Allahabad High Court Imposes ₹25 Lakh Cost On Loan Guarantors For Deliberately Prolonging Litigation On Auctioned Property

The Allahabad High Court imposed a cost of Rs. 25 lakhs on guarantors of a loan for deliberately prolonging litigation regarding a property auctioned in 2017.While directing the guarantors of the loan (petitioners) to vacate the auctioned premises and awarding the cost in favour of the auction purchaser, Justice Sangeeta Chandra held,“This Court having gone through the judicial precedents as aforesaid relating to writ jurisdiction being an equitable jurisdiction and the responsibility of the litigant to approach this Court with frank and full disclosure of facts, avoiding any active misrepresentation and suppression of material facts, finds that the petitioners have filed this writ petition in an attempt to deliberately pollute the stream of justice.”It added, “Not only this Court has found misrepresentation from the pleadings on record and documentary evidence filed by the Bank in its affidavits, this Court has also found deliberate attempt at protracting of litigation to enable the petitioners to continue to occupy House No.88, Sector-13, Indira Nagar Vistar Yojana, Lucknow, despite the property having been auctioned way back on 21.12.2017.”Factual BackgroundIt was pleaded that petitioners' relative applied for Rs. 90 lakhs loan to the Bank of Baroda under the “Kamdhenu Dairy Scheme”. Since petitioners were customers of the Bank, they were shown as the loan guarantors. Further, they were shown as joint holders of the property which was already mortgaged with the bank for another loan by the borrower. The loan account of borrower was declared a non performing asset and 1st demand notice under the SARFAESI Act was issued on 21.07.2016.Petitioner pleaded that he was never served the aforesaid notice, or the notice by which the bank took symbolic possession of the property. A letter of redemption was sent to the petitioners and thereafter summons were issued under Section 14 of the Act on 21.03.2017. Petitioners' objections were rejected and the property was put up for auction by the Bank in alleged non-compliance with Rule 8(6)(a) of the Security Interest (Enforcement) Rules, 2002 as the details of the outstanding loan on the said property were not disclosed. DRT allowed petitioners application under Section 17 of the Act recording that the notice was not served upon them. DRT held that mere postal receipt was not sufficient to show actual receipt of the notice and when the property was jointly owned by petitioner and her husband, the notice should also have been served on her. The entire action by the bank was held to be void ab initio. The Bank filed an appeal before DRAT which was allowed on grounds that once the notice was served on the same address to both the husband and the wife, the wife could not have claimed non-service of notice. It was held that the bank was not obligated to issue a notice to the petitioner prior to taking symbolic possession of the property. Lastly, the DRAT held that “Non-mentioning of such encumbrance on the properties in the sale notice was of no consequence” and such action could vitiate entire proceedings. This order of DRAT was challenged before the High Court. High Court ObservationsThe Court observed that in an earlier writ petition filed before the High Court, initially the petitioners had pleaded that they were guarantors and that recovery should be first made from the principal borrower, by way of an amendment they had tried to change their stance. The amendment sought was rejected by the Court as the Bank had produced document to show that the petitioners had signed as guarantors to the loan of their relative. The Court observed that the documents by which loan was availed by the relative were all signed by the petitioners. Noting that specific findings of the DRT regarding the signing of loan papers were not challenged by the petitioners, the Court held that the petitioners had misrepresented before the writ Court. Further, the Court observed that issue of non-service of notice was not raised by the petitioners in the writ petition. They had actually annexed the demand notice with the writ petition which showed that correct name was mentioned in the demand notice which never returned unserved. To discuss the interplay between Section 114 of the Evidence Act and Section 27 of the General Clauses Act, Justice Chandra placed reliance on the decision of the Allahabad High Court in Krishna Kumar Gupta Vs. Manoj K Sahu, where reliance was placed on the decisions of the Supreme Court in C.C. Alavi Haji Vs. Palapetty Muhammed & Anr and M/s Ajeet Seeds Ltd Vs. K. Gopala Krishnaiah. Justice Chandra held that Section 114 of the Evidence Act allows Court to presume that in the ordinary course the communication must have been delivered at the address of the addressee, however, under Section 27 of the General Clauses Act the presumption is stronger, i.e., it has to be presumed that the communication was sent to the correct address of the addressee by the registered post. “In view ...

Allahabad High Court Imposes ₹25 Lakh Cost On Loan Guarantors For Deliberately Prolonging Litigation On Auctioned Property

Upasna Agrawal

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