Relief to Karnataka Bank Ltd: DRAT upholds order on finding affixture of sale notice was not proved [Read Order]

The Chennai bench of the Debts Recovery Appellate Tribunal (DRAT) upheld the order in favour of Karnataka Bank Ltd on finding affixture of the sale notice was not proved.

The tribunal viewed that affixture of sale notice was not proved, valuation of the property was not properly done and undervalued and property was sold in excess.

The Karnataka Bank Limited, the appellant filed an appeal under Section 18 of the SARFAESI Act, against the order passed in SA No.465/2012 by the Presiding Officer, DRT, Bangalore on 21.10.2013. Respondents 1 and 2, who are the applicants in the said SA, challenged the possession notice dated 10.12.2010, sale notice dated 12.9.2011 and the sale certificate dated 29.10.2011 and by the said order,Presiding Officer, allowed the SA.

Respondents 1 and 2 are the borrowers. In the Securitization Application, there are no details given, as to the nature of borrowal, quantum of borrowal, etc. In the SA, it is claimed that borrowers availed loan facilities for running Brick Industry and also Cement Hollow Bricks. There is no detail given with regard to the nature of loan and quantum of loan.

It is said that borrowers repaid a sum of Rs.7,64,644/- along with interest. On the grounds, it is alleged that for mere lapse of payment of one or two instalments, the bank could not have initiated measures under the SARFAESI Act. No notice was served under Section 13(4) of the SARFAESI Act.

After receiving Section 13(2) demand notice, borrowers approached the bank and expressed their willingness to repay the loan amount. But the bank authorities refused to receive the amount. It is further alleged that possession notice dated 10.12.2010 was not served and sale notice dated 12.9.2011 was not served.

Counsel for the appellant bank submitted that notices under Section 13(2) and Section 13 (4) of the SARFAESI Act had been property served on the respondents 1 and 2. Letter from the borrowers dated 5.5.2010 is not a representation or objection to the demand notice. It was only a letter, seeking time for making payment.

Documents have been produced to show service of notices, publication and affixture of notices. After sale, sale was intimated to the borrowers and the information about the availability of excess sale amount was also furnished to the borrowers. SA was filed only after the sale was held. Many submissions made before DRT had not been pleaded in the securitization application. Without pleadings and evidence in support of the pleadings, the Presiding Officer wrongly allowed the SA. Thus he prayed the Tribunal to set aside the order and allow the appeal.

Counsel for the 4th respondent viz., the auction purchaser supported the submissions of Counsel for the appellant bank. With regard to service of notice under Section 13(2), 13(4), sale notice and sale of the property, it is submitted that if the notice was taken to the correct address, it is deemed to have been served as per Section 27 of the General Clauses Act and that was done in this case. Wide publicity was given. But only one bidder had participated in the auction and it is not legally prohibited. Thus contending, he prayed for dismissal of the appeal.

Appellant bank filed IA No.197/2025 before theTribunal for reception of certain additional documents, which were omitted to be produced before the DRT. This application and the documents were objected by the borrowers on the ground that these documents should have been produced before the Tribunal below and that they cannot be produced and accepted now. Thus contending, he prayed for dismissal of the Appeal.

There is no dispute with regard to borrowal of loan and execution of loan documents. The issue is whether measures taken under the SARFAESI Act, for sale of the property are in accordance with law or not.

Sanction Order dated 13.7.2007, Term Loan Agreement dated 13.7.2007, Take Delivery dated 13.7.2007, Demand Promissory Notice dated 13.7.2007, Memorandum of Deposit of title deeds dated 13.4.2005, letter of Authority dated 13.7.2007 for availing loan are produced for the perusal of this Tribunal.

The demand Notice dated 23.4.2010 shows that the bank raised a demand of Rs.10,98,719/- due as on 23.4.2010. This demand notice was hand-delivered to the borrowers.

After receiving this demand notice, it is claimed that borrowers sent a letter dated 5.5.2010, objecting to the demand notice and this letter was not replied to by the appellant bank. However, the perusal of this letter dated 5.5.2010 from the borrowers shows that this letter did not make any objections or challenge to the demand of Rs.10,98,719/- claimed in the demand notice. It was only said that due to unavoidable circumstances, repayment schedule could not be kept up.

The main ground of challenge to the sale is that property worth crores of rupees was sold for a song i.e., for a lesser price of Rs.50.50 lakhs and that too for a loan of Rs.11.00 lakhs and odd. It is not necessary to sell the entire property and sale of one of the lands mentioned in two survey numbers would have been enough to satisfy the recovery of loan due.

Perusal of Term Loan Agreement shows lands in Survey No.133/2 and 133/3 at Madagalli village were valued at Rs.83.00 lakhs and the quarters to be constructed were valued at Rs.15.00 lakhs. Valuation report dated 18.120.2010 shows that the valuation of land at Rs.70.00 lakhs i.e., at Rs.35.00 lakhs per acre. The building was valued at 3.20 lakhs.

Forced sale value was noted as Rs.70.00 lakhs. The said Loan document was of the year 2007 and the valuation was obtained in the year 2010. Obviously and practically, land value would have increased than what was in the year 2007, in 2010.

The valuation report did not indicate on what basis the market value of Rs.35.00 lakhs per acre was arrived at. There is no indication as to whether any other sale deeds of relevant time were taken for consideration in arriving at this amount. No evidence is produced in this regard. Therefore, it is quite evident that valuation of land at Rs.35.00 lakhs per acre was arrived at, without any basis and on the whims and fancies of the valuer.

It is a settled proposition of law that a secured creditor is like a trustee holding the property, taking into consideration the welfare of both the secured creditor and the borrowers. A Secured Creditor should not act like a recovery agent for realization of due debt due to it. Every effort should be made to see that the secured asset gets the best price so that the secured creditor recovers its dues and the balance goes to the borrower. Unfortunately, the Authorised Officer has not followed this basic and settled principle in determining the market value of the property, reserve price while selling the property, that is required for realizing the debt.

The ground on which SA was allowed like non sending of reply by the bank under Section 13(3)(A) to the objections raised by the respondents 1 and 2 to the demand notice, non service of possession and sale notices, doubts created on the service of sale notice, single bidder participating in the auction, lack of 30 days notice for sale of the property, cannot be sustained for the reasons discussed above. However, the Tribunal finds that allowing SA on the ground that secured asset was not properly valued rather undervalued and there was excessive execution of the secured asset and affixture of sale notice is not proved is correct.

It is a settled proposition of law that evidence without pleading, projection of the case without pleading and evidence cannot be entertained. However, SARFAESI Act, 2002 is a special enactment introduced with an object of recovery of debt due to banks and financial institutions in a fast track mode. Banks and financial institutions are empowered to sell the secured asset without the intervention of the Court or the Tribunal. This was not possible in an ordinary Civil Litigation for recovery of money due prior to introduction of SARFAESI Act, 2002.

While empowering banks and financial institutions with such enormous power to sell the secured asset without the intervention of the Courts or Tribunals, lawmakers made sure banks/financial institutions observe the mandatory procedures before the sale of the property. It is primarily the duty of the banks/financial institutions to prove that measures taken for sale of the secured asset are in conformity with the provisions of the SARFAESI Act, which is ingrained in Sections and Rules of the Act, irrespective of the challenge made by the borrowers/guarantors as to the irregularities/illegalities in the measures taken.

Justice G. Chandrasekharan observed that mere fact that plea was not expressly taken in the pleadings would not necessarily disentitle the party from relying upon it, if it is satisfactorily proved by evidence. Here, in this case, it is primarily the duty of the bank to ensure that measures have been taken in accordance with law, irrespective of omission to plead any defect in the measures taken.

The tribunal viewed that affixture of sale notice was not proved, valuation of the property was not properly done and undervalued and property was sold in excess.

The Tribunal finds that the order of the Presiding Officer, Bangalore dated 21.10.2013 passed in SA No.465/2012 can be sustained because affixture of the impugned sale notice was not proved by the appellant bank, valuation of the property was not properly done and undervalued and that property was sold in excess of what is required to satisfy the debt due.

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