Union Bank of India Vs. Rajendra Wadhwa and Others - Court Judgment

1. This petition has been filed against the order passed by the Debts Recovery Appellate Tribunal, Camp at Jabalpur in Appeal No. 133/2011. The Appellate Tribunal has dismissed the appeal and affirmed the order passed by the Debts Recovery Tribunal. The question for consideration in the petition before this Court is interpretation of Rule 8 (2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (hereinafter referred as to "the Act").

2. The respondent No.1 had a credit (Hypothetication) and Bank Guarantee account with the petitioner bank. His account was classified as Non Performing Assets (NPA). The proceeding was initiated against respondent No.1 under the Act. A demand notice was issued to the respondent on 3.9.2007 under Section 13 (2) of the Act. Thereafter, a notice dated 21.11.2007 was issued by the bank for taking possession of the secured assets. In terms of notice the possession of secured assets had been taken on 7.12.2007. The possession notice was published in the news paper in accordance with the Rules of the Act, as claimed by the bank.

3. The petitioner Bank published a notice in the news paper on 26.2.2008 in regard to holding auction of sale of properties. The respondent filed a petition against the sale of properties, which was registered as W. P. No.3541/2008. The Court stayed the sale of properties vide order dated 26.3.2008. The petitioner-Bank had challenged the order in appeal and the Division Bench vide order dated 28.3.2008 passed in W. A. No.376/2008 permitted the petitioner to continue with auction which was scheduled to be held on 29.3.2008. The Division Bench further ordered that sale shall not be confirmed. Ultimately, the petitioner-Bank sold three properties out of eight mortgaged properties in auction held on 30.6.2008 for a consideration of Rs.12.85 lacs. Thereafter, a Securitization Application was filed before the Debts Recovery Tribunal under Section 17 of the Act on 31.12.2008. The Debts Recovery Tribunal allowed the application set aside the sale of secured assets vide order dated 30.8.2011 on the ground that it was mandatory for the bank to publish the possession notice in the news paper within seven days from the date of taking possession of secured assets in accordance with Rule 8(2) of the Act. Because there was violation of the Rule hence the proceeding conducted by the bank in regard to sale of the properties are null and void. Against the aforesaid order an appeal was filed by the petitioner before the Debts Recovery Tribunal. The same has been dismissed by the Tribunal holding that the compliance of Rule 8(2) of the Act is mandatory.

4. It is undisputed that the petitioner-bank had taken the possession of the secured assets on 7.12.2007. However, the publication of the aforesaid notice was made in two news papers on 20.12.2007 beyond the period of seven days as prescribed under Rule 8 (2) of the Act which came into force w.e.f. 26.10.2007. The same reads as under :

"8(2) The possession notice as referred to in sub-rule (1) shall also be published, as soon as possible but in any case not later than seven days from the date of taking possession, in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorized officer" (Emphasis supplied)

5. The language of Rule mandates that the possession notice in regard to sub-rule (1) shall also be published as soon as possible but in any case not later than seven days from the date of taking possession.

6. The Supreme Court in the matter of Authorised Officer, Indian Overseas Bank Vs. Ashok Saw Mill (2009) 8 SCC 366 has held as under:

"30. The scheme of the SARFAESI Act as it now stands after the 2004 amendment for enforcement of Security interest is that notwithstanding the provisions of Section 69 or Section 69-A of the Transfer of Property Act, any security interest created in favour any secured creditor may be enforced, without the intervention of the Court or the Tribunal, in accordance with the provisions of the Act."

"35. In order to prevent misuse of such wide powers and to prevent prejudice being caused to a borrower on account of an error on the part of the bank or financial institution, certain checks and balances have been introduced in Section 17 which allow any person, including the borrower, aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor, to take an application to the DRT having jurisdiction in the matter within 45 days from the date of such measures having taken for the reliefs indicated in sub-section (3) thereof."

7. From the judgment of the Supreme Court it is clear that the bank is obliged to take action for recovery and its dues in accordance with the provisions of the Act and Rule made thereunder.

8. The Supreme Court in the case of Lachman Dass Vs. Jagat Ram and others, (2007) 10 SCC 448 has held that right to hold property is a constitutional right as well as a human right. A person cannot be deprived of his property except in accordance with the provisions of statute.

9. The Division Bench of Orissa High Court in regard to compliance of Rule 8 of the Act, in the matter of Swastik Agency Vs. State of India, AIR 2009 Orissa 147 has held as under : "13. Similar view has been reiterated by the Apex Court in Chairman, Indore Vikas Pradhikaran v. Pure Industrial Coke and Chemicals Ltd. and Ors. : AIR2007SC2458 ; and Commissioner of Municipal Corporation, Shimla v. Prem Lata Sood and Ors. (2007) 11 SCC 40 The condition precedent for taking away some one's property or disposing of the secured assets, is that the authority must ensure compliance of the statutory provisions."

10. The arguments advanced by the learned counsel for the petitioner that compliance of Rule 8 (2) of the Act is not mandatory and the possession notice can also be published beyond the period of seven days from the date of taking possession could not be accepted because Rule itself says that the possession notice is to be published in the leading newspapers not later than seven days from the date of taking possession.

11. The Supreme Court in the matter of Sainik Motors Vs. State of Rajasthan, AIR 1961 SC 1480, has held that word "shall" is ordinarily mandatory but it is some time interpreted as directory, if the context or intention otherwise demand. The Supreme Court in the matter of State of U. P. vs. Baburam Upadhya, AIR 1961 SC 751 in regard to use of word "shall" has held as under:

"the Court may consider inter alia, the nature and design of the statute, and the consequences which would follow from construing it the one way or the other; the impact of other provisions whereby the necessity of complying with the provisions in question is avoided; the circumstances, namely, that the statute provides for a contingency of the non-compliance with the provisions; the fact that the non-compliance with the provisions is or is not visited by some penalty; the serious or the trivial consequences, that flow therefrom; and above all, whether the object of the legislation will be defeated or furthered".

12. In the light of the language of Rule 8 (2) of the Act to the effect that in any case not later than seven days from the date of taking possession impliedly rules that the use of word "shall" in the Rule is mandatory.

13. The counsel for the petitioner has also raised another objection that the respondent had not filed the application before the Tribunal under Section 17 of Act within the period of limitation. Aforesaid argument advanced by the counsel for the petitioner cannot be accepted on the ground that the High Court vide order dated 10.12.2008 passed in W. P. No.3541/08 granted liberty to the respondent to file the application before the appropriate forum and the interim protection granted by the Court shall continue and thereafter the application was filed on 31.12.2008. Hence it cannot be said that the application filed by the respondent before the Tribunal was not maintainable.

14. In view of the aforesaid, we find no merit in this petition, it is hereby dismissed. There shall be no order as to costs.