SARFAESI - Fresh 30 Days Notice Not Needed If Failure To Conduct Sale As Per First Notice Was Due To Borrower's Actions : Supreme Court

If the sale of a mortgaged property as per the SARFAESI Rules was interrupted during the 30 days notice period due to the actions of the borrower, a fresh notice of 30 days is not necessary for the sale process to resume after the interruptions are over, held the Supreme Court in a recent judgment.In the case S. Karthik v. N Subhash Chand Jain, the Court stated that a fresh notice is necessary only if the sale got stopped due to reasons which are not attributable to the borrower.A bench comprising Justices L Nageswara Rao, BR Gavai and BV Nagarathna dismissed the special leave petition filed by the borrower, after making critical observations against the litigant for instituting various proceedings to stall the SARFAESI proceedings.The judgement authored by Justice B.R.Gavai has observed that a litigant, by taking recourse to a series of proceedings one after the other, cannot be allowed to block the enforcement of a security interest created in favour of a secured creditor and thereby defeat the very purpose for which the SARFAESI Act was enactedFactual BackgroundIn this case, the appellants were guarantors for a loan taken by borrower from Respondent-Bank. Upon failure of the borrower to replay, the Respondent-Bank issued a sale notice in respect of mortgaged properties. The first sale notice was stayed by an order of DRT Chennai and subsequently the Respondent-Bank issued another sale notice and sold the mortgaged property to the Auction Purchaser. The guarantors contended that the sale notice issued was not in compliance with Rule 8 and Rule 9 of the SARFAESI Rules and thus the sale was void and liable to be set aside, as the second sale notice gave only 10 days as opposed to 30 days. The Madras High Court dismissed the challenge.Assailing this judgement and order, the appellants before the Apex Court contended that the second sale notice gave a notice period of only 10 days and thus in blatant breach of Rule 8(6) and Rule 9(1) of the SARFAESI Rules, 2002 which mandate that there must be a 30 days' time gap between the date of notice and date of sale of immovable assets. Relying on Mathew Varghese v Amritha Kumar and others (2014) 5 SCC 610, Senior Counsel KV Vishwanathan argued that if the sale does not take place pursuant to a notice issued under Rules 8 and 9 of the said Rules, then the procedure prescribed by the said Rules will have to be followed afresh, and a fresh notice of 30 days' period will have to be given.The defendants, represented by Senior Counsel Anitha Shenoy contended that, the second sale notice cannot be construed as a fresh notice but a continuation of the first sale notice. Further, it was argued that DRT, Chennai, the DRAT, Chennai, and the High Court had granted several opportunities to the appellants to make the payments, they have defaulted to do. The bench referred to the observations made in the Court's judgement in Mathew Varghese v M.Amritha Kumar regarding the import of the Rules 8 and 9 of the SARFAESI Rules as follows :"Rule 9(1) of the said Rules prescribed that no sale of immovable property under the said Rules would take place before the expiry of 30 days from the date on which the public notice of sale was published in the newspapers or notice of sale has been served to the borrower" (Para 16) "Under Rule 9(1), it is prescribed that no sale of an immovable property under the Rules should take place before the expiry of 30 days from the date on which the public notice of sale is published in the newspapers as referred to in the proviso to subrule (6) of Rule 8 or notice of sale has been served to the borrower. Subrule (6) of Rule 8 again states that the authorised officer should serve to the borrower a notice of 30 days for the sale of the immovable secured assets. Reading subrule (6) of Rule 8 and subrule (1) of Rule 9 together, the service of individual notice to the borrower, specifying clear 30 days' timegap for effecting any sale of immovable secured asset is a statutory mandate. It is also stipulated that no sale should be affected before the expiry of 30 days from the date on which the public notice of sale is published in the newspapers. Therefore, the requirement under Rule 8(6) and Rule 9(1) contemplates a clear 30 days' individual notice to the borrower and also a public notice by way of publication in the newspapers. (Paragraph 16)The bench pointed out that the observations of the Court in Mathew Varghese most relevant for the present matter were that: "In the event of any such sale properly notified after giving 30 days' clear notice to the borrower did not take place as scheduled for reasons which cannot be solely attributable to the borrower, the secured creditor cannot effect the sale or transfer of the secured asset on any subsequent date by relying upon the notification issued earlier. In other words, once the sale does not take place pursuant to a notice issued under Rules 8 and 9, read along with Section 13(8) for which the entire blame...

SARFAESI - Fresh 30 Days Notice Not Needed If Failure To Conduct Sale As Per First Notice Was Due To Borrower's Actions : Supreme Court

Sneha Rao

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