Gujarat High Court
Yes Power And Infrastructure Limited vs J M Financial Asset Reconstruction ... on 17 September, 2014
Author: Abhilasha Kumari
Bench: Abhilasha Kumari
C/SCA/11437/2014 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 11437 of 2014
================================================================
YES POWER AND INFRASTRUCTURE LIMITED....Petitioner(s)
Versus
J M FINANCIAL ASSET RECONSTRUCTION COMPANY PRIVATE LIMITED
& 1....Respondent(s)
================================================================
Appearance:
MR ASHOK L SHAH, ADVOCATE for the Petitioner(s) No. 1
MR AS PANESAR, ADVOCATE for the Respondent(s) No. 1 - 2
Mr.D.M.Devnani, learned Assistant Government Pleader for respondent No.3
================================================================
CORAM: HONOURABLE SMT. JUSTICE ABHILASHA
KUMARI
Date : 17/09/2014
ORAL ORDER
1. Learned advocate for the petitioner seeks permission to implead the District Magistrate, Vadodara as party respondent No.3. Permission to do so is granted. The necessary amendment in the cause-title of the petition be made forthwith.
2. Issue Notice to the newly added respondent.
3. Mr.D.M.Devnani,learned Assistant Government Pleader, appearing on supply of a copy of the petition Page 1 of 11 C/SCA/11437/2014 ORDER is directed to accept the service of notice on behalf of the said respondent as the said respondent is more or less a formal party.
4. Heard Mr.Ashok L. Shah, learned advocate for the petitioner and Mr.A.S. Panesar, learned advocate for respondents Nos. 1 and 2 and Mr.D.M. Devnani, learned advocate for respondent No.3.
5. The submissions advanced by the learned advocate for the petitioner are to the following effect:
(i) Respondent No.1 is a Securitisation and Reconstruction Company and is not a Bank or financial institution as defined under Section 2(m) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("the Securitisation Act" for short). Any financial assistance granted directly by it to M/s. Jord Engineers Limited (Jord), would not be a financial assistance granted "by any Bank for financial institution" to a person. Consequently, Jord would not be a borrower of respondent No.1 within the meaning of 2(1)(f) of the Securitisation Act. If Jord is not a borrower of the first respondent within the meaning of Page 2 of 11 C/SCA/11437/2014 ORDER Section 2(1)(f), the petitioner, who has given guarantee or created a mortgage and hypothecation for such financial assistance to Jord by respondent No.1, would also not be a "borrower" within the meaning of Section 2(1)(f) of the Securitisation Act. Under such circumstances, the provisions of the Securitisation Act would not apply to the petitioner, qua the financial assistance of ten crore granted directly by the first respondent to Jord.
(ii) Referring to the definition of "financial institution" in Section 2(1)(m) of the Securitisation Act, in conjunction with the definition of the "Bank"
in Section 2(1)(c), it is submitted that respondent No.1 does not fall under any of the categories mentioned in Section 2(1)(c) and, consequently, it is not a "Bank" within the meaning of the said Act. Even the Reserve Bank of India, in its circular/ clarification dated 22.04.2009, has especially stated that a Securitisation Company/ Reconstruction Company is neither a "Bank" in terms of the provisions of Section 2(1)(c) of the Securitisation Act nor a "financial institution", in terms of the provisions of Section 2(1)(m) of the said Act.
Page 3 of 11 C/SCA/11437/2014 ORDER
(iii) It is submitted that Jord would not be a "borrower" within the meaning of Section 2(1)(f) of the Securitisation Act and any guarantee given, or mortgage created, by the petitioner in respect of such financial assistance would consequently not make the petitioner a "borrower" within the meaning of the Securitisation Act.
(iv) That in view of the above, no notice under Section 13(2) of the Secuirtisation Act could have been issued to the petitioner. If no notice under Section 13(2) could have been issued to the petitioner, since the said provision would not be applicable to it, the question of compliance of the said notice would not arise at all. As a consequence thereof, the question of initiating action under Section 13(4) of the Securitisation Act, would also not arise. The respondents, therefore, have no right to initiate any action under Section 13(4) of the Securitisation Act against the petitioner, or to approach the District Magistrate to assist them in taking over possession under Section 13(4) of the said Act.
Page 4 of 11 C/SCA/11437/2014 ORDER
(v) That the impugned order dated 28.07.2014, passed by the District Magistrate is,therefore, without jurisdiction and authority of law and, therefore, it is required to be quashed and set aside.
(vi) That the guarantor or mortgagor is not under any liability to "repay" inasmuch as he himself has not been "paid" anything. He, therefore, cannot commit any default in repayment as required under Section 13 (2) of the Securitisation Act.
Referring to the definition of the "borrower" in Section 2(f) of the Securitisation Act, it is submitted that to attract the provisions of Section 13(2), it must be established that (i) there is a borrower, who is under a liability to a secured creditor under a security agreement, (ii) such borrower should have committed default in repayment of any debt or installment thereof, and (iii) his account in respect of such debt should have been classified by the secured creditor as a Non-Performing Asset. All the three conditions are concurrent and cumulative and must be complied with to attract the Page 5 of 11 C/SCA/11437/2014 ORDER provisions of Section 13(2) of the Securitisation Act. However, the said Section can only apply to the first category of borrower, namely, the actual borrower, who has done the act of borrowing and who has been granted financial assistance. It would not apply to the second category of borrower, that is to say, to a guarantor and mortgagor, who has not been granted financial assistance.
(vii) That the account of the mortgagor is never maintained by the Bank or financial institution, therefore, there is no question of classifying it as a Non-Performing Asset.
(viii) Referring to the provisions of Section 14(3) of the Securitisation Act, which provide that the order passed under Section 14 of the Securitisation Act by the District Magistrate would not be called in question in any Court or before any authority, it is alternatively submitted that even if the Court arrives at a conclusion that the petitioner has an alternative remedy, however, in view of this provision, the petitioner would be rendered remediless. The petitioner has no other alternative except to approach Page 6 of 11 C/SCA/11437/2014 ORDER this Court.
On the above grounds, it is prayed that the petition be admitted and interim relief granted.
6. Mr.A.S.Panesar, learned advocate for respondents Nos.1 and 2 has opposed the admission of the petition on the ground that the petitioner has an alternative remedy and ought to have approached the Debts Recovery Tribunal instead of this Court, under Article 226 of the Constitution of India. Referring to provisions of Section 13(2) of the Securitisation Act it is submitted that the measures under the Securitisation Act are to be initiated by a "secured creditor" as this provision itself refer to either Bank or financial institution. The respondent is a "secured creditor" in terms of the definition under Section 2(zd) of the Securitisation Act. It is submitted that by virtue of Section 2(zd), a securitisation Company or re-construction Company, whether acting as such or managing a trust set up by such securitisation company or reconstruction company for the securitisation or reconstruction, is included in the definition of 'secured creditor".
Page 7 of 11 C/SCA/11437/2014 ORDER 6.1 Referring to the provisions of Section 2(zf) which defines "security interest" it is submitted that this definition includes any right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in Section 31. It is not disputed that the petitioner is a guarantor and mortgagor, therefore this definition would cover the mortgage created by the petitioner.
6.2 It is next submitted that the definition of "borrower" in section 2(f) of the Securitisation Act includes, apart from financial assistance by any bank or financial institution, also a person who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution. It includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance. It is submitted that in view of the above definition as well, the petitioner would come under the Page 8 of 11 C/SCA/11437/2014 ORDER definition of 'borrower" and as the respondent-Company is a secured creditor it is entitled to take measures under the Securitisation Act.
6.3 Learned advocate for respondents Nos.1 and 2 has referred to the provisions of Section 17 of the Securitisation Act and has submitted that this Section refers to 'secured creditor" and does not refer only to a bank or financial institution. 6.4 It is next submitted that respondents Nos.1 and 2 do not fall under the definition of "State" within the meaning of Article 12 of the Constitution of India, therefore, a writ petition under Article 226 of the Constitution of India would not lie against them.
Learned advocate for respondents Nos.1 and 2 has relied upon the following judgments:
(a) Bharatbhai Ramniklal Sata v Collector and District Magistrate, and another, reported in (2010)2 GLR 985
(b) United Bank of India v. Satyawati Tondon and others, reported in AIR 2010 SC 3413 Page 9 of 11 C/SCA/11437/2014 ORDER
7. Mr.D.M.Devnani, learned Assistant Government Pleader submits that he would have no submission to advance insofar as the question of jurisdiction is concerned but would reserve his submissions on merit when the matter is heard.
8. This Court has heard learned counsel for the respective parties, at length. The rival submissions put forth by the learned counsel for the respective parties would require an interpretation of various definitions and Sections of the Securitisation Act, which could have wide ramifications. Under the circumstances, the matter requires consideration in depth. Hence,the following order:
Issue Rule, returnable on 1-12-2014.
Interim relief in terms of paragraph (48)(d) and
(e) is granted, till further orders.
However, it is directed that the petitioner shall file an undertaking before this Court that it would not alienate or create any charge upon the concerned property.
Page 10 of 11 C/SCA/11437/2014 ORDER
Such undertaking shall be filed within a period of two weeks from today.
Mr.A.S.Panesar, learned advocate waives service of notice of Rule on behalf of respondents Nos.1 and
2. It is clarified that this order will not come in the way of respondents Nos.1 and 2, in availing any other remedy that may be available to them, in law.
(SMT. ABHILASHA KUMARI, J.) ARG Page 11 of 11