IN THE HIGH COURT OF ANDHRA PRADESH :

AT AMARAVATI

***

Writ Petition No.30350 of 2021

Between:

Nalluri Satyanarayana, S/o. Butchaiah,

Aged 65 years, Occ: retired, resident of H.No.3-180-136/3,

Himani Nagar, 1

st Line, Reddypalem,

Guntur Town, Guntur District.

…. Petitioner

And

1) The Union Bank of India, Guntur Main Branch,

Rep. by its Chief Manager & Authorized Officer and Other.

….Respondents.

Writ Petition No.3334 of 2022

Between:

Konneboina Srinivas Rao, S/o. Subba Rao,

Aged about 49 years, Occ: Business,

R/o.D.No.11-10, Tirumala Nagar,

Gorantla, Guntur, Guntur District – 522 034.

…. Petitioner

And

1) The Union Bank of India, Guntur Main Branch

and other.

….Respondents.

Date of Judgment pronounced on : 12.04.2022

2

THE HON’BLE SRI JUSTICE C. PRAVEEN KUMAR

AND

THE HON’BLE SMT. JUSTICE V. SUJATHA

1. Whether Reporters of Local newspapers : Yes/No

may be allowed to see the judgments?

2. Whether the copies of judgment may be marked : Yes/No

to Law Reporters/Journals:

3. Whether the Lordship wishes to see the fair copy : Yes/No

of the Judgment?

__________________________________

JUSTICE C. PRAVEEN KUMAR

3

* THE HON’BLE SRI JUSTICE C. PRAVEEN KUMAR

AND

THE HON’BLE SMT. JUSTICE V. SUJATHA

+ Writ Petition No.30350 of 2021

% 12.04.2022

Between:

# Nalluri Satyanarayana, S/o. Butchaiah,

Aged 65 years, Occ: retired,

resident of H.No.3-180-136/3,

Himani Nagar, 1

st Line, Reddypalem,

Guntur Town, Guntur District.

…. Petitioner

And

$ 1) The Union Bank of India, Guntur Main Branch,

Rep. by its Chief Manager & Authorized Officer and Other.

….Respondents.

Writ Petition No.3334 of 2022

Between:

# Konneboina Srinivas Rao, S/o. Subba Rao,

Aged about 49 years, Occ: Business,

R/o.D.No.11-10, Tirumala Nagar,

Gorantla, Guntur, Guntur District – 522 034.

…. Petitioner

And

$ 1) The Union Bank of India, Guntur Main Branch

and other.

….Respondents.

4

! Counsel for the Petitioner(s) : Sri D. Krishna Murthy.

Counsel for the Respondents : Ms. V. Dyumani,

Learned counsel for

R.1/Bank.

<Gist :

>Head Note:

? Cases referred:

1) AIR 2017 Patna 126.

2) (2020) 10 SCC 659.

5

THE HONOURABLE SRI JUSTICE C.PRAVEEN KUMAR

AND

THE HONOURABLE SMT. JUSTICE V.SUJATHA

WRIT PETITION No. 30350 OF 2021

AND

WRIT PETITION No. 3334 OF 2022

COMMON ORDER: (Per Hon’ble Sri Justice C.Praveen Kumar)

1) These two Writ Petitions are filed by the Guarantor, as

such they are disposed of by this Common order:-

2) The facts, in issue, are as under:

i. The Second Respondent/borrower obtained loan from

the First Respondent to an extent of Rs.95,00,000/- on

cash credit facility. The Petitioner is said to have

deposited original title deed with the Bank and also

executed and registered a Memorandum of Deposit of

Title Deeds vide Document No. 5890 of 2015 at the

Office of Sub-Registrar, Guntur.

ii. As the borrower failed to pay the amount despite

repeated demands, the loan account of the borrower

was declared as N.P.A Thereafter a notice under

Section 13(2) is said to have been issued on 31.03.2021

to the borrower and guarantors incorporating the list of

mortgaged properties and demanding the outstanding

6

due amount of Rs.1,05,83,668.31 ps. As no

representation was received to the notices issued,

possession notice under Rule 8(1) was issued,

intimating taking possession of the properties

belonging to borrower and guarantors. This possession

notice issued under Section 13(4) of SARFAESI Act, is

under challenge now.

3) Sri. D. Krishna Murthy, the learned Counsel for the

Petitioners mainly submits that the Petitioners cannot be

called as guarantors as they are not aware about their

property being mortgaged to the Bank. According to him, the

borrower committed theft of these documents and obtained

loan by forging their signatures and mortgaging the title

documents. He further submits that even assuming that they

are guarantors, no notice under Section 13(2) was served on

them and the said notice is not in terms of Rules 3 and 4 of

the Security Interest (Enforcement) Rules, 2002. He relies

upon a judgment of the Patna High Court in Syndicate Bank

V. Rajesh Kumar and Ors

1, to contend that notices should

be issued separately to the borrower and guarantor.

1

AIR 2017 Patna 126

7

4) On the other hand, Ms. V. Dyumani, learned Counsel

appearing for Respondent Bank, o pposed the same

contending that the notices issued separately under Section

13(2) of the Act, were served on the Writ Petitioners and

borrower and in the absence of any representation, the Bank

proceeded further, after declaring the account as N.P.A. She

further submits that proof of service of notices issued under

Section 13(2) are also filed along with the counter. According

to her, the Petitioners are set-up by the borrower, who never

choose to come before this Court and explain his stand.

5) The points that arises for consideration in these two

Writ Petitions are as under:

(i) Whether the notices issued under Section 13(2) of the

SARFAESI Act are served on the Petitioners.

(ii) Whether the Petitioners are aware about the issuance

of possession notice under Section 13(4).

(iii) Whether there was non-compliance of Rule 3 of the

Security Interest (Enforcement) Rules, 2002, as no

separate notice was issued to the Petitioners -

Guarantors.

(iv) Whether the borrower played fraud by committing

theft of the documents relating to subject property

8

and then obtained loan by mortgaging the same,

without the knowledge of the Petitioners.

6) In order to appreciate the rival contentions, it would be

appropriate to refer to Sections 13(2), 13(4) of SARFAESI Act,

2002, and Rule 3 of the Security Interest (Enforcement)

Rules, 2002, which are as under:-

Sections 13(2) and 13(4) of SARFAESI Act, 2002.

―13. Enforcement Of Security Interest.

(2) Where any borrower, who is under a liability to a

secured creditor under a security agreement, makes any

default in repayment of secured debt or any installment

thereof, and his account in respect of such debt is

classified by the secured creditor as non-performing

asset, then, the secured creditor may require the

borrower by notice in writing to discharge in full his

liabilities to the secured creditor within sixty days from

the date of notice failing which the secured creditor shall

be entitled to exercise all or any of the rights under sub-

section (4).

1[Provided that—

(i) the requirement of classification of secured debt

as non-performing asset under this sub-section

shall not apply to a borrower who has raised funds

through issue of debt securities; and

(ii) in the event of default, the debenture trustee

shall be entitled to enforce security interest in the

same manner as provided under this section with

such modifications as may be necessary and in

accordance with the terms and conditions of

security documents executed in favour of the

debenture trustee.]

(4) In case the borrower fails to discharge his liability in

full within the period specified in sub-section (2), the

secured creditor may take recourse to one or more of the

following measures to recover his secured debt,

namely:—

9

(a) take possession of the secured assets of the borrower

including the right to transfer by way of lease,

assignment or sale for realising the secured asset;

4[(b) take over the management of the business of the

borrower including the right to transfer by way of lease,

assignment or sale for realising the secured asset:

Provided that the right to transfer by way of lease,

assignment or sale shall be exercised only where

the substantial part of the business of the

borrower is held as security for the debt:

Provided further that where the management of

whole of the business or part of the business is

severable, the secured creditor shall take over the

management of such business of the borrower

which is relatable to the security for the debt;]

(c) appoint any person (hereafter referred to as the

manager), to manage the secured assets the possession

of which has been taken over by the secured creditor;

(d) require at any time by notice in writing, any person

who has acquired any of the secured assets from the

borrower and from whom any money is due or may

become due to the borrower, to pay the secured creditor,

so much of the money as is sufficient to pay the secured

debt.‖

“Rule 3 of the Security Interest (Enforcement) Rules, 2002.

3. Demand notice.—

(1) The service of demand notice as refereed to in sub-

section (2) of section 13 of the 1[Act] shall be made

by delivering or transmitting at the place where the

borrower or his agent, empowered to accept the

notice or documents of behalf of the borrower,

actually and voluntarily resides or carries on

business or personally works for gain, by registered

post with acknowledgement due, addressed to the

borrower or his agent empowered to accept the

service or by Speed Post or by courier or by any other

means of transmission of documents like fax

message or electronic mail service: Provided that

where authorised officer has reason to believe that

the borrower or his agent is avoiding the service of

the notice or that for any other reason, the service

cannot be made as aforesaid, the service shall be

effected by affixing a copy of the demand notice on

the outer door or some other conspicuous part of the

house or building in which the borrower or his agent

ordinarily resides or carries on business or

personally works for gain and also by publishing the

10

contents of the demand notice in two leading

newspapers, one in vernacular language, having

sufficient circulation in that locality.

(2) Where the borrower is a body corporate, the demand

notice shall be served on the registered office or any

of the branches of such body corporate as specified

under sub-rule (1).

(3) Any other notice in writing to be served on the

borrower or his agent by authorised officer, shall be

served in the same manner as provided in this rule.

(4) Where there are more than one borrower, the

demand notice shall be served on each borrower.‖

7) The first ground urged by the Counsel for the Petitioner

is that of ―fraud‖. According to him, the borrower who is their

relative committed theft of the original documents from their

houses and used the same in obtaining loan/CCF. The plea

taken appears to be slightly strange. It is very difficult to

believe that the borrower, who is related to the guarantors,

would have committed theft from the houses of both the

Guarantors, without their knowledge.

8) Further, the report to the police appears to have been

given after filing of Writ Petitions before this Court. The

affidavits in support of Writ Petition No. 30350 of 2021 and

Writ Petition No. 3334 of 2022 were sworn in on 20.12.2021

and on 05.02.2022 respectively. If really, the report was

lodged before the Nallapadu Police Station on 18.12.2011 and

before Spandana on 03.01.2022, the affidavits filed in

support of the Writ Petitions should disclose the same but

they are silent on this aspect. On the other hand, the affidavit

11

filed in respect of W.P. No. 3334 of 2022, dated 05.02.2022, it

was averred that the ―Petitioner is lodging a complaint‖.

Therefore, the plea of theft and lodging of report appears to be

an after thought and set-up to create a defence.

9) Be that as it may, the main plea taken is non-service of

notice under Section 13(2) and even assuming that it was

served, the same is not in accordance with Rules 2 and 4.

10) Insofar as service of notice under Section 13(2) is

concerned, the learned Counsel for the Bank placed on

record, along with counter affidavit, material in the form of

postal receipts and acknowledgment cards duly signed by the

guarantors or their agents or representative. In the reply filed,

it is averred that acknowledgment cards are managed. But,

there is no reason for the Bank to manag e the

acknowledgment cards, as notice if sent to correct address by

registered post, amounts to deemed service in view of Section

27 of the General Clauses Act. Further, the Petitioners are not

disputing the correctness of their address mentioned in the

acknowledgment cards. Therefore, the argument of the

learned Counsel for the Petitioners that notices issued under

Section 13(2) were not served cannot be accepted.

12

11) Coming to the manner in which the notices under

Section 13 (2) were issued, namely, that they were not issued

separately to each of the guarantors, it is to be noted neither

13(2) nor Rule 3 prescribe any particular format in issuing

the notice. It only states that, (a) demand notice should be

served on all borrowers if they are more than one; (b) it shall

be delivered either by hand or by transmission to the place

where borrower or agent lives; (c) the demand notice may

invite attention of the borrower to Section 13(8) of Act, in

respect of time available to the borrower to redeem the Asset.

12) A reading of the notice make it clear that all the

mandatory conditions stipulated in 13(2) and Rule 3 were

complied with. As stated earlier, much comment has been

made with regard to sending of notice i.e., not by way of

separate notice to borrower and Guarantor. We are not in

agreement with the argument advanced by the learned

Counsel for the Petitioners on this aspect. A perusal of notice

issued under Section 13(2) would reveal that it was addressed

to borrower, mortgager and guarantors. While the address of

the borrower was mentioned in the first page of the notice,

along with names of guarantor and mortgagor, copies of the

same were sent separately and individually to borrower and

guarantors, by registered post with acknowledgment due,

13

which were served separately on each one of them. Therefore,

it cannot be said that any prejudice is caused to the Writ

Petitioners with regard to manner of service of notice under

Section 13(2), which cannot be contrary to law.

13) It would be appropriate to extract the relevant portion

of 13(2) notice, which is as under:-

―NOTICE UNDER SECTION 13(2) OF ACT 54 OF 2002 FOR

ENFORCEMENT OF SECURITY INTEREST

DEMAND NOTICE

Date: 31.03.2021

From:

Chief Manager

Authorized Officer,

UNION BANK OF INDIA under Act 54 of 2002

GUNTUR MAIN BRANCH

To

M/s.Satya Cotton Company,

Prop: M. Sambasiva Rao,

Flat No.403, Satya Yamini Apartment,

3/12, Brodipet,

Guntur – 522 004.

Borrower (s): 1) Mr. Satya Cotton Company Prop:

M. Sambasiva Rao.

Mortgagor (s): 1) Mr. Konniboina Srinivas Rao (2) Mr. Nalluri

Satyanarayana, Co-obligant/Guarantor (s): 1) Mr. M.

Sambasiva Rao (2) Mr. Konniboina Srinivas Rao (3) Mr. Nalluri

Satyanarayana.‖

Sir/Madam,

Please take notice that you have availed the following

credit facilities from the Union Bank of India, Guntur Main

Branch:

14

Loan

A/c.

No.

Facility

/ Loan

Limits

R/L

Outstandin

g as on

31.03.2021

Interest due

Total Dues

as on 31.03

.2021

33020504

0074133

Cash

Credit

95.00 10280353.31 303315.00 10583668.31

xxxxxxx

Copies marked to:

a) borrower – M/s.Satya Cotton Company,

Prop: M. Sambasiva Rao.

b) Mortgagors – 1) Konniboina Sambasiva Rao.

2) Mr. Nalluri Satyanarayana.‖

14) In L&T Housing Finance Ltd. v. Trishul Developers

2,

the Hon’ble Supreme Court while dealing with technical

defects raised in issuing notice under Section 13(2),

possession notice 13(4) and Section 14, observed in

paragraph nos. 19, 20 and 21, as under:

19. 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 und er 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 prejudice if any, being caused and

2

(2020) 10 SCC 659

15

there cannot be a straitjacket formula which can be

uniformly followed in all the transactions.

20. Adverting to facts of the instant case, we are of the

view that the objection raised by the respondents was

trivial and technical in nature and the appellant

(secured creditor) has complied with the procedure

prescribed under the SARFAESI Act. At the same time,

the objection raised by the respondents in the first

instance, at the stage of filing of a Sec uritisation

Application before DRT under the SARFAESI Act is a

feeble attempt which has persuaded the Tribunal and

the High Court to negate the proceedings initiated by

the appellant under the SARFAESI Act, is unsustainable

more so, when the respondents are unable to justify the

error in the procedure being followed by the

appellant (secured creditor) to be complied with in

initiating proceedings under the SARFAESI Act.

21. 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 non-

fulfillment of the terms and conditions of the Facility

Agreement dated 11th August, 2015 or any substantial

16

prejudice being caused apart from the technical

objection being raised while the demand notice

under Section 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. Consequently, in our view,

the judgment of the High Court is unsustainable and

deserves to be set aside.‖

15) As the objections raised now, in our view do not cause

any prejudice to the Petitioners/guarantors, when the plea

taken, namely, theft of documents by borrower; non-service of

notice issued under Section 13(2) are untenable, we see no

grounds to quash the proceedings initiated under Section

13(4) of SARFAESI Act.

16) The Judgment of the Patna High Court in Syndicate

Bank [cited 1 supra] will not apply to the case on hand. It

was a case where the Petitioner in the said case was a

borrower and guarantor as well. Notice under Section 13(2)

was sent only to borrower and not to the guarantor. This has

been found fault with. Further, in the said case, no material

has been placed evidencing proof of service and no effort was

made by the Bank to find out from postal department as to

the status of the registered post. Therefore, the plea of the

learned Counsel that judgment of Patna High Court squarely

covers the case on hand cannot be accepted.

17

17) For the aforesaid reasons, we see no merit in the

Writ Petitions and the same are liable to be dismissed and,

accordingly, they are dismissed but without any costs.

18) Consequently, miscellaneous petitions, if any, pending

shall stand closed.

_______________________________

JUSTICE C. PRAVEEN KUMAR

______________________

JUSTICE V.SUJATHA

Date:12.04.2022

Note: LR copy to be marked

B/o. SM/MS

18

THE HONOURABLE SRI JUSTICE C.PRAVEEN KUMAR

AND

THE HONOURABLE SMT. JUSTICE V.SUJATHA

WRIT PETITION No. 30350 OF 2021

AND

WRIT PETITION No. 3334 OF 2022

(Per the Hon’ble Sri Justice C. Praveen Kumar)

Note: LR copy to be marked

B/o. SM/MS

DATE:12.04.2022

SM / MS