IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 10.08.2010 CORAM: THE HONOURABLE MR.JUSTICE F.M.IBRAHIM KALIFULLA AND THE HONOURABLE MR.JUSTICE N.KIRUBAKARAN W.P.No.15272 of 2009 1.Sheeba Philominal Merlin 2.Esther Evelyan ... Petitioners -Vs-. 1.The Repatriates Co-op Finance & Development Bank Ltd., (Govt of India Enterprise) No.33, North Usman Road, T.Nagar, Chennai - 600 017. rep by its Managing Director 2.The General Manager, Repco Bank, Repco Tower, No.33, North Usman Road, T.Nagar, Chennai-600 017. 3.The Authorized Officer, Repco Bank, Repco Tower, No.33, North Usman Road, T.Nagar, Chennai-600 017. 4.S.Sasikumar ... Respondents Prayer:Writ petition filed under Article 226 of the Constitution of India, to issue a Writ of Certiorarified Mandamus calling for the records relating to the auction of the property bearing Door No.41, State Bank Colony, Sembium, Perambur, Chennai- 600 011 on 11-08- 2008 by the third respondent as evidenced by the Certificate of Sale Deed dated 13.09.2008 registered as Document No.7265 of 2008 in the office of Sub-Registrar, Sembium, quash the same and direct the respondents to restore possession of the said property to the petitioners. https://hcservices.ecourts.gov.in/hcservices/ For Petitioners :Mr.G.Rajagopalan, Senior Counsel for Mr.S.Thiruvenkataswamy. For Respondents :Mr.Yashood Varthan, Senior Counsel for Mr.P.V.Sanjeev for R1 to R3 :Mr.K.M.Vijayan Senior Counsel for Mr.K.R.Ramesh Kumar for R4 * * * * * ORDER N.KIRUBAKARAN,J "ABUSE", "MISUSE" – Meaning of the above words is the facts of this case. 2. The object of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 is to regulate Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest and for matters connected therewith or incidental thereto and the Act came into force on 17- 12-2002. The Act aims at speedy recovery of defaulting loans and to reduce the mounting levels of non-performing assets of banks and financial institutions. The Act has been passed based on the recommendations of Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms and to consider the need for changes in the legal system in respect of these areas. The provisions of the would enable the banks and financial institutions to realise long-term assets, manage problems of liquidity and asset liability mismatches and to improve recovery by exercising powers to take possession of securities, sell them and reduce non- performing assets by adopting measures for recovery or reconstruction. 3. For getting a decree in usual course before a Civil Court litigants including Banks have to file the suit before a civil court. After service of notice, written statement and trial, the suit would be decided by passing a decree. The decree would possibly be challenged by way of appeal upto Supreme Court and it would take about 5 to 15 years to attain finality. There would be possibility of dismissal of suit on various grounds. After the decree is passed by the competent civil court, the same would be put to execution by filing E.P. The Execution Court after service of notice would bring the property of the debtor/guarantor for sale through auction. To reach this stage, lot of money, especially very long time have to be spent. The above process is dispensed with by the Special Act "SARFAESI ACT" which is meant only for the financial institutions. As per the Act, the first step would be to issue notice U/s. 13(2) by the authorised officer who is deemed to be armed with a money decree which attained finality. By the https://hcservices.ecourts.gov.in/hcservices/ statute the authorised officer, is clothed with powers of trial court and execution court and the code of Civil Procedure which governs the civil proceedings is no more necessary. To put it otherwise, by the Special Act, the authorized officer acts like a Civil Court clothed with powers hitherto exercised by it. 4. What the Honourable Supreme Court held in Mardia Chemicals Ltd., -Vs- Union of India reported in A.I.R. 2004 S.C.2371:(2004) 4 S.C.C.311, while upholding the validity of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002(54 of 2002) is as follows: “ The financial institutions, namely the lenders owe a duty to act fairly and in good faith. There has to be a fair dealing between the parties and the financing companies/institutions are not free to ignore performance of their of the obligation as a party to the contract. They cannot be free from it. Irrespective of the fact as to whatever may have been held in decisions of some American Courts, in view of the facts and circumstances and the terms of the contracts and other details relating to those matters, that may or may not strictly apply, nonetheless, even in absence of any such decisions or legislation, it is incumbent upon such financial institutions to act fairly and in good faith complying with their part of obligations under the contract. This is also the basic principle of concept of lender's liability. It cannot be a one-sided affair shutting out all possible and reasonable remedies to the other party, namely, borrowers and assume all drastic powers for speedier recovery of NPAs. Possessing more drastic powers calls for exercise of higher degree of good faith and fair play. The borrowers cannot be left remediless in case they have been wronged against or subjected to unfair treatment violating the terms and conditions of the contract. They can always plead in defence deficiencies on the part of the banks and financial institutions. ” The Supreme Court in Central Bank of India vs. State of Kerala and others reported in 2009 (4) SCC 94 restated the object of the Act as follows: "44. Simultaneously, the jurisdiction of the civil courts was barred and all pending matters were transferred to the Tribunals from the date of their establishment. For some years, the new dispensation of adjudication worked well. However, with the passage of time, proceedings before the Debts https://hcservices.ecourts.gov.in/hcservices/ Recovery Tribunals also started getting bogged down due to invoking of technicalities by the borrowers. Faced with this situation, the Government again asked the Narasimham Committee to suggest measures for expediting recovery of debts, etc. due to banks and financial institutions. 45. In its Second Report, the Narasimham Committee observed that the non-performing assets of most of the public sector banks were abnormally high and the existing mechanism for recovery of the same was wholly insufficient. In Chapter VIII of the Report, the Committee observed that the evaluation of legal framework has not kept pace with the changing commercial practice and financial sector reforms and as a result of this the economy has not been able to reap full benefits of the reform process. 46. By way of illustration, the Committee referred to the scheme of mortgage under the Transfer of Property Act and suggested that the existing laws should be changed not only for facilitating speedy recovery of the dues of banks, etc. but also for quick resolution of disputes arising out of the action taken for recovery of such dues. 47. The Andhyarujina Committee constituted by the Central Government for examining banking sector reforms also considered the need for changes in the legal system. Both the Narasimham and Andhyarujina Committees suggested enactment of new legislation for securitisation and empowering the banks and financial institutions to take possession of the securities and sell them without intervention of the court. " 5. The aforesaid Act clothes the authorized officer of the bank with enormous powers to deal with the secured assets to recover the outstanding amounts. Once the power is given, the Courts have held that the same has to be exercised in the way it is to be done and not otherwise. Here is a case where the first respondent/bank, contrary to the Act acted in whimsical and capricious manner and brought the property of the petitioners and sold the same to the fourth respondent in an ill-devised manner which is unknown to law. 6. The facts of the case are as follows: It is the case of the petitioners that the first petitioner's husband died on 06.09.2005. The first petitioner, due to some misunderstanding with her husband got separated and has been living with the second petitioner who is their daughter. After the demise https://hcservices.ecourts.gov.in/hcservices/ of S.Jayakumar, the husband of the first petitioner, petitioiners came to know about the advertisement in newspapers about the sale of their property bearing Door No.41, State Bank Colony, Sembium, Perambur,Chennai-600 011, for the alleged collateral security offered by the said S.Jayakumar for the loan transaction of M/s. Path Finders Technology Private Limited. The property measures about 3168¾ Sq.ft located in Ayanavaram, Chennai and is stated to be worth more than Rs.1.5 Crores. On coming to know about the advertisement, the first petitioner through her brother and father informed the first respondent bank about the death of her husband S.Jayakumar and also handed over copies of the death certificate as well as the legal heir certificate. 7. The petitioners contend that no notice as contemplated under Section 13(2) of the Securities and Reconstruction of Financial Assets and Enforcement of Security Interest Act(SARFAESI) 2002 and under Section 13(4) was issued. Pursuant to the advertisement, the first petitioner issued an Advocate Notice dated 30.09.2008 to give the details regarding the auction. A reply dated 17-10-2008 was received informing that the auction was conducted on 24.06.2008. A rejoinder dated 03-12-2008 was issued by the first petitioner, for which a reply dated 12.12.2008 was received from the first respondent bank without disclosing the details regarding the sale including the purchaser's name. 8. The petitioners came to know about the purchase of property by the fourth respondent for a sum of Rs.33,50,000/-. The petitioners have approached this Court challenging the auction and the Sale Deed dated 13-09-2008 and for a direction to restore the possession as the sale of property was vitiated by fraud and not following the procedure contemplated under the Act. 9. The respondents 1 to 3 herein filed a counter affidavit contending that the property was given by way of deposit of title deeds by S.Jayakumar for the loan to M/s. Path Finders Technologies Limited to the tune of Rs.14,00,000/- on 04-06-1998. As the borrower failed to repay the amount, respondent bank proceeded under the SARFAESI Act, by issuing Section 13(2)notice on 02-01- 2008 and Possession notice dated 26-04-2008 and conducted Auction Sale on 28-07-2008 which was preceded by a sale notice dated 18-06- 2008. 10. The respondent bank further contended that on 28-07-2008 one Mr.S.P.Ravindrakumar and Mr.E.Ravichandran, representatives of S.Jayakumar(first petitioner's husband and second petitioner's father) offered to settle the loan amount by one time settlement and to stop the auction and remitted a sum of Rs.35,00,000/- to the respondent bank. As the settlement could not be reached, the said amount was refunded on 12-08-2008 to the aforesaid persons. Thereafter by publishing notice through newspaper, the sale was conducted on 11-08-2008 and the fourth respondent being the highest bidder to the tune of Rs.33,50,000/- the sale was confirmed in his favour. The Sale Certificate dated 13-09-2008 was also issued. https://hcservices.ecourts.gov.in/hcservices/ 11. It is further submitted by the respondent bank that they have no records pertaining to the demise of S.Jayakumar and also about the particulars of legal heirs. The exchange of notices between the petitioners and the bank, was only after the completion of sale on 11-08-2008. Apart from that, the bank took a stand as regards the jurisdiction of this Court contending that the validity of the auction of the respondent bank could be raised only before the Debts Recovery Tribunal under Section 17 of the SARFAESI Act and therefore, the petitioners could not maintain the writ petition before this court under Article 226 of the Constitution of India. 12. Additional counters were also filed on behalf of the bank on 09-11-2009 and on 17-11-2009. In the counter affidavit filed on 09-11-2009, it has been stated in paragraph '4' that the respondent bank was unable to find out the whereabouts of S.Jayakumar, inspite of the best efforts by the Recovery Officers of the bank. In paragraph '6' of the counter affidavit, it is stated that on 28-07- 2008, one E.Ravichandran and S.P.Ravindrakumar, who are the representatives of S.Jayakumar, remitted a sum of Rs.35,00,000/-. In paragraph '12' of the counter it has been stated, "Ms.Jayakumar was absconding and that notice was served on M/s.SJK Charitable Trust and one Mr.P.Md.Thahir " In paragraph '15', it is stated, "after adjusting the sale consideration of Rs.33,50,000/- on 13-09- 2008, the outstanding total liability in the said loan account as on 31-10-2009 is Rs.12,46,521/-". 13. In para 8 of the additional counter affidavit, dated 17.11.2009, it is alleged by the respondent bank that a demand notice dated 02-01-2008 was issued to the borrower in writing, to the effect that S.Jayakumar absconded and the said notice was duly served on the authorized agent, one Md.Thahir. Moreover, the aforesaid notice was also served on M/s. S.J.K.Charitable Trust which was in possession of the secured asset. 14. A reply was filed on behalf of the petitioners on 11-11- 2009, reiterating their stand that no notice was issued to the petitioners who are the legal heirs of S.Jayakumar. They further state that in the auction sale notice dated 18-06-2008, it was stated that the liability was only Rs.19,11,184/- whereas in the additional counter affidavit filed by the bank, it is stated that after adjusting the sale consideration of Rs.33,50,000/-, still a sum of Rs.12,46,521/- is due as on 31-10-2009. In paragraph '7', it is stated that the petitioners never authorized the said Ravichandran or any other person to negotiate with the bank and the petitioners denied that the second petitioner was a Trustee of M/s.S.J.K Charitable Trust as she was a college student during the period 2003-2007. They further stated that the bank fraudulently permitted one Mohammed Tahir who is claiming to be the agent of said S.Jayakumar who died in the year 2005 to participate in the auction held on 28.7.2008. 15. Mr.G.Rajagopalan, learned Senior Counsel appearing for the petitioners submitted the following: https://hcservices.ecourts.gov.in/hcservices/ a) S.Jayakumar died as early as on 06-09-2005 and notice was issued against the dead person. b)Demand notice dated 02-01-2008 under Section 13(2) and Possession notice under Section 13(4) of the Act, dated 26-04-2008, were not served on the petitioners, they being the legal heirs of S.Jayakumar, Guarantor. c)The bank indulged in fraudulent acts by permitting one S.P.Ravindrakumar and E.Ravichandran to deposit certain amount and to withdraw the same from the bank clandestinely without ascertaining whether they represented S.Jayakumar or not. d)The Sale notice dated 18-06-2008 stated the liability as Rs.19,11,184/- whereas in the additional counter affidavit it is stated that after adjustment of sale proceeds viz. Rs.33,50,000/- still a sum of Rs.12,46,521/- is due. e)The bank did not ascertain the facts regarding the alleged authorisation letter of S.Jayakumar and acted upon the said letter. f) As there are some statutory violations were made in bringing the property for auction, the entire sale has to be set aside and the possession to be restored to the petitioners. 16. The learned Senior Counsel submitted that notice issued against dead person, is not valid. In support of that, he relied upon the judgment of the Honourable Supreme Court in Kamal Krishan Rastogi and Others -Vs- State of Bihar and another reported in 2008 (15) SCC 105. He further submitted that the sale is vitiated by "fraud" as the bank refused to give the advertisement details regarding the sale dated 11.08.2008 in spite of the petitioners' notice and the property worth about more than Rs.1.5 Crores was sold at a very low price of Rs.33,50,000/-. He relied upon the judgment of the Honourable Supreme Court in Express Newspapers Pvt Ltd., and others -Vs-Union of India and others reported in AIR 1986 SC 872. 17. With regard to the proceedings taken by the Bank, the learned Senior Counsel submitted that there is a violation of principles of natural justice as no notice was served on the legal heirs of the deceased S.Jayakumar and therefore, the entire proceedings are vitiated for violation of principles of the natural justice. In this regard he relied upon the judgment in Nawabkhan Abbaskhan -Vs- State of Gujarat reported in AIR 1974 SC 1471 and the judgment in Smt. Maneka Gandhi -Vs- Union of India and another reported in AIR 1978 SC 597. 18. The learned Counsel further contended that the contention of the bank with regard to the alternative remedy is not sustainable as the auction by the bank violates the principles of natural justice and violates fundamental rights and therefore alternative remedy is not a bar for maintaining the writ. To that https://hcservices.ecourts.gov.in/hcservices/ effect he relied upon the judgments in Whirlpool Corporation -Vs- Registrar of Trade Marks, Mumbai and others reported in AIR 1999 SC 22, and judgment in Mariamma Roy -Vs- Indian Bank and others reported in 2009 AIR SCW 654 in State of Uttar Pradesh -Vs- Mohammad Nooh reported in AIR 1958 SC 86 and in K.Raamaselvam and two others -Vs- Indian Overseas Bank rep by its Chief Manager and Authorised Officer, Aminjikarai Branch, Chennai-30 and others reported in 2009-5-LW 127. 19. The learned Senior Counsel further submitted that where there is limitation for filing an appeal before the Tribunal under Section 17 of SARFAESI Act to approach the Tribunal against the measures taken by the bank there is no specific provision in the Act for condoning the delay. As the petitioners belatedly came to know about the action of the bank, the limitation already expired and therefore, the petitioners have rightly approached this Court. The learned Counsel relied upon the judgment in Commissioner of Customs and Central Excise -Vs- Hongo India Private Limited and another reported in 2009 (5) SCC 791 with respect to limitation. 20. On the other hand, Mr. Yashod Vardhan, learned Senior Counsel appearing for the respondents 1 to 3, submitted that the bankers followed the procedure as per the Act and brought the property for sale as there was a default in repayment of loan. He submitted that as S.Jayakumar, the guarantor, was absconding, notice was duly served upon the authorized representatives of S.Jayakumar. and thereafter only the property was sold. Therefore, no motive could be attributed to the action of the bank. He contended that the auction was conducted as per due process of law and relied upon a judgment of the Honourable Supreme Court in Janatha Textiles and others -Vs- Tax Recovery Officer and another reported in (2008) 12 SCC 582, wherein for recovery of Income Tax, notices were served on individual partners of partnership firm and a ground was raised contending that notice was issued in the individual capacity and the same was rejected by the Honourable Supreme Court stating that no prejudice of any kind was caused and notices were received by the individual partners. Moreover, in paragraph '18' of the judgment, it was held that a third party auction -purchaser's interest continues to be protected, even if the sale is set aside. 21. The learned Senior Counsel relied upon a Division Bench judgment of this Court in G.S.Gopalakrishnan and others -Vs- Government of Tamil Nadu rep.by its Secretary, Industries Department, Chennai and others reported in (2006) 4 MLJ 65 and in that case the owner of land died long prior to Section 4(1) notification of the land acquisition. The factum of death was not brought to the notice at the appropriate stage and therefore, this Court held that notification cannot be a nullity. He also relied upon the judgment in Industrial Development Bank of India Limited by Deputy General Manager & the Authorised Officer, Chennai-15 -Vs- M/s. Kamaldeep Synthetics Limited rep. by its Managing Director, Chennai -17 reported in 2007 (3) LW 834 and a judgment in Bombay Dyeing & Manufacturing Co Ltd., -Vs- Bombay Environmental Action https://hcservices.ecourts.gov.in/hcservices/ Group and others reported in 2006 (3) SCC 434 and a judgment in Haryana Financial Corporation and another -Vs-Kailash Chandra Ahuja reported in 2008 (9) SCC 31. The learned Senior Counsel, in fine, submitted that due procedures were properly followed for auctioning the property and bona fide auction purchaser's rights should be safeguarded. 22. Mr.K.M.Vijayan, learned Senior Counsel appearing for the fourth respondent namely, the auction purchaser, submitted that the fourth respondent is totally a stranger and he might not be in a position to know about the alleged violations. As per the auction notice, he took part in the auction and he was the highest bidder and paid the necessary sale consideration. He also got Sale Certificate and took possession of the property. Therefore the bona fide purchaser's rights should be safeguarded irrespective of the alleged violations. The learned Senior Counsel relied upon the judgment of the Honourable Supreme Court in Janatha Textiles and others -Vs- Tax Recovery Officer and another reported in (2008) 12 SCC 582. In that case, it is held that the third party auction purchaser's interest in the auctioned property continues to be protected, notwithstanding that the underlying decree is subsequently set aside or otherwise. He relied on a judgment of this court in PNL Depositors' Welfare Association, Pondicherry rep.by Secretary -Vs- Union of India by Secretary to Government, Ministry of Finance, New Delhi-110 001 and others reported in 2005 (4) CTC 469, wherein it is held that any person aggrieved by the measures taken under Section 13(4)of SARFAESI Act, can file an appeal before the Tribunal and therefore the writ petition is not maintainable. The learned Senior Counsel relied upon a judgment of the Honourable Supreme Court in Commissioner of Customs & Central Excise -Vs- Hongo India (P) Ltd., reported in 2009 (236) E.L.T.417 (S.C) wherein In that case, it was held that when a time limit is prescribed under the Act this Court cannot extend the time under Section 5 of the Limitation Act. Hence, he submitted that the writ petition is liable to be dismissed. 23. The learned Senior Counsel further submitted that there can not be any attempt by the legal heirs to challenge the notices issued under Section 13(2) and 13(4) when the petitioners are aware of the same and that the fourth respondent also made payment to the tune of Rs.15,00,000/- apart from the sale consideration. Finally, he submitted that since there was latches/delay on the part of the petitioners in approaching this Court, the petition is liable to be dismissed. 24. This court considered the submissions made by the parties and perused the materials available on records. 25. For invoking the SARFAESI Act, the first step is issuance of notice under Section 13(2) of the SARFAESI Act . Section 13 of the Act is extracted as follows: " 13. Enforcement of Security interest--(1) Notwithstanding anything contained in section 69 or https://hcservices.ecourts.gov.in/hcservices/ section 69A of the Transfer of Property Act, 1982 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act. (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 installment 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). (3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower. (3A) If, on receipt of the notice under sub- section (2), the borrower makes any representation of raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection