Sale Notice Issued Under SARFAESI Act Without A 15 Days Clear Notice Is Bad In Law: Kerala High Court

The Single Bench of Justice Bechu Kurian Thomas quashed the sale notice issued under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) on the ground that the statutory requirement of a 15 days clear notice for subsequent sale was not satisfied. The Court held that the said notice of sale was bad in law and the consequent sale was liable to be set aside.

The petitioner E.K. Rajan had availed a cash credit facility from the respondent Canara Bank and a security interest was created over the petitioner's property.

Due to default in repayment of loan, the loan account of the petitioner was declared as NPA and a notice under Section 13(2) of the SARFAESI Act was issued to the petitioner. Subsequently, possession of petitioner's property was taken over under Section 13(4) of the SARFAESI Act and a notice of sale proposing to auction the property of the petitioner was published by the respondent.

The petitioner filed a writ petition before the Kerala High Court challenging the sale notice issued under the provisions of the SARFAESI Act.

On admission of the writ petition, the Kerala High Court ruled that the respondent Canara Bank was free to proceed with the sale and directed the petitioner to deposit a certain amount within a specified time. However, the Court directed that confirmation of the sale was to be made only after obtaining further orders from the Court. The property of the petitioner was subsequently auctioned by the respondent.

The petitioner E.K. Rajan contended before the High Court that sale notice was not issued to it by the respondent till the date of filing of the writ petition. The petitioner averred that since the statutory requirement of 15 days' notice period was not complied with, the sale of the petitioner's property was contrary to law and should be set aside.

The respondent averred that the notice of sale was published in two dailies and the same was also affixed on the property of the petitioner. The respondent added that the statutory requirement of 15 days' notice period was satisfied.

The Court observed that as per Rule 9(1) of the Security Interest (Enforcement) Rules, 2002, no sale of immovable property, in the first instance, under the said rules shall take place before the expiry of 30 days from the date on which a public notice of sale is published in newspapers, as provided, or from the date on which a notice of sale has been served to the borrower.

Also, the Court noted that the proviso to Rule 9(1) provides that if sale of immovable property by any one of the methods specified by Rule 8(5) fails and the sale is required to be conducted again, the authorised officer shall serve, affix and publish a notice of sale of not less than 15 days to the borrower, for any subsequent sale.

The Court observed that the erstwhile provisions of Section 13(8) of the SARFAESI Act gave power to the borrower to redeem the property till the last minute before the sale took place. However, the Court added that via an amendment in 2016, Section 13(8) of the SARFAESI Act was amended and the right of the borrower to redeem the property was made available only till the date of publication of the notice for public auction.

The Court noted that in spite of the said amendment, Rule 9 of the Security Interest (Enforcement) Rules, 2002 still stipulates that there must be a 30 days clear notice for the sale at the first instance and a notice of not less than 15 days for any subsequent sale. Thus, the Court held that the intention as evident from the said Rules is clear that the requirement of issuing a notice of 30 days in the first instance and a notice of 15 days for subsequent sales cannot be tampered with.

The Court ruled that the sale of the petitioner's property took place on the 15^th day of the service of notice and hence the statutory requirement of 15 days clear notice or a "notice of not less than 15 days" was not satisfied.

The Court added that the situation would have been different if the delay in service of notice was on account of the petitioner's default or that the petitioner had evaded the service of notice. However, the Court observed that there was no pleading made by the respondent in this regard.

The Court held that the conjunction 'and' employed in the proviso to Rule 9 indicates that all three methods of service specified therein are mandatory in nature.

"A reading of the proviso to Rule 9(1) of the Rules makes it explicit that the authorised officer must serve, affix and publish the notice of sale of not less than 15 days to the borrower, for any subsequent sale. The word 'serve' relates to personal service of notice, affixture relates to the notice being affixed on the property and the publication relates to the publication of notice in the newspaper dailies. The conjunction 'and' employed in the proviso also indicate the mandatory nature of all three methods of notice. Further, in spite of the amendment to section 13(8) of the Act, the proviso to Rule 9(1) mandates the three methods of serve, affix and publish the notice to be carried out, with 15 days clear notice."

The Court ruled that since there was a failure on the part of the respondent to serve notice of not less than 15 days upon the petitioner, therefore, the notice of sale was bad in law and the consequent sale was liable to be set aside.

The Court thus allowed the writ petition of the petitioner and held that the notice of sale was not served in accordance with law.

Case Title: E.K. Rajan versus The Authorized Officer, Canara Bank

Citation: 2022 LiveLaw (Ker) 236

Dated: 18.05.2022 (Kerala High Court)

Counsel for the Petitioner: Mr. N. Sasi, Advocate

Counsel for the Respondent: Sri. Saju N.A., Smt. G.Lekha, Adv. P. J. Flony, Smt. S. Ambily, Uma. G. Krishnan

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