|Case name||Trishul Developers v/s L&T Housing Finance Limited and others|
|Case number||Writ Petition No. 22137 of 2019 (GM-DRT)|
|Court||High Court of Karnataka (Bengaluru)|
|Bench||Justice L. Narayana Swamy & Justice R.Devdas|
|Decided on||June 27, 2019|
|Relevan Act/Sections||SARFAESI Act, 2002 – Section 13
The Arbitration & Conciliation Act, 1996 – Section 8
|Author of case brief||Bhavisha Sharma ([email protected])|
Brief Facts and Procedural History:
The petitioner had borrowed a sum of 20 crore Rupees from the Respondent. The petitioner defaulted on payments and the Respondent initiated proceedings under the SARFAESI Act, 2002. The petitioner sought quashing of these proceedings by an application filed with DRT on the ground that demand notice was not issued by the Respondent but some unconcerned party. While DRT allowed the petition, the DRAT allowed the appeal sought by Respondents.
Both DRT and DRAT have agreed that the notice was issued by L&T Finance Limited – printed on its letterhead and signed by its esecutive. However, the secured creditor in present case is L&T Housing Finance Limited, first Respondent. Citing various judgements, petitioners contend that valid notice is necessary to constitute proceedings under SARFAESI Act and the impugned notice cannot be considered valid. This is because when statute prescribes a certain manner of procedure, the same should be followed and if it is not followed , the notice shall be invalid. Cases laying down strict compliance with procedure envisaged by SARFAESI Act, 2002 have also been cited.
The counsel for the Respondent argued that in its reply to the demand notice, petitioner did not protest that it has not secured a loan from L&T Finance Limited but only cites other unrelated reasons contending the claim of repayment. It is contended that petitioners have admitted that they have secured a loan and reliance is placed on the footer of the notice where the name of the secured creditor is printed. They have also relied on judgements holding that technical errors in notices which otherwise substantially comply with law should be overlooked and notice should be considered valid.
DRAT held that the same was a mistake on the part of the Respondent and has also been clarified by the letter written by them addressed to the petitioners. Petitioners have appealed in the High Court against the order passed by the DRAT and have sought that the notice must be held illegal.
Issues before the High Court:
- Can the impugned demand notice be held as a valid demand notice under Section 13(2) of SARFAESI Act, 2002?
- If the demand notice is defective, is the defect curable?
Ratio of the Court:
- No. Court observed that as a free hand has been given to the creditor to seek remedy from the debtor without intervention of the court, it is imperative that all provisions of the act are strictly complied with. It is an undisputed fact that the notice has not been issued by the ‘secured creditor’ which is expressly stipulated in Section 13(2) of the Act.Thus, it cannot be construed as a valid notice under the provisions of the Act.
- No. Court observed that it is a settled principle of law that implicit waiver by one party will not exempt the other party from performance of statutorily stipulated duties if the dispute goes to the root of the proceedings, and the court shall still have jurisdiction to adjudicate the dispute. The current mistake is different from cases which had typographical errors and the like, and the same can be cured. Holding that the defect in this notice goes to the root of the matter, it can be waived by the other party only if expressly consented to. As express consent is absent, implicit waiver and later clarifications cannot cure the defect.
Observing that the conduct of the creditor is prejudicial to the interests of the creditor, the court upheld the order passed by DRT. Allowing the petition, it quashed the demand notice and possession notices that were issued as a part of the proceedings under SARFAESI Act.