DRAT Sets Aside Tribunal Order Over Procedural Compliance in SARFAESI Possession Notice [Read Order]

The Allahabad Bench of Debt Recovery Appellate Tribunal (DRAT), allowed Punjab National Bank’s (PNB) appeal, holding that the date discrepancy in the possession notice was a harmless typographical error and that valuation prior to symbolic possession was legally valid. Finding full compliance with SARFAESI procedures, the Tribunal set aside the lower order and dismissed the borrowers’ challenge, with no costs.

The Appellant, Punjab National Bank (PNB) filed this appeal under Section 18 of the SARFAESI Act, 2002 against the order dated 25.07.2022 passed by the Tribunal below in S.A. No. 296/2021, which allowed the respondent, Neelam Enterprises, application.

The Appellant granted a cash credit and term loan of Rs. 15.00 lakhs to respondent no. 1 (firm) through its proprietor, with respondents no. 2-3 as personal guarantors who created an equitable mortgage. The account was declared NPA on 02.10.2019, and a demand notice for Rs. 15,10,318.97 was issued on 05.11.2019 under Section 13(2) of theSARFAESI Act.

The Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) explained that: Enforcement of Security Interest

“(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 instalment 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).

[Provided that- (i) the requirement of classification of secured debt as non-performing asset under this sub-section shall not apply to a borrower who has raised funds through issue of debt securities; and (ii) in the event of default, the debenture trustee shall be entitled to enforce security interest in the same manner as provided under this section with such modifications as may be necessary and in accordance with the terms and conditions of security documents executed in favour of the debenture trustee.”

Further, upon non-payment, the appellant took symbolic possession through notice dated 12.02.2020 under Section 13(4), published in newspapers on 16.02.2020. After an unsuccessful auction attempt, a second sale notice dated 22.07.2020 was issued, and the property was sold on 10.08.2020 to respondent no. 4 with a sale certificate issued on 26.08.2020.

The borrowers/respondent challenged the proceedings by filing S.A. No. 296/2021 on 31.07.2021. The Tribunal below allowed their application on 25.07.2022, setting aside the possession notice. The appellant appealed this order, having also obtained physical possession through a District Magistrate's order dated 03.09.2021 under Section 14 of the SARFAESI Act.

The Counsel for the Appellant, M.M Dixit, argued that the Tribunal below erred in setting aside the possession notice on grounds of procedural non-compliance and stated that the possession notice dated 12.02.2020 mentioned 04.02.2020 as the date of taking symbolic possession in its body, which was merely a typographical error.

The Counsel also explained that due to the borrower's non-cooperation, a letter was issued seeking police assistance, and possession could not be taken on 04.02.2020 as intended. Subsequently, a fresh possession notice was issued on 12.02.2020 pursuant to which possession was lawfully taken with all legal requirements duly followed.

Further, the Counsel pointed out that regarding the valuation report dated 23.01.2020, the appellant submitted that it was obtained 20 days before possession and 45 days before the first sale notice dated 07.03.2020 and argued that there was no mandatory legal requirement to obtain valuation only after taking possession; the law only requires valuation before sale, which was complied with as the property was sold within six months of valuation.

On the other hand, the Counsel for the Respondent/Borrowers, D.N Awasthi and K.M Tiwari, stated that the appellant cannot raise new grounds not pleaded in the S.A. before the Tribunal below and argued that the second possession notice dated 12.02.2020 was fabricated to save the appellant’s action, as only one possession notice was issued on 04.02.2020. The respondents claimed the possession notice was actually dispatched on 15.02.2020, not on the stated dates, and was not pasted on the conspicuous part of the property as mandatorily required by law.

Further, the Counsel submitted that both the possession notice and sale notice were issued during the COVID-19 period and referred to the Supreme Court's order dated 10.01.2022 in Suo Moto Writ Petition No.03/2020, which extended the limitation period from 15.03.2020 to 28.02.2022, arguing there was no delay in filing their S.A. The respondents also stated that the proceedings were legally infirm and the appeal should be dismissed with heavy costs.

The Tribunal consisted of Justice R.D Khare, Chairperson, heard and reviewed the matter filed by the appellant.

The Tribunal, after considering the submissions made, held that the discrepancy between the possession notice issuance dated 12.02.2020 and the date mentioned in its body 04.02.2020 was a mere typographical error causing no prejudice and insufficiency to invalidate the notice.

The Tribunal, regarding the valuation report dated 23.01.2020, ruled that law did not prohibit valuation before symbolic possession; it only mandates valuation before sale within six months. As the property was sold on 10.08.2020, well within six months, there was no violation of Rule 8(5) of the Security Interest (Enforcement) Rules, 2002.

On limitation issue, the Tribunal observed that the Supreme Court's extension of the limitation period from 15.03.2020 to 28.02.2022 due to COVID-19, rendering the borrowers' application timely. Accordingly, the Tribunal set aside the impugned order and allowed the appeal filed by the appellant with no order as to costs.

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