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Separate notice need not be issued under Rule 9(1) of the Security Interest (Enforcement) Rules 2002

Cause Title : Indian Overseas Bank vs M/s RA Pure Life Science Limited, Writ Petition No. 2109 Of 2020, Telangana High Court

Date of Judgment/Order : 10/02/2023

Corum : The Hon'ble Sri Justices P. Naveen Rao And  J. Sreenivas Rao

Citied: 

  1. Mathew Varghese Vs M.Amritha Kumar, 2014), (2014) 5 SCC 610
  2. Concern Readymix v. Corporation Bank, Telangana Division Bench, 2018 SCC OnLine Hyd 783
  3. Canara Bank Vs. M.Amarender Reddy, (2017) 4 SCC 735
  4. M/s. Aruna Web Offset Printers Vs. Andra Bank, WP 16870 of 2019 dt 21.4.2020 (TSHC-DB)
  5. Amme Srisailam vs, Unlon Bank of India and others (W.P.No.11435 of 202l , dated 17.08.2021)
  6. M/s Aditya Industries Vs Vijaya Bank, WP Nos. 25174 and 34129 of 2018 dt 8.1.2020
  7. Srl Sai Annadhatha Polyrmers and another Vs The Canara Bank, 2018 SCC OnLine Hyd 178

Background

Petitioner bank extended loan facilities to a tune of Rs/ 30.93 crores to respondent no.1 represented by respondent nos. 2 and 3 which became NPA. On 27.5.2016, possession notice was issued by the Bank. On 29.5.2018, bank issued sale notice under Rule 8 of the Security Interest (Enforcement) Rules 2002 followed by Auction Notice dated 30.5.2018 and auctions were conducted on 10.7.2018. Appeal was filed by the borrowers before DRT against auction which was allowed by the Tribunal on the ground that clear 30 days gap was allowed between notice under Rule 8(6) and Rule 9(1). This appeal against the said order was filed by the Bank as well as the auction purchasers.

Judgment

The High Court observed that the issue to be decide was whether the secured creditor required to maintain 30 days gap after notice issued under Rule 8(6) before issuing notice under Rule 9 (1) of the Rules, 2002 to conduct e-auction ?

Referring to the above judgments cited by the litigants, the High Court primarily relied on the judgment of the Divisional Bench of Telangana HC in Concern Readymix v. Corporation Bank (supra) wherein after correctly interpreting the judgment of the Supreme Court in Mathew Varghese (supra), it has been clearly decided that :-
  • Rule 8(1) stipulates issue of possession notice by the secured creditor
  • Rule 8(6) stipulates issue of sale notice under Rule 8(5) which refers to sale under Rule 9(1)
  • All that Rule 9(1) says is that no sale of immovable property in the first instance shall take place before the expiry of 30 days from the date on which the public notice of sale is published in the Newspapers.
  • Rule 9(1) does not stipulate a separate notice to be published. The words "notice of sale has been served to the borrower" appearing towards the end of the main part of sub-rule (1) of Rule 9, cannot be construed as one more notice of sale, apart from the notice of sale to be served on the borrower under Rule 8(6). Once the secured creditor fails in his first attempt, then the Authorised Officer should serve, affix and publish notice of sale of not less than 15 days to the borrower, for any subsequent sale.
  • The number of notices of sale required to be issued actually depend upon the number of times the property is put to sale. 
  • The correct way of looking at the rules is to say that in respect of the first auction, there has to be only one notice under Rule 8(6). But the date of the auction should fall beyond 30 days from the date of publication of sale. If no sale takes place on the first occasion, a second notice is mandated only under the proviso to sub-rule (1) of Rule 9 and this second notice shall be of a duration of 15 days. If the second attempt also fails, a third notice may be issued under the proviso to sub-rule (1) of Rule 9, of a duration of not less than 15 days for the third auction. However these notices are sale notices as provided under Rule 8(6)
  • The disjunction between (i) a public notice of sale as referred to in the proviso to sub-rule (6) of Rule 8 and (ii) a notice of sale served to the borrower, maintained in Rule 9(1) by the use of the word "or", was explained in Mathew Varghese by the Supreme Court. In paragraph-31 of the report, the Supreme Court held in Mathew Varghese that the word "or" should be read as "and"."
  • The moment the word "or" appearing in Rule 9(1) is read as "and", there is no scope for concluding that Rule 9(1) requires one more notice to be served to the borrower, in addition to the notice served to the borrower under Rule 8(6).
To conclude, therefore there is no requirement of a separate notice under Rule 9(1). There would be a possession notice under 8(1), and a sale notice under Rule 8(6) read with Rule 8(5) and Rule 9(1). Sale can only take place in first instance after 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 to the borrower.

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