Case Note & Summary
The dispute arose from a writ petition filed by a borrower challenging the auction sale of his property under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The borrower had availed a loan of Rs.59,75,000 from Canara Bank in 2007 for constructing a rural godown on land bearing Sy.No.77, measuring 17 acres 39 guntas at Malagatti village, Kalaburagi district. The loan was secured by mortgage of the property. The borrower claimed regular repayment but later defaulted, leading the bank to classify the loan as a non-performing asset on 16.08.2015. The bank issued a demand notice under Section 13(2) on 23.09.2015 and a possession notice on 24.11.2015, taking symbolic possession. Subsequently, the borrower made payments of Rs.9,00,000 and Rs.6,50,000 in November 2018. Despite this, the bank issued multiple sale notices between November 2020 and June 2021, ultimately conducting an e-auction on 29.06.2021 where the property was sold to M/s Talampally Venture Pvt. Ltd. for Rs.3,30,00,000. The bank informed the borrower of the sale on 05.07.2021, which he received on 20.07.2021. The borrower then filed W.P.No.201415/2021 seeking quashing of the sale notice and a direction to the bank to consider his representation to clear the dues. He contended that the land was agricultural and thus exempt under Section 31(i) of SARFAESI Act; no fresh demand notice was issued after his part-payments; the entire 17 acres 39 guntas need not have been sold; the bank had previously approached the Debt Recovery Tribunal; and the sale process lacked proper notice. The Single Judge of the High Court allowed the writ petition on 15.11.2021, quashing the sale deed and directing re-transfer of the property to the borrower. Aggrieved, the auction purchaser and the bank filed two writ appeals (W.A.No.200178/2021 and W.A.No.200194/2021) under Section 4 of the Karnataka High Court Act, 1961. During the appeal hearings, the bank argued that it had issued all statutory notices including the Section 13(2) demand, possession notice, and sale notices, and the borrower had defaulted and not replied; thus the auction was valid. The borrower stressed the agricultural land exclusion and lack of fresh notice. The Division Bench consisting of Justice Sreenivas Harish Kumar and Justice S. Rachaiah reserved judgment on 18.07.2022 and pronounced on 22.07.2022, but the excerpt provided does not include the final decision or reasoning of the Division Bench.
Headnote
A) Securitisation and SARFAESI Act - Applicability to Agricultural Land - Section 31(i) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Exclusion of agricultural land from enforcement of security interest - The borrower contended that the collateral property was agricultural land, thus the bank could not invoke Section 13(4) for its sale; the bank's position was that the land was used for a rural godown, raising the question of whether the SARFAESI Act applies to such land. (Paras 8-9) B) SARFAESI Act - Notice Requirements - Sections 13(2), 13(4) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Mandatory service of demand notice and sale notice before auction - The borrower alleged that no fresh demand notice was issued after he made substantial payments in 2018, and that he received the sale intimation only on 20.07.2021; the bank maintained that it had issued multiple notices including possession notice in 2015 and sale notices in 2020 and 2021, and the borrower had not replied to the Section 13(2) notice. (Paras 5-7, 10-11) C) SARFAESI Act - Auction Sale - Section 13 - Proportionality and valuation of secured asset - The borrower argued that the entire 17 acres 39 guntas of land was unnecessarily sold, and a smaller portion or the godown itself would have sufficed to clear the dues; the bank stood by the auction sale for Rs.3.30 crore. (Paras 5, 9) D) Banking Law - DRT Proceedings vs SARFAESI Enforcement - Parallel proceedings - The borrower argued that the bank, having initiated proceedings before the Debt Recovery Tribunal, could not later invoke SARFAESI Act for the same loan; however, this ground was raised in the writ petition. (Para 9)
Issue of Consideration
Whether the property was agricultural land beyond the purview of SARFAESI Act; Whether the bank complied with statutory notice requirements before auction; Whether the Single Judge was justified in quashing the sale and ordering re-transfer
Law Points
- Prohibition on sale of agricultural land under SARFAESI Act Section 31(i)
- Necessity of fresh demand notice under Section 13(2) after partial repayment
- Invalidity of sale conducted without proper notice to borrower
- Requirement of considering borrower's representation to pay dues
- Maintainability of writ petition despite alternative remedy under SARFAESI Act
