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Loan Recovery By Banks During The National Lockdown

The national lockdown came into effect from 24.03.2020 has affected the banking industry in a huge way. This also hindered the legal activities of the litigating parties before the Debt Recovery Tribunal such that Banks and the borrower were jumbled upon the procedural and limitations aspect set by the law. This change came up with difficulties in the proper implementation of the legal principles, which either party can take benefit or have the worst effect.

This article complies two cases where such an effect because of the lockdown.

Case 1: Sanjay Kumar vs Central Bank of India

A delay in payment of 25% of the bid amount after the successful auction is allowed if the auction purchaser had made a genuine effort but got delayed because of the implementation of national lockdown.

[Bench: Hon’ble Justice Shri Rekha Palli of High Court of Delhi in W.P(c) 3067/2020]

A bidder/auction purchaser had an obligation under Rule 9(3) and 9(4) of the Securities Enforcement Rules, 2002 to deposit 25% of the bid amount to the Bank within 24 hours of the confirmation. Meanwhile, a nationwide lockdown was enforced and it was difficult for the auction purchaser to arrange funds within 24 hours of the successful bid. This case demonstrated the effect of the nationwide lockdown and implementation of the rule in defence of the auction purchasers interest.

Facts.– The petitioner is a successful bidder in an e-auction conducted by the respondent Bank on 31.03.2020. The petition is filed under Article 226/227 of the Constitution for seeking directions to Bank in issuing Sale certificate in favour of the petitioner and also allow the condonation of delay for five days in depositing the requisite amount with the Bank as per the terms of the bid.

On the date 31.04.2020 of the e-auction, the petitioner placed a successful bid of Rs 4.3 crore for purchase of the auction property, after which the petitioner had to deposit a sum of 25% of the bid amount, i.e a sum of Rs. 1.075 crores within a 24-hour period. The petitioner deposited Rs 42.5 lakhs with the respondent and the by 01.04.2020 deposited a further sum of Rs. 65 lakhs.

However, by the time nationwide lockdown was in effect due to COVID19 pandemic from the date 24.04.2020, which took difficult for the petitioner to crystallise funds within a short period of 24 hours.

The petitioner informed the Bank of its situation through an email on 31.03.2020 and requested for an extension of time to deposit the balance amount by 10-12 days and if the Bank has any objection for providing extension it should inform the petitioner immediately.

The Bank did not answer the email of the petitioner. Meanwhile, the petitioner deposited the full requisite balance with the Bank by 06.04.2020 in four tranches. The petitioner after which sent a reminder through email to the Bank on 23.04.2020 for confirmation of payment and sale certificate but did not received any reply, thus the petitioner filed this writ petition.

Held.–  The petitioner through this writ petition sought two reliefs which are first, the Issue of sale certificate for the successful completion of the bid and secondly, a condonation of delay in making payments of the requisite deposit in confirming the e-auction process.

The Court observed the difficult time that existed while these actions by the bank and the petitioner was taken place because of the nation-wide lockdown. It was admitted fact that, though e-auction was conducted, but the situation in the banking sector was in ambiguity in making a clear understanding of its functioning during the national lockdown, which not only the Central Government but also the RBI issued circulars from time to time amended and enforced.

The Court accepted the action taken by the petitioner for not denying its statutory liability to pay the requisite balance within 24 hours as per Rule 9(3) and (4) of the Security Interest (Enforcement) Rule, 2002 and consistently remained bound to pay the respondent Bank by moving an application to the Bank for extension of time to deposit the required funds.

The petitioner made continuous deposits of the required funds in tranches in five days time period and the Banks also admitted the lapse in communication during the lockdown period which it had received by an email from the petitioner. The Bank did not even objected the delay of five days occasioned by the petitioner in making a deposit.

However, with respect to the issue of sale certificate, the counsel of the respondent contended that, as per the order dated 17.04.2020 in learned Debt Recovery Tribunal III, Delhi in SA No. 207/2019 and S.A Dy NO. 1794/2019 a company name KSJ &Co. challenged the auction in question claiming to have brought the property from the original owners. The application is under consideration with the Tribunal while directing the applicants to deposit the sale consideration with it but declined to confirm the auction in favour of the petitioner till further order. Thus, it made difficult for the Bank is not in the position to confirm the sale or issue the sale certificate in favour of the petitioner.

Therefore, the Court agreed with the contentions of the respondent counsel because a challenge to the e-auction is in question remains pending before the learned tribunal, neither would the Bank be permitted nor would it be proper for the Court to delve into the petitioner’s prayer in giving finality to the auction sale and providing with them with a sale certificate.

Case 2: M/s K R Feeds Mills and Others vs Bank of India and Others

The Extension of the OTS Scheme by the Bank because of the Lockdown does not mean the defaulter will also get the benefit of an extension for repayment in a six-month period.

[Bench: Hon’ble Justice Shri Rakesh Kumar Jain and Justice Shri Ashok Kumar Verma of the High Court of Punjab & Harayana in CWP 7294 of 2020]

The lockdown has prevailed an economic to the functioning of a stable system of Banking. The Bank & RBI in protecting the system from any adverse effect had made reforms so that the system can rebuild itself. This has also created a constructive reason by the persons who are using informative tools for illicit delaying tactics. This case is an example of delay tactics being employed by the defaulter for not paying the dues. 

Fact.–  The petitioner is the borrower/guarantor and is a defaulter in two loan accounts of Rs 3.40 Crores and Rs 3.11 Crores both were declared as NPA. The respondent Bank had issued a notice under Section 13(4) of the SARFAESI for an e-auction on the date 28.04.2020 on both accounts. The accounts of the petitioner were declared as NPA in April 2015 from notice under Section 13(2) of the SARFAESI on 11.04.2015 recalling for the payment of default amount. The respondent bank published an e-auction sale notice date 20.04.2020 and the date of sale was fixed on 16.03.2020 which was later postponed by another publication for e-auction on 31.03.2020 and the date of sale was fixed on 27.04.2020.

However, the Bank for clearing its NPA accounts started an OTS (One Time Settlement Scheme) by the name BOIOTS-2019, whereby, the petitioner has applied for one-time settlement of both the loans. The bank issued the last date for BOIOTS 2019 scheme on 31.03.2020. The petitioner had made two applications on 13.03.2020 which requested to deposit 70% of the secured portion.

The petitioner was allowed to deposit Rs 43 Lakhs against the NPA account but the petitioner sought 3+6 month time to deposit the remaining amount. The respondent then later averted in the letter dated 23.04.2020 whereby it mentioned the petitioner inability to deposit 70% of the amount under OTS scheme which made their application under the scheme got rejected.

Eventually, the e-auction was conducted on 27.04.2020 and the mortgaged property was sold by the respondent, for a sum of Rs 93.3 lakhs, the intimation of which was known by the petitioner on 28.04.2020.

Thus, the petitioner has filed this petition for issuance of the writ of certiorari in quashing the notice dated 11.04.2015 and e-auction notices, also a writ of mandamus directing the respondent to allow the petitioner to deposit the balance amount within nine months in pursuance of the BOIOTS 19 Scheme.

Held.- The Court after reviewing the facts and the arguments of the counsels observed that the petitioner had 4 years from the date of the issuance of notices under Section 13(2) of the Act to in making the payments of the outstanding amount, and nor the petitioner challenged those notices before the Debt Recovery Tribunal.

As for the notice of e-auction is concerned, the respondent firstly decided to conduct the e-auction of the mortgaged property on Feb 2020 and sale of which on March 2020, but it was extended and e-auction was conducted on 27.04.2020. Also, the petitioner had availed the benefit from the OTS scheme but did not make a payment of 70% of the secured portion.

The petitioner alleged that it should have got benefit for the extension of the time period in the OTS scheme for extension in repayment instalments and waiver of interest from 01.04.2020 to 30.06.2020 because the respondent bank due to the ongoing pandemic of COVID-19 has extended OTS scheme up to 30.06.2020 as per the instruction issued on 24.04.2020 after the petitioner concern in the scheme was rejected on 23.04.2020.

The Court did not accepted the opinion of the petitioner as he was not approved for the scheme because of his expressed inability to enter into a compromise/settlement on the ground that OTS amount was not acceptable by the petitioner. Also, the mortgaged property had already been sold to the highest bidder and deposited 25% of bid amount on 27.04.2020. For this, petition to maintain, the petitioner has to make the bidder party to this petition. The Court forbid to entertain the petition on the quashing the e-auction sale because of the non-joinder of the necessary party into the petition.

The Court, therefore, dismissed the petition finding no reason to interfere in the actions of the Bank.


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