the Security Interest (Enforcement) Rules, 2002 Rule 9 Sub-rule (1) No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in news papers or notice of sale has been served to the borrower.= It is thus clear that sale of an immovable property of the defaulted borrower can be undertaken only after expiry of thirty days period after the notice in that regard is delivered to the borrower and also it is published in newspapers for the information of the general public. The purpose that is sought to be achieved from this requirement is to provide one more opportunity to the defaulted borrower to liquidate the liability before the expiry of thirty days time. Further, even if he does not have the necessary financial wherewithal to clear the liability entirely on his own, he will be able to utilize this time for organizing the necessary help for liquidating the liability. Alternatively, the defaulting borrower may scout for an appropriate source or person, who himself can acquire the asset for as nearer the market price prevailing as is possible. In the process, the interests of the secured creditor are also protected equally.Hence, service of notice and then giving a minimum of thirty days time before the asset is liquidated is bound to be regarded as a mandatory requirement. Whereas, in the instant case, though a decision has been taken to deliver the notice of the intended sale of the respective secured assets, but however, it has resulted in serving the notices providing for less than thirty days time for the borrower. By thus short-circuiting the requirement of Rules 8 and 9, read together, the chances of the borrower securing a prospective purchaser entirely on his own, got impaired. We are therefore, of the opinion that the respondent bank has not complied with the mandatory requirements of Rules 8 and 9 and hence, it cannot liquidate the secured asset for realizing the debt due. In that view of the matter, we have no hesitation to allow these Writ Petitions and we do it accordingly. No costs.

THE HONBLE SRI JUSTICE NOOTY RAMAMOHANA RAO AND THE HONBLE DR. JUSTICE B.SIVA SANKARA RAO                  

WRIT PETITIONS No. 3676 OF 2016 and batch    

01-03-2016

M/s Bhuvana Kisan Seva Kendra Proprietor Gopagoni Sugunakar.Appellant  

Bank of Baroda.Respondent  

Counsel for the Appellant: Sri B.S. Prasad

Counsel for the Respondent:Sri G. Vasantha Rayudu.


<GIST:

>HEAD NOTE:  

? Cases referred

THE HONBLE SRI JUSTICE NOOTY RAMAMOHANA RAO            
AND
THE HONBLE DR. JUSTICE B. SIVA SANKARA RAO        

WRIT PETITIONS No. 3676, 3685, 3766 AND 3795 OF 2016    

COMMON ORDER : (per Honble Sri Justice Nooty Ramamohana Rao)      
      These Writ Petitions can be disposed of by this common
order as the respondent bank namely Bank of Baroda is common  
in all the cases.  Further, the question that has fallen for our
consideration is also identical in all these Writ Petitions.
      In all these cases, the securitization measures adopted by
the respondent bank, in particular proposing to put the secured
asset to sale is questioned. There is no dispute on the factual
count that the respective writ petitioners are borrowers and they
answer the said expression as defined in Section 2(1)(f) of the
Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (for short, the Act),
which has been ushered in to regulate the securitization and
reconstruction of financial assets and enforcement of security
interests.  The respondent bank answers the description of bank,
as defined in clause (c) of sub-section (1) of Section 2, as it is a
banking company within the meaning of Section 5(c) of the
Banking Regulation Act, 1949.  There is also no further difficulty
for us to hold that default has been committed as was defined in
Section 2(1)(j).  The expression financial asset has been defined in
Section 2(1)(l) in the following terms:
 financial asset means debt or receivables and includes
i)      a claim to any debt or receivables or part thereof, whether
secured or unsecured; or
ii)     any debt or receivables secured by, mortgage of, or charge on,
immovable property; or
iii)    a mortgage, charge, hypothecation or pledge of movable
property; or
iv)     any right or interest in the security, whether full or part
underlying such debt or receivables; or
v)      any beneficial interest in property, whether movable or
immovable, or in such debt, receivables, whether such interest is
existing, future, accruing, conditional or contingent; or
vi)     any financial assistance.

Consequently, the mortgage created by the respective writ
petitioners renders the same as a financial asset.  There is also no
difficulty that the respective accounts of the borrowers have been
declared as non-performing assets as per the definition assigned
to the said expression in clause (o) of sub-section (1) of Section 2.
The expression secured asset has been defined in clause (zc) of
sub-section (1) of Section 2 of the Act as meaning the property on
which the security interest is created.
      Section 13 of this Act has provided for measures for
securitization, which can be adopted for enforcement of the
security interest.  Under sub-section (2) of Section 13, a notice of
demand has to be drawn after the asset is declared as a non-
performing asset, calling upon the borrower to liquidate the entire
liability, by providing him a minimum of sixty days time.  If the
debt remains un-liquidated and/or the notice issued under sub-
section (2) of Section 13 remains un-answered to the satisfaction of
the respective bankers, measures provided for under sub-section
(4) thereof can be initiated. Under clause (a) of sub-section (4), the
secured creditor may take possession of the secured asset of the
borrower including the right to transfer by way of lease,
assignment or sale for realizing the secured asset.  Hence, the
proposed action of the respective bankers cannot be taken
exception to in view of the fact that sub-section (4) of Section 13
authorizes such an action to be taken in case default is committed
by the borrower.
      Under Section 38 of the Act, Central Government has been
conferred power to make, by notification, rules for carrying out the
provisions of the said Act.  Accordingly, the Security Interest
(Enforcement) Rules, 2002 (henceforth be referred to for short as
the Rules) have been framed and they are notified by the Central
Government on 20.09.2002.  These Rules have provided for the
mechanism of giving effect to the provisions contained in the Act
itself.  Sub-rule (1) of Rule 8 thereof spelt out that where the
secured asset is an immovable property, the authorized officer
shall take or cause to be taken possession, by delivering a
possession notice prepared as nearly as possible to the one
specified in Appendix - IV to these Rules, to the borrower and also
by affixing the possession notice on the outer door or at such
conspicuous place of the immovable property.  Rule 9 dealt with
aspects such as time of sale, issue of sale certificate, delivery of
possession, etcetera.  Sub-rule (1) thereof reads as under:
               No sale of immovable property under these rules shall
take place before the expiry of thirty days from the date on
which the public notice of sale is published in news papers or
notice of sale has been served to the borrower.

      It is thus clear that sale of an immovable property of the
defaulted borrower can be undertaken only after expiry of thirty
days period after the notice in that regard is delivered to the
borrower and also it is published in newspapers for the
information of the general public.  The purpose that is sought to be
achieved from this requirement is to provide one more opportunity
to the defaulted borrower to liquidate the liability before the expiry
of thirty days time. Further, even if he does not have the necessary
financial wherewithal to clear the liability entirely on his own, he
will be able to utilize this time for organizing the necessary help for
liquidating the liability.  Alternatively, the defaulting borrower may
scout for an appropriate source or person, who himself can acquire
the asset for as nearer the market price prevailing as is possible.
In the process, the interests of the secured creditor are also
protected equally.  The publication in newspapers is bound to
attract the attention of the prospective purchasers, who also will
try to ascertain, in the meantime, as to the reasonable market
value that the immovable property in question would fetch and on
that basis, they would be preparing themselves for participation or
filing the bids. Further more, to avoid formation of unhealthy
cartels, who will look for acquiring the asset, with a view to secure
a valuable asset for a far lesser price than it can reasonably fetch
in the open market, the public notice of inviting bids now-a-days is
followed by the method of holding electronic auctions, known as
e-auctions.  In this method, the bidders may not be knowing each
other and the prospects of the cartel formation and then their
trying to regulate the auction process is completely neutralized.
Only genuine participant in auctions will receive the necessary
consideration at the hands of the creditor. Therefore, a fair and
transparent procedure is sought to be followed even while
disposing of the secured asset by the secured creditor.  Hence,
service of notice and then giving a minimum of thirty days time
before the asset is liquidated is bound to be regarded as a
mandatory requirement. 
      Whereas, in the instant case, though a decision has been
taken to deliver the notice of the intended sale of the respective
secured assets, but however, it has resulted in serving the notices
providing for less than thirty days time for the borrower.  By thus
short-circuiting the requirement of Rules 8 and 9, read together,
the chances of the borrower securing a prospective purchaser
entirely on his own, got impaired.   We are therefore, of the opinion
that the respondent bank has not complied with the mandatory
requirements of Rules 8 and 9 and hence, it cannot liquidate the
secured asset for realizing the debt due. In that view of the matter,
we have no hesitation to allow these Writ Petitions and we do it
accordingly. No costs.
      However, it shall be open to the respondent bank to take all
such measures, which are in accordance with law, against the
defaulted borrower.
      Consequently, the miscellaneous applications, if any shall
stand disposed of.
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NOOTY RAMAMOHANA RAO, J        
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DR. B. SIVA SANKARA RAO, J    
01st March 2016