The Supreme Court on Tuesday in the case of L&T Housing Finance Limited Vs. Trishul Developers comprising of a three bench judge of Justices L. Nageswara Rao, Hemant Gupta and Ajay Rastogi observed that proceedings initiated under the SARFAESI Act by the Secured Creditors cannot be nullified merely on the ground of technical defects and procedural lapses unless substantial prejudice was caused to the defaulter.
In the present case, the Debt Recovery Tribunal quashed the demand notice served on the borrower under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, on the ground that it has not been validly issued in the name of the secured creditor ("L&T Housing Finance Ltd.") instead the name of the company was mentioned as "L&T Finance Ltd." This defect, according to the Tribunal was not being curable after issuance of demand notice by another group company instead of a secured creditor. The Karnataka High Court upheld this order of the Debt Recovery Tribunal.
Learned counsel for the appellant submits that from the initial stage until the demand notice being served under Section 13(2) of the SARFAESI Act or even the later correspondence was on the same letterhead of the appellant from where the proceedings for the term loan was sanctioned in favour of the respondents and further submits that the selfsame authorised
signatory, being there of both the companies use common letterhead having its registered office and details of the sanction letter and of Facility Agreement coupled with default committed by the respondents are in reference to “L&T Housing FinanceLtd.” and only at one stage, due to oversight, the appellant inadvertently put the seal of “L&T Finance Ltd.” and it was not the case of the respondents that it has caused any substantial prejudice, either in acknowledging that from whom (secured creditor) demand notice under Section 13(2) has been served which can be further countenanced from the reply to the demand notice filed by the respondents. In the given circumstances, the mere technical defect as being noticed in the demand notice by the Tribunal and confirmed by the High Court in the impugned judgment, will not negate the proceedings which have been initiated by the appellants (secured creditor) in carrying out its obligations and protecting their security interest as contemplated under the provisions of the SARFAESI Act.
He further submits that the proceedings initiated under the SARFAESI Act would not nullify on the mere technicality as being pointed out and the High Court without appreciating the material on record has reversed the finding returned by the DRAT in its extraordinary jurisdiction under Article 226 & 227 of the Constitution and if two views are possible unless found to be perverse it was not justified for the High Court to reverse the finding of fact supported by the material on record and that needs interference of this Court.
The learned counsel for the respondents while buttressing the judgment impugned of the High Court submits that when the salient defect has been noticed by the DRT and confirmed by the High Court at the very inception of the proceedings being initiated under the SARFAESI Act, all the consequential proceedings initiated in furtherance thereof in the instant case cannot be said to be in due compliance of the SARFAESI Act and once a procedure has been prescribed by law as mandated under the SARFAESI Act, the secured creditor was under obligation to comply which indisputably has not been followed, in the given circumstances, no error has been committed by the High Court under its impugned judgment and according to him, it needs no interference of this Court.
It may be relevant to note that in an appeal filed by Secured Creditor, the Apex Court noted that the borrower (in its correspondence with the secured creditor) did not deny advancement of loan, execution of Facility Agreement, their liability, and compliance of the procedure being followed by the secured creditor prescribed under the SARFAESI Act. The court also observed that the objection raised by the respondents was trivial and technical in nature and the appellant (the secured creditor) has complied with the procedure prescribed under the SARFAESI Act.
"In the facts and circumstances, when the action has been taken by the competent authority as per the procedure prescribed by law and the person affected has a knowledge leaving no ambiguity or confusion in initiating proceedings under the provisions of the SARFAESI Act by the secured creditor, in our considered view, such action taken thereof cannot be held to be bad in law merely on raising a trivial objection which has no legs to stand unless the person is able to show any substantial prejudice being caused on account of the procedural lapse as prescribed under the Act or the rules framed thereunder still with a caveat that it always depends upon the facts of each case to decipher the nature of the procedural lapse being complained of and the resultant prejudiced if any, being caused and there cannot be a straitjacket formula which can be uniformly followed in all the transactions."
-observed the court.
The court allowing the appeal observed that:
“The submission made by the respondent's counsel that the notice under Section 13(2) of the Act was served by the authorised signatory of "L&T Finance Ltd." and that was not the secured creditor in the facts of the case, in our considered view, is wholly without substance for the reason that "L&T Finance Ltd." and "L&T Housing Finance Ltd." are the companies who in their correspondence with all its customers use a common letterhead having their selfsame authorised signatory, as being manifest from the record and it is the seal being put at one stage by the authorised signatory due to some human error of "L&T Finance Ltd." in place of "L&T Housing Finance Ltd.". More so, when it is not the case of the respondents that there was any iota of confusion in their knowledge regarding the action being initiated in the instant case other than the secured creditor under the SARFAESI Act for nonfulfillment of the terms and conditions of the Facility Agreement dated 11th August, 2015 or any substantial prejudice being caused apart from the technical objection being raised while the demand notice under Section 16 13(2) was served under the SARFAESI Act or in the proceedings in furtherance thereof no interference by the High Court in its limited scope of judicial review was called for”.
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