DRAT Chennai Upholds Order Allowing Bank To Take Possession Of Mortgaged Property Despite Later Payments

The Chennai Bench of the Debts Recovery Appellate Tribunal (DRAT) recently upheld an order permitting City Union Bank to take physical possession of a mortgaged property.

It ruled that payments made by a borrower after recovery proceedings had commenced could not affect the validity of an order passed after complying with the requirements of the SARFAESI Act.

The tribunal, comprising Chairperson Justice G. Chandrasekharan, dismissed an appeal filed by Gelind Tech Consultants.

“Subsequent payments made by the appellant, will in no way, affect the merits of the order, as the order was passed on merits,” the tribunal held.

Gelind Tech Consultant had availed an overdraft facility of Rs. 1.25 crore and a bank guarantee facility of Rs. 50 lakh from City Union Bank. The borrowings were secured by mortgages created over residential properties in Thanjavur and Coimbatore, belonging to two partners.

After the account was classified as a non-performing asset (NPA) in November 2020, the bank initiated recovery measures under the SARFAESI Act and obtained a Section 14 order to take physical possession of one of the mortgaged properties.

The firm challenged the move, arguing that the account had been wrongly classified as an NPA and pointed out discrepancies in the dates and amounts in the bank's demand notices.

It further claimed that as an MSME unit, it was entitled to a restructuring framework as per RBI circulars, which the bank ignored. It also highlighted that the bank did not consider a substantial amount, approximately Rs. 1.58 crore, already paid during the pendency of the legal proceedings.

City Union Bank, on the other hand, maintained that the account had been classified as an NPA owing to continuous overdrawal by the borrower firm and was strictly according to RBI guidelines.

It explained that the discrepancy in the NPA date was issued because of an interim stay by the Supreme Court on such classifications, which was later vacated. The bank also informed the Tribunal that the secured property had since been sold and registered to an auction purchaser.

The Tribunal noted that there was no dispute regarding the receipt of the Section 13(2) demand notice or the Section 13(4) possession notice, and that the borrower firm's objections were confined to NPA classification, discrepancies in account statements, and claims for restructuring benefits.

It observed that the role of the Magistrate under Section 14 was limited to verifying procedural compliance and not conducting a roving inquiry. It found no defect either in the bank's application under Section 14 or in the order passed by the Chief Judicial Magistrate and held that:

“This Tribunal finds from the material produced that the requirements under Section 14 of the SARFAESI Act are fulfilled and the order was passed properly by the Learned CJM, by allowing the application,” it observed.

The Tribunal examined the account statements reflecting continuous overdrawal in the overdraft account before its NPA classification in 2020 and noted that all payments relied upon by the borrower firm were made only after the initiation of proceedings under the SARFAESI Act.

“There is no material produced to show that after receipt of Section 13(2) demand notice and even after 60 days, the amount due was paid by the appellant,” it observed.

The bench held that subsequent payments by the borrower firm could not invalidate a Section 14 order permitting the bank to take physical possession of the property once the statutory requirements were complied with.

Finding no grounds to interfere with the lower Tribunal's order, the Bench affirmed the order of DRT-II, Chennai.

Accordingly, the appeal was dismissed.

For Respondent Bank: Ananda Gomathy & Co.