M/S L And T Housing Finance Limited vs M/S Trishul Developers on 27 October, 2020

Supreme Court of India

M/S L And T Housing Finance Limited vs M/S Trishul Developers on 27 October, 2020

Author: L. Nageswara Rao

Bench: L. Nageswara Rao, Hemant Gupta, Ajay Rastogi

                                             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)




                          JUDGMENT

Rastogi, J.

1. The instant appeal is directed against the impugned

judgment and order dated 27 th 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

Tribunal in its order dated 16 th April, 2019, upheld the order of

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the Debt Recovery Tribunal dated 23 rd March, 2018 quashing the

demand notice dated 14th 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”)

followed with the possession notices dated 09 th November, 2017

and 10th 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

request to the appellant vide application dated 15 th 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

dated 07th August, 2015 on such terms and conditions as set out

in the sanction letter and for availing the above credit facility, the

respondents executed Facility Agreement dated 11 th 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

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

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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

dated 16th 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

performing Assets (NPA) on 15 th April, 2017 and sent a notice of

demand dated 14th 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

Fifty One Only) as on 31st 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

14th June, 2017, the respondents did not discharge their liability

and sent their reply dated 08 th August, 2017 to the notice with

full consciousness knowing it well that the demand notice dated

14th June, 2017 has been served by the appellant (secured

creditor) in reference to the Facility Agreement dated 11 th August,

2015 which has been executed between the parties i.e. the

appellant and the respondents herein. It may be relevant to note

that the demand notice dated 14th 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

loan was sanctioned vide sanction letter dated 07th August, 2015

and no objection was raised by the respondents in its reply dated

08th 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

Tribunal vide its order dated 23 rd 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

of Debt Recovery Tribunal dated 23 rd March, 2018 came to be

challenged by the appellant in appeal before the Debt Recovery

Appellate Tribunal(DRAT) and after the parties being heard,

DRAT vide its order dated 16 th 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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07th August, 2015 and later their account became NPA on

15th April, 2017 and prior thereto, the appellant (secured creditor)

served a notice on 16 th 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

08th 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

which the Facility Agreement dated 11th 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

by the respondents vide their application dated 15 th May, 2015

and accepted by the appellant vide sanction letter dated 07 th

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

appellant when demand notice dated 16 th 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

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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

demand notice dated 14 th June, 2017 without leaving any iota of

doubt is in reference to the non­fulfillment of the terms and

conditions of the Facility Agreement dated 11 th 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 11 th 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

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

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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.

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

conditions of the Facility Agreement dated 11 th 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,

allowed. The impugned judgment dated 27 th 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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