SARFAESI Notice To Dead Guarantor Was Invalid Even If Received By Borrower's Wife: DRT Ernakulam

The Debt Recovery Tribunal (DRT) in Kerala has set aside recovery proceedings initiated by South Indian Bank Ltd. under the SARFAESI Act after finding that one of the demand notices had been issued to a guarantor who had died several years earlier.

Presiding Officer Sovan Kumar Dash, while partly allowing a securitization application filed by borrower Shijo Jose, observed that a demand notice issued to a deceased person is void from the outset and cannot be validated merely because it was received by the applicant's wife.

“Merely because the notice was received by the wife of the applicant on behalf of the non-existent person, it would not validate the demand notice issued to a dead person, which is null and void from the inception and it has no legal existence.” the tribunal said.

The dispute relates to loans availed by Shijo Jose, who operated a partnership firm called City Glass and Ply Woods and also ran a proprietorship concern called Chalakkudy Glass and Ply Woods.

South Indian Bank had extended multiple credit facilities to the borrower, including overdraft and working capital loans, which were secured by mortgaging certain properties.

Due to repayment defaults, the loan accounts were classified as non-performing assets on June 28 and June 29, 2021. The bank subsequently issued demand notices on August 18, 2021, and August 13, 2021.

One of the demand notices was issued to the applicant's father, M.C. Jose Mechery, who had stood as a guarantor for the loans. However, he had died earlier on September 29, 2014.

The bank contended that the death of the guarantor had not been intimated to it and that the notice issued to him had been received by the applicant's wife.

Rejecting the contention, the tribunal observed that once a person's death is registered under the law, it operates as “notice to whole world.” The tribunal further noted that although the guarantor's liability continued even after his death, the bank was required to issue notice to his legal heirs before proceeding under the SARFAESI Act.

The tribunal found that the demand notice dated August 18, 2021 had been issued to a person who had already passed away, and therefore had no legal existence. On that basis, it declared the notice invalid and set aside the securitization proceedings relating to the 15.54 Ares property. South Indian Bank was given liberty to restart the process, beginning with the issuance of a fresh demand notice in accordance with law.

However, for another secured asset measuring 69.99 Ares, which had been mortgaged for loans taken by the proprietorship concern Chalakkudy Glass and Ply Woods, the tribunal found no legal defect in the recovery steps taken by the bank. Since the deceased guarantor had no connection with that facility, the proceedings concerning that property were allowed to continue.