SARFAESI - RDDB - mortgage - sale - notice - Rules - Supreme Court

1) Valji Khimj i and Company Vs. Official Liquidator of Hindustan
2) Nitro Product (Gujarat) Limi ted and others - (2008) 9 SCC 299
3) United Bank of India Vs. Satyawati Tondon and others - (2010) 8 SCC 110
4) Narandas Karsondas Vs. S.A. Kamtam and another - (1977) 3 SCC 247
5) Ram Kishun and others Vs. State of Uttar Pradesh and others - (2012) 11 SCC 511.
6) Mardia Chemicals Ltd. and others Vs. Union of India & others. - (2004) 4 SCC 311
7) Transcore Vs. Union of India and another reported in (2008) 1 SCC 125
8) Eastern Counties etc. Railway Vs. Marriage reported in (1861) 9 HLC 32
9) Bhinka and others Vs. Charan Singh reported in AIR 1959 SC 960

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO(S). 1927-1929 OF 2014

(@ SLP (C) NO(S).21433-21435 OF 2010)

Mathew Varghese ….Appellant

VERSUS

M. Amritha Kumar & Ors. .…Respondents

J U D G M E N T

Fakkir Mohamed Ibrahim Kalifulla, J.

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26. When we analyze in depth the stipulations contained in the said sub- section (8), we find that there is a valuable right recognized and asserted in favour of the borrower, who is the owner of the SECURED ASSET and who is extended an opportunity to take all efforts to stop the sale or transfer till the last minute before which the said sale or transfer is to be effected. Having regard to such a valuable right of a debtor having been embedded in the said sub- section, it will have to be stated in uncontroverted terms that the said provision has been engrafted in the SARFAESI Act primarily with a view to protect the rights of a borrower, inasmuch as, such an ownership right is a Constitutional Right protected under Article 300A of the Constitution, which mandates that no person shall be deprived of his property save by authority of law. Therefore, de hors , the extent of borrowing made and whatever costs, charges were incurred by the SECURED CREDITOR in respect of such borrowings, when it comes to the question of realizing the dues by bringing the property entrusted with the SECURED CREDITOR for sale to realize money advanced without approaching any Court or Tribunal, the SECURED CREDITOR as a TRUSTEE cannot deal with the said property in any manner it likes and can be disposed of only in the manner prescribed in the SARFAESI Act. Therefore, the creditor should ensure that the borrower was clearly put on notice of the date and time by which either the sale or transfer will be effected in order to provide the required opportunity to the borrower to take all possible steps for retrieving his property or at least ensure that in the process of sale the SECURED ASSET derives the maximum benefit and the SECURED CREDITOR or anyone on its behalf is not allowed to exploit the situation of the borrower by virtue of the proceedings initiated under the SARFAESI Act. More so, under Section 13(1) of the SARFAESI Act, the SECURED CREDITOR is given a free hand to resort to sale of the property without approaching the Court or Tribunal.

27.Therefore, by virtue of the stipulations contained under the provisions of the SARFAESI Act, in particular, Section 13(8), any sale or transfer of a SECURED ASSET, cannot take place without duly informing the borrower of the time and date of such sale or transfer in order to enable the borrower to tender the dues of the SECURED CREDITOR with all costs, charges and expenses and any such sale or transfer effected without complying with the said statutory requirement would be a constitutional violation and nullify the ultimate sale.

28................... Reading sub- rule (6) of Rule 8 and sub- rule (1) of Rule 9 together, the service of individual notice to the borrower, specifying clear 30 days time gap 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. In other words, while the publication in newspaper should provide for 30 days clear notice, since Rule 9(1) also states that such notice of sale is to be in accordance with proviso to sub- rule (6) of Rule 8, 30 days clear notice to the borrower should also be ensured as stipulated under Rule 8(6) as well. Therefore, the use of the expression ‘or’ in Rule 9(1) should be read as ‘and’ as that alone would be in consonance with Section 13(8) of the SARFAESI Act. .............

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30.Such a detailed procedure while resorting to a sale of an immovable SECURED ASSET is prescribed under Rules 8 and 9(1). In our considered opinion, it has got a twin objective to be achieved. In the first place, as already stated by us, by virtue of the stipulation contained in Section 13(8) read along with Rules 8(6) and 9(1), the owner/borrower should have clear notice of 30 days before the date and time when the sale or transfer of the SECURED ASSET would be made, as that alone would enable the owner /borrower to take all efforts to retain his or her ownership by tendering the dues of the SECURED CREDITOR before that date and time. Secondly, when such a SECURED ASSET of an immovable property is brought for sale, the intending purchasers should know the nature of the property, the extent of liability pertaining to the said property, any other encumbrances pertaining to the said property, the minimum price below which one cannot make a bid and the total liability of the borrower to the SECURED CREDITOR. Since, the proviso to sub- rule (6) also mentions that any other material aspect should also be made known when effecting the publication, it would only mean that the intending purchaser should have entire details about the property brought for sale in order to rule out any possibility of the bidders later on to express ignorance about the factors connected with the asset in question. Be that as it may, the paramount objective is to provide sufficient time and opportunity to the borrower to take all efforts to safeguard his right of ownership either by tendering the dues to the creditor before the date and time of the sale or transfer, or ensure that the SECURED ASSET derives the maximum price and no one is allowed to exploit the vulnerable situation in which the borrower is placed.

31.At this juncture, it will also be worthwhile to refer to Rules 8(1) to (3) and in particular sub- rule (3), in order to note the responsibility of the SECURED CREDITOR vis-à-vis the SECURED ASSET taken possession of. Under sub- rule (1) of Rule 8, the prescribed manner in which the possession is to be taken by issuing the notice in the format in which such notice of possession is to be issued to the borrower is stipulated. Under sub- rule (2) of Rule 8 again, it is stated as to how the SECURED CREDITOR should publish the notice of possession as prescribed under sub- rule (1) to be made in two leading newspapers, one of which should be in the vernacular language having sufficient circulation in the locality and also such publication should have been made seven days prior to the intention of taking possession. Sub- rule (3) of Rule 8 really casts much more onerous responsibility on the SECURED CREDITOR once possession is actually taken by its authorised officer. Under sub- rule (3) of Rule 8, the property taken possession of by the SECURED CREDITOR should be kept in its custody or in the custody of a person authorized or appointed by it and it is stipulated that such person holding possession should take as much care of the property in its custody as a owner of ordinary prudence would under similar circumstances take care of such property. The underlining purport of such a requirement is to ensure that under no circumstances, the rights of the owner till such right is transferred in the manner known to law is infringed. Merely because the provisions of the SARFAESI Act and the Rules enable the SECURED CREDITOR to take possession of such an immovable property belonging to the owner and also empowers to deal with it by way of sale or transfer for the purpose of realizing the secured debt of the borrower, it does not mean that such wide power can be exercised arbitrarily or whimsically to the utter disadvantage of the borrower.

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32.............. Therefore, a reading of Rules 8 and 9, in particular, sub- rule (1) to (4) and (6) of Rule 8 and sub- rule (1) of Rule 9 makes it clear that simply because a secured interest in a SECURED ASSET is created by the borrower in favour of the SECURED CREDITOR, the said asset in the event of the same having become a NON-PERFORMING ASSET cannot be dealt with in a light- hearted manner by way of sale or transfer or disposed of in a casual manner or by not adhering to the prescriptions contained under the SARFAESI Act and the abovesaid Rules mentioned by us.

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34..... decision in Narandas Karsondas........... In India it is only on execution of the conveyance and registration of transfer of the mortgagor’s interest by registered instrument that the mortgagor’s right of redemption will be extinguished. The conferment of power to sell without intervention of the Court in a mortgage deed by itself will not deprive the mortgagor of his right to redemption. The extinction of the right of redemption has to be subsequent to the deed conferring such power. The right of redemption is not extinguished at the expiry of the period. The equity of redemption is not extinguished by mere contract for sale.

35...........we are able to discern the Ratio to the effect that a mere conferment of power to sell without intervention of the Court in the mortgage deed by itself will not deprive the mortgagor of his right to redemption, that the extinction of the right of redemption has to be subsequent to the deed conferring such power, that the right of redemption is not extinguished at the expiry of the period, that the equity of redemption is not extinguished by mere contract for sale and that the mortgagor’s right to redeem will survive until there has been completion of sale by the mortgagee by a registered deed. The ratio is also to the effect that the power to sell should not be exercised unless and until notice in writing requiring payment of the principal money has been served on the mortgagor.......... it was held that the right of redemption will not get extinguished merely at the expiry of the period mentioned in the mortgage deed. It was also stated that the equity of redemption is not extinguished by mere contract for sale and the most important and vital principle stated was that the mortgagor’s right to redeem will survive until there has been completion of sale by the mortgagee by a registered deed. The completion of sale, it is stated, can be held.

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37............... while dealing with the contention raised on behalf of the SECURED CREDITOR that the right of redemption would be available to the mortgagor only if the amount due according to the SECURED CREDITOR is deposited, this Court held as under:

“54….Shri Sibal, however, submits that it is the amount due according to the secured creditor which shall have to be deposited to redeem the property. Maybe so, some difference regarding the amount due may be there but it cannot be said that right of redemption of property is completely lost. In cases where no such dispute is there, the right can be exercised and in other cases the question of difference in amount may be kept open and got decided before sale of property .”............

38.Here again we find that even if there were some difference in the amount tendered by the borrower while exercising his right of redemption under Section 13(8), the question of difference in the amount should be kept open and can be decided subsequently, but on that score the right of redemption of the mortgagor cannot be frustrated. Elaborating the statement of law made therein, we wish to state that the endeavour or the role of a SECURED CREDITOR in such a situation while resorting to any sale for the realization of dues of a mortgaged asset, should be that the mortgagor is entitled for some lenience, if not more to be shown, to enable the borrower to tender the amounts due in order to ensure that the Constitutional Right to property is preserved, rather than it being deprived of.

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42.........Transcore Vs. Union of India ........... In paragraph 64 it is stated as under after referring to Section 37 of the SARFAESI Act. “…….According to American Jurisprudence, 2d, Vol. 25, p. 652, if in truth there is only one remedy, then the doctrine of election does not apply. In the present case, as stated above, the NPA Act is an additional remedy to the DRT Act. Together they constitute one remedy and, therefore, the doctrine of election does not apply . Even according to Snell’s Principles of Equity (31st Edn., p. 119), the doctrine of election of remedies is applicable only when there are two or more co-existent remedies available to the litigants at the time of election which are repugnant and inconsistent. In any event, there is no repugnancy nor inconsistency between the two remedies, therefore, the doctrine of election has no application.”

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43........... Eastern Counties etc. Railway Vs. Marriage reported in (1861) 9 HLC 32, as stated in Craies on Statute Law, Seventh Edition, p.207. The proposition of law as regards the HEADINGS of a provision has been succinctly stated as under:

“These various headings”, “are not to be treated as if they were marginal notes, or were introduced into the Act merely for the purpose of classifying the enactments. They constitute an important part of the Act itself, and may be read not only as explaining the sections which immediately follow them, as a preamble to a statute may be looked to explain its enactments, but as affording as it appears to me a better key to the constructions of the sections which follow them than might be afforded by the mere preamble.”

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48.Keeping the said basic principle in applying the above provisions in mind,............. As far as sub- rule (1) of Rule 15 is concerned,......... The said Rule does not in any way conflict with either Rules 8 or 9 or Section 13, in particular sub- section (1) or sub- section (8) of the SARFAESI Act. Therefore, to that extent there is no difficulty in applying Rule 15......... As far as sub- rule (2) is concerned, the same is clear to the effect that a sale of immovable property once adjourned under sub- rule (1) for a longer period than one calendar month, a fresh proclamation of sale should be made unless the defaulter consents to waive it. The said sub- rule also does not conflict with any of the provisions of the SARFAESI Act, in particular Section 13 or Rules 8 and 9. In fact there is no provision relating to grant of adjournment or issuance of a fresh proclamation for effecting the sale after the earlier date of sale was not adherered to in the SARFAESI Act. In such circumstances going by the prescription contained in Section 37 of the SARFAESI Act, as we have reached a conclusion that the provision contained in Section 29 of the RDDB Act will be in addition to and not in derogation of the provisions of the SARFAESI Act, the provisions contained in Rule 15, which is applicable by virtue of the stipulation contained in Section 29 of the RDDB Act, whatever stated in sub- rule (2) of Rule 15 should be followed in a situation where a notice of sale notified as per Rules 8 and 9(1) of the Securitisation Trust Rules, read along with Section 13(8) gets postponed. In our considered view such a construction of the provisions, namely, Sections 37, 13(8) and 37 of the SARFAESI Act, read along with Section 29 with the aid of Rule 15 could alone be made and in no other manner.

49.We, therefore, hold that unless and until a clear 30 days notice is given to the borrower, no sale or transfer can be resorted to by a SECURED CREDITOR. 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 cannot be thrown on the borrower, it is imperative that for effecting the sale, the procedure prescribed above will have to be followed afresh, as the notice issued earlier would lapse.......... It is, therefore, imperative that for the sale to be effected under Section 13(8), the procedure prescribed under Rule 8 read along with 9(1) has to be necessarily followed, inasmuch as that is the prescription of the law for effecting the sale as has been explained in detail by us in the earlier paragraphs by referring to Sections 13(1), 13(8) and 37, read along with Section 29 and Rule 15.