Balkrishna Rama Tarle Dead thr LRS & Anr Vs. Phoenix ARC Pvt. Ltd. & Ors. - Thus, the powers exercisable by CMM/DM under Section 14 of the SARFAESI Act are ministerial step and Section 14 does not involve any adjudicatory process qua points raised by the borrowers against the secured creditor taking possession of the secured assets.

Supreme Court (26.09.2022) Balkrishna Rama Tarle Dead thr LRS & Anr Vs. Phoenix ARC Pvt. Ltd. & Ors. [Special Leave Petition No.  16013 of 2022] held that;

• Thus, the powers exercisable by CMM/DM under Section 14 of the SARFAESI Act are ministerial step and Section 14 does not involve any adjudicatory process qua points raised by the borrowers against the secured creditor taking possession of the secured assets. 

• In that view of the matter once all the requirements under Section 14 of the SARFAESI Act are complied with/satisfied by the secured creditor, it is the duty cast upon the CMM/DM to assist the secured creditor in obtaining the possession as well as the documents related to the secured assets even with the help of any officer subordinate to him and/or with the help of an advocate appointed as Advocate Commissioner. 

• At that stage, the CMM/DM is not required to adjudicate the dispute between the borrower and the secured creditor and/or between any other third party and the secured creditor with respect to the secured assets and the aggrieved party to be relegated to raise objections in the proceedings under Section 17 of the SARFAESI Act, before Debts Recovery Tribunal.

Excerpts of the Order;

# 1. Feeling aggrieved and dissatisfied with the impugned judgment and order dated 03.08.2022 passed by the High Court of Judicature at Bombay in Writ Petition No. 9749/2021, by which the Division Bench of the High Court has allowed the said writ petition preferred by the respondent No. 1 herein – secured creditor and has set aside order dated 27.08.2021 passed by the designated authority under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the SARFAESI Act, 2002) and directed the designated authority under Section 14 of the SARFAESI Act to dispose of the application under Section 14 of the SARFAESI Act afresh, legal heirs of original respondent No. 2 claiming to be the tenant of the mortgaged property, have preferred the present Special Leave Petition.

 

# 2. The Religare Finvest Ltd. (hereinafter referred to as the Religare) sanctioned a loan of Rs. 6 crores in favour of the borrowers. The said loan was secured by a registered mortgage created by borrowers in favour of Religare in respect of the property ­ secured assets. The borrowers committed defaults in repayment of the said loan which led to Religare classifying borrowers’ account as a Non-Performing Asset (NPA). The Religare thereafter, issued a notice dated 13.04.2018 under Section 13(2) of the SARFAESI Act calling upon borrowers to pay the amount then outstanding under the said facility. That thereafter, by a Deed of Assignment dated 29.09.2018, Religare assigned all its right, title, interest, and benefit under the said loan agreement to respondent No. 1 herein – original petitioner No. 1 before the High Court. Thus, respondent No. 1 – original petitioner No. 1 stepped into the shoes of Religare and became the secured creditor and in that capacity issued a notice dated 21.05.2019 under Section 13(2) of the SARFAESI Act to borrowers calling upon borrowers to make payment of a sum of Rs. 5,83,22,866/­. That thereafter, the secured creditor took symbolic possession of the secured assets under Section 13(4) of the SARFAESI Act. On 21.09.2019, the same was intimated to the borrowers vide their letter dated 21.09.2019. A public notice was also issued by the secured creditor in two newspapers in compliance with the provisions of the Security Interest (Enforcement) Rules, 2002. That thereafter, the secured creditor filed an application under Section 14 of the SARFAESI Act seeking assistance of designated authority – respondent No. 3 herein – District Magistrate, Nashik, for taking physical possession of the secured assets. The petitioner herein – original respondent No. 2 claiming to be a tenant in respect of the ground floor plus first floor showroom along with service station on a part of the secured assets bearing Nos. 465 and 463 sought to intervene in the said proceedings filed under Section 14 of the SARFAESI Act. The petitioner placed reliance upon an order dated 20.04.2018 passed in Regular Civil Suit No. 58/2018 filed by him against one of the borrowers, whereby one of the borrowers was restrained from dis­possessing him from the said premises. At this stage, it is required to be noted that neither the borrower(s) nor the petitioner(s) instituted any proceedings before the Debt Recovery Tribunal (DRT) under Section 17 of the SARFAESI Act against the steps taken under Section 13 of the SARFAESI Act. That thereafter, the designated authority passed the following order dated 27.08.2021 and declined to assist the secured creditor in taking possession of the secured assets and kept the said application pending by observing that after termination of the tenancy rights of the petitioner by the Finance Company by following due procedure of law the further orders regarding possession of the mortgage property will be decided. The order dated 27.08.2021 is as under: ­

• 1. In consideration of the reasons recorded in the above referred issues and conclusions, the Application of the Finance Company is kept for decision.

• 2. After termination of the tenancy rights of the third­-person Complainant Shri. Balkrishna Rama Tarle by the Finance Company by following due procedure of law the further orders regarding possession of the mortgage property will be decided.

• 3. If any party feel aggrieved due to this order, then they may file an appeal under section 17 of the Securitisation Act, 2002 before Hon’ble Debts Recovery Tribunal, Mumbai.

• 4. No order as to cost.”

 

# 2.1 Feeling aggrieved and dissatisfied with the order dated 27.08.2021 passed by the designated authority – Additional District Magistrate, Nashik in not passing any order of assisting the secured creditor in taking possession of the secured assets in exercise of powers under Section 14 of the SARFAESI Act, the secured creditor preferred writ petition before the High Court. By the impugned judgment and order, the Division Bench of the High Court has set aside order dated 27.08.2021 passed by the designated authority/Additional District Magistrate by observing that such an order is beyond the scope and ambit of the powers to be exercised under Section 14 of the SARFAESI Act. That thereafter, the Division Bench of the High Court has directed the designated authority/Additional District Magistrate to hear and dispose of the application under Section 14 of the SARFAESI Act in accordance with the provisions of Section 14 of the SARFAESI Act.

 

# 2.2 Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court, the third party – petitioner(s) claiming to be a tenant in some of the secured assets have preferred the present Special Leave Petition.

 

# 5. Therefore, the short question which is posed for consideration of this Court is whether while exercising the powers under Section 14 of the SARFAESI Act, the District Magistrate/designated authority could have passed such an order that unless and until the secured creditor terminates the tenancy rights of the third person by following due procedure of law and further orders regarding possession of the mortgaged property then and then only an application under Section 14 of the SARFAESI Act will be decided?

 

# 5.2 On a fair reading of Section 14 of the SARFAESI Act, it appears that for taking possession of the secured assets in terms of Section 14(1) of the SARFAESI Act, the secured creditor is obliged to approach the District Magistrate/Chief Metropolitan Magistrate by way of a written application requesting for taking possession of the secured assets and documents relating thereto and for being forwarded to it (secured creditor) for further action.

 

The statutory obligation enjoined upon the CMM/DM is to immediately move into action after receipt of a written application under Section 14(1) of the SARFAESI Act from the secured creditor for that purpose. As soon as such an application is received, the CMM/DM is expected to pass an order after verification of compliance of all formalities by the secured creditor referred to in the proviso in Section 14(1) of the SARFAESI Act and after being satisfied in that regard, to take possession of the secured assets and documents relating thereto and to forward the same to the secured creditor at the earliest opportunity. As observed and held by this Court in the case of NKGSB Cooperative Bank Limited Vs. Subir Chakravarty & Ors. (Civil Appeal No. 1637/2022) decided on 25.02.2022, the aforesaid act is a ministerial act. It cannot brook delay. Time is of the essence and this is the spirit of the special enactment. In the recent decision in the case of M/s R.D. Jain and Co. Vs. Capital First Ltd. & Ors. (Civil Appeal No. 175/2022) decided on 27.07.2022, this Court had an occasion to consider the powers exercisable by District Magistrate/Chief Metropolitan Magistrate under Section 14 of the SARFAESI Act. After considering the object and purpose of Section 14 of the SARFAESI Act and the Scheme of the Act under Section 14, it is observed and held in paragraphs 7 to 9 as under: ­

 

“7. Now so far as the powers exercisable by DM and CMM under Section 14 of the SARFAESI Act are concerned, statement of objects and reasons for which SARFAESI Act has been enacted reads as under: ­“STATEMENT OF OBJECTS AND REASONSThe financial sector has been one of the key drivers in India’s efforts to achieve success in rapidly developing its economy. While the banking industry in India is progressively complying with the international prudential norms and accounting practices there are certain areas in which the banking and financial sector do not have a level playing field as compared to other participants in the financial markets in the world. There is no legal provision for facilitating securitisation of financial assets of banks and financial institutions. Further, unlike international banks, the banks and financial institutions in India do not have power to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This has resulted in slow pace of recovery of defaulting loans and mounting levels of non­performing assets of banks and financial institutions. Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms have considered the need for changes in the legal system in respect of these areas. These Committees, inter alia, have suggested enactment of a new legislation for securitisation and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the court. Acting on these suggestions, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002 was promulgated on the 21st June, 2002 to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. The provisions of the Ordinance would enable banks and financial institutions to realise long term assets, manage problem of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce non performing assets by adopting measures for recovery or reconstruction.”

 

Thus, the underlying purpose of the SARFAESI Act is to empower the financial institutions in India to have similar powers as enjoyed by their counterparts, namely, international banks in other countries. One such feature is to empower the financial institutions to take possession of securities and sell them. The same has been translated into provisions falling under Chapter III of the SARFAESI Act. Section 13 deals with enforcement of security interest. Sub-Section (4) thereof envisages that in the event a default is committed by the borrower in discharging his liability in full within the period specified in sub­-section (2), the secured creditor may take recourse to one or more of the measures provided in sub­-section (4). One of the measures is to 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. That, they could do through their “authorised officer” as defined in Rule 2(a) of the Security Interest (Enforcement) Rules, 2002.

 

# 7.1 After taking over possession of the secured assets, further steps to lease, assign or sale the same could also be taken by the secured creditor. However, Section 14 of the SARFAESI Act predicates that if the secured creditor intends to take possession of the secured assets, must approach the CMM/DM by way of an application in writing, and on receipt of such request, the CMM/DM must move into action in right earnest. After passing an order thereon, he/she (CMM/DM) must proceed to take possession of the secured assets and documents relating thereto for being forwarded to the secured creditor in terms of Section 14(1) read with Section 14(2) of the SARFAESI Act. As noted earlier, Section 14(2) is an enabling provision and permits the CMM/DM to take such steps and use force, as may, in his opinion, be necessary.

 

# 7.2 At this stage, it is required to be noted that along with insertion of sub-­section (1A), a proviso has also been inserted in sub-section (1) of Section 14 of the SARFAESI Act whereby the secured creditor is now required to comply certain conditions and to disclose that by way of an application accompanied by affidavit duly affirmed by its authorised officer in that regard. Sub-­Section (1A) is in the nature of an explanatory provision and it merely restates the implicit power of the CMM/DM in taking services of any officer subordinate to him. As observed and held by this Court in the case of NKGSB Cooperative Bank Ltd. (supra), the insertion of sub­-section (1A) is not to invest a new power for the first time in the CMM/DM as such.

 

# 8. Thus, considering the scheme of the SARFAESI Act, it is explicit and crystal clear that possession of the secured assets can be taken by the secured creditor before confirmation of sale of the secured assets as well as post-confirmation of sale. For taking possession of the secured assets, it could be done by the “authorised officer” of the Bank as noted in Rule 8 of the Security Interest (Enforcement) Rules, 2002.

 

# 8.1 However, for taking physical possession of the secured assets in terms of Section 14(1) of the SARFAESI Act, the secured creditor is obliged to approach the CMM/DM by way of a written application requesting for taking possession of the secured assets and documents relating thereto and for being forwarded to it (secured creditor) for further action. The statutory obligation enjoined upon the CMM/DM is to immediately move into action after receipt of a written application under Section 14(1) of the SARFAESI Act from the secured creditor for that purpose. As soon as such an application is received, the CMM/DM is expected to pass an order after verification of compliance of all formalities by the secured creditor referred to in the proviso in Section 14(1) of the SARFAESI Act and after being satisfied in that regard, to take possession of the secured assets and documents relating thereto and to forward the same to the secured creditor at the earliest opportunity. As mandated by Section 14 of the SARFAESI Act, the CMM/DM has to act within the stipulated time limit and pass a suitable order for the purpose of taking possession of the secured assets within a period of 30 days from the date of application which can be extended for such further period but not exceeding in the aggregate, sixty days. Thus, the powers exercised by the CMM/DM is a ministerial act. He cannot brook delay. Time is of the essence. This is the spirit of the special enactment. As observed and held by this Court in the case of NKGSB Cooperative Bank Ltd. (supra), the step taken by the CMM/DM while taking possession of the secured assets and documents relating thereto is a ministerial step. It could be taken by the CMM/DM himself/herself or through any officer subordinate to him/her, including the advocate commissioner who is considered as an officer of his/her court. Section 14 does not oblige the CMM/DM to go personally and take possession of the secured assets and documents relating thereto. Thus, we reiterate that the step to be taken by the CMM/DM under Section 14 of the SARFAESI Act, is a ministerial step. While disposing of the application under Section 14 of the SARFAESI Act, no element of quasi­judicial function or application of mind would require. The Magistrate has to adjudicate and decide the correctness of the information given in the application and nothing more. Therefore, Section 14 does not involve an adjudicatory process qua points raised by the borrower against the secured creditor taking possession of secured assets.

 

# 9. Thus, in view of the scheme of the SARFAESI Act, more particularly, Section 14 of the SARFAESI Act and the nature of the powers to be exercised by learned Chief Metropolitan Magistrate/learned District Magistrate, the High Court in the impugned judgment and order has rightly observed and held that the power vested in the learned Chief Metropolitan Magistrate/learned District Magistrate is not by way of persona designata.”

 

Thus, the powers exercisable by CMM/DM under Section 14 of the SARFAESI Act are ministerial step and Section 14 does not involve any adjudicatory process qua points raised by the borrowers against the secured creditor taking possession of the secured assets. In that view of the matter once all the requirements under Section 14 of the SARFAESI Act are complied with/satisfied by the secured creditor, it is the duty cast upon the CMM/DM to assist the secured creditor in obtaining the possession as well as the documents related to the secured assets even with the help of any officer subordinate to him and/or with the help of an advocate appointed as Advocate Commissioner. At that stage, the CMM/DM is not required to adjudicate the dispute between the borrower and the secured creditor and/or between any other third party and the secured creditor with respect to the secured assets and the aggrieved party to be relegated to raise objections in the proceedings under Section 17 of the SARFAESI Act, before Debts Recovery Tribunal. Under the circumstances in the present case no error has been committed by the High Court in setting aside the order dated 27.08.2021 passed by the designated authority keeping the application pending till the secured creditor initiates the legal proceedings for eviction of the tenant cannot get the possession in an application under Section 14 of the SARFAESI Act. The High Court has rightly directed the designated authority to proceed further with the application under Section 14 of the SARFAESI Act, and to dispose of the same in accordance with the provisions of Section 14 of the SARFAESI Act.

 

# 6. Now so far as the reliance placed upon the decision of this Court in the case of Harshad Govardhan Sondagar (supra) by the learned counsel appearing on behalf of the petitioner is concerned, the same shall not be applicable to the facts of the case on hand, what is observed by this Court in the aforesaid case is the DM/CMM has to give a notice and opportunity of hearing to the person in possession of the secured assets claiming to be a “Class (1) or (2)” lessee of mortgagor/borrower, as well as to secured creditor, consistent with principles of natural justice, and then take a decision. In the said decision, it is not observed that the DM/CMM has to adjudicate the rights between the parties.

 

# 7. Now so far as the reliance placed upon the decision of this Court in the case of Vishal N. Kalsaria (supra) by the learned counsel appearing on behalf of the petitioner is concerned, the said decision shall also not be applicable to the facts of the case on hand. In the said decision, the question before this Court was of conflict of claim under the Maharashtra Rent Control Act, 1999 and the provisions of the SARFAESI Act, and which law will prevail. The scope and ambit of the powers to be exercised under Section 14 of the SARFAESI Act were not directly in question before this Court. Even as observed and held by this Court in the aforesaid decision, a judgment cannot be interpreted and applied to fact situations by reading it as a statute. One cannot pick up a word or sentence from a judgment to construe that it is the ratio decidendi on the relevant aspects of the case (para 33).

 

# 8. In view of the above and for the reasons stated above, we are of the opinion that the High Court has not committed any error in passing the judgment and order and directing the designated authority to dispose of the application under Section 14 of the SARFAESI Act. We are in complete agreement with the view taken by the High Court. The Special Leave Petition stands dismissed.

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Procedure for issuance of Summons by DRT

Procedure for issuance of Summons by DRT (HC Bombay (12.09.2022) in Sunil Gupta Vs. Asset Reconstruction Company (India) Ltd. [Writ Petition No.4885 of 2022 ]

Facts of the case

In the instant case, respondent no.1/IOB has not produced any evidence/document to establish that summons was in fact created and served on petitioners in accordance with the aforesaid Act, DRT Rules and the aforesaid DRT Regulations or that any of the steps set out hereinabove were complied with. 

 

Even if we proceed on the assumption that a writ of summons, as required by the DRT Rules and Regulations was issued, the same was never served on petitioners as is clear from the reply filed by IOB before the DRT in M.A. No.145/2010.

 

Even if the case of IOB that the Demand Notices (details of which have not been supplied) or summons had returned as unclaimed, even then it was incumbent on IOB to follow the procedure contemplated in Rule 12 read with Regulation 19 as set out herein above before the matter could be proceeded ex-parte. 

 

This is particularly the case where the address on the record of the judicial proceedings is incorrect as is evident from a mere perusal of the cause title in the O.A. and the subsequent affidavit filed by IOB accepting that on due diligence IOB could ascertain the correct address of petitioners in Kanpur. As submitted by Mr. Dwarkadas there is no material whatsoever available or on the record of the DRT to establish that this was in fact done. This was not controverted or denied by Mr. Nimbkar.

 

Decision of High Court

Hon’ble High Court held that:

 

Service of summons upon petitioners:

Petitioners, it is clear, were never served with any writ of summons/documents of the proceedings before the DRT. The burden of proof to establish that petitioners had been served with summons is on IOB/respondent no.1 and petitioners should not be asked to prove a negative averment.(p24)

 

The DRT was duty bound to consider the provisions of the Code of Civil Procedure, 1908 (“the Code”) whilst considering petitioners application to set aside the order dated 11th

December 2009.(p26)

 

Further and in any event, the service of summons is a mandatory requirement as per the Act, the Debt Recovery Tribunal (Procedure) Rules, 1993, (DRT Rules) and the Debts Recovery Tribunals, Maharashtra & Goa Regulations of Practice, 2003 (DRT Regulations). Issuance of a notice informing the other party of the date, place and time of hearing and giving him/her a chance to make representation, is also an essential tenet of the principles of natural justice. The procedure for issuance of Summons by the DRT, as provided in the DRT Regulations of 2003.(p27)

 

From DRT Rules and DRT Regulations, it is clear that the following steps are required to be adopted for the writ of summons to be issued under the Seal of the Registrar and served on the Defendants to the O.A. (including petitioners herein):(p33)

 

Steps	Provision	Particulars
Step 1	Section 19(4) of the Act	Direction   of issuance of summons : On   receipt of the Application, the Tribunal is required to issue summons   requiring the Defendants to show cause within thirty days of the service of   summons as to why the relief prayed for should not be granted. Mr. Dwarkadas, on instructions stated   that (and not denied by Mr. Nimbkar for respondent no.1) not even a copy of   the Writ of Summons is available on the record of the DRT nor has IOB   produced any proof of the Writ of Summons being created or served. Admittedly no documents were filed by   IOB in response to the MA filed by petitioners to set aside the ex parte   order. IOB has not produced any Writ of Summons that they claim was returned,   or a copy thereof, or even an Affidavit of Service that may have been   contemporaneously filed in the Ld. DRT.
Step 2	Regulation 19(1), 19(2) of the DRT Regulations r/w Rule 13, 22 of the DRT Rules	Creation  of summons: The Tribunal shall issue summons/Notice   and the Registrar or the Assistant Registrar or official authorized by  Registrar shall sign the summons/notice adding thereto the date of signing. Each summons of O.A. shall be in Form   No. 14. The seal of the Tribunal is required to    be affixed on every Summons/Notice.  Date and place of hearing should also be   notified. There is a need for creation of   summons/notice even in case of pending proceedings and service of the same on   the Advocate.
Step 3	Regulation 19(3) of the DRT Regulations   r/w Rule 11 of the DRT Rules	Service   of summons: Summons/Notice are ordinarily required   to be served by Registered Post Acknowledgment Due. The Registrar shall also serve a copy of   the application and paper book, as soon as they are filed, on defendants by   registered post.
Step   4	Regulations 19(7), 19(8), 19(10) of the   DRT Regulations	Enquiry   regarding service: Where   the summons/notice was properly addressed (pre-paid and duly issued) by   Registered Post Acknowledgment due is not received within 30 days from the   date of the issue of summons/notice, the Registrar is required to declare, on   submission of the Affidavit by the applicant regarding correctness of the   address and evidence of posting that the summons/notice is duly served and   the matter would proceed further. Where the summons/notice is returned   un-served except in the above circumstances, the Applicant shall take steps   for service within 15 days from the date of return of summons/notice failing which the matter is required to be kept before Presiding Officer for further   orders. Where summons are returned with postal   endorsement ‘refused’ or ‘not claimed’, the Registrar is required to declare   that the summons/notice has been duly served and the matter shall proceed   ex parte.
Step 5	Section 19 (5) of the Act r/w Rule 12(1)   of the DRT Rules	Filing   of Written Statement : If Step 3 has been duly completed, then defendant   is required, within a period of thirty days/one month from the date of   service of summons, to present a written statement of his defence.
Step 6	Proviso to Section 19(5) of the Act r/w   Rules 12(3) and 12(4) of the DRT Rules	Enquiry   on non-filing of Written Statement: However, where defendant fails to file   the written statement within the said period of thirty days, the Presiding   Officer may, in exceptional cases and in special circumstances to be recorded   in writing, allow not more than two extensions to defendant to file the   written statement. If defendant fails to file the reply   within 30 days/ 1 month of service of summons or on the date fixed for hearing of the application, the Tribunal may proceed forthwith to pass an   order on the application as it thinks fit.
Step 7	Rule 13 of the DRT Rules	Requirement   of issuance of notice for date and place of hearing: The Tribunal is also required to notify   the parties the date and place of hearing of the application in such a manner   as the Presiding Officer may by general or special order direct.

 

Where packet is unclaimed more than one attempt must be made to serve particularly where the address to which the summons was posted in incorrect:

It is settled law that the serving of the summons is a mandatory procedural requirement and the time for filing the written statement commences only from the date of service of summons. It is evident that no enquiry was ever conducted by both DRT and DRAT into whether a notice/summons was ever served on petitioners herein. The said enquiry ought to

have been made more so when the said advocate had stopped appearing on behalf of petitioners before the DRT, w.e.f., 24th August 2005. The enquiry would have required the IOB/respondent no.1 to discharge its burden qua service of summons (which it has not been able to discharge till date) and would have established that petitioners had never been served with the summons. The alleged knowledge about the pendency of the case by IOB/respondent no.1 cannot dispense with the requirement of service of summons, which should have been issued to petitioners to notify to them the day, date, time and place of hearing of the Original Application.(p38&43)

 

Mere filing of the Vakalatnama or appearance through an Advocate does not amount to waiver of the mandatory requirement of service of summons:

Service of summons is a mandatory procedural requirement and is not dispensed with merely on account of the party entering appearance by filing a Vakalatnama. Given the almost identical language in Rule 12(1) of the DRT Rules when compared with the amendments brought about to the Original Side Rules and Order 8 Rule 1 of the Code by the Commercial Courts Act, 2015, it is clear that the time to file written statement contemplated in the DRT Rules, could only commence on due and proper service of the writ of summons. The appearance of an Advocate and filing of a Vakalatnama by him cannot and does not dispense with the requirement to serve the writ of summons. Accordingly, petitioners, in the absence of service of summons, could not have made any representation and/or file their written statement before the DRT. In light of the above, it is immaterial that the said advocate appeared on behalf of petitioners in the proceedings before the DRT. 

 

Mere filing of a Vakalatnama and appearance of the said advocate could not have dispensed/waived the requirement of service of summons. 

The said Vakalatnama cannot be considered to be a proof of service of summons, particularly when the purpose for which it has been obtained is disputed and when it has been virtually admitted by IOB/respondent no.1 that petitioners were never served with the summons. Thus, the proceedings in O.A. No.927/2001, without the issuance of summons, were in complete derogation and ignorance of the principles of natural justice.(p45-48)

 

Individual service of summons on each partner:

As petitioners are sought to be proceeded against individually, as Partners of respondent no.2 firm, it was incumbent on the DRT to ensure that summons were served individually on each of the Partners. In this regard, it is first pertinent to note that the DRAT has incorrectly purported to hold that the individual partners of the firm, including petitioners herein are not being proceeded against personally. On account of this error alone, the impugned order deserves to be set aside. If that is assumed to be true, no recovery can be initiated in law against petitioners in their individual capacity and the recovery can only be made against respondent no.2 firm. 

 

Order 30 of the Code of Civil Procedure (Code) deals with the procedure in respect of suits against Partnership Firms. The Courts have, on an interpretation of Order 30 of the Code, held that if a person wants to bind the partners of a firm individually, he must serve the partners personally. 

 

In the present case, the O.A. filed by respondent no.1 (IOB) has sought to bind each of petitioners personally. The order dated 11th December 2009 is accordingly passed against respondent no. 2 firm as well as against each of petitioners individually. In our view, petitioners ought to have been personally served with the summons as mandated by law. Non-service of summons on petitioners vitiates the order dated 11th December 2009 qua them.(p49-52)

 

Requirement of issuance of fresh notice at the time of the hearing when the party is not represented on the date of the hearing:

A party must not be made to suffer on account of the mistake committed by the Advocate engaged. This was a without prejudice submission made on behalf of petitioners.  It is a matter of record that the said advocate had stopped appearing on behalf of petitioners, with effect from 24th August 2005 and had not filed any written statement or contested any evidence. In view of the above, and basis the settled principles of law, it was incumbent upon the DRT to make an enquiry regarding service of summons to petitioners herein and call upon IOB/respondent no. 1 to prove the same. 

 

In terms of Rule 13 of the DRT Rules, the DRT should have issued at least one notice to petitioners between August 2005 and December 2009, when the matter came to be finally disposed. The finding of the DRAT to the contrary is clearly erroneous and contrary to the said Rule.(p55)

 

Despite appearance of the said Advocate, order dated 11.12.2009 is nevertheless an e x-parte order:

In case we proceed on the basis that the service of summons was not mandatory on account of the appearance of advocate Bhushan Sakpal for petitioners, the order dated 11th December 2009 is nevertheless an ex-parte order and ought to be set aside under Order 9 Rule 13 of the Code. The DRAT has wrongly held in the impugned order that the order dated 11th December 2009 was not in the nature of an ex-parte order. As noted above, the said advocate Bhushan Sakpal stopped appearing on behalf of petitioners, w.e.f. 24th August 2005. This being the case, the DRT should have proceeded to decide the O.A. in accordance with the provisions of Order 17 Rules 2 and 3 read with Order 9 Rule 6 of the Code. Thus, on such non-appearance of the said advocate on behalf of petitioners, the DRT should have inquired if the summons had been duly served. If it was considered to be duly served, the DRT essentially proceeded ex-parte against petitioners under Order 9 Rule 6(1)(a) of the Code. If the summons were considered not to be duly served, the DRT should have effected a fresh service of summons under Order 9 Rule (6)(1)(b) of the Code.

The impugned order, in fact, being in the nature of an ex-parte order, petitioners are entitled to seek to set aside the same in accordance with Order 9 Rule 13 of the Code on making out

sufficient grounds. In the present case, the following grounds are clearly sufficient grounds to set aside the order dated 11th December 2009 : 

• (i) The signing of the Vakalatnama and consequent appearance of advocate Bhushan Sakpal was on the alleged misrepresentation made to petitioners that the matter was being settled;

• (ii) That petitioners had clearly averred that they were neither issued a notice of the filing of the O.A. nor served with any copies of the papers, an assertion which respondent no.1 (IOB) has not been able to disprove;

• (iii)The DRT did not observe Rule 13 of the said Rules and did not issue any notice to petitioners between August 2005 and 2009 intimating petitioners of the hearing fixed in the matter;

• (iv) The DRT failed to consider the admitted position that petitioners were not aware of the date, day and time of hearing of the matter.

 

The DRT and DRAT having failed to consider the order dated 11th December 2009 as an ex-parte order did not apply the test laid down in Order 9 Rules 6 and 13 of the Code, thereby failing to afford petitioners an opportunity to seek to set aside the order dated 11th December 2009 despite having sufficient grounds. In view thereof, it is evident that there has been a serious lapse of procedure in the present case. There has been no service of the writ of summons on petitioners and respondent no.1 (IOB) has been unable to establish otherwise. The advocate appearing for petitioners was engaged only for a very limited purpose and has not appeared on behalf of petitioners in the matter since August 2005. The

passing of the order in 2009 and the recovery certificates issued pursuant thereto, therefore, suffer from a serious procedural infirmity and the order dated 11th December 2009 ought to be set aside.(p56-59)

 

The Court concluded that the ex-parte decree dated 11th December 2009 passed by the DRT and order dated 27th April 2011 passed by the DRAT and Recovery Certificate dated 21st January 2010 issued by the Recovery Officer are hereby quashed and set aside.(p67)

 

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