Jharkhand High Court
M/S Tetulia Coke Plant Pvt.Ltd vs Bank Of India on 13 February, 2012
Equivalent citations: AIR 2013 JHARKHAND 12, 2012 (4) AIR JHAR R 153, 2012 CLC 1123 (JHAR), (2012) 119 ALLINDCAS 458 (JHA), (2012) 3 JCR 455 (JHA), (2013) 1 BANKCAS 493
Author: Narendra Nath Tiwari
Bench: Narendra Nath Tiwari
IN THE HIGH COURT OF JHARKHAND AT RANCHI
W.P.(C) No.6284 of 2011
M/s Tetulia Coke Plant Pvt. Ltd. ....... .......... Petitioner
Versus
Bank of India. ......... Respondent
..............
CORAM : HON'BLE MR. JUSTICE NARENDRA NATH TIWARI
..............
For the Petitioner : M/s Biren Poddar, Darshana Poddar
Mishra, Deepak Sinha and Piyush Poddar.
For the Respondent : M/s Gyanendra Kumar, Rohit Ranjan Sinha
.............
5/13.02.2012: When this writ petition is taken up for hearing, learned counsel appearing on behalf of the petitioner submitted that he does not press the prayer for quashing of notice dated 16.7.2011 issued under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter to be referred as the SARFAESI Act or the said Act).
2. The main grievance of the petitioner is that the respondent Bank issued possession notice dated 20.9.2011 (Annexure-8) and has taken possession of the mortgage property under Section 13(4) of the said Act without passing any orders on the petitioner's objection filed under Section 13(3-A) of the said Act.
3. According to the petitioner, the company is engaged in the business of manufacturing and processing of coal into coke. In the year 2004 one M/s Dudani Fuels Pvt. Ltd, Dhanbad applied for certain credit facilities from the respondent-Bank. The petitioner had stood as a guarantor by extending Equitable Mortgage of its land, building, plant and machinary. Due to poor market conditions, the principal borrower requested the respondent - Bank to enhance and review the credit facilities which was accepted by the letter of the respondent dated 25.4.2009. It was informed to the principal borrower that as the account is a restructured one, if the account remains out of order for a period of more than 90 days, it will be categorized as NPA as per the Reserve bank of India (RBI) norms. When the principal borrower could not be able to regularize the out of order account, it made a compromise proposal with the respondent-Bank, which was duly accepted by the respondent-Bank by letter dated 4.2.2011. The principal borrower who had already paid Rs.65 Lakhs, paid Rs. 20 lacs towards the compromise settlement. The said amount was appropriated. The principal borrower, however, could not make full payment as per compromise settlement.
-2-The respondent-Bank, then, issued a notice dated 16.7.2011 under Section 13(2) of the SARFAESI Act to the principal borrower and its guarantors including the petitioner directing them to deposit the entire dues within a period of 60 days. It was mentioned that if they fail to comply with the same, measures under Section 13(4) of the Act shall be taken. On receipt of the aforesaid notice dated 16.7.2011 the petitioner filed a detailed objection under Section 13(3-A) of the said Act before the Authorized Officer of respondent-Bank denying its liability and disputing the allegations mentioned in the notice (Annexure-7). As per the provision under Section 13(3-A) of the said Act it was mandatory obligations for the respondent-Bank to dispose of the said objection of the petitioner before taking any action under Section 13(4) of the Act, but in complete disregard of the said provisions, the respondent-bank issued notice dated 20.9.2011(Annexure-8). The respondent-Bank, in purported exercise of power under Section 13(4) of the Act, subsequently took possession of the mortgaged property. It has been stated that the petitioner's objection was subsequently said to be disposed of by letter dated 21.9.2011 (Annexure-9) and that too by the Advocate, not by an authorized officer. It has been contended that the possession notice (Annexure-8) as well as the procedure of taking possession of the mortgaged property under Section 13(4) is wholly illegal and arbitrary and the same is violative of the mandatory provision of Section 13(3-A) of the said Act.
4. Mr. Biren Poddar, learned counsel appearing on behalf of the petitioner submitted that the provision of Section 13(3-A) is mandatory in nature and has to be complied with, as has been also held by the Hon'ble Supreme Court in Mardia Chemicals Ltd. Vrs. Union of India [(2004) 4 SCC 311, para-45] and by this Court in M/s Jayant Agencies Vrs. Canara Bank & Ors. [2011(2) JCR 27]. The objection has to be disposed of before taking any step for possession under Section 13(4) of the said Act, but in the instant case the said law has been violated and without disposing of the objection of the petitioner, possession notice was issued under Section 13(4) on 20.9.2011 and thereafter possession was taken. The respondent, subsequently, decided the petitioner's objection colourably on 21.9.2011. That too, the decision is taken by the advocate and not by the authorized officer, which is wholly arbitrary and illegal.
-3-5. The respondent has contested this writ petition by filing counter affidavit. It has been stated that the step has been taken by the respondent in accordance with law. Notice under Section 13(2) was served on the principal borrower and guarantors on the failure to deposit the amount according to the terms of compromise. In spite of that notice, they did not deposit the amount. Ultimately the action was taken under the provision of Section 13(4) of the said Act. The respondent acted in accordance with law under Section 13(4) of the Act and their action is not arbitrary and illegal. The writ petition alleging otherwise is not maintainable and is liable to be dismissed.
6. I have heard learned counsel for the parties and considered the facts and materials on record. I find that certain facts stated by the petitioner have not been disputed by the respondent. It has not been disputed that the petitioner had filed his representation dated 12.9.2011, denying liability (Annexure-7). It has also not been denied that the respondent had issued possession notice dated 20.9.2011 without disposing of the petitioner's objection. Thereafter, they took possession of the mortgaged property under the purported provision of Section 13(4) of the said Act. Even before taking possession, the petitioner's objection was not disposed of. The respondent said to have disposed of the petitioner's objection after taking up the possession on 21.9.2011 through letter issued by the Advocate for the respondent. Admittedly the Advocate is not an authorized officer under the Act. However, the respondent submitted that the Advocate was the representative of the authorized officer.
7. In view of the said admitted fact it is clear that the respondent has enforced security interest and has taken possession of the mortgage property before disposing of the representation/objection of the petitioner.
8. Chapter-III of the SARFAESI Act provides a complete machanism for enforcement of security interest by the secured creditor. Section-13 of the Act gives a detail procedure for the said purpose, which runs as follows :-
"13. Enforcement of security interest.-- (1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in -4- accordance with the provisions of this Act.
(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 instalment 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). (3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.
[(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower:
Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A.] (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:-
(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset;
[(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset:
Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the -5- 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 or 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. (5) Any payment made by any person referred to in clause(d) of sub-section(4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower. (6) Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditors shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.
(7) Where any action has been taken against a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests. (8) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for -6- transfer or sale of that secured asset.
(9) In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-
section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors:
Provided that in the case of a company in liquidation, the amount realized from the sale of secured assets shall be distributed in accordance with the provisions of Section 529A of the Companies Act, 1956 (1 of 1956):
Provided further that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realize his security instead of relinquishing his security and proving his debt under proviso to sub-section (1) of Section 529 of the Companies Act, 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of Section 529A of that Act:
Provided also that the liquidator referred to in the second proviso shall intimate the secured creditors the workmen's dues in accordance with the provisions of Section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen's dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that Section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with the liquidator:
Provided also that in case the secured creditor deposits the estimated amount of workmen's dues, such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator:
Provided also that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmen's dues, if any.
Explanation.- For the purposes of this sub-section,--7-
(a) "record date" means the date agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding on such date;
(b) "amount outstanding" shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor.
(10) Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the balance amount from the borrower.
(11) Without prejudice to the rights conferred on the secured creditor under or by this Section, secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measures specified in Clauses (a) to
(d) of sub-section (4) in relation to the secured assets under this Act.
(12) The rights of a secured creditor under this Act may be exercised by one or more of his officers authorized in this behalf in such manner as may be prescribed.
(13) No borrower shall, after receipt of notice referred to in sub-
section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor.
9. From the said provision of Section 13 it is manifest that Sub- Section 1 of Section 13 provides for enforcement of security interest credited in favour of the secured creditor without intervention of the Court or Tribunal in accordance with the provisions of the Act.
10. Sub-Section 2 of Section 13 provides for giving a notice by the secured creditor to the borrower in writing to discharge his liability to the secured creditor within 60 days from the date of notice, failing which the provision has been made for entitling the secured creditor to exercise all or any of the right under Sub-Section 4 of Section 13.
11. Sub-Section 3 of Section 13 provides that the notice issued under Sub-Section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor.
-8-12. Sub-Section 3-A of Section 13 provides that under Sub-Section (2), if the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non- acceptance of the representation or objection to the borrower.
13. Sub-Section (4) of Section 13 thereafter provides for taking recourse by secured creditor to recover his secured debt which includes taking possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset.
14. Section 17 gives right to appeal to a person aggrieved by any order or the measures taken by the secured creditor under Sub-Section (4) of Section 13 of the Act.
15. It is pertinent to note that no appeal is provided against the notice issued under Sub-Section (2) of Section 13 but it provides for an opportunity to the borrower to make representation or raise any objection.
16. In case any objection/representation is filed, the further proceeding of giving notice by the secured creditor to discharge in full his liabilities to the secured creditor within sixty days from the date of notice or for taking steps for exercising all or any of the rights under Sub-Section(4), shall await the decision of the secured creditor and communication of the reason for non-acceptance of the representation/objection of the borrower.
17. As provided under Section 13(3A), on consideration of the objection if the secured creditor comes to the conclusion that the representation or objection of the debtor is not acceptable or tenable, he has to communicate the reason for non-acceptance of the representation or objection of the borrower within a period of one week from the representation.
18. Admittedly in the instant case the petitioner had filed representation (Annexure-7) on 12.9.2011
19. But the secured creditor without communicating reason for non- acceptance of the representation/objection of the petitioner, issued -9- possession notice on 20.9.2011. Thereafter possession was also taken over of the mortgaged property under Section 13(4) of the Act.
20. Apparently, the steps were taken in clear violation of the mandatory provision of Section 13(3-A) of the SARFAESI Act.
21. The said provision of Section 13(3-A) has been brought on the statute book after the decision of the Hon'ble Supreme Court in Mardia case (supra).
22. In Mardia case the Hon'ble Apex Court clearly held that the purpose of serving a notice upon the borrower under sub-section (2) of Section 13 of the Act is to give an opportunity to the borrower for explaining the reasons as to why measures may or may not be taken under sub-section (4) of Section 13, in case of non-compliance with notice within 60 days. The creditor must apply its mind to the objections raised in reply to such notice and an internal mechanism must be particularly evolved to consider such objections raised in the reply to the notice. There may be some meaningful consideration of the objections raised rather than to ritually reject them and proceed to take drastic measures under sub-section (4) of Section 13 of the Act. Once such a duty is envisaged on the part of the creditor it would only be conducive to the principles of fairness on the part of the banks and financial institutions in dealing with their borrowers to apprise them of the reason for not accepting the objections or points raised in reply to the notice served upon them before proceeding to take measures under sub- section (4) of Section 13.
23. In Jayant Agencies Case (supra) this Court, referring to the case of M/s D.N. Motors (W.P.(C) No.231/2008) held that the provision under Section 13(3-A) of the SARFAESI Act is mandatory.The stage for the step to be taken by the secured creditor under Section 13(4) of the SARFAESI Act comes after compliance of the provision of Section 13(3-A), which provides for opportunity of representation to the borrower and obligation for considering the representation on the secured creditor and the right of the borrower to know the reason for not accepting his objection/representation.
24. In the said case it was further held that the provision of Section 13(3-A) has its roots in the fundamental principle of fair play and natural justice. Reference was also made to the case of O' Reilly Vs. Mackman and others [(1983)2 AC 237]. In that case Lord Diplock, -10- speaking in the house of Lords, said that a person whose right is to be adversely affected by any order has to be given a fair opportunity of hearing. The right is so fundamental to any civilized legal system that it is to be presumed that the Parliament intended that a failure to observe it should render null and void any decision reached in breach of the requirement.
25. Considering the said legal provisions and the admitted facts appearing in the instant case I find that the respondents Bank has acted arbitrarily and illegally in issuing possession notice dated 20.9.2011 and thereafter taking possession of the mortgaged property under Section 13(4) of the Act without complying with the mandatory provisions of Section 13(3-A) of the SARFAESI Act. The alleged decision by the Advocate (Annexure-9) after giving possession notice does not improve the situation.
26. In view thereof the possession notice dated 20.9.2011 (Annexure-8) is held to be illegal and unsustainable and is hereby quashed. As a consequence, steps/actions taken thereafter including the steps taken under Section 13(4) stand abrogated.
27. This writ petition is, accordingly, allowed. The matter is remitted to the respondent-Bank for consideration of the petitioner's representation afresh.
28. It is made clear that the respondent-Bank shall be at liberty to proceed further with the matter in accordance with the procedure, prescribed by law, if the petitioner's representation is found meritless by the Authorized Officer.
29. There is, however, no order as to cost.
Shamim/ (Narendra Nath Tiwari, J)