The Debt Recovery Tribunal (DRT) recently passed its order in Securitization Application (SA) No.51/2024, which was presented on January 29, 2024. The case addressed the validity of a sale notice served by Kotak Mahindra Bank Limited under the SARFAESI Act, 2002, in relation to a contested property situated in Bengaluru.
The Applicant, who was the legal owner and in possession of the property, had objected to the December 24, 2023, auction notice by which the property was put up for sale on January 31, 2024, at a reserve price of Rs.1.30 crore. The Applicant had contended that the Respondent bank had no right to sell since it had obtained the debt by way of a void assignment deed.
Applicant's Case:
The Applicant averred that he had legally acquired the property years ago by way of valid sale deeds, rectification deeds, and a confirmatory deed, and had further built a house on the property. The Respondent could not take mortgage rights, as per him, because the documents on which reliance was placed by the bank, i.e., the assignment deed, were defective or spurious.
The Applicant contended that a certain Smt. Rathnadevi had dishonestly prepared a sale deed in regard to the same property, which the bank had taken as security, and that the issue of alleged fraud was already pending with the Civil Court in Bengaluru. On this basis, the Applicant contended that the act of the bank was neither valid nor enforceable under the SARFAESI Act.
Respondent's Stand:
As a reply, Kotak Mahindra Bank revealed that it had purchased the loan account from the State Bank of India through an assignment deed made on March 23, 2006. The bank contended that the borrowers, who had failed to repay, had hypothecated the property in its favor and that it was entitled to enforce the mortgage as a secured creditor under law.
The bank also argued that the Applicant was making difficulties only and had also instituted a civil action on the same topic, thus vexing the bank by way of dual proceedings.
Tribunal's Examination:
The Tribunal went through the arguments and documents filed by both the parties with great care. It noted that the assignment deed, on which Kotak Mahindra Bank was relying for its claim, was not brought on record in its entirety despite clear instructions being issued repeatedly. Few pages were produced, but never was the full deed brought on record.
The Tribunal added that according to the law, non-production of the original assignment deed or its certified copy can result in an unfavorable presumption against the bank. Notably, it was also highlighted that as of 2006, Kotak Mahindra Bank was a commercial bank but neither registered as an Asset Reconstruction Company (ARC) nor Securitization Company (SC). As per the unamended Section 5 of the SARFAESI Act, only SCs or ARCs registered with the Reserve Bank of India may take financial assets.
As Kotak Mahindra Bank neither was an ARC nor an SC during 2006, the assignment deed done by SBI in its name failed to comply with the SARFAESI Act requirements at that time. The Tribunal, therefore, ruled that the bank had no right to invoke SARFAESI provisions under these circumstances.
Tribunal's Findings:
The DRT held that the actions of Kotak Mahindra Bank, such as issuing the demand notice under Section 13(2) and auction sale notice under Section 13(4), were not in compliance with the SARFAESI Act. The Tribunal also made it clear that issues pertaining to fraud in the property documents would be outside the jurisdiction of the Debt Recovery Tribunal and would lie in the Civil Court, where there was already a pending separate suit.
Final Order:
Acting on its conclusions, the Tribunal made the following orders:
- The SARFAESI action initiated by the Respondent, i.e., the demand notice and subsequent proceedings, were held to be invalid and nullified.
- The December 24, 2023, sale notice was held void and revoked.
- Both parties were ordered to pay their own costs.
The Tribunal directed that a copy of its final order be notified to both parties as per rules applicable.
Section 19, RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT - 1993
Section 13, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act - 2002
Section 17, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act - 2002
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
