M/s.Hubert furnishers V/S The Chief manager,
R.A(S.A):209/2010
1. This appeal impugns the ‘common order’ dated 20.08.2010 passed by the Learned Presiding Officer, DRT-I Chennai in SA No.135/2006 and SIA No.89/2010 in SA No.135/2006.
2. The case of the appellant may be stated as follows:
It is stated that the appellant filed SA No.135/2006 before DRT-I Chennai challenging the Section 13(4) notice issued by the respondent bank claiming a sum of Rs.78,96,805/- on the ground that the action of the respondents under Section 13(4) of the Act is void ab initio as it has been initiated by a person who is not an Authorized Officer under the Securitization Act and that the respondent bank also failed to comply with the provisions of the SARFAESI Act.
It is stated that the tribunal below by its interim order dated 23.11.2005 directed the appellant to pay a sum of Rs.70,00,000/- to the bank and in the event of such deposit being made the respondent bank was directed to redeliver possession of the shop of the appellant. It is also stated that the tribunal directed the bank to release the title documents if the appellant brings in a buyer offering not less than Rs.60 lakhs. It is stated that the appellant complied with the second part of the order by depositing Rs.60 lakhs on 30.1.2006.
It is stated that during this period RBI issued guidelines for an One Time Settlement for SME accounts vide Circular No. RPCD.PLNFS.BC No.39/06-02-31/2005-06 dated 3.9.2005 and the respondent bank issued circular No.176 dated 18.10.2005 wherein the bank made changes to the effect that the amount recoverable is as stated in the RBI guidelines or 70% of the value of securities, whichever is higher.
It is stated that the appellant immediately submitted its proposal under the above RBI guidelines on 27.3.2006. It is stated that the entire amount demanded by the bank under Section 13(2) has been paid and it is further stated that as the appellant had paid the entire amount as required under the policy guidelines issued by the RBI for OTS-SME account and adopted by the respondent bank it cannot initiate any action under the SARFAESI Act. It is stated that as per RBI guidelines dated 3.9.2005 the petitioner had to pay only Rs.62,69,941/- whereas the appellant had paid a sum of Rs.81,89,500/- and therefore the appellant had paid a sum of Rs.19,19,550/- in excess. It is stated that in all fairness the excess amount paid by the appellant has to be refunded.
The appellant relied upon the judgment of the Hon’ble Supreme Court in the case of “Sardar Associates Vs. Punjab & Sind Bank 2009 (8) SCC 257” and stated that the tribunal below has failed to consider the said judgment and also failed to consider the fact that the proceedings under the SARFAESI Act was initiated by a person who is not an Authorized Officer under the Act. It is stated the tribunal below erroneously dismissed the SA No. 135/2006 and prayed that the appeal be allowed.
3. The Ld. Counsel for the appellant drew the attention of this Tribunal to the judgment of the Hon’ble Supreme Court of India in the case of “Sardar Associates” and stated that it is squarely applicable to the case of the appellant. The Ld. Counsel also stated that the respondent bank ought to have extended the benefit of the One Time Settlement as per the RBI circular. The Ld. Counsel added that the respondent bank failed to adhere to the provisions of the SARFAESI Act and the Rules made thereunder. The Ld. Counsel prayed for allowing the appeal.
4. The appellants filed their written submissions and the typed set of documents and the same forms part of the record.
5. The Ld. Counsel for the respondent bank stated that the order of the Ld. Presiding Officer, DRT-I Chennai is proper and that the secured creditor being the bank has followed the provisions of the SARFAESI Act properly to recover public money. He prayed that the appeal be dismissed.
6. Heard the Ld. Counsel.
7. A perusal of the RBI Circular dated 3.9.2005 in RBI/2005-06/153: RPCD.PLNFS.BC.No. 39/06.02.31/2005-06 reveals that the appellants were entitled to a One Time Settlement (OTS) by payment of 100% of the outstanding balance in the account as on the date on which the account was classified as a NPA. A reading of Section 13(2) notice reveals that the account was classified as a NPA in March 2001.
The amount outstanding in the account on the date of classification of the account as NPA as seen from the submissions of the appellant before the Tribunal below, before this Tribunal and before the Hon’ble High Court of Madras is Rs.62,69,941/-.
In view of the said circular dated 3.9.2005 the petitioner was entitled to be granted an OTS on payment of 100% of the outstanding balance as on 31.3.2004 which was Rs.62,69,941/-and was also entitled to have the account closed. In view of the law laid down by the Hon’ble Supreme Court of India in the case of “Sardar Associates Vs. Punjab & Sind Bank”, the appellant was due to pay only a sum of Rs.62,69,941/- and the amount had to be reckoned only purely based on the guidelines on One Time Settlement for SME Accounts by the RBI in its circular dated 3.9.2005 and not on the value of the mortgaged properly as the Hon’ble Supreme Court of India was pleased to hold that “the Directors of the Respondent Bank could not have taken recourse to a policy decision which is per se discriminatory”..
It is seen that the appellant was seriously trying to bring into effect the OTS to which it was entitled to, but the appellant was compelled to approach the DRT due to the illegal proceedings of the bank and pursuant to the order of the DRT the appellant had paid a sum of Rs.60 lakhs. However not withstanding the payment of Rs.60 lakhs and notwithstanding the eligibility of the appellant to get the OTS on payment of 100% of the outstanding balance in the account as on the date of classification of the account as NPA being Rs.62,69,941/- the bank had ventured to proceed under the provisions of the SARFAESI Act and took physical possession of the secured asset i.e., the shop of the appellant and such a proceeding in the background of the entitlement of the appellant to the OTS Scheme and in the background of the law laid down by the Hon’ble Supreme Court of India has to be termed only as illegal.
Apart from the above all the proceedings under Section 13(4) of the Act have not been carried out in adherence to the provisions of the Act and the Rules made thereunder and added to this the secured asset still continues to be in possession of the bank and it can be easily said that by the act of taking possession of the secured asset and the bank being in continued physical possession of the secured asset for the last over 6 years it has effectively prevented the appellants’ Managing Partner to conduct the business and eke out his livelihood inspite of having paid sums of money more than that was required to be paid as per the RBI circular.
8. It is seen that the bank was duty bound to inform the appellant about the appellant’s eligibility to be considered for the OTS Scheme and that the bank failed in its duty to inform the appellant.
A perusal of the letter written by the appellant to the bank dated 27.3.2006 reveals that the bank did not inform the appellant about the availability of the OTS and that the appellant by having come to know about the RBI Circular through its own sources addressed the letter to the bank asking for the implementation of the RBI circular in its case.
It is seen that the bank by its letter dated 12.5.2006 replied to the appellant totally ignoring the circular and asked the appellant to increase its offer. It can be seen that the bank has chosen to ignore the RBI guidelines which it was bound to follow and it has also preferred to remain silent about the RBI guidelines in its letter.
It is seen once again that the appellant wrote a letter dated 18.5.2006 to the bank and the bank by its reply dated 31.5.2006 stated that the appellant should give a minimum offer of Rs.38.50 lakhs for consideration of the proposal for OTS. From this letter dated 31.5.2006 of the respondent bank it can be seen that the bank was ready for an OTS being offered to the appellant at Rs.38.50 lakhs as on 31.5.2006.
A reading of the said letter dated 31.5.2006 also reveals that the bank had once again chosen to ignore the RBI guidelines, the benefit of which the appellant was entitled to. According to its own letter the bank had offered the OTS at Rs.38.50 lakhs. In response to the letter of the bank dated 31.5.2006 the appellant sent a reply dated 8.6.2006 stating therein that a sum of Rs.60 lakhs has already been paid by the appellant pursuant to the order of the DRT-I Chennai and that the appellants were ready to pay a further sum of Rs.20,39,500/-.
From the above letter it can be seen that though the bank had offered the OTS at Rs.38.50 lakhs the appellant had already paid a sum of Rs.60 lakhs and was ready to pay a further sum of Rs.20,39,500 for a settlement. It can be seen that the appellant was entitled to get the OTS on the balance due and payable on the date of classification of its accounts as a NPA in March 2001 for a sum being Rs.62,69,941/-and that the said OTS was neither informed nor offered by the bank and the bank after being approached by the appellant had finally settled the OTS amount at Rs.38.50 lakhs.
The bank after the receipt of the communication from the appellant dated 8.6.2006 did not choose to respond to the said letter and the appellant thereafter sent a reminder dated 15.12.2006 to the bank. It is seen that the bank after receipt of the appellant’s reminder letter dated 15.12.2006 chose to take physical possession of the property stating specifically in the possession notice that the bank was entitled to a sum of Rs.48,73,986/- as on 26.12.2006.
9. It can be seen that as the appellant was entitled to OTS the bank ought to have issued the notice for OTS and received the OTS amount from the appellant and ought not to have proceeded under the provisions of the SARFAESI Act.
The respondent bank has not abided by the RBI circular and has also not informed the appellant about the OTS but has chosen to proceed under the provisions of the SARFAESI Act and thus has caused great prejudice to the appellant. It can be seen that the respondent bank also failed to obey the dictum of the Hon’ble Supreme Court of India.
The Respondent bank has neither chosen to obey the dictum of the Hon’ble Supreme Court of India nor has chosen to adhere to the circular / guidelines issued by the RBI and by its act has caused great prejudice to the appellant and has made the appellant to run from pillar to post for the last several years.
It can also be seen that the appellant has already paid a sum of Rs.80 lakhs which is much more than what was required to be paid under the OTS and it can also be seen that the bank has deprived the appellant the benefit of the OTS and has proceeded against the appellant in the securitization proceedings in violation of the RBI Circular dated 3.9.2005.
10. It is seen that the secured creditor in this case i.e., the respondent bank had issued notice under Section 13(2) of the SARFAESI Act by its communication dated 13.11.2004 and the signatory of the said notice is Shri H.S. Brar, Chief Manager of the bank and the same was replied to b the appellant by its letter dated 19.11.2004.
The bank considered the reply by its communication dated 29.11.2004. It is seen that thereafter once again a demand notice dated 2.2.2005 had been issued by the Chief Manager under Section 13(2) of the SARFAESI Act as the wife of the Managing Director had died. Thereafter, the publications with respect to the demand notice dated 2.2.2005 were effected.
11. It is seen Shri H.S. Brar, Chief Manager and Authorized Officer of the respondent bank issued a letter dated 27.1.2005 to Shri M.R. Gopinath, Officer, Punjab and Sind Bank stating that he is the Authorized Officer of the account for taking action under SARFAESI Act, 2002 and that he is authorizing the said Shri M.R. Gopinath to appear on behalf him before the Chief Metropolitan Magistrate Court, Egmore, Chennai in the proceedings initiated by the bank under Section 14 of the SARFAESI Act. A perusal of C.M.P. No. 1459/2005 filed under Section 14 of the SARFAESI Act before the Chief Metropolitan Magistrate, Egmore, Chennai depicts that Shri M.R. Gopinath as the Authorized Officer in this case.
Thereafter an Advocate Commissioner was appointed by the Chief Metropolitan Magistrate, Egmore, Chennai by order dated 30.5.2005 and the Advocate Commissioner proceeded to take possession of the shop at 185, Royapettah High Road, Chennai.
The proceedings of the Advocate Commissioner reveals that no notice of taking of possession has been served on the appellant and a copy of the inventory was also not served to the appellant. It is seen that the Advocate Commissioner after taking possession has given the keys of the property to Shri M.R. Gopinath and who in turn gave the keys to one Shri Thiyagarajan who is stated to be a security agent. A communication dated 11.6.2005written by the said Shri M.R. Gopinath to the Chief Manager, Punjab & Sind Bank, 161, Mount Road reveals that he was acting under the instructions of the Chief Manager and he has described himself as the “Authorized Officer of the case”.
The publications that are required to be effected for the taking of possession have been done nearly after a year after the date of taking of possession.
Further the notice under Rule 8(6) of Security Interest (Enforcement) Rules, 2002 for the sale of the property reflects no date.
12. It is also seen that the appellant had approached the Criminal Court by filing Cr. M.P. No. 878/2005 in CC No. 17359/2005 on the file of XIII Metropolitan Magistrate, Egmore, Chennai and had filed a private complaint against the said Shri M.R. Gopinath and Shri H.S. Brar and that the criminal court had dismissed the application by its order dated 23.8.2005 and that the appellant aggrieved by the said order filed Crl. R.C. No.1503/2005 before the Hon’ble High Court of Madras.
The Hon’ble High Court of Madras by its order dated 3.2.2011 set aside the order of the Magistrate and directed a trial against Shri M.R. Gopinath for the offences stated in the private complaint in C.C. No. 17359/2005.
Rule 2(a) of Security Interest (Enforcement) Rules, 2002 reads thus:
“Authorized Officer” means an officer not less than a chief manager of a public sector bank or equivalent, as specified by the Board of Directors of Board of Trustees of the secured creditor or any other person or authority exercising powers of superintendence, direction and control of the business or affairs of the secured creditor, as the case may be, to exercise the rights of a secured creditor under the Act.”
13. From a conjoint reading of the above rule and the letter dated 27.1.2005 written by Shri H.S. Brar it can be seen that the Authorized Officer under the provisions of the SARFAESI Act is Shri H.S. Brar and not Shri M.R. Gopinath.
From the Criminal Miscellaneous Petition filed by the appellant before the Chief Metropolitan Magistrate, Egmore, Chennai and from the letter of Shri M.R. Gopinath dated 11.6.2006 and from the proceedings of the Advocate Commissioner it can be seen that Shri M.R. Gopinath has acted as the Authorized Officer though the provisions of the Act and the Rules made thereunder do not permit Shri M.R. Gopinath who is not a Chief Manager to be the Authorized Officer and such being the case Shri M.R. Gopinath cannot be the Authorized Officer in this case and whatever actions that had been taken by him as the Authorized Officer in this case are liable to be set aside as all his actions under the SARFAESI Act as the Authorized Officer are in violation of the SARFAESI Act and the Rules made thereunder.
Therefore the act of Shri M.R. Gopinath in taking physical possession, the act of Shri M.R. Gopinath receiving the possession of the property from the Advocate Commissioner as the Authorized Officer, the act of Shri M.R. Gopinath in handing over the physical possession of the property to a third party agent and the act of Shri M.R. Gopinath addressing himself as the Authorized Officer in this case are all acts done by the said Shri M.R. Gopinath, Officer of the Punjab & Sind Bank and the said acts can only be termed as illegal as he had no authority therefor.
14. Further it is seen that the copy of the possession notice was not served on the appellant and it is also seen that the publications were not effected as it is required to be effected and therefore the taking of possession of the secured asset is liable to be set aside.
15. The notice issued under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 for the sale of the property is also not in consonance with the Act and the Rules framed thereunder. Therefore in this case it can be seen that the secured creditor being Punjab & Sind Bank has permitted a person who is not Authorized under the Act to be an Authorized Officer and the said unauthorized person has usurped the powers of the Authorized Officer and has committed illegalities in the enforcement of the rights of the secured creditor and that the said officer has also acted in contravention to the provisions of the Security Interest (Enforcement) Rules, 2002 and therefore the entire exercise of the secured creditor right from taking physical possession of the shop on 11.6.2005 and thereafter can only be said to be a series of contraventions of the provisions of the Act and the Rules made thereunder.
Therefore it has to be concluded that the proceedings taken up by the secured creditor firstly through Shri H.S. Brar and secondly through Shri M.R. Gopinath are in contravention of the SARFAESI Act and the Rules made thereunder.
16. Therefore from the fact that the respondent bank failed to abide by the RBI guidelines to offer OTS to the appellant, from the fact that the respondent bank denied the opportunity to the appellant to have the benefit of the RBI guidelines, from the fact that the appellant was eligible for the grant of OTS, from the fact that it is averred that the appellant had paid much more money than the amount stipulated in the RBI guidelines, from the fact that the respondent bank failed to act as per the law laid down by the Hon’ble Supreme Court of India in the case of “Sardar Associates”, from the fact that the respondent bank could not have initiated proceedings under the Securitization Act, from the fact that the Authorized Officer in this case Shri M.R. Gopinath had no authority to act as an Authorized Officer, from the fact that no notice of possession was ever served on the appellant, from the fact that the copy of the inventory was never given to the appellant, from the fact that the publications of the possession notice were not effected as prescribed under the rules, from the fact that the said Shri M.R. Gopinath averred that he is the Authorized Officer though he is not the Authorized Officer during the Section 14 proceedings before the Chief Metropolitan Magistrate, Egmore, Chennai, from the fact that there were numerous contraventions of the provisions of the Act by the so called Authorized Officer, this Tribunal is driven to conclude that the proceedings taken up by the secured creditor are in contravention to the provisions of the Securitization Act and the Rules made thereunder and therefore driven to conclude that the SA filed by the appellant before the Tribunal below was entitled to be allowed by the Tribunal below and that the tribunal below had erroneously dismissed the SA.
Therefore the order of the Ld. Presiding Officer, DRT-I Chennai dated 20.8.2010 in SA No. 135/2006 is hereby set aside.
17. In the result the appeal is allowed.
18. In view of the above it can be seen that the secured creditor can no longer continue to be in physical possession of whatever property it has taken physical possession of and that the appellant is entitled to have the possession of the same. Therefore the Chief Manager, Punjab & Sind Bank, 161, Mount Road, Chennai-2 is directed to hand over possession of the properties belonging to the appellant which have been taken physical possession of within a period of seven days from the date of receipt of copy of this order.
19. Further as the appellant has established that it is entitled to the benefit of the RBI Circular in the matter of One Time Settlement, the respondent bank is directed to implement the Circular No. RPCD.PLNFS.BC No.39/06-02-31/2005-06 dated 3.9.2005 in the case of the appellant.
Chennai.7th oct 2011
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