SARFAESI Proceedings Not Invalidated On Mere Failure Of Bank In Giving Reply To Objections If Borrower's Proposals Were Otherwise Considered : Supreme Court

The Supreme Court held that failure to furnish reply by the creditor as per the mandate of Section 13(3A) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) would not entitle the debtor of discretionary relief, if the Court is satisfied that the creditor has considered the debtor's representation and granted it sufficient opportunity to repay the debt. The Apex Court added that a borrower not questioning and objecting to the action of the creditor and accepting the favourable decisions from the creditor, would be later estopped from take inconsistent positions to gain advantage through the aid of judicial proceedings. A Bench comprising Justices L. Nageshwara Rao, Sanjiv Khanna and B.R. Gavai allowed a Special Leave Petition, assailing the order of Telangana High Court, setting aside and quashing the proceedings initiated by Andhra Bank for sale of concerned mortgaged asset, holding it to be in derogation of the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Security Interest (Enforcement) Rules, 2002 (Rules). Factual Background Alphine Pharmaceuticals Private Limited and Bejjenki Bhaskara Chary (Borrower) was sanctioned working capital limit and granted term loan by Andhra Bank in March 2015 with moratorium period of six months to purchase Alphine Pharmaceuticals Pvt. Ltd. from its erstwhile promoters. As per the loan terms, the Borrower mortgaged the concerned property with Andhra Bank. On failure of repayment as per schedule, the loans were declared as Non-Performing Assets. Consequently the Bank issued notice under Section 13(2) of SARFAESI Act urging the Borrower to repay within sixty days beyond which the Bank would be entitled to invoke Section 13(4) of the SARFAESI Act, which lays down the measures that the bank could avail on non-repayment by the borrower. The Borrower did not repay or reply to the said notice within the stipulated sixty days. Thereafter, on two occasions the Borrower wrote letters admitting defaults. Putting forth reasons for not abiding by the payment schedule, it sought a further moratorium of twelve months. The Bank informed the concerned authority to restructure the loan extending the moratorium and the action under SARFAESI was deferred. Subsequently, as the Borrower failed to meet its promise, the Bank issued notice under Section 13(4) of the Act and the underlying Rules to take symbolic possession of the concerned property. The Bank under Section 14 of the SARFAESI Act took physical possession of the concerned property. Eventually, the Bank issued notice to the borrower about the auction of the concerned property and gave an option of halting the auction on repayment by the Borrower. No response was received and the Bank went ahead with the auction, but received no bids. Again, the Borrowers wrote 3 letters asking for regularising the account. The Bank informed the Borrower the relevant document along with the restructuring proposal was not received for consideration. The Bank had clarified that on further delay, it would proceed under the SARFAESI Act. The Borrower again wrote to the Bank, inter alia, with the restructuring proposal, but the Bank alleged non-compliance. In this backdrop the Bank made second and third attempts to sell the concerned property in auction, but received no bids. On the fourth attempt the Bank had reduced the reserve price and sold off the land to Basa Chandramouli and subsequently issued a sale certificate in this regard. The attempts to sell the property were never challenged by the Borrower. The Borrower approached the Debts Recovery Tribunal challenging the enforcement proceedings pertaining to the concerned property and the steps taken by the Bank therein. The application was dismissed and the Borrower filed a Writ Petition before the High Court. By this time Basa Chandramouli had sold off the property to the Second buyer who, unaware of the Writ Petition, had demolished the old structure in the concerned property and made a new one. Findings of the High Court Placing reliance on ITC Limited v. Blue Coast Hotels Limited and Others (2018) 15 SCC 99, the High Court held that compliance with Section13(3A) was mandatory and failure on the part of the Bank to respond to the representation of the borrower would vitiate the recovery proceedings. The High Court further observed that the stipulation of sixty days within which the response was demanded by the Bank was not prescribed in the provision. Relying on the decision of the Authorised Officer, Indian Overseas Bank and Another v. Ashok Saw Mill (2009) 8 SCC 366, it was held that when the Borrower challenges the measure in Section 13(4), it is open for them to also challenge the steps taken by the Bank under Section 13(2) of the Act from the ...

SARFAESI Proceedings Not Invalidated On Mere Failure Of Bank In Giving Reply To Objections If Borrower's Proposals Were Otherwise Considered : Supreme Court

Sohini Chowdhury

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