Andhra HC (Pre-Telangana)
Meragani Appa Rao vs Deputy General Manager-Cum- ... on 15 February, 2018
Author: P.Keshava Rao
Bench: P.Keshava Rao
THE HONBLE SRI JUSTICE SANJAY KUMAR AND THE HONBLE SRI JUSTICE P.KESHAVA RAO
WRIT PETITION NO.20464 OF 2017
15-02-2018
Meragani Appa Rao Petitioner. Petitioner
Deputy General Manager-cum- Authorised Officer, IDBI Bank, Bhimavaram. Respondent
Counsel for petitioner: Sri C.Ramachandra Raju
Counsel for respondent : Sri B.Harinath Rao
<Gist:
>Head Note:
? CASES REFERRED:
1. W.P.No.39673 of 2015 decided on 06.07.2017.
THE HONBLE SRI JUSTICE SANJAY KUMAR
AND
THE HONBLE SRI JUSTICE P.KESHAVA RAO
WRIT PETITION NO.20464 OF 2017
O R D ER
(per Honble Sri Justice Sanjay Kumar)
The petitioner assails the action of the IDBI Bank
(hereinafter, the bank) in cancelling the offer of a One Time
Settlement by its letter dated 23.06.2016 and in issuing sale notice
dated 22.05.2017, followed by publication of the e-auction sale
dated 07.06.2017, proposing to sell the petitioners mortgaged
properties on 28.06.2017. He also seeks a consequential direction
to the bank to grant him reasonable time for payment of the
balance amount under the One Time Settlement as per the
guidelines of the Reserve Bank of India.
By order dated 27.06.2017, this Court took note of the fact
that the auction sale of the petitioners properties was scheduled to
be held on the next day and permitted the bank to proceed with
the said sale but in the event it materialised, the bank was directed
to receive only 25% of the bid amount and was restrained from
confirming the sale or taking any further action until the next
hearing. This order was not extended thereafter. In any event, we
are informed that the sale did not materialize on 28.06.2017 for
want of bidders.
In his writ affidavit, the petitioner stated as follows: He was
the proprietor of M/s.Jayalakshmi Traders, a rice mill at
Bheemavaram in West Godavari District. He borrowed a sum of
Rs.5.00 crore from the bank in the year 2009 towards working
capital for this rice mill. He repaid a sum of Rs.3.30 crore to the
bank by 19.03.2014. However, as he sustained loss in the running
of the mill due to adverse market conditions and other reasons, he
requested the bank for a One Time Settlement in the year 2014.
The bank accepted his plea vide letter dated 01.03.2016 requiring
him to pay Rs.4.32 crore of which, Rs.48.00 lakh was to be paid
upfront and the remaining amount of Rs.3.84 crore was to be paid
by March, 2016 in single or multiple tranches. He paid a sum of
Rs.1.12 crore immediately, which was admitted by the bank, and
thereafter, he paid Rs.10.00 lakh on 14.06.2016. According to him,
this payment was ignored by the bank. His grievance is that
reasonable time was not granted to him for payment of the amount
due under the One Time Settlement. He addressed letter dated
11.05.2016 to the bank requesting extension of time for payment
of the balance but, without considering the same, the bank replied
vide letter dated 25.05.2016 threatening to cancel the One Time
Settlement if he did not pay the full amount by the end of May,
2016. Thereafter, by letter dated 23.06.2016, the bank informed
him that the One Time Settlement offer stood cancelled. He
asserted that no show-cause notice was issued to him prior thereto
and without granting him reasonable time, as per the guidelines of
the Reserve Bank of India, which mandate that a years time
should be given for clearing the amounts due under a One Time
Settlement, the bank cancelled the offer. He made a representation
to the bank on 25.04.2017 seeking six months time to pay the
balance amount due under the One Time Settlement, but the bank
advised him under letter dated 19.05.2017 to apply for a fresh One
Time Settlement. Thereafter, the bank straightaway issued a sale
notice on 22.05.2017 to him proposing to put his mortgaged
properties to sale under the provisions of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (for brevity, the SARFAESI Act), followed by
publication of the e-auction sale notice dated 07.06.2017.
His further grievance is that no fresh demand notice under
Section 13(2) of the SARFAESI Act was issued to him prior to the
sale notice dated 22.05.2017 and thereafter, the bank published
the auction notice dated 07.06.2017. As the demand notice issued
earlier by the bank was in the year 2014 before the sanction of the
One Time Settlement, the petitioner asserted that the bank
necessarily had to issue a fresh demand notice under Section 13(2)
of the SARFAESI Act, as the earlier notice was deemed to have
lapsed due to the intervention of the One Time Settlement
proceedings. He claimed that he was deprived of the right to make
a representation or raise objections under Section 13(3A) of the
SARFAESI Act owing to the bank not issuing him a fresh demand
notice under Section 13(2) of the SARFAESI Act. He further stated
that the bank failed to obtain valuation of his properties from an
approved valuer and fixed the reserve price arbitrarily. He asserted
that no notice had been given to him for fixation of the reserve
price. He pointed out that in the year 2014, before grant of the One
Time Settlement, the reserve price fixed for Item No.1 of his
properties was Rs.5.32 crore but in the auction notice dated
07.06.2017, the reserve price for the same property was fixed at
Rs.4.45 crore. As the values of properties would normally escalate,
the petitioner asserted that fixing of the reserve price for the
property at a much lesser value than was fixed three years ago
manifests that the bank did not obtain valuation of the property
from an approved valuer. He pointed out that the bank did not fix
a reserve price for Item No.2 of his properties in the impugned
auction notice dated 07.06.2017 and asserted that the bank could
not sell the property without fixing the reserve price therefor.
In its counter affidavit, the bank, speaking through the
Deputy General Manager of its Rajahmundry Branch, East
Godavari District, stated as follows: The petitioner, being the
proprietor of M/s.Jayalakshmi Traders, a rice mill at
Bheemavaram, approached the bank for availing cash credit
facilities for his business purposes and the bank sanctioned
Rs.3.50 crore vide sanction letter dated 18.04.2009. The plant and
machinery of the petitioners rice mill was hypothecated with the
bank and an exclusive first charge was created on its entire
current assets and the properties mortgaged by it. A personal
guarantee was also offered by the petitioner in his individual
capacity. In the year 2010, the bank enhanced the loan facilities to
Rs.4.50 crore vide sanction letter dated 18.03.2010 and again, in
the year 2011 to Rs.5.00 crore vide sanction letter dated
01.06.2011. The loan account was renewed vide sanction letter
dated 11.08.2012 with proper documentation. Default having been
committed thereafter in repayment of the interest on this loan
account, the same was declared a NPA as per the guidelines of the
Reserve Bank of India. The bank issued recall notice dated
06.01.2014 calling upon the petitioner to clear the due amount of
Rs.5,34,23,827/- as on 01.01.2014, along with interest accrued
thereon, within fifteen days. Having received the letter, the
petitioner did not come forward. The bank thereupon issued
guarantee invocation notice dated 29.01.2014 to the petitioner
calling upon him to clear his dues, but the petitioner did not clear
the said dues. The bank also issued a demand notice under
Section 13(2) of the SARFAESI Act on 29.01.2014 to clear the
outstanding dues of Rs.5,34,23,827/- as on 01.01.2014, together
with further interest. The petitioner thereupon submitted letter
dated 26.02.2014 putting forth a One Time Settlement proposal
but the same was rejected by the bank by letter dated 08.03.2014.
As the petitioner failed to pay the dues even thereafter, the
bank issued possession notice dated 28.11.2014 under Section
13(4) of the SARFAESI Act read with Rule 8(1) of the Security
Interest (Enforcement) Rules, 2002 (for brevity, the Rules of 2002).
The same was published in Sakshi Telugu Daily and Indian
Express English Daily newspapers on 30.11.2014. An order under
Section 14 of the SARFAESI Act was secured from the District
Magistrate, West Godavari District, in January, 2015, and
pursuant thereto, the Tahsildar, Bheemavaram, delivered the
physical possession of the petitioners mortgaged properties to the
bank under panchanama dated 20.02.2015. Sale Notice dated
02.03.2015 was then issued by the bank to the petitioner but he
did not come forward to clear the dues within thirty days
therefrom. The bank published e-auction notice dated 05.04.2015
proposing to put the petitioners mortgaged properties to sale on
06.05.2015. Challenging this notice, the petitioner filed S.A.No.129
of 2015 before the Debts Recovery Tribunal, Visakhapatnam. By
order dated 12.05.2015 passed in I.A.No.306 of 2015 filed by the
petitioner in the said S.A. for interim relief, the Tribunal granted
stay of all further proceedings subject to the petitioner depositing
10% of the outstanding dues within four weeks from the date of
the order and another 10% within four weeks thereafter. The
petitioner however failed to comply with this conditional order and
the bank proceeded with the auction, but it failed for want of
bidders. The second sale held by the bank with a 10% reduction in
reserve price on 19.08.2015 also failed as there were no bids.
At that stage, the petitioner approached the bank again
seeking a One Time Settlement vide letter dated 02.09.2015.
Having considered the same, the bank approved the One Time
Settlement for a sum of Rs.4.32 crore, vide letter 01.03.2016,
stipulating that the petitioner should pay Rs.48.00 lakh upfront at
the time of acceptance of the letter of approval and the remaining
amount of Rs.3.84 crore by March, 2016, in single or multiple
tranches. One of the terms in the letter dated 01.03.2016 was that
in the event the petitioner failed to honour the One Time
Settlement, the bank would have the right to continue the
SARFAESI action already initiated. Having received the said letter
and accepted the terms and conditions thereof, the petitioner only
paid a sum of Rs.1.12 crore by the end of March, 2016, and did
not make any payments thereafter despite repeated requests. He
submitted letter dated 11.05.2016 requesting some more time to
make the balance payment. The bank replied vide letter dated
25.05.2016 requesting him to pay the balance amount along with
further interest by 31.05.2016, otherwise it would be constrained
to revoke the One Time Settlement. However, he did not make the
payment by the said date and in consequence, the bank revoked
the One Time Settlement and intimated the same to him vide letter
dated 23.06.2016. Having received the said letter, the petitioner
neither paid any amount nor approached the bank and only after
ten months, he addressed letter dated 25.04.2017 requesting six
months time. Reply dated 19.05.2017 was issued by the bank,
whereunder it rejected the petitioners request for grant of six
months time but informed him that he could submit a fresh One
Time Settlement proposal along with upfront payment.
As the bank was not fettered from proceeding further under
the SARFAESI Act, sale notice dated 22.05.2017 was issued to the
petitioner under Rule 8(6) of the Rules of 2002 giving him thirty
days time to clear the dues. The auction notice dated 07.06.2017
under Rule 9(1) of the Rules of 2002 was published on 08.06.2017,
whereunder the sale was scheduled to be held on 28.06.2017. The
bank stated that as it had already issued demand notice dated
29.01.2014 under Section 13(2) of the SARFAESI Act and as the
petitioner had failed to raise any objections thereto but only sought
a One Time Settlement under his letter dated 26.02.2014 which
had been rejected, the said demand notice would not lapse by mere
intervention of the One Time Settlement proceedings as one of the
terms thereof was that it was without prejudice to the right of the
bank to continue with the SARFAESI action already initiated. The
bank therefore asserted that it was under no obligation to issue a
fresh notice under Section 13(2) of the SARFAESI Act.
As regards the petitioners allegations as to the valuation of
the property and fixation of the reserve price, the bank stated that
it had obtained valuation of the property from an approved valuer
of the bank. The bank stated that this valuation was obtained from
an approved valuer on 26.09.2016 and it fixed the reserve price
accordingly, As per the banks policy, the proposed auction was
well within one year from the date of obtaining the valuation. The
bank therefore stated that no cause was made out for interference
and prayed for dismissal of the writ petition.
No reply affidavit was filed by the petitioner rebutting the
averments made in the aforestated counter affidavit.
Sri C.Ramachandra Raju, learned counsel for the petitioner,
would strenuously contend that the bank acted illegally all through
its dealings with his client. He would submit that sufficient time
was not given to the petitioner in terms of the Reserve Bank of
India guidelines for making the payment due under the One Time
Settlement. He would assert that a years time had to be given as
per these guidelines. He would further point out that no show-
cause notice was issued to the petitioner prior to cancellation of
the One Time Settlement offered under the letter dated 01.03.2016
and therefore, there is a clear violation of the principles of natural
justice. He would point out that the payment of Rs.10.00 lakh by
the petitioner pursuant to such One Time Settlement offer was
ignored, clearly indicating the lack of application of mind by the
bank. He would assert that the earlier demand notice under
Section 13(2) of the SARFAESI Act is deemed to have lapsed by
virtue of the One Time Settlement proceedings which intervened
and therefore, the bank was legally bound to start measures afresh
under the SARFAESI Act from scratch, by issuing a demand notice
under Section 13(2) thereof.
Per contra, Sri B.Harinath Rao, learned counsel for the bank,
would point out that the One Time Settlement was approved by the
bank subject to terms and conditions and one such term was that
the sanction of the One Time Settlement by the bank was without
prejudice to the SARFAESI action already initiated by it. He would
therefore assert that mere intervention of the One Time Settlement,
which failed in any event, would not set at naught the proceedings
already initiated under the SARFAESI Act and therefore, the bank
was entitled to proceed on the strength of the demand notice
issued on 29.01.2014. Thus, there was no need for it to start the
proceedings afresh. Learned counsel would further point out that
though the time stipulation, as per the letter dated 01.03.2016,
was by March, 2016, the bank extended time for making the full
payment up to the end of May, 2016, but the petitioner did not
choose to avail the same. Learned counsel would point out that
even as on date, the petitioner failed to make further payments
after paying the sum of Rs.10.00 lakh. He would further submit
that this amount would be given due credit by the bank and that
mere non-mentioning of the receipt of this amount does not vitiate
the proceedings.
In reply, Sri C.Ramachandra Raju, learned counsel, would
assert that the bank has not followed the minimum one year
stipulation for making payments under a One Time Settlement as
per the Reserve Bank of India guidelines and cancellation of the
offer within three months is ex facie illegal. He would again assert
that the bank necessarily had to initiate proceedings afresh under
the SARFAESI Act and the auction sale held on 28.06.2017 was
therefore vitiated on grounds more than one.
At the outset, it may be noted that this writ petition was filed
only on 21.06.2017. Though the main grievance of the petitioner is
directed against the cancellation of the One Time Settlement by the
bank under its letter dated 23.06.2016, no explanation was offered
by the petitioner as to why he did not immediately seek redressal
of his grievance with regard to such cancellation. It was only on
25.04.2017 that he addressed a letter to the bank seeking six
months time to make the payment in terms of the One Time
Settlement offered to him by the bank under its letter dated
01.03.2016. It is therefore clear that the petitioner did not choose
to take any steps till the bank published the auction notice dated
07.06.2017 in the newspapers on 08.06.2017, proposing to sell his
mortgaged properties on 28.06.2017.
We are informed by Sri B.Harinath Rao, learned counsel for
the bank, that the sale held on 28.06.2017 also did not materialize
for want of bidders. Ergo, the grievance of the petitioner as regards
the said auction sale notice and the reserve price fixed therein is
rendered purely academic and does not warrant consideration on
merits. In any event, the claim of the bank that it obtained
valuation of the subject property from an approved valuer on
26.09.2016 and thereupon fixed the reserve price stands
unrebutted. Be that as it may.
The issues that however survive for consideration are
(1) whether the cancellation effected by the bank under the letter
dated 23.06.2016 is valid, legal and binding on the petitioner, and
(2) whether the bank could have resorted to further measures
under the SARFAESI Act on the strength of the demand notice
issued on 29.01.2014 under Section 13(2) thereof.
In so far as the first issue is concerned, though the petitioner
claimed that the bank was bound to give one years time for
payment of the dues in terms of the One Time Settlement as per
the guidelines prescribed by the Reserve Bank of India, no such
guidelines were placed before this Court either along with the writ
petition or during the course of arguments.
On the face of it, the claim of the petitioner that he is entitled
to a years time to clear the reduced dues in terms of the One Time
Settlement appears to be illogical and against public interest. To
begin with, the bank deals with public monies deposited by its
customers and having extended loan facilities on the strength
thereof to borrowers, such as the petitioner, the very fact that it is
settling for a far lesser amount than is actually due from such
borrower, in terms of repayment of the principal loan amount
along with accrued interest thereon, is itself against commercial
and public interest. However, as banks do resort to such
settlements so as to cut their losses by at least making part-
recovery of their lawful dues, such options exercised by banks
cannot be held to be unlawful. However, when banks approve such
reduced One Time Settlement offers to defaulting borrowers, it
cannot be doubted that an indulgence is being shown to such
borrowers and they cannot, as a matter of right, demand that they
should be given sufficient time, as per their own convenience, to
pay even such reduced dues. The very scheme and thrust of a One
Time Settlement is aimed at enabling the bank to make recovery of
the reduced dues, at least, within the stipulated time. If the
borrower fails to comply with this time stipulation, he would no
longer be entitled to the benefit of reduction in his dues as per
such One Time Settlement.
Viewed in this light, it is clear that though the bank required
the petitioner to make payment of the reduced dues of Rs.4.32
crore by March, 2016, he only deposited Rs.1.12 crore by the end
of March, 2016. An additional sum of Rs.10.00 lakh was paid by
him thereafter on 14.06.2016. When he asked for further time to
make payment of the balance by letter dated 11.05.2016, the bank
replied on 25.05.2016, giving him time up to 31.05.2016 to make
the payment. He however failed to do so. Even thereafter, the bank
took no action till 23.06.2016, when it revoked and cancelled the
offer. In effect, the petitioner had nearly three months after
31.03.2016 to make the payment, but he did not choose to do so.
As already pointed out supra, he silently accepted the revocation/
cancellation of the One Time Settlement by the bank under the
letter dated 23.06.2016 and took no further steps till the end of
April, 2017. This clearly demonstrates the lack of bonafides on the
part of the petitioner as it reflects upon his seriousness in taking
advantage of the One Time Settlement offered to him by the bank.
The question of the bank calling upon him to show-cause before
cancelling the One Time Settlement does not arise as no such
requirement is posited in the terms and conditions of the One Time
Settlement. This Court therefore finds no illegality or irregularity in
the bank resorting to cancellation of the One Time Settlement
offered to the petitioner.
In so far as the second issue is concerned, it is not in
dispute that the bank, when it sanctioned the One Time Settlement
under its letter dated 01.03.2016, made the same subject to the
terms and conditions mentioned in the Annexure. Clause A(f)(iv) of
the Terms and Conditions of the Settlement reads as follows:
iv. In respect of cases where SARFAESI action has
already been initiated, such actions would be kept in
abeyance till receipt of entire payment under OTS by Bank.
In case, the borrower/firm fails to honour the OTS, the Bank
shall have the right to continue SARFAESI action already
initiated.
In terms of the aforestated clause, the bank reserved its right
to continue with the action already initiated by it under the
SARFAESI Act in the event the petitioner failed to honour the One
Time Settlement. When the sanction of the One Time Settlement by
the bank was without prejudice to its rights in relation to the
demand notice dated 29.01.2014 already issued by it under
Section 13(2) of the SARFAESI Act, it cannot be construed that the
intervention of this One Time Settlement would have the effect of
making the said demand notice lapse.
Though Sri C.Ramachandra Raju, learned counsel, would
rely upon the judgment of this Court in TAHER AHMED SIDDIQUI
V/s. THE STANDARD CHARTERED BANK , the ratio laid down in
the said case has no application presently. That was a case where,
having issued a demand notice under Section 13(2) of the
SARFAESI Act, the secured creditor took no further steps for a long
period of four years. It was in these circumstances that this Court
held that, having slept over the demand notice with no reason
whatsoever, the secured creditor could not fall back upon it to
sustain the proceedings continued thereafter under the SARFAESI
Act. The facts in the case on hand, on the contrary, demonstrate
that the bank was utmost diligent in pursuing further measures
under the SARFAESI Act after issuance of the demand notice and
it was only after two attempts on its part to sell the secured assets
came to naught that it approved the One Time Settlement proposal
of the petitioner.
On the above analysis, this Court finds that the mere factum
of the bank having approved the One Time Settlement offer under
its letter dated 01.03.2016, did not have the effect of wiping out
the earlier demand notice dated 29.01.2014 issued by it under
Section 13(2) of the SARFAESI Act or the steps taken thereafter.
The bank was therefore entitled to fall back upon the said demand
notice and take further steps in the form of the impugned sale
notice dated 22.05.2017 and the auction notice dated 07.06.2017.
As already stated, the cancellation of the One Time Settlement by
the bank under its letter dated 23.06.2016 also does not brook any
interference, be it on facts or on any other ground.
The writ petition is therefore devoid of merit and is
accordingly dismissed.
Interim order dated 27.06.2017 is already rendered
infructuous as the sale held on 28.06.2017 did not materialise and
the same is accordingly vacated.
Pending miscellaneous petitions, if any, shall also stand
dismissed. No order as to costs.
____________________
SANJAY KUMAR,J
____________________ P.KESHAVA RAO,J 15th FEBRUARY, 2018