Gujarat High Court
Jalaram Cotton And Proteins Limited vs Authorised Officer - Kotak Mahindra ... on 10 September, 2015
Author: Abhilasha Kumari
Bench: Abhilasha Kumari
C/SCA/14614/2015 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 14614 of 2015
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JALARAM COTTON AND PROTEINS LIMITED....Petitioner(s)
Versus
AUTHORISED OFFICER - KOTAK MAHINDRA BANK
LIMITED....Respondent(s)
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Appearance:
ADITYA A GUPTA, ADVOCATE for the Petitioner(s) No. 1
MR AR GUPTA, ADVOCATE for the Petitioner(s) No. 1
MS NALINI S LODHA, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE SMT. JUSTICE ABHILASHA
KUMARI
Date : 10/09/2015
ORAL ORDER
This petition under Article 226 of the Constitution of India has been preferred, inter- alia, with a prayer to quash and set aside the possession notice dated 4/8/2015, under section 13(4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("the SARFAESI Act", for Short), issued by respondent no. 1 Bank (the respondent Bank).
A preliminary objection has been raised by Ms. Nalini S. Lodha, learned advocate for the Page 1 of 19 HC-NIC Page 1 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER respondent Bank, appearing on caveat, to the effect that the petition is not maintainable as the petitioner has an alternative remedy of preferring an appeal under section 17 of the SARFAESI Act. It is submitted by the learned advocate for the respondent Bank that in view of the judgement of the Supreme Court in the case of United Bank of India Vs Satyawati Tondon and Ors reported in AIR 2010 SC 3413 , this Court ought not to entertain the petition as there is an alternative remedy under a fiscal statute and to entertain the petition would have serious consequences on the respondent Bank.
In reply to the preliminary objection raised by learned advocate for the respondent Bank, Mr. Aditya Gupta, learned advocate for the petitioner has made the following submissions:
(1) That the respondent Bank issued a notice dated 28/4/2015 to the petitioner under section 13(2) of the SARFAESI Act to which, the petitioner submitted objections as per Section 13(3A) of the SARFAESI Act. However, in the meanwhile, talks of negotiation were going on between the petitioner and the respondent Bank. The petitioner, therefore, withdrew the objections vide Page 2 of 19 HC-NIC Page 2 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER an e-mail dated 29/6/2015. The respondent Bank, thereafter, sent an e-
mail dated 29/7/2015 to the petitioner, after one month of the withdrawal of the objections, stating that it would be taking possession of the properties of the petitioner on 1/8/2015. It is also clear from this e-mail that the Bank was in negotiation with the petitioner and meetings had taken place between the two sides.
(2) It is next submitted that on receipt of the e-mail dated 29/7/2015, stating that the possession of the properties would be taken on 1/8/2015, the petitioner revived the objections to the notice under section 13(2) of the SARFAESI Act, vide a communication dated 31/7/2015. It is submitted that in the said communication, it is clearly mentioned that the respondent Bank, in an illegal and malafide manner, coerced the petitioner into withdrawing the earlier objections and, in any case, the respondent Bank cannot be deemed to be absolved of its statutory duty of giving a statutory reply as per the provisions of the SARFAESI Act.
Page 3 of 19HC-NIC Page 3 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER (3) That without replying to these objections or dealing with them, the respondent Bank issued the impugned possession notice dated 4/8/2015 under section 13(4) of the SARFAESI Act.
(4) It is vehemently contended by learned advocate for the petitioner, that it is only after the issuance of the impugned notice that the respondent Bank has replied or taken into consideration the objections raised by the petitioner under section 13(3A) of the SARFAESI Act, vide its letter dated 5/8/2015.
(5) Learned advocate for the petitioner has contended that the provisions of section 13(3A) of the SARFAESI Act have been inserted in the statute book after the judgement rendered by the Supreme Court in the case of Mardia Chemicals Ltd and Ors Vs. Union of India and ors reported in (2004) 4 SCC 311, wherein the Supreme Court has held that the purpose of serving the notice under Section 13(2) of the SARFAESI Act upon the borrowers is that they may submit a reply explaining the reasons as to why Page 4 of 19 HC-NIC Page 4 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER measures may, or may not, be taken under sub-section 4 of Section 13, in case of the non-compliance of the notice within 60 days. It is submitted that the Supreme Court has held, that 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. That, it is the right of the borrower to know the reasons why his objections have not been accepted, therefore, the necessity of communicating them to the borrower, in all fairness. The Supreme Court held that there should be meaningful consideration of the objections raised rather than to ritually reject them and proceed to take drastic measures under Section 13(4) of the SARFAESI Act. It is in this background that the provisions of section 13(3A) came to be inserted in the SARFAESI Act, which are the mandatory in nature.
In support of the submissions
regarding the mandatory nature of the
provisions of Section 13(3A) of the
SARFAESI Act and the requirement, on the Page 5 of 19 HC-NIC Page 5 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER part of the creditor, to comply with them in letter and spirit, learned advocate for the petitioner has relied upon certain judgements, as below:
1. Tensile Steel Ltd & Anr Vs. Punjab & Sind Bank & Ors Reported in AIR 2007 GUJ 126.
(Para Nos. 21-22)
2. Letters Patent Appeal No. 865 of 2006 in Special Civil Application No. 16154 of 2005 with Civil Application No. 7071 of 2006 dated 10/08/2007, whereby the judgement of the learned Single Judge in Tensile Steel Ltd (supra) has been upheld.
3. Special Civil Application No. 4045 of 2007 decided by the judgement dated 14/6/2007.
4. Harsora Hotels Pvt. Ltd & 2 Vs. Kotak Mahindra Bank Limited & 1 reported in 2014 SCC OnLine Guj 9203 (11.2, 11.6, 14, 18 & 19) Page 6 of 19 HC-NIC Page 6 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER
5. Mrs. Sunanda Kumari and Anr Vs. Standard Chartered Bank reported in ILR 2007 Kar 16
6. Krushna Chandra Sahoo Vs. Bank of India & Ors reported in AIR 2009 OnLine 35 (Para Nos. 11 & 13)
7. Rajiv Ranjan Verma Vs. Punjab National Bank reported in 2015 SCC OnLine 1851 On the basis of the above judgements, it is submitted by the learned advocate for the petitioner that, the non-compliance of the provisions of section 13(3(A) of the SARFAESI Act would amount to a violation of the principles of natural justice, as drastic measures under section 13(4) of the SARFAESI Act would be taken without considering the objections raised by the petitioner. It is submitted that in the judgement in the case of Union Bank of India (supra) relied upon by learned advocate for the respondent Bank, the Supreme Court has held that in cases relating to recovery of dues of banks, financial institutions and secured creditors, Page 7 of 19 HC-NIC Page 7 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER a stay order granted by the High Court would have a serious adverse impact on the financial health of such bodies/institution, which would ultimately prove detrimental to the economy of the nation. However, in the same judgement, the Supreme Court has also held that if the petitioner is able to show that its case falls within any of the exceptions carved out in Baburam Prakash Chandra Maheshwari V. Antrim Zila Parishad, AIR 1965 SC 556, Whirlpool Corporation v. Registrar of Trade Marks, (1998) 8 SCC 1 and Harbanslal Sahnia v. Indian Oil Corporation Limited, (2003) 2 SCC 107 and certain other judgments, then it is open to the High Court, after considering all the parameters and public interest, to pass an appropriate interim order.
It is submitted on behalf of the
petitioner that in the present case, the
principles of natural justice have been
violated, as the objections of the
petitioner, which have been revived before
the issuance of the impugned possession
notice, have not been considered. The case of the petitioner would fall in the exceptions carved out by the Supreme Court in case of Page 8 of 19 HC-NIC Page 8 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER Whirlpool (supra) , wherein it is stated that if the principles of natural justice are violated, the Court may not relegate the petitioner to avail of the alternative statutory remedy.
Learned advocate for the petitioner has, therefore, submitted that this Court may entertain the petition and grant interim relief.
Strongly opposing the submissions advanced by the learned advocate for the petitioner, Ms. Nalini S. Lodha, learned advocate for the respondent Bank, has submitted that it is an admitted fact that the petitioner had withdrawn its objections vide e-mail dated 29/6/2015, as it wanted to enter into negotiations, which ultimately failed, as no fruitful outcome was forthcoming. It is submitted that after one month of the withdrawal of the objections, the respondent Bank has issued an e-mail dated 29/7/2015 to the petitioner, stating that it had not taken possession of the secured assets due to the meetings going on between the parties, but has no fruitful purpose could be achieved, the respondent bank will be taking possession of the Page 9 of 19 HC-NIC Page 9 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER properties of the petitioner on 1/8/2015. It is submitted that this e-mail, itself, amounts to a measure under section 13(4) of the SARFAESI Act, as, an intention is expressed to take symbolic possession. In this view of the matter, the petitioner has to challenge the action of the Bank under section 17 of the SARFAESI Act, by filing an appeal.
It is next submitted that the petitioner has revived its objections on 31/7/2015, in view of the above e-mail sent by the Bank. However, the revival of the objections cannot be considered to be an objection under section 13(3A) of the SARFAESI Act. Hence, there is no question of the violation of the settled provisions of law.
The learned advocate for the respondent Bank has further submitted that the conduct of the petitioner may be seen. It first raised objections on 26/6/2015 and then withdrew them in order to enter into negotiations. When the negotiations did not yield any positive result, the petitioner revived the objections. The respondent Bank has issued the possession notice under section 13(4) of the SARFAESI Act to the Page 10 of 19 HC-NIC Page 10 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER petitioner on 4/8/2015 and has, later on, on 5/8/2015, replied to the objections of the petitioner, vide its letter dated 31/7/2015. Once measures under section 13(4) have been taken, the petitioner ought to be relegated to avail of the alternative remedy and this Court may not entertain the petition under Article 226 of the Constitution of India, or grant interim relief.
That the entire premises upon which, the case of the petitioner is built are unfounded and not in accordance with law. As the e-mail dated 29/7/2015, itself, amounts to a possession notice, the judgements cited and relied upon by the learned advocate for the petitioner would not be applicable.
The learned advocate for the respondent Bank has taken this Court though the judgements of the Supreme Court in the case of Union of India (supra) especially paragraphs 21 to 25 thereof, and has reiterated her preliminary objections.
Having heard learned counsel for the respective parties at some length and depth, it may be clarified, at this stage, that this Court is dealing only with the preliminary Page 11 of 19 HC-NIC Page 11 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER objection raised by the learned advocate for the respondent Bank, and would not be entering into the merits of the case.
In order to effectively do so, it may be necessary to refer to the provisions of section 13(3A) of the SARFAESI Act, which are as below:
"13(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 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 Page 12 of 19 HC-NIC Page 12 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER to the Debts Recovery Tribunal under Section 17 or the Court of District Judge under Section 17A."
It is clear from a reading thereof, that the provisions of Section 13(3A) envisage that the borrower is entitled to make a representation or raise an objection after the receipt of the notice under sub-section 2 of Section 13. Such representation or objection shall be considered by the secured creditor. If the secured creditors arrives at a conclusion that the representation /objection is not acceptable, he shall communicate, within 15 days of the receipt of the representation or objection, the reasons for such non acceptance.
From its language and context, section 13(3A) of the Sarfaesi Act appears to be mandatory in nature as an obligation is cast upon the secured creditor to communicate the non-acceptance of the representation or objection to the borrower, within fifteen days of the receipt of such objection/ representation. Not only that but the non- acceptance has to be supported by giving reasons.
Page 13 of 19HC-NIC Page 13 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER In the present case, the notice under section 13(2) of the SARFAESI Act was issued by the respondent bank on 28/4/2015. To this notice, the petitioner initially raised written objections dated 26/6/2015. From the material on record and the submissions of parties, it is not in dispute that after the issuance of the initial objections, negotiations took place between the parties resulting in a series of meetings. This is evident from the documents place on record at "Annexure-E" and "Annexure-F".
The document at "Annexure-E" is the transcript of the e-mail dated 29/6/2015, sent by the petitioner to the respondent Bank, withdrawing the objections to the notice under section 13(2) of the SARFAESI Act. The perusal of the said document makes it clear that meetings were taking place by the Managing Director of the petitioner with senior officers of the respondent Bank at Mumbai and, according to the petitioner, there were fruitful discussions between them.
From the document at "Annexure-F", which is the transcript of e-mail dated 29/7/2015, issued by the respondent Bank to the petitioner, it is amply clear that there had Page 14 of 19 HC-NIC Page 14 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER been meetings and negotiations between the parties which, according to the respondent Bank, did not prove to be fruitful. It is stated in the said e-mail that the Bank had deferred taking symbolic possession of the properties of the petitioner for thirty days, due to the possible outcome of the meetings between the parties. However, as nothing fruitful emerged, the Bank informed the petitioner that, "we will be taking possession of properties on August 1, 2015."
On receipt of this e-mail, the petitioner revived its initial objections by a communication dated 31/7/2015, which was sent to the petitioner by Registered Post AD as well as e-mail. In the said objections, the petitioner has stated that it had been illegally coerced into withdrawing the earlier objections under duress and coercion and in a malafide manner by the staff of the respondent Bank. It is further stated that the Bank cannot be absolved of its statutory duty of giving a statutory reply to be objections as per the provisions of the SARFAESI Act.
It is after the objections dated 31/7/2015 sent by the petitioner that the Page 15 of 19 HC-NIC Page 15 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER respondent Bank has issued the impugned possession notice under section 13(4) of the SARFAESI Act, on 4/8/2015. The objections dated 31/7/2015 were not replied to before the issuance of the possession notice. A reply has been sent, thereafter, on 5/8/2015, (Annexure-H) by the respondent Bank.
At this stage, the Court is called upon to adjudicate whether the petition can be entertained by this Court on the ground of the non-compliance of the provisions of section 13(3A) of the SARFAESI Act. From the material on record, as referred to earlier, it is clear that though the initial objections of the petitioner were withdrawn, when the Bank sent an e-mail dated 29/7/2015, stating that it would be taking possession of the properties of the petitioner on 1/8/2015, the petitioner revived its objections vide the communication dated 31/7/2015. These objections have been sent before the impugned notice under section 13(4) of the Act was issued and have not been communicated before its issuance. A reply has been sent by the respondent Bank after the issuance of the impugned notice under section 13(4) of the SARFAESI Act, on 5/8/2015.
Page 16 of 19HC-NIC Page 16 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER The learned advocate for the respondent Bank has submitted that the intention expressed that it would be taking possession of the properties on 1/8/2015, is itself a measure under section 13(4) of the SARFAESI Act. If this is so, prima facie, the Court fails to understand why another notice dated 4/8/2015 under section 13(4) of the SARFAESI Act was issued by the respondent Bank. There cannot be two measures or notices under Section 13(4), as the scheme of the Sarfaesi Act does not allow it.
It is, therefore, not possible to accept the contentions of the learned advocate for the respondent Bank that the e-mail dated 29/7/2015 is a measure under section 13(4), when the statutory notice under section 13(4) of the SARFAESI Act was issued on 4/8/2015.
In this view of the matter, it is, prima facie, clear that the petitioner has not been granted any opportunity of hearing pursuant to its objections dated 31/7/2015. The reasons advanced by the respondent Bank that the rejection of the objections are contained in the communication dated 4/8/2015 is untenable as the provisions of Section 13 (3A) demand that the non-acceptance of the Page 17 of 19 HC-NIC Page 17 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER objection has to be communicated with the stipulated period of time with reasons. This procedure has to be followed before the issuance of the notice under Section 13(4) of the Sarfaesi Act. The issuance of the possession notice, without communicating the reasons for the rejection of the objections would amount to a denial of the opportunity of hearing which is required to be given by the mandate of the statute.
In this view of the matter and in view of the settled position of law reiterated by the learned Single Judge and Division bench of this Court and followed by the High Court of Karnataka, Orrissa and Patna and the judgements of the Supreme Court cited by learned advocate for the petitioner, this Court is of the view that the petition is maintainable before this Court and the petitioner is not required to be relegated to avail of the alternative remedy, as the principles of natural justice have been violated.
In case of Whirlpool Corporation , the Supreme Court has made certain exceptions to the rule that where a statutory remedy is available, the petitioner may not be Page 18 of 19 HC-NIC Page 18 of 19 Created On Wed Sep 16 00:41:28 IST 2015 C/SCA/14614/2015 ORDER relegated to approach the appropriate forum if one of the circumstances enumerated therein is present. One of the exceptions is regarding violation of the principles of natural justice. The present case is covered by the said judgement. Hence following order:
Issue notice, returnable on 6th October, 2015. Interim relief in terms of para 37(d) is granted. Direct service of this order is permitted.
(SMT. ABHILASHA KUMARI, J.) Asma Page 19 of 19 HC-NIC Page 19 of 19 Created On Wed Sep 16 00:41:28 IST 2015