Trivial mistake without grave prejudice not a sustainable stand – Supreme Court

The instant appeal is directed against the impugned Bench of the High Court of Karnataka at Bengaluru in Writ Petition No.22137 of 2019 wherein the High Court while reversing the finding returned by the Debt Recovery Appellate Tribunal in its order dated 16th April 2019 upheld the order of the Debt Recovery Tribunal dated 23rd March 2018 quashing the borrower) under Section 13(2) of the Securitisation and followed with the possession notices dated 09th November 2017 notified as Financial Institution by the Department of Finance clause of clause of sub­section of Section 2 of the is entitled to initiate measures under the provision of the secured assets by the respondents in “2. Definitions. In this Act unless the i) any bank or financial institution or any consortium or group of banks or financial institutions holding any right title or interest upon any tangible asset or intangible asset as ii) debenture trustee appointed by any bank or iii) an asset reconstruction company whether acting as such or managing a trust set up by such asset reconstruction company for the iv) debenture trustee registered with the Board appointed by any company for secured debt in whose favour security interest is created by any borrower for due repayment of any financial the Partnership Act 1932 and is dealing in the real estate appellant for seeking financial assistance and submitted a term loan of Rs.20 crores for completion of its project duly signed by the the guarantors clearly demonstrates that on the top of the at Mumbai and this is the letterhead which has always been taken in use for correspondence at all later stages when the It reveals from the record that the respondents at a later stage failed to maintain financial discipline and subsequently became a defaulter and because of the alleged breach of the the appellant and the respondents M s. Trishul Developers through its Partners) towards dated 16th December 2016 to the respondents to pay the demand notice. Since the respondents failed to make their outstanding payment under the given circumstances the appellant classified the account of the respondents as Non­ demand dated 14th June 2017 under Section 13(2) of the SARFAESI Act calling upon the respondents to pay the outstanding dues i.e. Rs.16 97 54 851 ­read with Section 14 of the SARFAESI Act and filed of the mortgaged properties and the collateral security of the At this stage the respondents proceeded in filing a Tribunal under Section 17 of the SARFAESI Act assailing the Act inter alia on various grounds. The learned Debt Recovery Tribunal vide its order dated 23rd March 2018 set aside the in the name of the appellant and after the parties being heard Debt Recovery Tribunal which came to be challenged by the respondents in a writ petition before the High Court of 10. Learned counsel for the appellant submits that from the on the same letterhead of the appellant from where the proceedings for the term loan was sanctioned in favour of the signatory being there of both the companies use common by the respondents are in reference to “L&T Housing Finance Ltd.” and only at one stage due to oversight the appellant prejudice either in acknowledging that from whom demand notice under Section 13(2) has been served judgment will not negate the proceedings which has been without appreciating the material on record has reversed the finding returned by the DRAT in its extraordinary jurisdiction High Court to reverse the finding of fact supported by the 12. Per contra learned counsel for the respondents while confirmed by the High Court at the very inception of the proceedings being initiated under the SARFAESI Act all the instant case cannot be said to be in due compliance of the under obligation to comply which indisputedly has not been followed in the given circumstances no error has been 07th August 2015 and later their account became NPA on 15th April 2017 and prior thereto the appellantof the of the appellant on the letterhead commonly used by “L&T 08th August 2017 of the respondents it becomes clear that and the respondents tried to justify and assigned reasons for which the Facility Agreement dated 11th August 2015 could not creditor) has initiated further proceedings under Section 13(4 15. Notably from the very inception at the stage when the by the respondents vide their application dated 15th May 2015 and accepted by the appellant vide sanction letter dated 07th August 2015the letterhead which was used for the purpose in Mumbai and this has been duly signed by the authorised the appellant in its correspondence while dealing with its customers and that is the same practice being followed by the appellant when demand notice dated 16th December 2016 was served at a later stage. The demand notice in explicit terms clearly indicates the execution of the Facility Agreement dated 11th August 2015 between the appellantin furtherance thereof a notice under Section 13(2) of the SARFAESI Act was served on the same appellant in its correspondence with its customers and the doubt is in reference to the non­fulfillment of the terms and conditions of the Facility Agreement dated 11th August 2015 profile which has been annexed thereto is in reference to the execution of Facility Agreement dated 11th August 2015 and its the respondents through their counsel dated 08th August 2017 between the appellant and the respondents which compliance could not have been made and no objection any in the demand notice dated 14th June 2017 which was compliance to the provisions of the SARFAESI Act or in furtherance to the proceedings initiated at the behest of the did not deny advancement of loan execution of Facility taken by the competent authority as per the procedure prescribed by law and the person affected has a knowledge prejudice being caused on account of the procedural lapse as and the resultant prejudiced if any being caused and there 20. Adverting to facts of the instant case we are of the view that time the objection raised by the respondents in the first instance at the stage of filing of a Securitisation Application has persuaded the Tribunal and the High Court to negate the to be complied with in initiating proceedings notice under Section 13(2) of the Act was served by the secured creditor in the facts of the case in our considered view is wholly without substance for the reason that “L&T Finance their correspondence with all its customers use a common by the authorised signatory due to some human error of “L&T Finance Ltd.” in place of “L&T Housing Finance Ltd.”. More so of confusion in their knowledge regarding the action being initiated in the instant case other than the secured creditor under the SARFAESI Act for non­fulfillment of the terms and conditions of the Facility Agreement dated 11th August 2015 or objection being raised while the demand notice under Section In the result the appeal succeeds and is accordingly allowed. The impugned judgment dated 27th June 2019 passed 23. Pending application(s) if any stand disposed of. 

Summary: In the case of M/S. L&amp;T Housing Finance Limited Vs M/S. Trishul Developers and Anr. [Civil Appeal No. 3413 of 2020] Supreme Court set aside the judgement of the Karnataka High Court. The bench comprised of Justice L. Nageswara Rao, Justice Hemant Rao  and Justice Ajay Rastogi. The appellant was a Housing Finance Company under National Housing Bank Act, 1987 and was notified as Financial Institution by the Department of Finance of the SARFAESI Act. The appellant indeed fell within the definition of secured creditor under the provisions of the SARFAESI Act and was entitled to initiate measures under the provision of the SARFAESI Act for enforcement of security interest created on the secured assets by the respondents (borrower/guarantor) in favour of the appellant (secured creditor). The first respondent was a partnership firm registered under the Partnership Act, 1932 and was dealing in the real estate construction business as alleged and the second respondent was the partner of first respondent firm. The first respondent and its partners in carrying out its business obligations approached the appellant for seeking financial assistance and submitted a request to the appellant for term loan of Rs.20 crores for completion of its project. The appellant taking note of the request made by the respondents sanctioned Term Loan Facility to the tune of Rs. 20 crores towards completion of the project vide sanction letter by mortgaging the various immovable properties as a security for creating security interest in favour of the appellant. It revealed from the record that the respondents at a later stage failed to maintain financial discipline and subsequently became a defaulter and because of the alleged breach of the terms and conditions of the Facility Agreement executed between the appellant (L&amp;T Housing Finance Ltd.) and the respondents (M/s. Trishul Developers) towards completion of its project, the appellant served a demand notice to the respondents to pay the outstanding dues within the stipulated period mentioned in the demand notice. Since the respondents failed to make their outstanding payment, under the given circumstances the appellant classified the account of the respondents as Nonperforming Assets (NPA) and sent a notice of demand under Section 13(2) of the SARFAESI Act calling upon the respondents to pay the outstanding dues of Rupees Sixteen Crores Ninety Seven Lakhs Fifty Four Thousand Eight Hundred and Fifty One Only, in terms of the notice with future interest till actual payment within sixty days from the date of the receipt of the demand notice. Since the respondents failed to discharge their liability towards the appellant in terms of the demand notice, the appellant took further action in due compliance under Section 13(4) read with Section 14 of the SARFAESI Act and filed application before the competent authority for taking possession of the mortgaged properties and the collateral security of the respondents. At this stage, the respondents proceeded in filing a Securitisation Application before the Debt Recovery Tribunal under Section 17 of the SARFAESI Act assailing the issuance of demand notice under Sections 13(2) and 13(4) of the Act inter alia on various grounds. The learned Debt Recovery Tribunal vide its order set aside the demand notice on the premise that it had not been validly issued in the name of the appellant (“L&amp;T Housing Finance Ltd.”) instead the name of the company had been mentioned as “L&amp;T Finance Ltd.” and this defect was alleged not being curable after issuance of demand notice by another group company instead of secured creditor, held the proceedings not sustainable. The order of Debt Recovery Tribunal came to be challenged by the appellant in appeal before the Debt Recovery Appellate Tribunal (DRAT) and after the parties being heard, DRAT vide its order set aside the order of Debt Recovery Tribunal which came to be challenged by the respondents in a writ petition before the High Court of Karnataka. The High Court while setting aside the order of DRAT returned its finding in conformity with what was observed by the DRT in its order, which was the subject matter of appeal before the Supreme Court. The appellant submitted that the proceedings initiated under the SARFAESI Act would not nullify on the mere technicality as being pointed out and the High Court without appreciating the material on record had reversed the finding returned by the DRAT in its extraordinary jurisdiction under Article 226 &amp; 227 of the Constitution and if two views were possible, unless found to be perverse it was not justified for the High Court to reverse the finding of fact supported by the material on record and that needs interference of this Court. Court observed that, “In the facts and circumstances, when the action has been taken by the competent authority as per the procedure prescribed by law and the person affected has a knowledge leaving no ambiguity or confusion in initiating proceedings under the provisions of the SARFAESI Act by the secured creditor, in our considered view, such action taken thereof cannot be held to be bad in law merely on raising a trivial objection which has no legs to stand unless the person is able to show any substantial prejudice being caused on account of the procedural lapse as prescribed under the Act or the rules framed thereunder still with a caveat that it always depends upon the facts of each case to decipher the nature of the procedural lapse being complained of and the resultant prejudiced if any, being caused and there cannot be a straitjacket formula which can be uniformly followed in all the transactions.”