MANU/AP/1443/2022

Equivalent/Neutral Citation: 2022(4)ALT312

IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI

W.P. No. 2479 of 2020
Decided On: 29.03.2022
Maruthi Cotton Mills Private Limited Vs. Canara Bank
Hon'ble Judges/Coram:
C. Praveen Kumar and V. Sujatha, JJ.
Counsels:
For Appellant/Petitioner/Plaintiff: T. Lakshminarayana
For Respondents/Defendant: Bachina Hanumantha Rao
ORDER
C. Praveen Kumar, J.
1 . Challenging the Sale Notice, dated 18.11.2021, published in Hindu English
Newspaper on 21.11.2021 without taking recourse to Rule 8 of Security Interest
(Enforcement) Rules, 2002, ['Rules 2002'], the present Writ Petition is filed.
2. The facts, which lead to filing of the present petition, are as under:
(i) The second Petitioner herein is the Managing Director of the 1st Petitioner
Company. The Respondent Bank sanctioned a term loan of Rs. 3,00,00,000/-
and also working capital limit upto Rs. 3,00,00,000/- on 07.12.2015 under two
loan accounts numbers, which are 0644766000002 and 0644261000543. The
loan was to be repaid within 28 quarterly installments starting from April 2017.
The immovable properties of the 1st Petitioner Company, namely, plant and
machinery; agricultural land to an extent of Ac. 1.10 cents situated near JOCIL
Company, abutting to Guntur to Narsaraopet State Highway and also a
residential house standing in the name of the 2nd Petitioner.
(ii) As the Petitioners committed default in payment of loan amount, their
accounts were declared as 'Non Performing Assets' on 17.10.2017. Thereafter, a
notice under Section 13(2) came to be issued on 31.10.2017 under
Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002, ['SARFAESI Act'], in which the total debt was
shown as Rs. 6,10,15,997.75 paise.
(iii) The Bank published the Sale Notice on 12.09.2018 for sale of the
mortgaged properties. Since, the Sale Notice came to be issued without
following the provisions of law; S.A. No. 362 of 2018 came to be filed before
the Debts Recovery Tribunal at Visakhapatnam on 27.09.2018. After hearing
both sides, the Sale Notice was set-aside by the Debts Recovery Tribunal, on
21.12.2021. Prior to setting aside the Sale Notice by the Tribunal, the
Respondent Bank published the impugned Sale Notice, dated 18.11.2021, in
Hindu English Newspaper on 21.11.2021, without awaiting the result in S.A.

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 No. 362 of 2018. This notice is now sought to be challenged on various
grounds, namely, that in view of the order passed by the Tribunal, the entire
process has to be commenced afresh including a notice under Section 13(2).
(iv) It is further urged that, once an order is passed by the Tribunal, the
principle of doctrine of merger steps in and the consequential steps taken by
the Respondent Bank till 21.12.2021 have to be declared as null and void. In
other words, the argument of Sri Ashok, learned Counsel appearing on behalf of
Sri T. Lakshmi Narayana, Advocate appearing for the Petitioners, would be that
entire process has to be started afresh by following the procedure contemplated
under Section 13(4) read with Rule 8 of the Rules.
3 . On the other hand, Sri Bachina Hanumantha Rao, Counsel appearing for the
Respondent Bank, opposed the same. He would submit that the Writ Petition is not
maintainable since the successful bidders are not made parties. He further submits that
already the plant and machinery are sold and, as such, the proper remedy for the
Petitioners would have been to approach the Debts Recovery Tribunal, once again.
4 . (i) The averments in the Counter would show that, pursuant to the default
committed, a notice under Section 13(2) was issued and after a lapse of sixty days from
the date of service of notice, the Respondent Bank took possession of the secured asset
and served Possession Notice on 24.10.2018 as required under Section 13(4) of the
SARFAESI Act, which was acknowledged by the Petitioners. Since, there was no
response from the Petitioners with regard to payment of any amount; Possession Notice
was issued on 24.10.2018 by publishing the same in English vernacular language
Newspapers on 31.10.2018 and also affixing the same at a conspicuous place as
required under Rule 8(1) and 8(2) of Rules 2002. It is further stated that, a Notice
under Rule 8(6) of the Rules was issued on 27.08.2018, which was also served and
acknowledged by the Petitioners. The Sale Notice dated 27.08.2018 was published in
two newspapers on 13.09.2018. Thus, complying with the provisions of law.
(ii) It is stated in the counter that, pursuant to 1st Sale Notice, dated 12.09.2018, the
date of auction was fixed on 15.10.2018. The auction scheduled to be held on
15.10.2018 did not materialize fully for want of bidders, because of which, the
Respondent Bank has conducted auction on more than 14 occasions starting from
30.11.2018 and 31.01.2022. All the auctions failed due to lack of bidders. Hence, it is
urged that the order of the Tribunal does not come in the way of the Respondent Bank,
as the proceedings before the Tribunal relate to a different sale notice.
(iii) It is further stated that, finally on 27.12.2021, the auction took place for two
securities [plant & machinery and vacant plot at Guntur in favour of M/s. Srivatsa
Biotech India Private Limited and Mr. Srinivasa Aditya Akella, who were turned as
successful bidders for an amount of Rs. 98,10,000/- and Rs. 75,99,000/-, respectively.
Thereafter, Sale Certificate, dated 11.01.2022, came to be issued in favour of M/s.
Srivatsa Biotech India Private Limited. Having regard to the above, it is said that,
auction purchasers would be necessary parties to the property in dispute.
(iv) It is further stated that the physical possession of the plant and machinery was
handed over to the Respondent Bank by the Petitioners themselves as the factory was
not in operation for a long time and no workmen is present at the time of eviction. For
all the above circumstances and the averments in the counter are supported by material
documents, pleads that there are no merits in the Writ Petition and the same is liable to
be dismissed.

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5 . The short point that arises for consideration is, whether the Sale Notice, dated
18.11.2021, which was published in Newspapers on 21.11.2021 is violative of the
provisions of the SARFAESI Act and the Rules made there under?
6 . Before dealing with the issue involved, we intend to go through the relevant
provisions of the SARFAESI Act and the Rules made there-under to find out the
procedure that is required to be followed before putting any property to auction by the
secured creditor.
7. Section 13 of the SARFAESI Act, deals with "Enforcement of Security Interest".
(i) Sub-section (1) postulates that, notwithstanding anything contained in
Section 69 or Section 69A of the Transfer of Property Act, 1882, any security
interest created in favour of any secured creditor may be enforced, without the
intervention of the court or tribunal, by such creditor in accordance with the
provisions of this SARFAESI Act.
(ii) Section 13(2) deals with issuance of notice to the borrower who had made
default in repayment of secured debt or any installment thereof and in respect
of such debt been classified by the secured creditor as on - performing asset.
The notice shall be issued in writing by the secured creditor, requiring the
borrower to discharge his full liability to the secured creditor within 60 days
from the notice, failing which the secured creditor shall exercise all or any of
the rights under sub-section (4). Section 13(2) speaks about certain
exceptions.
(iii) On receipt of such notice under Sub-section (2), the borrower if makes any
representation or raises any objection, the secured creditor shall consider such
representation or objection. If the secured creditor is not in acceptance of the
explanation given, he shall communicate within 15 days of receipt of such
representation or objection the reasons for non-acceptance of the objection or
representation. This procedure referred to above is contemplated under Section
13(3A). It is also to be noted here that, notice under Section 13(2) shall give
details of the amount payable by the borrower and the secured assets intended
to be enforced by the secured creditor in the event of non-payment of secured
debts by the borrower
(iv) In case the borrower fails to discharge his liability in full, then sub-section
(4) comes into play, wherein, the secured creditor may take recourse to one or
more of the measures mentioned therein to recover his secured debt including
to take over possession of the secured asset by way of lease, assignment or
sale for realising the secured debt.
(v) Section 13(8) postulate that, where the amount of dues of secured creditor
together with all costs, charges and expenses incurred by him is tendered to the
secured creditor at any time before the date of publication of notice for public
auction or inviting quotations or tender from public or private treaty, the said
secured asset shall not be transferred by way of any lease, assignment or sale
by the secured creditor.
(vi) Rule 4 of the Rules lays down the procedure to be followed after issuing
notice under Sub-section (2) of Section 13 i.e., when the amount mentioned in
the demand notice is not paid within the specified time. It states that, in such
situation, the Authorised Officer shall proceed to realise the amount by

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 adopting any one or more of the measures specified in Sub-section (4) of
Section 13 of the SARFAESI Act.
(vii) Rule 5 deals with the situation where after taking possession under sub-
rule (1) of Rule 4 and in any case before sale, the Authorised Officer shall
obtain the estimated value of the movable secured assets and thereafter in
consultation with the secured creditor, fix the reserve price of the assets to be
sold in realisation of the dues of the secured creditor.
(viii) Rule 6 prescribes the mode in which the property which is taken
possession under sub-rule 1 of Rule 4 is to be sold.
(ix) Rule 7 postulates that where movable secured assets is sold, sale price of
each lot is to be paid as per the terms of the public notice or on the terms
settled between the parties and on payment of sale price, the authorised officer
shall issue a certificate of sale in the prescribed form specifying the movable
secured assets sold, price paid and the name of the purchaser. Thereafter, only
the sale shall become absolute. Rule 7(2) categorically states that the
"certificate of sale" so issued shall be prima facie evidence of title of the
purchaser.
(x) Rule 8 deals with "Sale of Immovable Secured Assets". What is relevant
here is, sub-rule 6 of Rule 8 which states that, the authorised officer shall serve
to the borrower a notice of thirty days for sale of immovable secured assets,
under sub-rule (5). As per the proviso, if the sale is by public auction, the
secured creditor shall cause a public notice in the prescribed form to be
published in two leading newspapers, one in vernacular language having
sufficient circulation in the locality by setting out the terms of the sale. Such
notice is also required to be affixed at a conspicuous part of the immovable
property as per sub-rule 7.
(xi) Sub-rule 1 of Rule 9 stipulates that, no sale of immovable property under
these Rules, in first instance shall take place before the expiry of thirty days
from the date on which the public notice of sale is published in newspapers as
referred to in the proviso to sub-rule (6) of Rule 8 or notice of sale has been
served on the borrower. If the sale of immovable property under Rule 8(5) fails
and sale is required to be conducted again, the authorized officer shall serve,
affix and publish notice of sale of not less than fifteen days to the borrower, for
any subsequent sale.
8 . From a reading of the above Rules, more particularly, Rule 8(5) and (6) and Rule
(1), it follows that, thirty days of sale is required to be given by the Authorized Officer
and no sale can take place before the expiry of thirty days, in the first place. If for some
reason, the sale does not get materialize, in the first instance, for subsequent sale, the
notice period shall not be less than fifteen days.
9 . In Mathew Varghese v. M. Amritha Kumar And Others MANU/SC/0114/2014 : 2014
(5) SCC 610, the Hon'ble Supreme Court had a occasion to analyze the provisions of the
SARFAESI Act and the Rules made there under. In paragraph Nos. 30 and 31 of the
Judgment, the Court held as under:
"30. Therefore, by virtue of the stipulations contained under the provisions of
the SARFAESI Act, in particular, Section 13(8), any sale or transfer of a secured
asset, cannot take place without duly informing the borrower of the time and

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 date of such sale or transfer in order to enable the borrower to tender the dues
of the secured creditor with all costs, charges and expenses and any such sale
or transfer effected without complying with the said statutory requirement
would be a constitutional violation and nullify the ultimate sale.
3 1 . Once the said legal position is ascertained, the statutory prescription
contained in Rules 8 and 9 have also got to be examined as the said Rules
prescribe as to the procedure to be followed by a secured creditor while
resorting to a sale after the issuance of the proceedings under Sections 13(1) to
(4) of the SARFAESI Act. Under Rule 9(1), it is prescribed that no sale of an
immovable property under the Rules should take place before the expiry of 30
days from the date on which the public notice of sale is published in the
newspapers as referred to in the proviso to sub-rule (6) of Rule 8 or notice of
sale has been served to the borrower. Sub-rule (6) of Rule 8 again states that
the authorised officer should serve to the borrower a notice of 30 days for the
sale of the immovable secured assets. Reading sub-rule (6) of Rule 8 and sub-
rule (1) of Rule 9 together, the service of individual notice to the borrower,
specifying clear 30 days' time-gap for effecting any sale of immovable secured
asset is a statutory mandate. It is also stipulated that no sale should be affected
before the expiry of 30 days from the date on which the public notice of sale is
published in the newspapers. Therefore, the requirement under Rule 8(6) and
Rule 9(1) contemplates a clear 30 days' individual notice to the borrower and
also a public notice by way of publication in the newspapers. In other words,
while the publication in newspaper should provide for 30 days' clear notice,
since Rule 9(1) also states that such notice of sale is to be in accordance with
the proviso to sub-rule (6) of Rule 8, 30 days' clear notice to the borrower
should also be ensured as stipulated under Rule 8(6) as well. Therefore, the
use of the expression "or" in Rule 9(1) should be read as "and" as that alone
would be in consonance with Section 13(8) of the SARFAESI Act."
10. Further, the Hon'ble Supreme court in paragraph Nos. 33.1 and 33.2 observed that
Rule 8 and Rule 9 of the SARFAESI Act, have got a twin objective to be achieved, held
as under:
"33.1 In the first place, as already stated by us, by virtue of the stipulation
contained in Section 13(8) read along with Rules 8(6) and 9(1), the
owner/borrower should have clear notice of 30 days before the date and time
when the sale or transfer of the secured asset would be made, as that alone
would enable the owner/borrower to take all efforts to retain his or her
ownership by tendering the dues of the secured creditor before that date and
time.
33.2. Secondly, when such a secured asset of an immovable property is
brought for sale, the intending purchasers should know the nature of the
property, the extent of liability pertaining to the said property, any other
encumbrances pertaining to the said property, the minimum price below which
one cannot make a bid and the total liability of the borrower to the secured
creditor. Since, the proviso to sub-rule (6) also mentions that any other
material aspect should also be made known when effecting the publication, it
would only mean that the intending purchaser should have entire details about
the property brought for sale in order to rule out any possibility of the bidders
later on to express ignorance about the factors connected with the asset in
question."

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11. Therefore, from the judgment of the Hon'ble Supreme Court it is very clear that, a
clear thirty days time is required to be give for effecting the sale of any immovable
secured asset and the right of redemption would be available to the borrower till the
date of time of auction sale. In case, if the auction, at the first stance fails, then under
the proviso to Rule 9, the authorised officer shall serve, affix and publish notice of sale
of not less than fifteen days to the borrower, for any subsequent sale, meaning thereby
that in-stead of thirty days notice as required under 8(6) for sale of immovable secured
asset under sub-rule 5, fifteen days time is sufficient to the borrower for the subsequent
sale.
12. Keeping in the procedure that is mandated in the SARFAESI Act and the Rules made
there-under, we shall now proceed to deal with the case on hand.
13. As per the averments in the counter filed by the Respondent Bank, it appears that
there were two sale notices. The first one on 12.09.2018 and the second one on
18.11.2021. The first notice, dated 12.09.2018, was challenged before Debts Recovery
Tribunal ['D.R.T.'] in S.A. No. 362 of 2018, which was allowed on the ground that no
material has been placed to show that notices under Section 8(6) were published in a
local newspaper of vernacular language. The said order was passed on 21.12.2021. But,
as said earlier, prior to the order of the Tribunal another e-auction sale notice, dated
18.11.2021, was issued fixing the e-auction on 27.12.2021. This notice is challenged in
the present Writ Petition.
14. If there is only one sale notice, dated 12.09.2018, and when the same is set-aside,
for want of compliance of mandatory requirement, the Bank could not have proceeded
with the auction. If there are two different sale notices, as pleaded now, then the Bank
could have proceeded with the auction, provided other mandatory requirements under
the Act are followed. The counter filed is silent on this aspect. Except stating that the
two e-auction sale notices are different and that two of the properties in Auction Sale
notices are auctioned and Sale Certificate was also issued, there is no reference to
compliance of Section 13(2), Section 13(4) of the Act and Rule 8(6) and 9 of the Rules
in the affidavit. The counter further states that Sale Notice, dated 12.09.2018, was
published in two newspapers and one of which was in vernacular language newspaper,
but could not be filed before the D.R.T.
15. At this stage, it would be appropriate to refer to two Auction Sale notices, dated
12.09.2018 and 18.11.2021.

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16. A comparison of the same would show that in both the Auction Sale Notices, three
properties were put to auction. Two of the three properties are only common. In the
first notice, dated 12.09.2018, there is a reference to a property situated in T.S. No.
20/2, 19, 18/1, admeasuring 70-2 ½ square yards and a house bearing Door No. 5-
72-75/1, but same is not put to auction vide Auction Sale Notice, dated 18.11.2021.
Instead, Plant and Machinery relating to Cotton Gunning situated at Garrajuchipurupalle
Village is put to auction. That being the position, the Bank authorities ought to have
followed the procedure as contemplated under the Act. They could not have put to
auction properties which were not part of Section 13(2) notice. On the other hand, the

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E-auction details filed along with counter (in the form of a table) would show that Sale
Notice, dated 18.11.2021, is in continuation of earlier Sale Notice, meaning thereby that
as earlier auction failed to materialize for want of bidders, another Auction Sale Notice
came to be issued. For instance, as the auction on 20.09.2021 pursuant to Auction Sale
Notice, dated 10.08.2021, did not materialize, the impugned Auction Sale Notice, dated
18.11.2021, was issued. Further, the properties are put to auction and Sale Certificate
was issued in favour of auction purchasers, who are not made parties in this Writ
Petition.
17. The Act, as stated above, clearly postulates that if sale notice does not materialize
at the first instance, fifteen days time to the borrower is sufficient to give another sale
notice. Further, once the auction notice, dated 12.09.2018, has been set-aside for not
following the procedure required, the question of holding auction again even without
giving fifteen days time as contemplated under the proviso to Rule 9(1) of the Rules is
improper. The argument of the learned counsel for the Petitioner appears to be that
subsequent notices nowhere indicate auction being conducted in terms of Rule 9(1) by
giving 15 days time. When the subsequent notices do not indicate the procedure as
contemplated under proviso to Rule 9(1) being followed, then automatically they have
to fall back and start afresh from the stage Rule 13(4). The same is disputed by the
Counsel for the Respondent Bank, stating that as the issue before the Tribunal was
different, they could not file all the material and if an opportunity is given, relevant
material evidencing compliance of mandatory requirements would be filed before the
Tribunal.
18. Having regard to the aforesaid facts and circumstances of the case, it appears that
property No. 2, which is sought to be put to auction in the first sale notice dated
12.09.2018, was not included in the subsequent sale notice dated 18.11.2021, instead,
some other property i.e. plant and machinery relating to Cotton Ginning situated at
Garraju Cheepurupalli village and Panchayat, Rajam Mandal, Srikakulam District, was
put to auction. Further, as stated earlier, the subsequent sale notice does not anywhere
indicate auction being conducted in terms of Rule 9(1) of the Rules. Further, the fact of
issuance of sale notice dated 18.11.2021, though issued even prior to passing of the
order by the Tribunal, was not brought to the notice of the Tribunal at the time when
the Tribunal passed the order. In such circumstances, since the respondent bank
authorities have failed to follow the procedure as contemplated under Rule 9(1) of the
Rules and when a new property is included in the sale notice, then automatically the
respondent bank have to follow the procedure under the Act from the stage of Section
13(2) of the SARFAESI Act. But, the respondent bank, without following such
procedure, straight away issued the impugned sale notice dated 18.11.2021 by
including a new property, which is illegal, improper and contrary to the mandatory
provisions of the SARFAESI Act. Hence, the sale notice dated 18.11.2021 is liable to be
set aside. When once the sale notice dated 18.11.2021 is set aside, the auction
proceedings pursuant to the said sale notice becomes null and void.
19. Accordingly, the writ petition is allowed and the sale notice dated 18.11.2021 is set
aside. However, the respondent bank is at liberty, if they so desire, to proceed further
in accordance with the provisions of the SARFAESI Act. There shall be no order as to
costs.
Consequently, the miscellaneous petitions pending, if any, shall stands closed.
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