Case: M/S.Clarity Gold Private Limited &amp; Another Vs. State Bank of India &amp; Others

3. In these proceedings the First Petitioner is a private limited company and is the borrower to whom credit facilities have been extended by the First Respondent. The Second Petitioner is a guarantor and mortgagor of a residential flat being Flat No.7A/8A, Suneeta Apartments, Ridge Road, Malabar Hill, Mumbai. On 17 May 2010 the Bank issued a notice under Section 13(2). The notice was issued in the name of a Director of the First Petitioner. The notice was acknowledged by the Second Petitioner. The acknowledgment also bore the rubber stamp of the First Petitioner. On 9 June 2010 the First Petitioner, as the borrower, replied to the notice. Following the reply, the Bank served a notice of possession dated 28 July 2010 under Section 13(4). The notice was served at the premises on Murugan Pillai, an employee of the First Petitioner, holding the designation ofPossession was taken by the Bank.4. An application was filed by the Petitioners before the Debts Recovery Tribunal under Section 17. The Tribunal by its judgment dated 29 June 2010 allowed the application and, while setting aside the taking over of possession, directed that possession shall be redelivered to the Petitioners. The Tribunal held that the measure which has been adopted by the Bank under Section 13(4) was unlawful for want of service of a notice of possession on the Second Petitioner and for failure to separately publish a possession and sale notice. The Tribunal also entered into a finding of fact that possession was unlawfully taken by the Bank in a forcible manner without seeking recourse to the remedy provided under Section 14 of moving the Chief Metropolitan Magistrate. However, the Tribunal clarified that the final decision did not rest on that ground since independently the Tribunal was of the view that the measure under Section 13(4) was flawed for want of service of a notice of possession. The order of the Tribunal has been confirmed in part by the Debts Recovery Appellate Tribunal in so far as the invalidity of the sale notice is concerned. The Appellate Tribunal held that (i) There was delivery and service of the possession notice under Rule 8(1) on the Second Petitioner. The finding of the Tribunal on this point was reversed.; (ii) The publication of the possession notice in the newspaper on 3 August 2010 under Rule 8(2) was lawful and the finding on that issue of the Tribunal was reversed; (iii) The finding of the Tribunal that the sale notice published on 3 August 2010 was unlawful was upheld. It is in that view of the matter that while setting aside the order of the Tribunal for the redelivery of possession, the Appellate Tribunal has permitted the Bank to proceed in accordance with law from the stage under Rule 8(5) of the Rules.5. These proceedings have been initiated before the Court by the borrower, the First Petitioner and by the guarantor and mortgagor, the Second Petitioner.

Court's reasoning:
n (2) of Section 13 contemplates a notice in writing by the secured creditor to a borrower to discharge his liabilities in full within sixty days of the notice failing which the secured creditor is entitled to exercise his rights under subsectione (1) of Rule 3 of the Security Interest (Enforcement) Rules, 2002 contemplates that the service of a demand notice under Section 13(2) shall be made by delivering or transmitting at the place where the borrower actually and voluntarily resides or carries on business or personally works for gain, by registered post with acknowledgment due, or by speed post or by courier or by any other means of transmission of documents like fax message or electronic mail.(3) of Rule 3 requires that any other notice in writing to be served on the borrower or his agent by an authorised officer, shall be served in the same manner as provided in the rule. Where there is more than one borrower, the demand notice under(4) has to be served on each borrower.(1) of Rule 8 requires that where the secured asset is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice conforming to Appendix IV to the borrower and by affixing the notice on the property.10. Now, in the present case, the notice under Section 13(2) was sent in the name of the director of the First Petitioner. The notice was acknowledged by the Second Petitioner and the acknowledgment also bears the rubber stamp of the company. The Company, as a matter of fact, replied to the notice. From these facts, it is abundantly clear that the notice was duly served on both the Company and on the Second Petitioner. The Second Petitioner is a director of the First Petitioner which is a closely held private limited company. From the material on record, it is evident that the Second Petitioner was an agent authorised to accept notice on behalf of the First Petitioner. In any event, the First Petitioner has also acknowledged service of the notice. There was, therefore, valid compliance with the requirement of Section 13(2) and the Rules in regard to the service of notice under Section 13(2).11. The submission that the action that has been taken by the Bank under Section 13(4) is rendered invalid because the objections of the Petitioners to the notice under Section 13(2) were dealt with in a reply which was remitted beyond a period of one week of the receipt of the representation is without any basis. Following the decision of the Supreme Court in Mardia Chemicals Ltd. vs. Union of Indiaors., (AIR 2004 SC 2371  ) subsection (3A) was inserted by Amending Act 30 of 2004 so as to enable a borrower to make a representation or to raise an objection upon a notice under subsection (2). If the secured creditor comes to the conclusion that there is no basis in the objection, reasons have to be communicated within one week of the receipt of the representation. A Division Bench of the Gujarat High Court has, in Bansal vs. DGM Small Industries Development Bank of India, (AIR 2009 Gujarat 100) held that the requirement that the secured creditor must communicate the reasons forof the representation within one week is directory in regard to the period.We are in respectful agreement with the judgment of the Gujarat High Court which holds that every prescription of a period within which an act has to be done does not constitute a prescription of a period of limitation, a failure of compliance with which would render the action invalid. The object of subsection (3A) is to provide an expeditious method for the disposal of objections in order to ensure that the action of the secured creditor is not held up for an unduly long period of time. The period of one week that is prescribed in subsection (3A) is clearly directory. That apart, the Petitioners have not established that any prejudice was caused to them by the delay on the part of the Bank in responding to the representation submitted to the notice under Section 13(2). That submission must thereforeis no dispute about the fact that the notice was affixed as provided. As regards the issue of service, from the material on record, it has emerged that the notice was acknowledged at the premises by theof the First Petitioner. As a matter of fact Murugan Pillai, who acknowledged the notice had also acknowledged the notice of the Bank dated 25 May 2010 to a director and guarantor of the First Petitioner which was remitted to the very same address. Counsel on behalf of the Petitioners has stated before the Court that the First Petitioner is a closely held company and it is not disputed that both the Second Petitioner and her spouse are directors of the company.On the basis of the material on the record, the Debts Recovery Appellate Tribunal was justified in coming to the conclusion that thewas duly authorised to accept notice and that there was valid service of the notice upon him, before possession was taken. While acknowledging the receipt of the notice, theentered no caveat below his endorsement to the effect that he was not duly authorised to accept service of notice. The finding of fact which is rendered by the Appellate Tribunal is therefore borne out from the material on record and does not warrant interference in proceedings under Article 226 of theSection 14 is an enabling provision, it will be wholly impermissible for a secured creditor, despite the provisions of Section 14, to take the law into his own hands and to forcibly evict a borrower from the secured asset. Our legal system is governed by the rule of law. If the borrower hands over possession voluntarily to the secured creditor in pursuance of a notice under Section 13(4), it would be open to the secured creditor to take possession. But, if possession is not voluntarily handed over, the secured creditor cannot take the law into his own hands and secure vacant possession by taking recourse to the police machinery. In such an event, the only remedy that is available is to seek an appropriate order from the Chief Metropolitan Magistrate, or as the case may be, the District Magistrate. Parliament has specifically authorised in subsection (2) those authorities to take or cause to be taken such steps and use or caused to be used such force as may be necessary. Authorisation of the use of force for taking possession is therefore a matter which lies in the jurisdiction and power of the authorities prescribed by Section 14. No secured creditor can by seeking assistance of police machinery unilaterally carry out the eviction of the borrower and take over forcible possession of the secured asset.20. Having said this, it is clear from the record, that the Debt Recovery Tribunal did, as a matter of fact enter a finding of fact that possession was forcibly taken over by a secured creditor in this case. However, the Tribunal clarified that it was not resting its decision on that finding, since quite independently the Tribunal had come to the conclusion that the notice of possession and the sale notice were invalid. When an Appeal was carried by the secured creditor, the Appellate Tribunal reversed the finding of fact of the Tribunal on issues pertaining to the service and delivery of the possession notice under Rule 8(1) and the publication of the possession notice in the newspaper under Rule 8(2). The Appellate Tribunal did not consider the correctness of the finding which was arrived at by the Tribunal that forcible possession was taken by the secured creditor.