Full Judgment Text
NONREPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(s). 3413 OF 2020
(Arising out of SLP(C) No(s). 18360 of 2019)
M/S. L&T HOUSING FINANCE LIMITED ...APPELLANT(S)
VERSUS
M/S. TRISHUL DEVELOPERS AND ANR. ...RESPONDENT(S)
J U D G M E N T
Rastogi, J.
1. The instant appeal is directed against the impugned
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judgment and order dated 27 June, 2019 passed by the Division
Bench of the High Court of Karnataka at Bengaluru in Writ
Petition No.22137 of 2019 wherein the High Court while
reversing the finding returned by the Debt Recovery Appellate
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Tribunal in its order dated 16 April, 2019, upheld the order of
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the Debt Recovery Tribunal dated 23 March, 2018 quashing the
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demand notice dated 14 June, 2017 served on the respondents
(borrower) under Section 13(2) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (hereinafter referred to as the “SARFAESI Act”)
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followed with the possession notices dated 09 November, 2017
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and 10 November, 2017.
2. Brief facts of the case are that the appellant is a Housing
Finance Company under National Housing Bank Act, 1987 and is
notified as Financial Institution by the Department of Finance
(Central Government) in exercise of the powers conferred by sub
clause (iv) of clause (m) of subsection (1) of Section 2 of the
SARFAESI Act. The appellant indeed falls within the definition of
“secured creditor” under the provisions of the SARFAESI Act and
is entitled to initiate measures under the provision of the
SARFAESI Act for enforcement of security interest created on the
secured assets by the respondents (borrower/guarantor) in
favour of the appellant (secured creditor).
3. Section 2(zd) of the SARFAESI Act which defines “secured
creditor”, reads as follows:
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“2. Definitions. – (1) In this Act, unless the
context otherwise requires,
….
(zd) “secured creditor" means
(i) any bank or financial institution or any
consortium or group of banks or financial
institutions holding any right, title or interest
upon any tangible asset or intangible asset as
specified in clause (l);
(ii) debenture trustee appointed by any bank or
financial institution; or
(iii) an asset reconstruction company whether
acting as such or managing a trust set up by
such asset reconstruction company for the
securitisation or reconstruction, as the case may
be; or
(iv) debenture trustee registered with the Board
appointed by any company for secured debt
securities; or
(v) any other trustee holding securities on behalf
of a bank or financial institution,
in whose favour security interest is created by any
borrower for due repayment of any financial
assistance.
….”
4. The first respondent is a partnership firm registered under
the Partnership Act, 1932 and is dealing in the real estate
construction business as alleged and the second respondent is
the partner of first respondent firm. The first respondent and its
partners in carrying out its business obligations approached the
appellant for seeking financial assistance and submitted a
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request to the appellant vide application dated 15 May, 2015 for
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term loan of Rs.20 crores for completion of its project (“Mittal
Palms, PhaseI”).
5. The appellant taking note of the request made by the
respondents sanctioned Term Loan Facility to the tune of Rs. 20
crores towards completion of the project vide sanction letter
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dated 07 August, 2015 on such terms and conditions as set out
in the sanction letter and for availing the above credit facility, the
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respondents executed Facility Agreement dated 11 August, 2015
along with security documents by mortgaging the various
immovable properties as a security for creating security interest
in favour of the appellant. It may be relevant to note that the
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sanction letter dated 07 August, 2015 (P1) duly signed by the
authorised signatory of “L&T Housing Finance Ltd.” for execution
of the Facility Agreement and effecting all compliance as required
to the satisfaction of the lender was accepted and signed by the
authorised signatory on behalf of the first respondent and also by
the guarantors clearly demonstrates that on the top of the
letterhead towards right, the name of the company is mentioned
“L&T Finance (Home Loans)” and in the bottom towards left, it
was mentioned “L&T Housing Finance Ltd.” with registered office
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at Mumbai and this is the letterhead which has always been
taken in use for correspondence at all later stages when the
proceedings against the respondents herein were initiated under
Sections 13(2), 13(4) and 14 of the SARFAESI Act.
6. It reveals from the record that the respondents at a later
stage failed to maintain financial discipline and subsequently
became a defaulter and because of the alleged breach of the
terms and conditions of the Facility Agreement executed between
the appellant (L&T Housing Finance Ltd.) and the respondents
(M/s. Trishul Developers through its Partners) towards
completion of its project, the appellant served a demand notice
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dated 16 December, 2016 to the respondents to pay the
outstanding dues within the stipulated period mentioned in the
demand notice. Since the respondents failed to make their
outstanding payment, under the given circumstances the
appellant classified the account of the respondents as Non
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performing Assets (NPA) on 15 April, 2017 and sent a notice of
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demand dated 14 June, 2017 under Section 13(2) of the
SARFAESI Act calling upon the respondents to pay the
outstanding dues i.e. Rs.16,97,54,851/ (Rupees Sixteen Crores
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Ninety Seven Lakhs Fifty Four Thousand Eight Hundred and
st
Fifty One Only) as on 31 May, 2017 in terms of the notice with
future interest till actual payment within sixty days from the date
of the receipt of the demand notice.
7. Pursuant to the service of the notice of demand dated
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14 June, 2017, the respondents did not discharge their liability
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and sent their reply dated 08 August, 2017 to the notice with
full consciousness knowing it well that the demand notice dated
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14 June, 2017 has been served by the appellant (secured
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creditor) in reference to the Facility Agreement dated 11 August,
2015 which has been executed between the parties i.e. the
appellant and the respondents herein. It may be relevant to note
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that the demand notice dated 14 June, 2017 under Section
13(2) of the SARFAESI Act was issued on the same letterhead of
the appellant duly signed by its self same authorised signatory,
who had initially signed at the time when the proposal of term
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loan was sanctioned vide sanction letter dated 07 August, 2015
and no objection was raised by the respondents in its reply dated
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08 August, 2017 of misconception or confusion if any, in
reference to the secured creditor (appellant) on whose behest the
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demand notice was served under Section 13(2) of the SARFAESI
Act.
8. Since the respondents failed to discharge their liability
towards the appellant in terms of the demand notice, the
appellant took further action in due compliance under Section
13(4) read with Section 14 of the SARFAESI Act and filed
application before the competent authority for taking possession
of the mortgaged properties and the collateral security of the
respondents.
9. At this stage, the respondents proceeded in filing a
Securitisation Application No.76/2018 before the Debt Recovery
Tribunal under Section 17 of the SARFAESI Act assailing the
issuance of demand notice under Sections 13(2) and 13(4) of the
Act inter alia on various grounds. The learned Debt Recovery
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Tribunal vide its order dated 23 March, 2018 set aside the
demand notice on the premise that it has not been validly issued
in the name of the appellant (“L&T Housing Finance Ltd.”)
instead the name of the company has been mentioned as “L&T
Finance Ltd.” and this defect as alleged not being curable after
issuance of demand notice by another group company instead of
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secured creditor, held the proceedings not sustainable. The order
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of Debt Recovery Tribunal dated 23 March, 2018 came to be
challenged by the appellant in appeal before the Debt Recovery
Appellate Tribunal(DRAT) and after the parties being heard,
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DRAT vide its order dated 16 April, 2019 set aside the order of
Debt Recovery Tribunal which came to be challenged by the
respondents in a writ petition before the High Court of
Karnataka. The High Court while setting aside the order of DRAT
returned its finding in conformity with what was observed by the
DRT in its order, which is the subject matter of appeal before us.
10. Learned counsel for the appellant submits that from the
initial stage until the demand notice being served under Section
13(2) of the SARFAESI Act or even the later correspondence was
on the same letterhead of the appellant from where the
proceedings for the term loan was sanctioned in favour of the
respondents and further submits that the selfsame authorised
signatory, being there of both the companies use common
letterhead having its registered office and details of the sanction
letter and of Facility Agreement coupled with default committed
by the respondents are in reference to “L&T Housing Finance
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Ltd.” and only at one stage, due to oversight, the appellant
inadvertently put the seal of “L&T Finance Ltd.” and it was not
the case of the respondents that it has caused any substantial
prejudice, either in acknowledging that from whom (secured
creditor) demand notice under Section 13(2) has been served
which can be further countenanced from the reply to the demand
notice filed by the respondents. In the given circumstances, the
mere technical defect as being noticed in the demand notice by
the Tribunal and confirmed by the High Court in the impugned
judgment, will not negate the proceedings which has been
initiated by the appellants (secured creditor) in carrying out its
obligations and protecting their security interest as contemplated
under the provisions of the SARFAESI Act.
11. Learned counsel for the appellant further submits that the
proceedings initiated under the SARFAESI Act would not nullify
on the mere technicality as being pointed out and the High Court
without appreciating the material on record has reversed the
finding returned by the DRAT in its extraordinary jurisdiction
under Article 226 & 227 of the Constitution and if two views are
possible, unless found to be perverse it was not justified for the
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High Court to reverse the finding of fact supported by the
material on record and that needs interference of this Court.
12. Per contra, learned counsel for the respondents while
buttressing the judgment impugned of the High Court submits
that when the salient defect has been noticed by the DRT and
confirmed by the High Court at the very inception of the
proceedings being initiated under the SARFAESI Act, all the
consequential proceedings initiated in furtherance thereof in the
instant case cannot be said to be in due compliance of the
SARFAESI Act and once a procedure has been prescribed by law
as mandated under the SARFAESI Act, the secured creditor was
under obligation to comply which indisputedly has not been
followed, in the given circumstances, no error has been
committed by the High Court under its impugned judgment and
according to him, it needs no interference of this Court.
13. We have heard the learned counsel for the parties and with
their assistance perused the material available on record.
14. The indisputed fact which emerges from the record is that
the respondents borrowed a term loan from the appellant (L&T
Housing Finance Ltd.) of Rs.20 crores vide sanction letter dated
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07 August, 2015 and later their account became NPA on
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15 April, 2017 and prior thereto, the appellant (secured creditor)
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served a notice on 16 December, 2016 demanding its
outstanding dues sanctioned under the seal of their authorised
officer on behalf of the lender, which has been informed to this
Court was a self same authorised signatory of both the
companies namely “L&T Housing Finance Ltd.” and “L&T Finance
Ltd”. Indisputedly, the notice under Section 13(2) of the
SARFAESI Act was served by the authorised signatory on behalf
of the appellant on the letterhead commonly used by “L&T
Housing Finance Ltd.” and “L&T Finance Ltd.” but inadvertently,
the authorised signatory put his signature under the seal of the
company “L&T Finance Ltd”. In this backdrop, from reply dated
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08 August, 2017 of the respondents, it becomes clear that
repayment was demanded by the appellant(secured creditor) only
and the respondents tried to justify and assigned reasons for
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which the Facility Agreement dated 11 August, 2015 could not
have been carried out and only thereafter, the appellant (secured
creditor) has initiated further proceedings under Section 13(4)
read with Section 14 of the Act.
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15. Notably from the very inception at the stage, when the
proposal of taking a term loan from the appellant was furnished
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by the respondents vide their application dated 15 May, 2015
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and accepted by the appellant vide sanction letter dated 07
August, 2015 (P1), the letterhead which was used for the purpose
clearly indicates that on the top of the letterhead towards right, it
reflects “L&T Finance (Home Loans)” and on the bottom towards
left, is of “L&T Housing Finance Ltd.” with their registered office
in Mumbai and this has been duly signed by the authorised
signatory of the borrower for M/s. Trishul Developers and by its
guarantors.
16. It manifests from the record that the respondents from the
initial stage are aware of the procedure which is being followed by
the appellant in its correspondence while dealing with its
customers and that is the same practice being followed by the
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appellant when demand notice dated 16 December, 2016 was
served at a later stage. The demand notice in explicit terms
clearly indicates the execution of the Facility Agreement dated
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11 August, 2015 between the appellant (L&T Housing Finance
Ltd.) and the respondents (M/s. Trishul Developers through its
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partners) and of the default being committed by the respondents
(borrower/guarantor) in furtherance thereof, a notice under
Section 13(2) of the SARFAESI Act was served on the same
pattern of the letterhead which is being ordinarily used by the
appellant in its correspondence with its customers and the
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demand notice dated 14 June, 2017 without leaving any iota of
doubt is in reference to the nonfulfillment of the terms and
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conditions of the Facility Agreement dated 11 August, 2015
executed between the parties and even the schedule of security
profile which has been annexed thereto is in reference to the
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execution of Facility Agreement dated 11 August, 2015 and its
noncompliance of the provisions of the SARFAESI Act.
17. Even in the reply to the demand notice which was served by
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the respondents through their counsel dated 08 August, 2017
in compliance to Section 13(3A) of the SARFAESI Act, there was
no confusion left in reference to the correspondence taken place
between the appellant (secured creditor) and the respondents
(borrower) tendering their justification and assigning reasons for
which compliance could not have been made and no objection
was indeed raised by the respondents in regard to the defect if
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any, in the demand notice dated 14 June, 2017 which was
served by the secured creditor i.e. “L&T Housing Finance Ltd.” in
compliance to the provisions of the SARFAESI Act or in
furtherance to the proceedings initiated at the behest of the
appellant under Section 13(4) read with Section 14 of the Act, for
the first time, a feeble attempt was made in raising the alleged
technical objection in a Securitisation Application filed before the
DRT and succeeded.
18. It may be relevant to note that the respondents (borrower)
did not deny advancement of loan, execution of Facility
Agreement, their liability and compliance of the procedure being
followed by the secured creditor (appellant) prescribed under the
SARFAESI Act.
19. In the facts and circumstances, when the action has been
taken by the competent authority as per the procedure
prescribed by law and the person affected has a knowledge
leaving no ambiguity or confusion in initiating proceedings under
the provisions of the SARFAESI Act by the secured creditor, in
our considered view, such action taken thereof cannot be held to
be bad in law merely on raising a trivial objection which has no
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legs to stand unless the person is able to show any substantial
prejudice being caused on account of the procedural lapse as
prescribed under the Act or the rules framed thereunder still with
a caveat that it always depends upon the facts of each case to
decipher the nature of the procedural lapse being complained of
and the resultant prejudiced if any, being caused and there
cannot be a straitjacket formula which can be uniformly followed
in all the transactions.
20. Adverting to facts of the instant case, we are of the view that
the objection raised by the respondents was trivial and technical
in nature and the appellant (secured creditor) has complied with
the procedure prescribed under the SARFAESI Act. At the same
time, the objection raised by the respondents in the first
instance, at the stage of filing of a Securitisation Application
before DRT under the SARFAESI Act is a feeble attempt which
has persuaded the Tribunal and the High Court to negate the
proceedings initiated by the appellant under the SARFAESI Act,
is unsustainable more so, when the respondents are unable to
justify the error in the procedure being followed by the appellant
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(secured creditor) to be complied with in initiating proceedings
under the SARFAESI Act.
21. The submission made by the respondent’s counsel that the
notice under Section 13(2) of the Act was served by the
authorised signatory of “L&T Finance Ltd.” and that was not the
secured creditor in the facts of the case, in our considered view,
is wholly without substance for the reason that “L&T Finance
Ltd.” and “L&T Housing Finance Ltd.” are the companies who in
their correspondence with all its customers use a common
letterhead having their selfsame authorised signatory, as being
manifest from the record and it is the seal being put at one stage
by the authorised signatory due to some human error of “L&T
Finance Ltd.” in place of “L&T Housing Finance Ltd.”. More so,
when it is not the case of the respondents that there was any iota
of confusion in their knowledge regarding the action being
initiated in the instant case other than the secured creditor
under the SARFAESI Act for nonfulfillment of the terms and
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conditions of the Facility Agreement dated 11 August, 2015 or
any substantial prejudice being caused apart from the technical
objection being raised while the demand notice under Section
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13(2) was served under the SARFAESI Act or in the proceedings
in furtherance thereof no interference by the High Court in its
limited scope of judicial review was called for. Consequently, in
our view, the judgment of the High Court is unsustainable and
deserves to be set aside.
22. In the result, the appeal succeeds and is accordingly,
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allowed. The impugned judgment dated 27 June, 2019 passed
by the High Court of Karnataka is hereby quashed and set aside.
No costs.
23. Pending application(s), if any, stand disposed of.
…………….………………………….J.
(L. NAGESWARA RAO)
……………..…………………………J.
(HEMANT GUPTA)
……………………………………….J.
(AJAY RASTOGI)
NEW DELHI
OCTOBER 27, 2020
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