Proceedings under SARFAESI cannot be negated due to technical or trivial errors unless it causes prejudice

In L&T Housing Finance Limited Vs. Trishul Developers and Ors., the first Respondent - a partnership firm took a term loan of Rs. 20 crores for completion of its project ("Mittal Palms, Phase-I") from the Appellant and for that all the relevant documents were signed by the Respondents. It may be relevant to note that the sanction letter dated 07th 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 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.

When the Respondents defaulted on payments, the Appellant served a demand notice to the Respondents to pay the outstanding dues within the stipulated period mentioned in the demand notice. Incidentally, the demand notice was issued on the same letterhead of the Appellant duly signed by its self same authorised signatory, who had initially signed the loan sanctioning letter and no objection was raised by the Respondents in its reply to the demand notice, of misconception or confusion if any, in reference to the secured creditor (Appellant) on whose behest the demand notice was served Under Section 13(2) of the SARFAESI Act. Subsequently the Respondents were classified as Non-performing Assets. As the Respondents failed to discharge their liability, the Appellant filed application before the competent authority for taking possession of the mortgaged properties and the collateral security of the Respondents. Against the said action of the Appellant, the Respondents filed objection before the DRT for setting 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 secured creditor, held the proceedings not sustainable. This objection on being accepted by the DRT, was challenged by the Appellant in appeal before the DRAT and the DRAT 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 in turn 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 the Supreme Court.

The Appellant submitted 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 self-same 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 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. The Appellant further submits that the proceedings initiated under the SARFAESI Act would not nullify on the mere technicality as being pointed out and if two views are possible, unless found to be perverse it was not justified for the High Court to reverse the finding of fact supported by the material on record and that needs interference of this Court.

On the other hand, the Respondents while buttressing the judgment impugned of the High Court submitted 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.

The Supreme Court observed that from the very inception at the stage, the letterhead which was used by the Appellant 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.

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 Appellant when demand notice dated 16th December, 2016 was served at a later stage. The demand notice in explicit terms clearly indicates the execution of the Facility Agreement dated 11th August, 2015 between the Appellant (L & T Housing Finance Ltd.) and the Respondents (M/s. Trishul Developers through its 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 demand notice dated 14th June, 2017 without leaving any iota of doubt is in reference to the non-fulfillment of the terms and conditions of the Facility Agreement dated 11th August, 2015 executed between the parties and even the Schedule of security profile which has been annexed thereto is in reference to the execution of Facility Agreement dated 11th August, 2015 and its non-compliance of the provisions of the SARFAESI Act.

Even in the reply to the demand notice which was served by the Respondents through their counsel dated 08th 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 any, in the demand notice dated 14th 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.

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.

The Supreme Court observed that 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 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.

The Supreme Court further held that as per the 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. 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 self-same 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 non-fulfillment of the terms and conditions of the Facility Agreement dated 11th August, 2015 or any substantial prejudice being caused apart from the technical objection being raised while the demand notice Under Section 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.