Case: Canara Bank Vs. M. Amarender Reddy &amp; Another

The relevant portion of the High Court decision, which is impugned in this appeal reads thus:.. . . . . . . . .The Supreme Court has clearly enunciated that a reading of sub-rule (6) of Rule 8 and sub-rule (1) of Rule 9 of the Rules together, the service of individual notice to the borrower specifying a clear 30 days time gap for effecting sale of immovable secured asset is a Statutory mandate. Hence, use of the expression `or found in Rule 9(1) of the Rules is only appropriate to be read as `and, as that alone would be in consonance with sub-section (8) of Section 13 of the ActWe may also add that a notice of intended sale by providing a clear 30 days time to the borrower preceding any decision to sell away the secured asset would, in fact, be in consonance with the mandate of the provision contained in sub-section (8) of Section 13 of the Act, as it is too well known that the Rules made under a Statute are only essentially intended to secure effective implementation of the provisions contained in the Statute. In our opinion, therefore, putting the borrower on notice of 30 days duration by the secured creditor conveying the intention to put the secured asset to sale is mandatory. Such notice would be applicable even if the secured creditor later on decides to adopt any one of those four methods provided in clauses (a) to (d) of sub-rule (5) of Rule 8 of the Rules. As was already noticed supra, in cases of obtaining quotations from persons dealing with similar secured assets and also by entering into a private treaty, may not require publication of the intended sale in newspapers. Hence, without, first of all, putting the borrower on notice, threatening that the prospects of liquidation of the secured asset by any of the methods specified under sub-rule (5) of rule 8 of the Rules would not only sub-serve the object behind sub-section (8) of Section 13 of the Act, but would, in fact, enhance the efficacy of realizing/securitizing the secured asset. As was already held by us, the secured asset is liable to be sold only in the event of default persisting in liquidating the liability. In other words, only when the borrower commits a default in payment of the outstanding liability, in spite of the notice threatening with intended sale of the secured asset, the actual sale notification can follow, but not otherwiseIn the instant case, the secured creditor has put the borrower on one single notice of sale, which was also published in two newspapers, but, he has not put the borrower on a separate individual notice prior to deciding on the mode of sale of the secured asset.For this reason, we are of the opinion that the sale undertaken pursuant to the sale notification is vitiated for want of not providing the opportunity of 30 days clear time before undertaking the actual sale. On that reasoning, the High Court concluded that the subject sale notification issued by the appellant did not conform to the stated mandatory requirement and was thus vitiated on that count. The High Court, however, preserved the remedy of the appellant bank to proceed further, including to resort to sale of the secured asset, if the borrower has failed to clear the outstanding liability, by publishing a fresh sale notification in accordance with sub-rule 6 of Rule 8 read with Rule 9 of the Rules.       3. Briefly stated, the appellant had provided financial assistance of Rs. one crore to M/s Eversure Aqua Solutions Pvt. Ltd. The respondent no.1 was one of the two guarantors for the said loan transaction. The respondent no.1 had offered his immovable property as security, bearing Plot No. 70, admeasuring 278 square yards situated in Survey No.66/6, Ward No. 3, Block No.7 in Mansoorabad village, Saroornagar Mandal, L.B. Nagar Municipality, which has now become part of Greater Hyderabad Municipal Corporation4. As the principal borrower committed default, the appellant bank issued a demand notice dated 25.01.2014 to it under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short 2002 Act). The appellant bank then issued possession notice under Section 13 (4) of 2002 Act on 24.06.2014. The possession notice was published in two leading newspapers. After taking symbolic possession of the secured asset, the upset price at Rs. 69,75,000/- thereof was determined, as per the valuation report of the approved valuer. That upset price was accepted by the appellant bank. Whereafter, a notice of sale (e-auction notice) was issued on 15.10.2015. Notice in terms of Rule 8(6) was also given to the principal borrower and both the guarantors, including the respondent no.1, to give them one last and final opportunity to discharge the debt within 30 days from the date of the said notice. A copy of e-auction notice was also enclosed along with the said communication served on the borrower and the guarantors, indicating that the sale date was fixed as 21.11.2015. The respondent no.1 (guarantor), on 04.11.2015, requested the appellant bank to permit him to avail of one time settlement of dues by offering Rs. 50 lacs in two installments. That offer was rejected by the appellant bank, as it was not in consonance with the RBI guidelines. As per the e-auction notice, the auction was held on 21.11.2015. The property was sold to one Sri Jonnalagadda Rajashekher Reddy s/o Sri Venkatram Reddy who was the highest bidder, for an amount of Rs. 73,25,000/-. The respondent no.1 vide letter dated 01.12.2015 requested the Bank to furnish information about the e-auction. The said letter was replied to by the appellant bank5. The respondent no.1 then filed Writ Petition No.39735 of 2015 before the High Court of Judicature at Hyderabad on 07.12.2015, for a declaration that the e-auction notice dated 15.10.2015 was illegal and in contravention of the provisions of the 2002 Act and Rules framed thereunder. The said writ petition was opposed by the appellant on the assertion that necessary formalities were duly complied with before the sale of the subject secured asset was undertaken by the appellant bank. The High Court, as aforesaid, took the view that a separate notice of 30 days duration ought to have been given by the appellant to the writ petitioner before the public notice fixing the date of auction/sale was issued. Further, a thirty days notice to the borrower about intention to sell the secured asset ought to precede the actual publication of sale notification in the newspaper. Both these notices cannot be issued simultaneously. For taking that view, the High Court construed Rule 8 (6) of the Rules to mean that a notice of intended sale of the secured asset must be delinked from the actual sale notification to be published in two newspapers. Even though the appellant had relied on the dictum of this Court in the case of Mathew Varghese v. M. Amritha Kumarothers, (2014) 5 SCC 610 , the High Court took the view that it was imperative for the secured creditor to put the borrower on a notice of 30 days duration about the intention to sell the secured asset and the mode of sale. This should precede the issuance of a public notice for sale6. In spite of notice, the respondent no.1 has not chosen to appear.

Reasoning: 11. In the impugned judgment, we find that the High Court has quoted or relied upon sub-rule 6 of Rule 8 as dealing with movable secured assets. This is incorrect. For, the correct version of Rule 8(6) refers to immovable secured assets and not movable, as noted by the High Court. Be that as it may, there is no difficulty in accepting the observation of the High Court that possession notice is distinct from the notice for sale of the secured asset. In that, possession notice is required to be given in terms of Rule 8(1) read with 8(2). Whereas, a notice of intention of sale is required to be given to the borrower in terms of Rule 9(1) read with Rule 8(6) of the said Rules. This is to give intimation to the borrower about the proposed date of sale to be held after the statutory period of thirty days. Further, in case of sale of the secured assets either by inviting tenders from the public or by holding public auction being the mode permitted by sub-rule 5 of Rule 8, the secured creditor is required to give a public notice in two leading newspapers in terms of the proviso in sub-rule 6 of Rule 8. Such public notice, however, may not be necessary in case of sale of a secured asset if it is by way of the other modes specified in Sub-clause (a) or (d) of sub-rule 5 of Rule 8, to wit, by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such asset; or by private treaty12. The secured creditor, after it decides to proceed with the sale of secured asset consequent to taking over possession (symbolic or physical as the case may be), is no doubt required to give a notice of 30 days for sale of the immovable asset as per sub-rule 6 of Rule 8. However, there is nothing in the Rules, either express or implied, to take the view that a public notice under sub-rule 6 of Rule 8 must be issued only after the expiry of 30 days from issuance of individual notice by the authorized officer to the borrower about the intention to sell the immovable secured asset. In other words, it is permissible to simultaneously issue notice to the borrower about the intention to sell the secured assets and also to issue a public notice for sale of such secured asset by inviting tenders from the public or by holding public auction. The only restriction is to give thirty days time gap between such notice and the date of sale of the immovable secured asset13. We hold that the High Court has committed a manifest error in assuming that the notice of intention of sale to be given to the borrower and a public notice for sale cannot be simultaneously issued. The High Court was also not right in observing that after a notice regarding intention to sell the secured asset under sub-rule 6 of Rule 8 is given by the authorized officer to the borrower, only on expiry of 30 days therefrom can the secured creditor take a decision about the mode of sale referred to in sub-rule 5 of Rule 8 after giving notice to the borrower and then issue a public notice after expiry of further thirty days. By this interpretation, the High Court has virtually re-written the provisions and inevitably extended the time frame of 30 days specified in sub-rule 6 of Rule 8 (atleast in relation to the sale of secured asset by inviting tenders from the public or by holding public auction).8. The purport and interplay of the provisions of the said Rules had come up for consideration before this Court in Mathew Varghese (Supra). On analyzing the gamut of the provisions, this Court opined that the important feature of the provisions is that a free hand is given to the secured creditor for the purpose of enforcing any security interest created in favour of the secured creditor without the intervention of the Court or Tribunal. The only other relevant aspect was that such enforcement should be in accordance with the provisions of the 2002 Act.