Case Note & Summary
The petitioners, M/s. Clarity Gold Pvt. Ltd. (borrower) and Mrs. Ganga Devi Gupta (guarantor and mortgagor), challenged an order of the Debts Recovery Appellate Tribunal (DRAT) dated 6 October 2010. The DRAT had set aside the order of the Debts Recovery Tribunal (DRT) which had directed redelivery of possession of a secured asset (a residential flat) to the mortgagor. The Bank had taken possession under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The DRT had held that the Bank unlawfully took possession. On appeal by the Bank, the DRAT held that the notice under Section 13(2) was validly served (issued to a Director, acknowledged by the guarantor with the borrower's stamp), and the possession notice under Section 13(4) was valid (served on an employee, Manager-Accounts, at the premises). However, the DRAT found the sale notice under Rule 8(5) of the Security Interest (Enforcement) Rules, 2002 invalid. Thus, the DRAT allowed the Bank to proceed from the stage of Rule 8(5) and set aside the DRT's order for redelivery. The High Court, in this writ petition under Article 226, upheld the DRAT's order, finding no infirmity. The petition was dismissed.
Headnote
A) Securitisation - Validity of Notice under Section 13(2) - Service of Notice - The notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 was issued in the name of a Director of the borrower company and was acknowledged by the guarantor/mortgagor, bearing the rubber stamp of the borrower. The Appellate Tribunal held that service was validly effected. (Paras 3-4)
B) Securitisation - Validity of Possession Notice under Section 13(4) - Service on Employee - The possession notice under Section 13(4) was served on an employee of the borrower holding the designation of Manager-Accounts at the premises. The Appellate Tribunal held that the notice of possession was valid. (Paras 3-4)
C) Securitisation - Validity of Sale Notice under Rule 8(5) - Invalidity - The Appellate Tribunal found that the notice of sale under Rule 8(5) of the Security Interest (Enforcement) Rules, 2002 was not validly issued. Consequently, the Bank was permitted to proceed from the stage of Rule 8(5). (Para 2)
Issue of Consideration
Whether the notice under Section 13(2) and the possession notice under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 were validly served, and whether the sale notice under Rule 8(5) of the Security Interest (Enforcement) Rules, 2002 was validly issued.
Final Decision
The High Court dismissed the writ petition, upholding the order of the Debts Recovery Appellate Tribunal dated 6 October 2010. The Bank was permitted to proceed from the stage of Rule 8(5) of the Security Interest (Enforcement) Rules, 2002.
Law Points
- Validity of notice under Section 13(2) of SARFAESI Act
- 2002
- Validity of possession notice under Section 13(4)
- Validity of sale notice under Rule 8(5) of Security Interest (Enforcement) Rules
- Service of notice on employee of borrower
- Acknowledgment by guarantor
Case Details
Writ Petition No. 8893 of 2010
Dr. D.Y. Chandrachud, Anoop V. Mohta
Mr. Rajneesh Agarwal with Mr. Ashish Mehta i/by Ms. Saruchi Kasliwal, Ms. Fatima R. Lakdawala and Ms. Hetal Khimasia for the petitioners; Mr. Nitin Thakkar, Senior Advocate with Mr. Bergis Colabawalla and Mr. Vivek S. Sawant i/by Mr. Kusumkar Kaushik for respondents 1 and 2
M/s. Clarity Gold Pvt. Ltd. & Mrs. Ganga Devi Gupta
State Bank of India & Ors.
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Nature of Litigation
Writ petition under Article 226 of the Constitution of India challenging an order of the Debts Recovery Appellate Tribunal in a matter under the SARFAESI Act, 2002.
Remedy Sought
The petitioners sought to quash the DRAT order dated 6 October 2010 and restore the DRT order directing redelivery of possession.
Filing Reason
The petitioners were aggrieved by the DRAT order which set aside the DRT's direction for redelivery of possession and allowed the Bank to proceed from the stage of Rule 8(5).
Previous Decisions
The DRT by judgment dated 29 June 2010 allowed the petitioners' application under Section 17, set aside the taking over of possession, and directed redelivery. The DRAT on 6 October 2010 set aside the DRT order, holding that the Section 13(2) and Section 13(4) notices were valid, but the sale notice under Rule 8(5) was invalid, and permitted the Bank to proceed from Rule 8(5).
Issues
Whether the notice under Section 13(2) of the SARFAESI Act was validly served?
Whether the possession notice under Section 13(4) was validly served?
Whether the sale notice under Rule 8(5) was validly issued?
Submissions/Arguments
The petitioners argued that the notices under Section 13(2) and Section 13(4) were not validly served.
The Bank contended that the notices were validly served and the DRAT order was correct.
Ratio Decidendi
The service of notice under Section 13(2) on a Director of the borrower company, acknowledged by the guarantor with the borrower's stamp, is valid. The service of possession notice under Section 13(4) on an employee of the borrower at the premises is valid. However, the sale notice under Rule 8(5) must be validly issued; if not, the Bank may proceed from that stage.
Judgment Excerpts
The Appellate Tribunal came to the conclusion that service of the notice under Section 13(2) had been validly effected and that the notice of possession under Section 13(4) was valid.
The Appellate Tribunal came to the conclusion that the notice of sale was not validly issued.
The Bank has been permitted to proceed in the matter from the stage of Rule 8(5) of the Rules.
Procedural History
The Bank issued a notice under Section 13(2) on 17 May 2010. Possession was taken on 28 July 2010 under Section 13(4). The petitioners filed an application under Section 17 before the DRT, which allowed it on 29 June 2010 and directed redelivery. The Bank appealed to the DRAT, which on 6 October 2010 set aside the DRT order and permitted the Bank to proceed from Rule 8(5). The petitioners then filed the present writ petition under Article 226.
Acts & Sections
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: 13(2), 13(4), 17
- Security Interest (Enforcement) Rules, 2002: 8(2), 8(5)
