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2015 (5) TMI 12 - HC - Indian LawsPossession of subject property - Enforcement of security interest - first respondent was the owner of the subject property during the relevant period when on 16.05.2003 he, along with another, approached the third respondent for a housing loan - lender invoked the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 by initiating action under Section 13 classifying the loan account as Non-Performing Asset. Held that:- Section 13 of SARFAESI Act vests in the secured creditor, the power to enforce the security interest 'without the intervention of the Court or Tribunal'. It may be noted, at the outset, that the rights thus conferred on the secured creditor are exercisable, by virtue of section 13(12) through officers duly authorized in such behalf. For such purposes, the legislation sets out an elaborate procedure that begins with a notice under section 13(2) issued by the secured creditor (giving requisite details of the amount due and the secured assets in which respect the enforcement is intended) and addressed to the borrower-in-default requiring him 'to discharge in full his liabilities' within 60 days. On the expiry of the said period of 60 days calculated 'from the date of notice' if the default continues, the secured creditor acquires the title to proceed further. - Upon being served with a notice under section 13(2), the borrower is given the liberty, by section 13(3A), to object or make any representation and in the event of such objection or representation, the secured creditor is obliged to consider it and communicate his response (specifying the reasons) within a week. Of course, by virtue of proviso to section 13(3A), the non-acceptance of the objection or representation at this stage does not confer on the borrower any legal remedy in the nature of appeal or application. Mere taking of possession of the secured asset of the borrower in terms of section 13(4A), with the aid of section 14, itself does not immediately lead to the realization of the money due from the borrower; the secured creditor, having taken over the possession of the secured asset, must take certain further steps in the 'manner' prescribed, inter alia, in terms of section 13(12), read with section 38 in the form of the Security Interest (Enforcement) Rules, 2002 to sell the property. - For bringing the property to sale, the secured creditor (through its authorized officer) is required, by virtue of rule 8(6), to issue and serve on the borrower 'a notice of 30 days for sale of the immoveable secured asset'. The notice of sale is also required to be given widest possible publicity, including, in terms of rule 8(7), by way of affixing on a conspicuous part of the immoveable property, and if deemed fit, by publication on the website of the secured creditor. In allowing the application under section 17 of SARFAESI Act of the first respondent, the DRT by its order dated 30-11-2010 returned findings to the effect that the representation submitted by the first respondent, under section 13(3A) had not been disposed of and that mandatory requirement of rule 8(1)(2) of the Security Interest (Enforcement) Rules, 2002 had not been complied with. It found fault with the classification of the account of the first respondent as NPA observing that this had been done 'without application of mind' and further that even the notice under section 13(2) was deficient since the factum of the account having been declared NPA or the date of NPA had not been indicated. The DRT upheld the contention of the first respondent with regard to the reserve price based on the valuation at ₹ 3 Lakhs against the backdrop of the fact that at the time of sanction of the loan the property had been valued for ₹ 4.50 lakhs, holding the sale proceedings to be suspect on account of the further fact that the sale had been confirmed by adding just one rupee over and above the reserve price. It held the entire proceedings under section 13(2) and 13(4) undertaken by the third respondent as 'illegal and invalid'. While setting aside the action under SARFAESI Act, the third respondent was given liberty to proceed afresh for recovery of its outstanding dues after following the due procedure of law. In view of this result of the application under section 17 of the first respondent, the DRT declined to go into the objections, inter alia, of the petitioner. Petitioner, not a party to the proceedings leading to the sale, cannot be allowed the liberty of defending the indefensible. There are consistent findings recorded by the two statutory forums below that the entire process undertaken by the third respondent under the colour of authority of section 13 was vitiated. The borrower/mortgager did not have sufficient notice at the crucial stages of the process. His rights were, thus, violated. In the fact-situation noted above, the transfer of his property by way of auction-sale in favour of the fourth respondent was wholly impermissible, unjust and illegal. The manner in which the authorized officer of the third respondent went about putting the property to sale was, to say the least, irresponsible and arbitrarily in flagrant violation of statutory provisions, hardly the conduct expected of a 'trustee'. The petitioner may have been a bona fide purchaser of the subject property from the fourth respondent. But, this cannot be said of the fourth respondent himself. He was the beneficiary of an auction-sale which has been found to be highly suspect, particularly on account of undervaluation for fixing the reserve price and the consideration for which it was sought to be sold (adding just rupee one to the undervalued reserve price). The petitioner, after purchasing the property on 13-12-2007 and having raised further construction, has been using the subject property for her residence. Undoubtedly, the auction-sale in favour of her predecessor-in-interest having been set aside, she has no subsisting right, title or interest left in the subject property. As a consequence of the auction-sale being set aside the petitioner (bona fide purchaser) faces the prospect of losing the property. She, however, cannot be denied the value of the improvements made by her in the property after acquiring it for consideration. The spirit of sections 51 & 63A of Transfer of Property Act will have to be enforced in her favour - In order to acquire the property, the petitioner would need to participate in the fresh auction proceedings for conduct of which liberty has been granted by the authorities below to the third respondent (secured creditor). In such fresh auction proceedings, she would be competing against other bidders which may include the borrower, the first respondent. The fresh auction of the property would necessarily have to be arranged on the basis of the current market value of the subject property. The current market value would undoubtedly include the value of the construction which was carried out by the petitioner from her own resources. The petitioner would need to be compensated appropriately for the value addition made by her to the subject property after she had purchased it from the fourth respondent on 13-12-2007. While upholding the directions of the DRT and DRAT in setting aside the auction sale in favour of the fourth respondent, the DRT is directed to determine the liability of the first respondent towards the third respondent in the context of loan availed. In the event of the subject property being sold by way of re-auction, upon such sale being confirmed in accordance with law, the amount payable to the petitioner shall be released to her by the third respondent without delay, not later than 15 days of deposit of the auction sale price. - Petition disposed of.
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