Gujarat High Court
Kotak vs District on 25 August, 2011
Author: S.J.Mukhopadhaya
Bench: S.J. Mukhopadhaya
Gujarat High Court Case Information System
Print
SCA/8326/2011 16/ 16 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL
CIVIL APPLICATION No. 8326 of 2011
For
Approval and Signature:
HONOURABLE
THE CHIEF JUSTICE MR. S.J. MUKHOPADHAYA
HONOURABLE
MR.JUSTICE J.B.PARDIWALA
=========================================================
1
Whether
Reporters of Local Papers may be allowed to see the judgment ?
2
To be
referred to the Reporter or not ?
3
Whether
their Lordships wish to see the fair copy of the judgment ?
4
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ?
5
Whether
it is to be circulated to the civil judge ?
=========================================================
KOTAK
MAHINDRA BANK LTD - Petitioner(s)
Versus
DISTRICT
MAGISTRATE & 4 - Respondent(s)
=========================================================
Appearance
:
MR
ANKUR Y OZA for
Petitioner(s) : 1,
MS KRINA KALLA ASSISTANT GOVERNMENT PLEADER for
Respondent(s) : 1,
NOTICE SERVED BY DS for Respondent(s) : 2 -
5.
=========================================================
CORAM
:
HONOURABLE
THE CHIEF JUSTICE MR. S.J. MUKHOPADHAYA
and
HONOURABLE
MR.JUSTICE J.B.PARDIWALA
Date
: 25/08/2011
CAV
JUDGMENT
(Per : HONOURABLE JUSTICE MR.J.B.PARDIWALA)
1. By way of this petition under Article 226 of the Constitution, the petitioner - a Scheduled Bank within the meaning of Reserve Bank of India Act, 1934 and is holding banking licence under Banking Regulation Act, 1949, seeks to challenge the order dated 3.12.2010 passed by respondent No.1 - District Magistrate, whereby the District Magistrate rejected the application preferred by the petitioner Bank under Section 14(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "SARFAESI Act") and thereby declined to provide necessary assistance and protection to the petitioner bank for taking over the possession of the secured assets of the principal borrower.
Facts relevant for the purpose of deciding this petition, can be summarized as under:
2. The petitioner is a Scheduled Bank within the meaning of Section 2(e) of the Reserve Bank of India Act, 1934 and is holding licence to carry out banking business issued by Reserve Bank of India under Section 22 of the Banking Regulation Act, 1949. Respondent No.2 is a partnership firm of which respondent Nos.3 and 4 are partners. The petitioner bank sanctioned a loan of Rs.30 Lacs to respondent No.2 vide sanction letter dated 24.4.2008. Respondent Nos. 3 to 5 stood as guarantors. Respondent No.5 also offered his immovable property consisting of shops bearing Nos.213 to 220 in premises known as Shah Commercial Center by way of collateral security. Thus respondent Nos. 2 to 5 are borrowers as provided under Section 2(f) of the SARFAESI Act, 2002.
3. It appears that the borrowers failed to comply with the terms of the agreement and committed default in repayment of secured debt with result that debt/account became irregular and was classified as non-performing asset by the petitioner bank on 12.4.2010 as per guidelines issued by Reserve Bank of India. It also appears that the total sum outstanding from the borrowers as on 21.4.2010 was Rs.26,67,582.78Ps. with interest and other charges.
4. It also appears that the petitioner bank issued notice of demand on 21.4.2010 under Section 13(2) of SARFAESI Act, 2002, calling upon the borrowers to make payment of Rs.26,67,582.78Ps. with future interest, cost and other charges and penal interest as provided in the facility document within 60 days from the date of service of said notice. The said notice was served on 27.4.2010. However, the borrowers failed to discharge their liabilities within the statutory time limit.
5. The petitioner bank being a secured creditor, is entitled to take possession of the secured assets of borrowers as provided under Section 13(4)(a) of the SARFAESI Act, 2002, preferred an application dated 8.7.2010 under Section 14 of the SARFAESI Act, 2002, to seek assistance of respondent No.1 for the purpose of taking over the possession of the secured assets of respondent No.5.
6. It appears that the respondent No.1 vide order dated 3.12.2010 rejected the application on the ground that the petitioner bank has not been able to prima facie show that they have been declared as financial institution under Section 2(1) of the SARFAESI Act, 2002 by the Department of Financial Services, Ministry of Finance.
7. It appears that aggrieved by the order dated 3.12.2010 passed by the respondent No.1 rejecting application preferred by petitioner bank under Section 14 of the SARFAESI Act, 2002, the petitioner bank preferred Securitisation Application No.12 of 2011 under Section 17 of the SARFAESI Act, 2002 before the Debts Recovery Tribunal-II, Ahmedabad. It appears that the Debts Recovery Tribunal came to the conclusion that the order of the District Magistrate passed under Section 14 of the Act, cannot be challenged before the Tribunal as the Tribunal is not Appellate Authority.
8. It is, at this stage, that the petitioner bank though fit to prefer the present petition, challenging the order passed by respondent No.1, District Magistrate, rejecting the application under Section 14 of the SARFAESI Act, 2002. It is necessary to state that in this petition, the petitioner bank has not challenged the order passed by the Debts Recovery Tribunal-II, Ahmedabad rejecting Securitisation Application No.12 of 2011, which was preferred against the order passed by respondent No.1 under Section 14 of the SARFAESI Act, 2002.
9. We have heard learned advocate Mr. Ankur Y. Oza appearing for the petitioner bank and learned AGP Ms. Krina Kalla for respondent No.1 - District Magistrate, Kutchh, Bhuj.
10. Learned advocate for the petitioner bank would submit that respondent No.1 rejected the application under Section 14 of the SARFAESI Act, 2002 on extraneous consideration. He would submit that the petitioner bank is not financial institution under Section 2(1)(m), but is a bank under Section 2(c) and 2(d) of the SARFAESI Act, 2002. He would further submit that the respondent No.1 erred in not considering the fact that the petitioner bank is a Scheduled bank within the meaning of Section 2(e) of the Reserve Bank of India Act, 1934 and is holding licence to carry out banking business issued by the Reserve Bank of India under Section 22 of the Banking Regulation Act, 1949. He would further submit that therefore, the petitioner bank is a "Bank" within the meaning of Section 2(c) and 2(d) of the SARFAESI Act, 2002. He would further submit that respondent No.1 has not appreciated that the petitioner is a secured creditor under Section 2(1)(zd) of the SARFAESI Act, 2002 and the petitioner is empowered to enforce the securities as contemplated under Section 13(4)of the SARFAESI Act, 2002. He would further submit that the petitioner is, therefore, entitled to apply for assistance under Section 14 of the SARFAESI Act, 2002. He relied upon the decision reported in 2011(2) GLH 12 of this Court decided by Division Bench in the case of IDBI Bank Ltd. through Authorized Signatory Vs. District Magistrate and Anr. and another decision of Division Bench of this Court reported in 2011(0) GLHEL-HC 225062 in the case of Idbi Bank Limited Vs. Hytaisun Magnetics Limited.
11. We have heard learned advocates for the respective parties and having perused the main order passed by the respondent No.1, District Magistrate, Kutchh, Bhuj, we are of the view that the respondent No.1 committed serious error in rejecting the application preferred by the petitioner bank seeking assistance under Section 14 of the SARFAESI Act, 2002. We have taken notice of the fact that the petitioner bank has been issued Licence No.73 by Reserve Bank of India in exercise of power conferred under Section 22(1) of the Banking Regulation Act, 1949. The petitioner is, therefore, a banking company under Section 5(c) of the Banking Regulation Act, which is as under:
"banking company" means any company which transacts the business of banking [in India]."
Then it is necessary to go through the definition of the Bank as contemplated in Section-2(1)(c) of the SARFAESI Act which is reproduced as under:
"bank"
means
(i) a banking company
(ii) a corresponding new bank; or
(iii) ......
(iv) ......
(v) .......
As such, the Banking Company is a Bank withing the meaning of this particular Clause-(c)."
12. Even in a reported decision of the Hon'ble Supreme Court in the case of ICICI Bank Vs. APS Starts Industries Ltd. reported in (2010) 2 DRTC 609, the petitioner has been recognized as bank, carrying out banking activity. There is no element of doubt that as a secured creditor - petitioner is entitled to seek necessary protection or assistance as provided under Section 14 of the SARFAESI Act, 2002.
13. It is also settled position of law that the Authority, who is called upon act under Section 14 of the Securitisation Act, can only assist and is duty bound to assist the secured creditor in taking possession of the secured asset. The Chief Metropolitan Magistrate and the District Magistrate under Section 14 is not empowered to decide the question of legality, validity and propriety of any of the actions taken by the secured creditor under Section 13(4), which can be assailed under Section 17 of the Act by the aggrieved person. In the case of IDBI Bank Ltd. (Supra), it has been held as under:
"6. The Authority who is called upon to act under Section 14 of the Securitisation Act can only assist, and, is bound to assist the secured creditor in taking possession of the secured asset. As the Chief Metropolitan Magistrate and District Magistrate under Section
14 is not empowered to decide the question of legality and propriety of any of the actions taken by the secured creditor under Section 13(4), which may be assailed under Section 17 of the Act by the aggrieved person, under sub-section (3) of Section 14 of the Securitisation Act, the act of the Chief Metropolitan Magistrate or District Magistrate done in pursuance of said Section cannot be called in question in any court or before any authority. It is evident from the provisions of law that the District Magistrate while bound to assist the secured creditor in taking possession of the secured assets and to take the possession of the documents relating thereto and forward such assets and documents to the secured creditor, he is not empowered to decide the question of genuinity or propriety of such documents, including the document signed or agreed between the borrower and the secured creditor.
7. Division Bench of this High Court has, in Special Civil Application No.15084/2010, in the matter between IDBI Bank Limited v/s. Hytaisun Magnetics Limited and others (unreported decision dated 9th February 2011) settled the entire position of law so far as the subject matter of the present petition is concerned.
8. In paragraph 20 of the unreported judgment, the Hon'ble Division Bench held as under :-
"(i) Under Chapter III of the Securitization Act, a secured creditor has right to enforce security interest without the intervention of the Court or Tribunal in accordance with the provisions of the said Act. [Section 13(1)]
(ii) The borrower, who is under liability to the secured creditor under a secured agreement, is entitled to take a notice under Section 13(2) of the said Act.
(iii)The secured creditor who intends to enforce the secured asset is bound to give details of amount payable by the borrower and the secured assets intended to be enforced. [Section 13(3)]
(iv) Under Section 13(3A), the borrower has right to make representation or raise objection. If any objection is there with regard to the secured asset, that can be raised only at the stage of Section 13(3A). Under the said provision, only the secured creditor will determine the objection and not any Court or Tribunal.
(v) No cause of action takes place even after the decision taken by the secured creditor under Section 13(3A) till the secured creditor takes recourse of one or more measures including the measure to take possession of the secured asset of the borrower under Section 13(4) of the Act.
(vi) The secured creditor is competent to take possession of all the secured assets of its own following the procedure laid down under Rule 8 of the Security Interest (Enforcement) Rules, 2002.
(vii)Only when the secured creditor finds difficulty to take possession of the secured asset, it may take assistance of the Chief Metropolitan Magistrate or the District Magistrate under Section 14 of the Act.
(viii)The measures taken under Section 14 amounts to measures taken under Section 13(4) of the Act.
(ix) As the measures taken under Section 14 amount to measures taken under Section 13(4) of the Act, under Section 14(3) such measures cannot be called in question before any Court or Tribunal.
(x) If such measures taken under Section 14 which amount to measures taken under Section 13(4) is not in accordance with the Securitization Act or the Rules framed thereunder, including the objection, if any, raised that the asset is not a secured asset to be taken under Section 13(4), the aggrieved person has a remedy under Section 17 before the Debts Recovery Tribunal to show that the measures taken are against the Act [Section 13(4)] or the Rules framed thereunder.
(xi) All such determination is to be made by the Debts Recovery Tribunal including the question whether the asset is a secured asset or not and the Chief Metropolitan Magistrate or the District Magistrate has not been empowered to adjudicate such dispute, but is directed only to assist the secured creditor in taking possession of the secured asset. If they are not empowered to adjudicate the dispute, they cannot also call for the secured creditor to produce any document to decide whether the asset is secured asset or not, which will be futile exercise in absence of power to adjudicate such issue.
Under Clauses (a) and (b) of Section 14(1), the Chief Metropolitan Magistrate or the District Magistrate and on request, are bound to take possession of the secured assets as also the documents relating thereto. If the documents are to be obtained by them, the question of asking the secured creditor to produce the document in all cases does not arise. Therefore, they do not have jurisdiction even to call for the documents."
9. In view of the settled position of law, under Section 14(2) of the Securitisation Act, for the purpose of securing compliance with the provisions of sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary."
14. We are of the view that the District Magistrate, Kutchh, Bhuj has failed to discharge his statutory duties as is obliged under Section 14(2) of the Securitisation Act and was not right in rejecting the application preferred by the petitioner bank under Section 14 of the Securitisation Act on the ground that the petitioner bank is not a financial institution as defined under Section 2(1)(m) of the SARFAESI Act, 2002.
15. For the reasons stated above, we quash and set aside the order dated 3.12.2010 passed by respondent No.1 and we direct respondent No.1 to fully comply with the provisions of Section 14(2) of the Securitisation Act and provide the necessary assistance and protection to the petitioner bank for taking over the possession of the secured assets of the respondent Nos. 2 to 5 (borrowers).
16. At this stage, we deem it fit to clarify that the order which we have passed shall not come in the way of respondent Nos.2 to 5 if they are ready and willing to make the payment to the Bank as per their liability.
13. Under Section 13(8) of the Securitisation Act, if the dues of the secured creditor together with all costs, charges and expenses incurred by it are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured assets shall not be sold or transferred by the secured creditor and no further steps shall be taken by the petitioner bank for transfer or sale of the secured assets. If respondent Nos.2 to 5 wants to avail of the benefit of Section 13(8) of the Securitisation Act, 2002, it shall be open for them to make the necessary payment to the Bank as per Section 13(8) of the Securitisation Act.
17. We also like to clarify that we have not expressed any opinion so far as the measures taken by the petitioner Bank under Section 13(4) of the Securitisation Act are concerned. If respondent Nos.2 to 5 are aggrieved in any manner for non-compliance of the Act or rules thereunder, it will be open for them to proceed under Section 17 of the Securitisation Act, which provides for an appeal before the Debts Recovery Tribunal.
18. With these observations, the petition stands disposed of.
(S.J. MUKHOPADHAYA, CJ.) (J.B.PARDIWALA, J.) ynvyas Top