R.S. Kulhari, Chairperson

1. This appeal has been preferred under section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "the SARFAESI Act") against the order dated 05.08.2019 passed by the Presiding Officer, DRT, Lucknow, whereby the securitization application (S.A.) filed by the respondent no. 1 was allowed and proceedings of the Bank were set aside.

2. The brief facts of the matter giving rise to this appeal are, that the respondent no. 2-M/s. Vedanta Signal Pvt. Ltd. was granted certain credit facilities through its directors-respondents no. 3 & 4. The loan was secured by the personal guarantee of the directors/guarantors and also by mortgage of immovable properties belonging to the respondent no. 1 and Sushila Gyanchandani. The borrowers failed to maintain financial discipline, hence the Bank classified the account as NPA and issued demand notice dated 1.7.2014 demanding a sum of Rs. 3,64,95,599/-. Thereafter, the possession notice dated 30.08.2014 was issued under section 13(4) of the SARFAESI Act and after taking symbolic possession, the sale notice was issued on 2.10.2014 fixing the auction on 6.11.2014.

3. The respondent No. 1 challenged the proceedings of the Bank by filing the present S.A. However, it came to the notice of the Bank that the mortgagor-Sushila Gyanchandani expired on 5.6.2014 and notices were not served to her legal heirs, hence the Bank cancelled all the notices and actions taken as above and informed the borrowers/guarantors.

4. Thereafter, fresh demand notice was issued on 16.12.2014, to which the respondent no. 1 filed objections and the same were decided by the Bank vide letter dated 23.02.2015. Since no amount was paid in response to the demand, therefore, the possession notice was issued on 25.03.2015 and was sent to the borrowers on 26.03.2015. Subsequently, the sale notice was issued on 17.05.2015 for auction of the property on 26.06.2015. The S.A.-applicant made necessary amendment in the pending S.A. and the Bank has filed a detailed reply. The interim application filed by the respondent no. 1 was declined by the Tribunal below. The property was auctioned on the scheduled date and on receipt of sale price, the sale certificate was issued on 28.07.2015 in favour of the auction purchaser-respondent no. 5. After execution of sale deed, the physical possession of the property has also been handed over.

5. The Tribunal below vide impugned order observed that non-registration of mortgage with CERSAI in time has not caused any prejudice to the borrower and also that the representation filed by the respondent no. 1 was duly decided by the Bank. However, allowed the S.A. on the ground that the Bank has diverted the funds in favour of M/s. Maruti Corporation in violation of the conditions of sanction letter and prior notice was not served to the mortgagor before taking symbolic possession on 25.03.2015. On these two grounds, all the proceedings including sale were set aside and the Bank was directed to return the sale price to the auction purchaser with interest @8% per annum simple. Being aggrieved by the said order, the present appeal has been filed by the Bank.

6. Learned counsel for the appellant submitted that the appellant-Bank had not diverted any funds and instead made the payment of the cheques duly issued by and on behalf of the principal borrower. No instruction had ever been given to the Bank that cash withdrawal be restricted. The Bank cannot refuse the payment of cheques, if the amount is withdrawn in the form of cash on the basis of a valid negotiable instrument. Thus, the allegation of the respondent-guarantor is unfounded that the Bank has diverted the funds or committed irregularity in allowing the withdrawal of cash. Further, the S.A.-applicant-respondent no. 1 himself was the Senior Manager of the Company, who used to make the transactions, but never informed the Bank that any diversion of funds was being made or wrong transactions were carried out at any time.

7. With regard to service of possession notice, it was contended that the possession notice dated 25.03.2015 was dispatched on 26.03.2015 through registered post, which was received by the guarantor on 28.03.2015. There is no provision for giving prior notice before taking symbolic possession. The Tribunal below has erred in observing that prior notice was required to be issued on the basis of the judgment passed by the Hon'ble Madras High Court in K.R. Krishnegowda & Anr. Vs. Chief Manager/Authorized Officer, Kotak Mahindra Bank, , whereas the Hon'ble Allahabad High Court in Writ-C No. 9731 of 2019-M/s. Mahesh Industries Pvt. Ltd. & 4 others Vs. The Karur Vysya Bank Ltd., decided on 08.08.2019 has held that no such prior notice is required to be issued. Thus, the impugned order is not sustainable.

8. Learned counsel for the auction purchaser contended that after payment of full sale consideration, the sale certificate has been issued and the sale deed has also been executed. The possession of the property has been taken by the auction purchaser, therefore, the sale has become absolute.

9. On the contrary, the learned counsel for the respondent no. 1 submitted that the Bank was under obligation to get the mortgage registered with CERSAI, but it had failed to register the same within stipulated period and the registration was made on 24.06.2015 after issuance of demand notice. Thus, the Bank has violated the terms of the sanction letter, therefore, it was not entitled to proceed under the provisions of the SARFAESI Act.

10. It was further contended that the S.A.-applicant has submitted a letter dated 17.07.2015 to the Bank for redemption of the property, but no opportunity was granted for redemption and the sale certificate was issued on 28.07.2015, whereas the reply of the Bank was received by the S.A.-applicant on 29.07.2015. Thus, the Bank has acted as a property dealer, which is not permissible, as held by the Hon'ble Supreme Court in Mathew Varghese Vs. M. Amritha Kumar and others, (2014) 5 Supreme Court Cases 610 .

11. The learned counsel has also canvassed that the director of the company-respondent no. 2 was in Jail from 18.03.2013 to 2.9.2013, but the Bank had allowed the cash withdrawal of more than Rs. 30.00 lacs and the transactions of more than Rs. 45.00 lacs during that period, but no proof has been placed on record that any authority was obtained from Sanjay Dubey during that period. Hence the account became NPA because of these wrong transactions permitted by the Bank. Besides, there was condition in the sanction letter that the borrower-company shall not divert the fund to any person or to its Associate firm, whereas the Bank has allowed the transactions to the tune of Rs. 14.51 lacs in favour of M/s. Maruti Corporation. Thus, the Tribunal below has rightly recorded the finding that the Bank has diverted the funds.

12. It was also submitted that a prior notice before taking possession is mandatory, so as to inform the mortgagor about the intention of the Bank for taking symbolic possession. The notice sent after taking possession is of no consequence. The learned counsel has referred the judgments passed by the Hon'ble Supreme Court in Standard Chartered Bank Vs. V. Noble Kumar & Others, (2013) 9 Supreme Court Cases 620 and in Civil Appeal No. 10873 of 2018-M/s. Hindon Forge Pvt. Ltd. & Anr. Vs. The State of Uttar Pradesh through District Magistrate, Ghaziabad & Anr., decided on 01.11.2018 to say that the Hon'ble Supreme Court has also held that prior notice before possession is a basic requirement of Rule 8(1) of the Rules, 2002. Thus, there is no infirmity in the impugned order passed by the DRT.

13. Learned counsel for the respondent no. 3 adopted the arguments as advanced on behalf of the respondent no. 1.

14. I have considered the rival contentions of the learned counsels for the parties and perused the record.

15. A perusal of the impugned order reveals that the issue of registration with CERSAI was decided in favour of the Bank, but the S.A.-applicant has not challenged the same by filing cross appeal, so it has attained finality. However, the argument advanced in this behalf is not tenable. Although it is true that the loan was sanctioned on 26.03.2012 and the mortgage was registered with CERSAI on 24.06.2015, but there is no impediment in the SARFAESI Act that the Bank cannot proceed under the SARFAESI Act without registration with CERSAI. Further, the registration is being made in order to protect the rights of the Bank as a proof of mortgage. Thus in no way it causes any prejudice to the borrower-mortgagor, if not registered in time. As such the Tribunal below has rightly decided this issue against the S.A.-applicant.

16. With regard to redemption of the property, no finding has been recorded by the DRT, but since it has been argued before this Tribunal, therefore, it is apt to ponder over it. As per section 13(8) of the SARFAESI Act prevalent at the time of auction, all the dues of the secured creditor together with interest, costs, charges and expenses etc. were required to be tendered at any time before the date of sale or transfer. In that eventuality, the secured creditor could not transfer the secured asset. In the instant case, no such specific offer was made by the respondent no. 1 as required in accordance with the statute. The letter dated 17.07.2015, which is being stated to have been written for alleged redemption, is a conditional letter having the subject "request letter for information". In the said letter, no amount was mentioned to be tendered and instead, five items were narrated to be adjusted in the loan account and thereafter a request was made to provide the remaining outstanding in order to exercise the redemption. Thus, by no stretch of imagination, it can be said to be a redemption letter, as required under section 13(8) of the SARFAESI Act.

17. Moreover, the Bank has replied this letter vide letter dated 27.07.2015 directing the guarantor to deposit Rs. 386.18 lacs plus interest and expenses for cancellation of the sale already conducted in favour of the auction purchaser. This is not the case of the respondent no. 1 that even after receipt of this letter, he has ever offered this amount before the registration of sale deed and delivery of possession of the property.

18. The contention that the letter was received on 29.07.2015 and was dispatched by the Bank on 27.07.2015 at 10PM, is of no avail, because it was issued on 27.07.2015 before issuance of sale certificate on 28.07.2015 and it is immaterial, at what time the letter was delivered to the postal authorities. Even after receipt on 29.07.2015, the S.A.-applicant has not taken any steps towards redemption of the property. Thus it cannot be said that the Bank has not entertained the alleged redemption proposal of the borrower.

19. I respectfully agree with the proposition laid down by the Hon'ble Supreme Court in Mathew Varghese Vs. M. Amritha Kumar(Supra) that all the mandatory requirements are strictly to be followed by the Bank and redemption of the property should also be allowed, but the principle laid down in the judgment is not applicable to the facts of the present matter, as the Bank has not committed any irregularity in selling the property.

20. So far as the alleged diversion of funds, cash withdrawal and issue of wrong transactions are concerned, the respondent no. 1 has not denied the fact that he himself was Senior Manager of the Company and was looking after its affairs including dealing with the Bank. The statement of account produced by the Bank (page 104, 109 and 111 of the memo) indicates that the various transactions including cash withdrawals were made through and in favour of Umang Gyanchandani. Some entries are also there, whereby the amount was transferred in favour of Sushila Gyanchandani. Thus, it is crystal clear that the respondent no. 1 was well aware about each and every transaction conducted on behalf of the company, yet he has never raised any objection with regard to any transaction nor informed the Bank that the amount in cash had been wrongly withdrawn or there was any siphoning of funds.

21. Secondly, the Bank is bound to pay the cheque issued under the Negotiable Instrument Act, if the same is otherwise in order and payable in view of sanctioned limit. It is none of the business of the Bank to raise question that for what purpose the cheque was issued or for what purpose the cash is withdrawn. Moreover, the withdrawal of cash is not prohibited, when a valid cheque is issued. The fact that Sanjai Dubey was in Jail for some period, does not have any impact on the transactions, because the signatures on the cheques may be appended in advance or it may be got singed from Jail. The respondent is not alleging that any forged signatures were appended on the cheques paid by the Bank.

22. In the same sequence, the allegation of diversion of fund is also devoid of force. Firstly, the Bank has passed the cheques validly issued by the respondent on behalf of the company in favour of the drawee. The Bank cannot return the cheque without any cogent reason. The respondent no. 1 has never informed the Bank that the borrower-company is diverting the fund in favour of M/s. Maruti Corporation without purchase of any goods. Thus, the Bank was bound to honour the cheque issued in favour of any party or any person. Secondly, in the sanction letter, it was an undertaking of the company that "it shall not divert any part of the working capital (Page No. 94 of the memo) for business of its Associate concerns". Thus, the company was bound to abide by this undertaking. The consequence of the defiance made by the company would have been that the Bank might have cancelled the limit or invoked the loan, but in no way, this undertaking is applicable on the Bank. The Bank was not supposed to return the cheques issued in favour of M/s. Maruti Corporation or in favour of any other concern, unless it was specifically brought to the notice of the Bank that the funds were being diverted inappropriately. Thirdly, the respondent no. 1 has not made any complaint anywhere including lodging FIR against the company to the effect that the borrower-company has ever diverted the funds to the detriment of the guarantors.

23. Coming to the issue of service of possession notice, it is undisputed that the symbolic possession was taken on 25.03.2015 after issuance the possession notice dated 25.03.2015. The possession notice was dispatched on 26.03.2015 by registered post, which was received by the respondent no. 1 on 28.03.2015 as admitted in paragraph no. 5.49(N) of the memo of appeal. The respondent no. 1 has not raised any specific objection with regard to affixation on the premises and publication of the notice in the newspapers. Thus, it is proved that the possession notice was duly sent by the Bank at the earliest and was received by the S.A.-applicant. There is no specific provision in the SARFAESI Act that a prior notice is required to be served before taking symbolic possession. The possession notice may be delivered to the party at the time of symbolic possession and if it could not be delivered, then the option with the Bank is to send it by post. The Tribunal below has erred in relying upon the judgment passed by the Hon'ble Madras High Court in K.R. Krishnegowda Vs. Chief Manager/Authorized Officer, Kotak Mahindra Bank (Supra), because thereafter the Hon'ble Supreme Court has decided the issue of possession of the property in Standard Chartered Bank Vs. V. Noble Kumar (Supra). In para 36 of the judgment, three methods were provided for taking possession of the secured assets including physical possession. This was further elaborated in the judgment of M/s. Hindon Forge Pvt. Ltd. & Anr. Vs. The State of Uttar Pradesh (Supra).

24. A similar matter came-up for consideration before this Tribunal in the appeal filed by Karur Vysya Bank, in which the order passed by the DRT with regard to requirement of prior notice was quashed. The said order dated 30.01.2019 of this Tribunal was challenged by the borrowers before the Hon'ble High Court in the writ petition No. 9731 of 2019. The Hon'ble High Court has been pleased to affirm the order of this Tribunal in M/s. Mahesh Industries Pvt. Ltd. Vs. The Karur Vysya Bank Ltd. (Supra) holding that no prior notice before taking symbolic possession is required. In that judgment, the Hon'ble High Court has discussed both the judgments of Hon'ble Supreme Court passed in Standard Chartered Bank Vs. V. Noble Kumar and M/s. Hindon Forge Pvt. Ltd. & Anr. Vs. The State of Uttar Pradesh (Supra). The principle laid down by the Hon'ble Allahabad High Court is squarely applicable on the facts of the present matter. Thus, the argument cannot be accepted that a prior notice is required to be given before taking symbolic possession. The Tribunal below has not considered the factual and legal aspects in right prospective.

25. Moreover, it is to be noted that the property has been auctioned on 26.06.2015, the sale deed has been executed in favour of the auction purchaser and the possession of the property has been handed over, therefore, the sale cannot be disturbed at this stage, as the right to redemption of the property has already been distinguished in view of the judgment passed by the Hon'ble Supreme Court in Dwarika Prasad Vs. State of Uttar Pradesh, AIR 2018 Supreme Court 1286. Hence, the order impugned is liable to be set aside.

26. In view of the aforesaid, the appeal is allowed and the impugned order dated 05.08.2019 is set aside. No order as to costs.

27. A copy of this judgment be sent to the parties as well as the DRT concerned and be also uploaded on the e-DRT portal.