Calcutta High Court
Tarun Mondal & Ors vs Axis Bank Limited & Ors on 23 December, 2014
Author: Debangsu Basak
Bench: Debangsu Basak
WP No. 1246 of 2014
IN THE HIGH COURT AT CALCUTTA
CONSTITUTIONAL WRIT JURISDICTION
ORIGINAL SIDE
TARUN MONDAL & ORS.
VERSUS
AXIS BANK LIMITED & ORS.
BEFORE:
The Hon'ble Justice DEBANGSU BASAK
Dated, the 23rd December, 2014.
Appearance:
Mr. Joy Saha, Adv.
Ms. Runi Chakraborty, Adv.
For the Petitioners.
Mr. V. Raja Rao, Adv.
Ms. A. Rao, Adv.
For the respondent no.3.
The Court:- Workers of the respondent no.3 has assailed an order passed by the District Magistrate under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The order of the District Magistrate impugned is dated September 24, 2014. By such order, the District Magistrate has allowed police assistance to a secured creditor to enforce a security interest under the SARFAESI Act, 2002.
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Mr. Joy Saha, learned Counsel for the petitioner, submits that, the District Magistrate did not take into account the parameters laid down under Section 14 of the SARFAESI Act, 2002 in deciding the issue and passing the order impugned. Consequently, the order impugned is invalid according to him.
His next limb of submission is that, secured creditors of requisite percentage have not invoked the provisions of the SARFAESI Act, 2002. The respondent no.3 has a reference pending before the Board for Industrial and Financial Reconstruction (BIFR) established under the provision of the Sick Industries Companies (Special Provisions) Act, 1985 (SICA). The respondent no.3 and the writ petitioners as workers of the respondent no.3 are entitled to protection under Section 22 of the SICA read with Section 13(9) of the SARFAESI Act, 2002 Learned Counsel for the respondent nos. 1 and 2 submits that, the secured creditors in excess of the prescribed limit of 60% have invoked the provision of SARFAESI Act, 2002 against the respondent no.3. The reference pending before the BIFR in respect of the respondent no.3, therefore, has since abated. Neither the respondent no.3 nor its workers are entitled to protection under Section 22 of the SICA. He contends that, the District Magistrate adequately considered all aspects under Section 14 of the SARFAESI Act, 2002 while granting an order for police help and that there is no infirmity in the order impugned passed by the District Magistrate.
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The respondent no.3 is also represented. It is fairly conceded on behalf of the respondent 3 that, one of the secured creditors, namely Punjab National Bank has also invoked the provisions of the SARFAESI Act, 2002 against it.
I have considered the rival contentions of the parties and the materials made available on record.
Two issues fall for consideration in this writ petition. The first issue is whether the order impugned of the District Magistrate is in accordance with the Section 14 of the SARFAESI Act, 2002 or not.
The second issue is whether the secured creditors of requisite value as laid down in Section 13(9) of the SARFAESI Act, 2002 have invoked the provisions of SARFAESI Act, 2002 or not.
On the first issue, I have perused the order of the District Magistrate which is at page 51 of the writ petition. The order is dated September 24, 2014. The District Magistrate records perusal of the papers and documents submitted by the respondent nos. 1 and 2. The District Magistrate in his finding observed that reasonable opportunity was afforded to the borrower in accordance with the provisions of the SARFAESI Act, 2002 and that the borrower had failed to repay the loan amount with interest. Considering such aspect, the District Magistrate was of the view that police assistance as required by the respondent nos. 1 and 2 were required to be provided and as such allowed such prayer.
No material was placed before me to suggest that the District Magistrate was not apprised of the material facts relating to an application under Section 14 of the SARFAESI Act, 2002.
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I find no infirmity in the order passed by the District Magistrate dated September 24, 2014.
Mr. Saha contends that various aspects of Section 14 of the Securitisation Act, has not been considered by the District Magistrate. With respect to him, the District Magistrate in the instant case took into consideration issues relevant for the grant of police assistance under Section 14 of the SARFAESI Act, 2002 emanating out of the fact scenario obtaining in this case. The order of District Magistrate cannot be faulted on such count.
The second issue raised in this writ petition revolves around the interpretation of secured creditors within the meaning of SARFAESI Act, 2002 and beyond it. The borrower being the respondent no.3 herein has five secured creditors as tabulated in paragraph 16 of the writ petition. According to the writ petitioners, who are workers of the respondent no.3 the total dues by the respondent no.3 to such secured creditors are in excess of Rs.55 crores.
Out of the five secured creditors, four secured creditors are "secured creditors" within the meaning of the SARFAESI Act, 2002. West Bengal Industrial Development Corporation which is shown in the books of the respondent no.3 as its secured creditor is not a "secured creditor" within the meaning of SARFAESI Act, 2002 as it is not notified to be so under SARFAESI Act, 2002.
SARFAESI Act, 2002 defines as secured creditors. Such definition is Act, Section 2(zd) the definition is as follows:-
(zd) "Secured Creditor" means any bank or financial institution or any consortium or group of banks or financial institutions and includes -5
i] debenture trustee appointed by any bank or financial institutions; or ii] securitisation company or reconstruction company, whether acting as such or managing a trust set up by such securitisation company or reconstruction company for the securitisation or reconstruction, as the case may be; or] iii] any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance".
Section 13(9) of the SARFAESI Act, 2002 mandates that 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 60% in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors. There are few provisos to Section 13(9) of the SARFAESI Act, 2002.
A secured creditor is defined under the SARFAESI Act, 2002. The term secured creditor used in Section 13(9) of the SARFAESI Act, 2002 has to be construed in the light of definition of a secured creditor given under the SARFAESI Act, 2002. A borrower of a secured creditor, may have creditors who can be classified as secured creditors in terms of the provisions of the Companies Act, 1956 when such borrower is a company incorporated under the provision of the Companies Act, 1956. A secured creditor classified as such in terms of the 6 relevant provisions of the Companies Act, 1956 may or may not be a secured creditor within the meaning of the SARFAESI Act, 2002. The determining factor of 60% laid down in Section 13(9) of the SARFAESI Act, 2002 is in relation to a secured creditor within the meaning of SARFAESI Act, 2002 itself.
A borrower who is a legal entity other than a legal entity incorporated or existing under the Companies Act, 1956 may have creditors who may be termed as secured creditors in relation to such borrower. In such scenario also all of such creditors may not come within the definition of "secured creditors" under the SARFAESI Act, 2002.
In the facts of the instant case, five creditors of the respondent no. 3 are secured creditors within the meaning of Companies Act, 1956. In respect of the respondent no.3, four secured creditors are "secured creditors" within the meaning of the SARFAESI Act, 2002 also. Three of the four secured creditors within the meaning of the SARFAESI Act, 2002 have proceeded to invoke the provision of the SARFAESI Act, 2002 in respect of the respondent no.3. The aggregate value of the three secured creditors who have invoked the provision of the SARFAESI Act, 2002 being entitled to do so is more than 60% which is above the prescribed limit under Section 13(9) of the SARFAESI Act, 2002.
In such circumstances, the respondent no.1 being one of such secured creditor within the meaning of SARFAESI Act, 2002 is, therefore, entitled to invoke Section 14 and the other provisions of the SARFAESI Act, 2002 in respect of its secured assets.
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The pendency of the reference of the respondent no.3 before BIFR and the impact on such proceedings by reason of the invocation of the provision of the SARFAESI Act, by the "secured creditors" within the meaning of SARFAESI Act, 2002 requires consideration. A reference to the BIFR under SICA, 1985 is guided by Section 15 of the SICA, 1985. The third proviso to Section 15 of SICA, 1985 provides that on or after the commencement of the SARFAESI Act, 2002 a reference pending before the BIFR will abate if secured creditors, representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measure to recover their secured debt under Sub-section (4) of Section 13 of the SARFAESI Act, 2002.
In the instant case, all the secured creditors of the respondent no.3 governed by the provisions of the SARFAESI Act, 2002, excepting one, have taken measures under Section 13 of the SARFAESI Act, 2002. The collective value of the amount outstanding against the respondent no.3 in respect of three secured creditors, governed by the SARFAESI Act, 2002, is in excess of three-fourth of the value of the amount outstanding against the respondent no.3. The reference before the BIFR, therefore, has abated. All and any order of the abatement passed by the BIFR in such reference is a nullity.
Mr. Saha contends that, West Bengal Industrial Development Corporation is a secured creditor and its exposure to the respondent no.3 is in excess of Rs.25 crores. The sole exposure of West Bengal Industrial Development Corporation will prevent the threshold of three-fourth value as provided in the third proviso of 8 Section 15 of SICA to be reached. The third proviso of Section 15 of SICA, 1985 speaks of the SARFAESI Act, 2002 and contemplates that when measures under the SARFAESI Act, 2002 are taken by the secured creditors of value in excess of three-fourth of the amount outstanding against such borrower, a reference of such borrower before BIFR shall abate. The secured creditor contemplated in the third proviso of Section 15 of the SICA, 1985 is a secured creditor defined under the SARFAESI Act, 2002. More so, the third proviso of SICA, 1985 recognizes that when a secured creditor under the SARFAESI Act, 2002 takes a measure under Section 13 of the SARFAESI Act, 2002 and that the value of the amount outstanding in respect of such secured creditor or a group of them in excess of three-fourth of the total value of the amount outstanding in respect of borrower, the reference before it will abate.
In such circumstances, I find no merit in the contention raised by Mr. Saha on the second issue also.
Mr. Saha refers to a representation made by the writ petitioners to the District Magistrate being kept pending by the District Magistrate.
The representation is at page 67 of the writ petition. The relief sought in the representation is founded upon the concept of pendency of proceedings before the BIFR. The interest of justice would not subserve by directing the District Magistrate to consider the representation as the relief prayed for therein cannot be granted in view of the abatement of the proceedings before the BIFR.
The writ petition is devoid of any merit.
WP No. 1246 of 2014 is dismissed. No order as to costs.
9Since I have not invited any affidavit, the allegations made in the writ petition are deemed to be denied by the respondents.
[DEBANGSU BASAK, J.] snn.