Gujarat High Court
Om Shiv Lumbers Pvt Ltd & 2 vs Corporation Bank on 13 February, 2017
Author: N.V.Anjaria
Bench: N.V.Anjaria
C/SCA/2337/2017 CAV ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 2337 of 2017
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OM SHIV LUMBERS PVT LTD & 2....Petitioner(s) Versus CORPORATION BANK....Respondent(s) ========================================================== Appearance:
ARJUN R SHETH, ADVOCATE for the Petitioner(s) No. 1 - 3 KRINA R PAREKH, ADVOCATE for the Petitioner(s) No. 1 - 3 MR BHARAT JANI, CAVEATOR for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE N.V.ANJARIA Date : 13/02/2017 CAV ORDER Heard learned advocate Mr.Arjun Sheth for the petitioners and learned advocate Mr.Bharat Jani who appeared on caveat on behalf of the respondent Bank, at length.
2. Petitioner No.1 is a private company incorporated under the provisions of the Companies Act, 1956. The petitioner No.2 is Director and Promoter of petitioner No.1 and petitioner No.3 is the erstwhile Director of petitioner No.1. The petitioners have made many fold prayers.
2.1 The first prayer is to declare that the classification of the outstanding account of the petitioners as non-performing asset on 14th September, 2016 was illegal. Secondly, it is prayed to declare Page 1 of 9 HC-NIC Page 1 of 9 Created On Tue Feb 14 02:10:10 IST 2017 C/SCA/2337/2017 CAV ORDER notice dated 14th October, 2016 issued by the respondent Bank as illegal. Petitioners in the third prayer prayed to set aside the said notice. The said notice dated 14th October, 2016 was a notice issued under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The fourth prayer was to declare as illegal the possession notices dated 05th January, 2017 as well as the possession notices published on 08th January, 2017 in newspaper. These were the notices under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'the Act') issued as well as got published. Thereafter the Bank proceeded to advertise the auction of the secured properties. The further prayer of the petitioners was to set aside E- auction notice dated 11th January, 2017. The petitioners prayed for interim relief as well.
3. Noticing the facts, petitioner No.1 appears to have taken Cash Credit-Renewal Facility to the tune of Rs.150 lakhs which was enhanced to Rs.03.50 crores known as Inland/Import Letter of Credit-cum-BCR, on 08th May, 2015. In the aforesaid different credit/lending facilities, petitioner No.2 and petitioner No.3 herein stood as guarantors. As per the condition, 16th June, 2016 was the last day, according to the petitioners, to repay the outstanding. The Bank classified account of the petitioners as non-
performing assets. By way of security, three
properties, namely Residential Duplex No.4, Ground
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Floor; Residential Duplex No.1, Ground Floor, both at Manisha (Adipur) Owners Association, Ward No.3-A, Adipur, Taluka Gandhidham were mortgaged. The third property was bungalow comprised of Ground Floor on the Plot NO.76 in Ward No.3-B at Adipur, Taluka Gandhidham was offered.
3.1 The loan account of the petitioners was classified as non-performing asset. The respondent Bank invoked provisions of the Act and issued notice under Section 13(2) on 14th October, 2016. As per the said notice, outstanding balance towards Cash Credit Facility was Rs.01,55,38,742.93 Ps. whereas towards Inland Letter of Credit Facility it was Rs.02,58,60,835/-, aggregating to Rs.04,13,95,779.93 Ps.
3.2 The petitioners replied to notice under Section 13(2) on 25th October, 2016 requesting for reconstruction or rescheduling of the debt and to find out solution. On 09th December, 2016, another reply through advocate was sent which was replied by the Bank on 15th December, 2016. Thereafter as the petitioners did not discharge their liability to pay, notices under Section 13(4) dated 05th January, 2017 was issued. The Bank took symbolic possession of the aforesaid three secured properties acting on the basis of the said notice under Section 13(4) of the Act. Possession notice was also published on 08th January, 2017 in the newspaper. The auction was announced on 11th January, 2017 which is now scheduled to take place on 16th February, 2017.
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4. Learned advocate for the petitioners seeking to press the prayers made and wanting the court to exercise the writ jurisdiction to grant relief, raised following main amongst other contentions. Classification of the account as non-performing asset by the Bank on 14th September, 2016 was illegal. Such classification could not have been done before 15th September, 2016. He relied on details given at Annexure-I to the notice under Section 13(2) of the Act. It was next submitted that when classification of the account itself was wrong and illegal, all subsequent actions including notice under Section 13(2) were rendered bad. He further complained about conduct of the Bank to submit that petitioners were targeted by the Bank who acted with undue haste. It was further submitted that the Bank did not obtain proper valuation of the property before putting them to auction. It was urged that Rule 8A of the Rules was breached. The possession notice was published in the newspaper on 08th January, 2017 and the auction sale was announced on 11th January, 2017 which was within three days, it was submitted. The reserved price was undervalued, it was the submission. He further submitted that the action of the Bank was required to be tested on the foundation of interest of the borrower. He next submitted that in the post- demonetization period the petitioners had already suffered. He also submitted that the secured properties were residential properties, therefore also relief may be granted to the petitioners. He also submitted that without taking physical possession, Page 4 of 9 HC-NIC Page 4 of 9 Created On Tue Feb 14 02:10:10 IST 2017 C/SCA/2337/2017 CAV ORDER Bank could not have proceeded.
4.1 Learned advocate for the petitioners, in order to support his submissions, relied on decision of the Supreme Court in Mardia Chemicals Ltd. v. Union of India [(2004) 4 SCC 311] in particular paragraph 44 thereof. In the next he relied on another decision of the Supreme Court in Kalabharati Advertising v. Hemant Vimalnath Narichania [AIR 2010 SC 3745]. A Bombay High Court decision in Blue Coast Hotels Limited v. IFCI Limited being Writ Petition No.222 of 2015 decided on 27th January, 2016 was pressed into service for submitting that the action of holding auction was not proper. By referring to paragraph 15 of Whirlpool Corporation v. Registrar of Trade Marks, Mumbai [(1998) 8 SCC 1] it was submitted that there is no bar for the High Court to exercise powers under Article 226 of the Constitution and to entertain the writ petition directly eventhough alternative remedy may be available.
4.2 On the other hand, learned advocate for the respondent Bank at the outset submitted by placing reliance on decision on Union Bank of India Vs Satyawati Tondon [AIR 2010 SC 3413], in particular referring to paragraphs 4, 5, 6, 12 and 17 of the judgment, that since alternative remedy is available, this Court may not entertain the petition. It was next submitted by him that the contention raised by the petitioners as to the justifiability of declaring the account as non-performing asset, requires factual investigation, even if to be entertained, and that it Page 5 of 9 HC-NIC Page 5 of 9 Created On Tue Feb 14 02:10:10 IST 2017 C/SCA/2337/2017 CAV ORDER involve disputed question of law. He further submitted that what the petitioners described as Term Loan was not a Term Loan but in the nature of Cash Credit Advance with Renewal Facility. Learned advocate for the Bank also submitted that Bank had rejected the representation of the petitioner under Section 13(3A) of the SARFAESI Act, whereafter notice under Section 13(4) was issued. He pointed out that symbolic possession of the secured assets had been taken. Eventhough the case is about the property having been given on rent, it was submitted, that no such details have been forthcoming and in any view, all such questions could be agitated before the appellate forum. He further pointed out that the petitioners were indolent as the auction notice was published as back as on 07th January, 2017 whereas the present petition came to be filed only in the first week of February, 2017. He thereafter submitted that the dues more than Rs.04.00 crores have been unpaid. Countering the submission of the petitioners further, it was submitted that not a single farthing was deposited by the petitioners during all these times and the petitioners are not litigants litigating bona fide seeking equitable relief.
5. The contention to assail the act on part of the Bank in declaring the account as non-performing asset, indeed is fraught with disputed questions of fact and would be requiring going into the accounting and other details. Apart from this, the Court is not inclined to entertain the petition for the outweighing reason that the petitioners have a remedy of Page 6 of 9 HC-NIC Page 6 of 9 Created On Tue Feb 14 02:10:10 IST 2017 C/SCA/2337/2017 CAV ORDER preferring Appeal under Section 17 of the SARFAESI Act before Debts Recovery Tribunal.
5.1 The remedy of appeal provided by the Legislature under Section 17 of the Act is efficacious remedy. It would possible for the petitioners to lead evidence before the Tribunal to establish his case and the contentions. The Tribunal has power to restore back the possession if the aggrieved person succeeds before the Tribunal. The powers of the Tribunal has been widened in terms of the undertaking of examination of various issues by virtue of the amendment brought in, in Section 17 of the Act under the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, referring particularly amendment carried out in Section 17 of the Act.
5.2 It is a cardinal principle that the High Court would be loath to exercise discretion in favour of entertaining a writ petition where the Legislature has provided alternative statutory remedy. In the present case, a special forum is available in form of Debts Recovery Tribunal where appeal would lie. In the matters involving commercial disputes, it is trite that rule of availing alternative remedy should be adhered to steadfast. The principle on this aspect is unequivocal.
6. In Authorised Officer, Indian Overseas Bank v. Ashok Saw Mill [(2009) 8 SCC 366], the Apex Court held that remedy by way of appeal under Section 17 is Page 7 of 9 HC-NIC Page 7 of 9 Created On Tue Feb 14 02:10:10 IST 2017 C/SCA/2337/2017 CAV ORDER available not only upto the stage referable to Section 13(4), but even in respect of measures taken post- 13(4) stage. In the present case, the stage at which the petitioner is beset with, is such stage. The petitioner is aggrieved person for the purpose of Section 17 of the Act.
6.1 In Kanaiyalal Lalchand Sachdev v. State of Maharashtra [(2011) 2 SCC 782], the Supreme Court has stated that the measures under Section 14 constitutes the action taken after the stage of Section 13(4) and a remedy of appeal under Section 17 would be available. In that case, refusal by the High Court to entertain the writ petition was held to be fully justified.
6.2 In Satyawati Tondon (supra) the Court observed in paragraph 17 that the party must exhaust the remedy under Section 17. it was further observed, "the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc., the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi judicial bodies for redressal of the grievance of any aggrieved person. Therefore, in all such cases, High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute."
6.3 The Apex Court stated,
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"...despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT DRT Act and SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. It is hoped and trusted that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection."
7. For the aforesaid discussion and reasons, only on the ground that the petitioners have got alternative efficacious remedy as above, this petition is not entertained and stands dismissed, leaving the petitioners at liberty to approach Debts Recovery Tribunal.
8. It goes without saying that this Court has not gone into the merits of the case of the petitioners.
9. Any observations in this petition does not amount to and shall not be treated as expression on merits. If the appropriate proceedings are initiated before Debts Recovery Tribunal by the petitioners, the Tribunal shall examine the same in accordance with law and on merits.
10. With the aforesaid observations, petition is not entertained.
(N.V.ANJARIA, J.) Anup Page 9 of 9 HC-NIC Page 9 of 9 Created On Tue Feb 14 02:10:10 IST 2017