The DRAT upheld the validity of the equitable mortgage and the legality of SARFAESI proceedings, dismissing the borrowers' objections raised after default.
The Debts Recovery Appellate Tribunal (DRAT), Kolkata Bench of Justice Anil Kumar Srivastava (Chairperson) observed that an equitable mortgage is validly created when directors, acting as authorized representatives of a company, intentionally deposit title deeds as security for credit facilities; subsequent statutory notices and sale proceedings under the SARFAESI Act are lawful if conducted in compliance with prescribed legal procedures, despite post-default objections from the borrowers.
In the appeal before the Debt Recovery Appellate Tribunal (DRAT), Dulichand Auto Sales Private Limited and its directors, Rajesh Sanei and Smt. Seema Sanei, challenged the Debts Recovery Tribunal-III (DRT) order from February 4, 2021, which had dismissed their application against HDFC Bank Limited. The appellants had filed a SARFAESI Application (S.A. No. 02 of 2019), seeking to invalidate multiple SARFAESI notices, including a demand notice dated February 17, 2016, and a possession notice from May 2, 2016, along with orders by the District Magistrate that authorized further action leading to the auction and sale of the mortgaged property. M/s. Super Sonic Carrier Private Limited, the auction purchaser, was also made a respondent.
The appellants, operating as Renault car distributors, had obtained credit facilities from HDFC Bank, backed by personal guarantees and a mortgage on certain properties. Following defaults, HDFC Bank classified these accounts as non-performing assets (NPA) in October 2015 and issued a demand notice under Section 13(2) of the SARFAESI Act, highlighting the significant overdue amounts. The appellants argued that the title deeds were deposited for reasons unrelated to the creation of an equitable mortgage and that they had not authorized all aspects of loan disbursement. However, the DRT found that the appellants had benefitted from the loan proceeds by acquiring and selling vehicles while failing to repay HDFC Bank. The DRT concluded that the bank had observed legal requirements in issuing statutory notices and that the equitable mortgage was validly established with the appellants’ consent, thereby justifying the District Magistrate’s orders and subsequent sale proceedings. This led to the dismissal of the SARFAESI Application and the related interim requests.
On appeal, the DRAT examined company resolutions and agreements that authorized the Directors, Rajesh Sanei and Seema Sanei, to negotiate credit facilities and mortgage company assets. Evidence showed that title deeds were intentionally deposited with the Bank on October 1, 2013, as security for the company’s debt obligations. The DRAT noted that the appellants had accepted the loan terms without raising any dispute about the mortgage until after defaulting. Consequently, the DRAT ruled that the appellants’ conduct amounted to an intentional waiver of rights and that the Bank’s demand notice complied with the SARFAESI Act, as it adequately detailed the outstanding amounts and the mortgaged assets. Assertions of unauthorized notice issuance and non-compliance with the Security Interest (Enforcement) Rules were deemed unsubstantiated, and DRAT upheld DRT’s findings, confirming that the secured transactions and notices adhered to legal procedures.
Mr. A.K. Dhandhania, Senior Advocate (Virtual Appearance), Ms. Sweta Mishra and Soumo Mukherjee, Advocates represented the Appellant.
Mr. Nimish Mishra, Mr. Rajeev Maity, Advocates, Mr. Subham Kumar Jaiswal, Legal Manager East, HDFC Bank appeared for Respondent No.1 and Respondent No. 2.
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