Period of limitation clause when SARFESI proceedings are underway against defaulter

‘B’, after serving notice under section 13(2) of SARFAESI Act, 2002 put M’s secured assets for sale through auction, for which notice was issued by publication (only).

‘M’, who though was aware of sale through public notice, did not question the sale on the pretext that no sale can take place until individual notice under Rule 8 (6) of Securities Interest (Enforcement) Rules, 2002 is served upon ‘M’.

Pursuant to public notice, ‘B’ held an auction of the secured assets of ‘M’ where ‘X’, the only bidder who participated was declared successful and the same day the sale was confirmed. ‘M’, who was aware of the sale, three days after it passed a Board Resolution in favour of its director authorising him to challenge the sale, as it was in contravention of Rule 8(6).

After 15 days of the sale, ‘B’ sent a notice to ‘M’ informing about the conclusion of sale and post adjustment of its claim, the surplus lying with it was offered to ‘M’. Impugning the said communication, ‘M’ filed an application (S.A.) under section 17 of the SARFAESI Act, 2002 challenging the sale conducted by ‘B’ in favour of ‘X’ before the Debt Recovery Tribunal (DRT).

DRT, agreeing with ‘M’ held Rule 8(6) being mandatory that requires personal notice to be served upon ‘M’. The tribunal set aside the sale and directed ‘B’ to refund the sale amount to ‘X’ with interest.

Both ‘B’ and ‘X’ challenged the DRT order before the Debt Recovery Appellate Tribunal (DRAT) on the ground that the S.A. filed by ‘M’ was barred by limitation as it was filed beyond 45 days from the date of knowledge of sale. DRAT, accepting the contention of ‘B’ and ‘X’, set aside the order of DRT and held the S.A. was barred by limitation and that non-compliance of Rule 8(6) is mere irregularity and not illegality.

‘M’ challenged the order of DRAT before the Hon’ble High Court and contended that notice under Rule 8(6) of SARFAESI Act, 2002 is mandatory despite notice by publication, and since no such notice was served on ‘M’, the period of limitation was not triggered off.

At the relevant time, since there were conflicting views on Rule 8 (6), the Hon’ble High Court while admitting the petition of ‘M’ framed two questions as under:

a) Whether Rule 8 (6) of the Security Interest (Enforcement) Rules, 2002, are mandatory in character and consequently, whether it is necessary to serve an individual notice on the borrowers despite the proviso?

b) Whether the provisions of Limitation Act, 1963 most particularly section 5 would be available in respect of any application filed under section 17 or 18 of the SARFAESI Act, 2002?

In the meantime, the apex court in the case of ‘Mathew Varghese Vs. M. Amritha Kumar and Ors.’ held Rule 8 (6) to be mandatory requiring personal service upon borrower by interpreting the word ‘or’ as ‘and’ used in Rule 9 (1).

Subsequently, the apex court in the case of ‘Baleshwar Dayal Jaiswal Vs. Bank of India & Ors.’ while dealing with section 18 of the SARFAESI Act, 2002 held the limitation act to apply in case of an appeal filed under section 18 of SARFAESI Act, 2002.

Various high courts following the analogy, as laid down in Baleshwar Dayal Jaiswal (Supra), held that a similar principle must also apply to the dispensation provisioned in section 17 of the SARFAESI Act being similarly worded, if the application under Section 17 is filed after 45 days, to condone the delay. However, the Kerala High Court disagreed and held limitation will not apply in the case of Section 17 of the SARFAESI Act as it is an original proceeding.

Against the decision of Kerala High Court, a petition was filed before the apex court in the case titled ‘K.J. George & Ors v. The Authorised Officer, Indian Bank’, where Hon’ble Apex Court has issued notice and the matter is sub-judice.

However, in the present case, it has been contended that the issue of limitation shall not apply, as no personal notice under Rule 8(6) was served upon ‘M’.

The Apex Court after having held Rule 8 (6) requiring personal service upon the borrower to be mandatory, had, on the question of waiver and acquiescence requiring dispensation of a mandatory provision under Rule 8 (6), held that such waiver and acquiescence must be in writing with unqualified acceptance.

The writ petition of ‘M’ was taken up for hearing upon application of ‘X’ requesting for early hearing. Allowing the request, the High Court heard the petition and agreed with the contention of ‘M’ and that Rule 8 (6) is mandatory and personal service upon ‘M’ was also mandatory. However, it displaced ‘M’ on the ground since ‘M’ had knowledge about the sale and as ‘M’, having filed Section 17 application beyond period of 45 days, its application was barred by limitation, as ‘M’ by its conduct had waived its right to challenge.

The view taken by the High Court appears to be incorrect inasmuch as once the High Court concluded that the provisions of Rule 8(6), being mandatory in nature, and in the absence of any notice, the limitation could not have triggered. This, even otherwise when the issue of limitation was pending consideration and a co-ordinate bench of the same High Court has already ruled applicability of limitation act in respect of Section 17 applications, ‘M’ ought to have been given an opportunity to seek condonation of delay, if any.

The application of ‘M’ was maintainable, once the High Court held Rule 8(6) to be mandatory. The order of High Court appears to be unsustainable in law. ‘M’ must challenge the order before Apex Court so that the issue as to when limitation gets triggered in case of non-compliance of mandatory provision is settled forever.