M/S Indison Agro Foods Pvt. Limited vs State Of Bank Of India on 8 November, 2021

[Cites 18, Cited by 2]

Madhya Pradesh High Court

M/S Indison Agro Foods Pvt. Limited vs State Of Bank Of India on 8 November, 2021

This petition is filed by the petitioners (borrower) questioning the judgment dated 14.09.2021 (Annexure P/21) passed by the Debt Recovery Appellate Tribunal (DRAT), whereby the order passed by the Debt Recovery Tribunal (DRT), Jabalpur is set aside.

2. Briefly stated, the case of the petitioners is that the petitioner no.1 is a company and the petitioner no.2 to 7 are Directors/Personal Guarantors for the petitioner no.1/Company, whereas petitioner nos.8 to 10 are Corporate Guarantors of petitioner no.1/company.

3. Indisputably, on different occasions, sanction letters were issued sanctioning credit limits i in favor of petitioner no.1. On 28.10.2015, authorised accounts of petitioner no.1 were declared as non- performing asset (NPA) and consequently on 29.08.2016 a demand notice under section 13(2) of The Securitisation And Reconstruction 2 WP No.21803/2021 Of Financial Assets And Enforcement Of Security Interest Act, 2002 (SARFAESI Act) was issued by respondent no.1/bank as a leader of consortium of banks. Another demand notice under section 13(2) of SARFAESI Act was issued on 11.07.2016 by respondent no.2/bank which are filed as (Annexure P/3 and P/4) respectively.

4. The stand of the petitioner is that through its counsel on 24.10.2016 (Annexure P/5) and dated 06.09.2016 (Annexure P/6) the petitioner sent representation/objection to respondent nos.1 and 2/banks as per section 13(3-A) of the SARFAESI Act. On 09.11.2016 (Annexure P/7), the respondent/banks served a letter to the counsel for the petitioner no.1/company demanding a valid authorization proof authorizing him to represent the petitioners.

5. In turn, counsel for the respondent no.1 on 26.11.2016 sent a recall notice demanding payment of outstanding dues from the petitioners as on 25.11.2016. Counsel for the petitioner sent reply on 09.12.2016.

6. Respondent no.1/bank sent another letter dated 21.01.2017 to the counsel for the petitioner no.1/company that since no authorization has been provided, therefore, representation dated 24.10.2016 will be treated as unauthorized. In absence of authorization, the representation of counsel will be treated as 3rd party representation and the bank will proceed further under the SARFAESI Act assuming that no representation has been made.

7. Shri Amit S.Agrawal, learned senior counsel for the petitioner submitted that no action was taken by the banks in pursuance to aforesaid demand notices (Annexure P/3 and P/4). Indeed, on 02.08.2017 (Annexure P/9), the respondent no.1/bank in the capacity of lead bank of consortium issued a fresh 2nd demand notice under section 13(2) of the SARFAESI Act demanding the outstanding dues of Rs.2,19,06,84,216.87/- allegedly stood outstanding as on 30.06.2017. The petitioner's counsel on 28.09.2017 (Annexure P/10) 3 WP No.21803/2021 again preferred a representation as per section 13(3-A) of the SARFAESI Act. Once again, the respondent/bank issued a letter dated 21.10.2017 (Annexure P11) to the counsel for the petitioners' demanding authorization proof to represent the petitioners. Learned counsel for the petitioners submits that there is no bar against the borrower for being represented by a Lawyer under the SARFAESI Act much less under section 13 of the Act.

8. It is urged that the respondent no.1/Bank did not take action on the objection submitted by the counsel for the petitioners under section 13(3-A) of the SARFAESI Act and straight away proceeded to take action under section 13(4) of the SARFAESI Act read with Rule 8(1) of the Security Interest (Enforcement) Rules, 2002 and took symbolic possession of movable assets mortgaged by issuing possession notices dated 28.02.2018., 05.03.2018 and 09.03.2018. By placing reliance on the judgment of the Apex Court in ITC ltd. Vs. Blue Coast Hotel ltd. reported in AIR 2018 SCC 3063, it is contended that section 13(3-A) is a mandatory provision and it was incumbent upon the respondent/bank to decide the representation of the petitioners before taking steps under section 13(4) of the said act.

9. Aggrieved, the petitioner filed SA No.112/2018 before the DRT, Jabalpur. During the pendency of the said S.A before the DRT on 17.07.2018 (Annexure P/14), an order under section 14 of the SARFAESI Act was passed by the District Magistrate, Jodhpur. Further, on 23.01.2019 (Annexure P/15), a similar order under section 14 of the said Act was passed by District Magistrate, Indore. On 27.02.2019 (Annexure P/16), the mortgaged properties were put to auction by issuing a notice. On the same day, an interim order was passed by DRT, Jabalpur in aforesaid SA in favour of petitioners directing the respondent/banks not to confirm the sale and not to issue sale certificates pursuance to the auction subject to deposit of Rs.25,00,000/- by petitioners in the loan account and Rs.5,00,000/- in 4 WP No.21803/2021 'Bharat kai Veer' fund within 10 days. The Order of DRT dated 27.02.2019 is placed on record as Annexure P/17.

10. The petitioners admittedly could not comply with the interim order of DRT dated 27/2/2019 and, therefore, sale certificates were issued in favour of auction purchasers who were subsequently impleaded as parties before the DRT.

11. The DRT by order dated 11/11/2019 (Annexure P/19) allowed the SA No.112/2018 filed by petitioners on the ground of non compliance of mandatory provision of Sec.13(3-A) and quashed the demand notice dated 2/8/2017 (Annexure P/9) and all subsequent actions based there upon including possession notices, auction notices and sale certificates.

12. The respondent No.1 Bank preferred an appeal u/S.18 of the SARFAESI Act before DRAT, Allahabad against order dated 11/11/2019 which was registered as Appeal Dy 402/19. Finally, by impugned order dated 14/9/2021 (Annexure P/21), the DRAT allowed the appeal and set aside the impugned order of DRT.

13. This petition assails the judgment dated 14/9/2021 passed by the DRAT. Criticising the judgment of DRAT, Shri Amit S Agrawal, learned Sr.Counsel contends that the DRAT has gone wrong in holding that the bank was justified in asking the counsel for petitioners to provide authorisation letter before deciding the objection of petitioners filed through Advocate u/S.13(3-A) of SARFAESI Act. It is submitted that the authorised Advocate had every right to issue notices, enter into correspondence on behalf of his client and this practice is prevailing from time immemorial. In common law as well as under the statutory provision of Advocates Act and CPC etc. the Advocate is empowered to enter into pre litigation discussions, sent correspondence, reply, negotiate and enter into compromise etc. In support of these submissions, he placed reliance on various authorities.

5 WP No.21803/2021

14. Macquarie Bank Limited Vs. Shilpi Cable Technologies Ltd (2018) 2 SCC 674 is pressed into service to urge that the expression 'practice' used in Sec.30 of Advocates Act is of extremely wide input and includes all preparatory steps leading to the filing of an application before a Tribunal. A conjoint reading of Sec.30 of Advocates Act and Sec.8 and 9 of Code of Civil Procedure together with the adjudicatory authority's rules and norms would yield the result that a notice sent on behalf of an operational creditor by a lawyer would be in order. In view of judgment of Byram Pstongi Gariwala Vs. Union Bank of India (1992) 1 SCC 31 followed in the case of Macquarie Bank Ltd (supra), the operational creditor includes 'authorised agent' and 'lawyer' of said creditor.

15. The judgment in Gariwala (supra) is relied upon to contend that no legislature, in absence of express words to such effect, be presumed to have disallowed the parties to enter into a compromise by counsel in their case or by their duly authorised agent. Any such presumption would be inconsistence with the legislative object of containing quick reduction of arrears in court by elimination of uncertainties and enlargement of the scope of compromise. The another submission of Shri Agrawal, learned Sr.Counsel based on Prestige Lights Ltd. Vs. State Bank of India (2007) 8 SCC 449 and Sheikh M. Maroof Vs. Phoenix ARC Pvt. Ltd AIR 2021 Delhi 102 is that if petitioner could not comply with the conditions of interim order passed by the DRT, as a rule of thumb, it cannot be said that petitioner had no right of hearing because of violation of interim order.

16. In nut shell, the argument of petitioners is that the respondent bank has erred in asking the 'authorisation' from the counsel of the petitioners who entered into correspondence with the bank on behalf of petitioners. Since application/objection filed u/S.13(3-A) sent by Advocate was not decided, the entire action of the bank is hit by the law laid down by Apex Court in ITC Ltd.(supra).

6 WP No.21803/2021

17. The aforesaid contentions were resisted by Shri Ajay Mishra, learned Sr.Counsel by contending that when the first round of notices were issued by the bank u/S.13(2) of SARFAESI Act which were although not acted upon, the correspondence clearly shows the stand of bank that it will not entertain the correspondence of petitioners allegedly made through 'authorised' counsel unless counsel is able to show the 'authorisation'. This stand of bank cannot be said to be arbitrary or unjustifiable. The reasons therefor are clearly spelled out in the correspondence of the bank and authorisation was not asked for any whimsical reason. Thus, no fault can be found in the order of DRAT. He placed reliance on Shama Prashant Raje Vs. Ganpatrao & Ors. AIR 2000 SC 3094.

18. Shri Mishra, learned Sr.Counsel submits that in para 6 and 13 of the order of DRT dated 11.11.2019, the questions were wrongly framed by the DRT. It was not the pivotal question whether bank could have asked for authorisation proof from the counsel of the petitioners. Indeed, the question was whether a counsel can enter into correspondence with the bank on behalf of a client/petitioner without showing the authorisation. In this back drop, not entertaining the correspondence made by Advocate cannot result into violation of Sec.13(3-A) of SARFAESI Act. Moreover, it is difficult to understand as to what prevented the counsel for the petitioner to show the 'authorisation' and avoid generation of unnecessary litigation. Had it been shown and yet bank would have proceeded further without deciding the objection filed u/S.13(3-A), the matter would have been different. Hence, no fault can be found in the action of the bank in proceeding further u/S.13(4) of SARFAESI Act.

19. Parties confined their arguments to the extent indicated above.

20. We have heard the parties at length and perused the record.

21. The relevant portion of the impugned judgment of DRAT reads as under:-

7 WP No.21803/2021

"17. Coming to the merits of the case, admittedly, the representation against the demand notice dated 2.8.2017 was submitted by an advocate Shri Satish Agrawal and no authorization letter was submitted despite being asked by the Bank vide its letter dated 21.10.2017. Earlier also, the representation was filed by the same advocate on 24.10.2016 in response to the demand notice dated 29.08.2021 without any authorization. The learned advocate has not responded to the letter dated 9.11.2016 written by the Bank asking for proper authorization. However, the said demand notice was withdrawn. Thus, the proceedings became infructuous, but the fact is relevant on the point that the advocate concerned was aware that he was required to submit the authorization letter along with the second representation, but for the reasons best known to him, he has not filed any authorization along with the representation dated 28.09.2017 nor has responded to the letter dated 21.10.2017 of the Bank, whereby the Bank sought the authorization in order to maintain the confidentiality. In my considered view, the Bank has rightly asked for the valid authorization letter from the advocate concerned.

18. Firstly, the language of section 13(3-A) of the SARFAESI Act prescribes the term "borrower" to make any representation or raise any objection on receipt of the notice under section 13(2) of the SARFAESI Act. The term "borrower" cannot be treated to include the advocate of the borrower. Thus, it is the borrower, who can raise the objection or file the representation before the secured creditor in response to demand notice.

19. Secondly, if a liberal construction is taken that the representation may be filed through an advocate, yet the law of notice or practice and procedure of the notice given by the advocate cannot be applied on the representation submitted on behalf of the borrower. The instructions given to the counsel cannot be equated to the authorization. Similarly, the recall notice of any other notice issued under instruction of the client or the secured creditor cannot be treated at par with the representation/objection, raised on behalf of the party. While dealing with the objection, the Bank has to deal with each and every aspects of the matter, which were raised in the representation thus, in the process, the various confidential informations are also required to be pondered over. Such confidential information cannot be shared with the third party including the advocate 8 WP No.21803/2021 without any proper authorization in the behalf, otherwise, the Bank may be held liable for leakage of the confidential information without authority.

20. The practical difficulty may be illustrated by way of an example. In a given case, if more than one advocate without any authority file representations against the same demand notice raising same or separate- separate issues, then to whom the Bank will respond and to which extent ? The borrowers may raise objection that how the representations on behalf of the advocates were entertained without authority and how their confidential informations were shared with the third party, then it would cause another complication in the matter. Therefore, the Bank in the present case was well within its right to direct the learned advocate to file authorization letter before deciding the objections. It is not understandable that what was the harm in submission of authorization. It appears that the same was purposely not submitted with a view to take undue advantage of such technicalities. Since no authorization letter was submitted, therefore, the representation submitted by the advocate could not be treated as valid representation and the Bank has not committed any fault in not considering the representation submitted by the advocate."

(emphasis supplied)

22. Before dealing with the facts of the case, it is apposite to consider the principles laid down in the judgments cited by the petitioners. In Macquarie Bank Ltd. (supra) the relevant question was whether a demand notice of unpaid operational debt can be issued by a lawyer on behalf of operational creditor. While considering this question, the Apex Court has taken note of the various previous judgments including the one delivered in Byram Pestonji Gariwala (supra). In Gariwala (supra) the question was whether a compromise written and signed by counsel representing the parties, but not signed by the parties in person can be said to be valid and binding on the parties. A careful reading of both the judgments aforesaid leaves no room for any doubt that existence of authorisation of an Advocate in both the cases was not under doubt. Putting it differently, in both the cases, it was not the case of the aggrieved 9 WP No.21803/2021 party that counsel appearing did not have authorisation at all. The questions which cropped up for decision were whether a particular decision based on the action of such authorised counsel can be upheld when such action was not taken by the party himself.

23. This is trite that judgment of Supreme Court cannot be construed as a statute. Blind reliance on a judgment without considering the fact situation of the case is bad. It is equally settled that a singular different fact may change the precedential value of a case. It is equally settled that decision of court should be understood by taking into account the factual context in mind.

24. As noticed above, the judgments on which reliance is placed by Shri Amt. S. Agrawal, Sr.Counsel, the question was the extent to which an authorised counsel can act on behalf of his client. The right of an Advocate to act on behalf of his client without showing any authorisation was not subject matter of adjudication in the cases cited by Shri Agrawal. Thus, those judgments are of no assistance to the petitioners.

25. The admitted facts reveal that first set of notices u/S.13(2) of SARFAESI Act were issued by the bank on 29/8/2016 (Annexure P/3) and 11/7/2016 (Annexure P/4). In turn, representations dated 24/10/2016 and 6/9/2016 were sent by the counsel stating that he is 'authorised' by the petitioners. This correspondence includes an objection u/S.13(3-A) of the SARFAESI Act. The bank promptly by communication dated 9/11/2016 requested the counsel to provide authorisation on behalf of his client. The relevant portion of communication reads as under:-

"Dear Sir, M/s Indison Agro Foods Ltd (IAFL) With reference to your letter/representation being reference number 8/1666 13(2) dated 24.10.2016 on the captioned subject, addressed to out Commercial Branch, Indore, which we have received on 28.10.2016 through them, at the outset we wish to state that you claimed to have been authorized by your client M/s Indison Agro Foods Ltd ("the Borrower"), Mr. Vijay Kumar Jain, Mr. Devraj Jain, 10 WP No.21803/2021 Mahendra Kumar Jain, Mrs. Kusum Jain, Mrs. Sangeeta Jain, Mrs. Sarika Jain, M/s Indian Pulse Mills, M/s Tara Agro Industries and M/s Raja Agro Industries (herein after jointly referred as "the Guarantors"). However, you have not provided the necessary valid authorization proof thereof along with so called alleged representation.

2. Please note, in absence of the same and in order to maintain confidentiality of our borrower and guarantors, we would not be able to share the vital information(s) with you. Though, we deny the contest of your letter primarily, you are requested to provide us a copy of the authorization letter(s) from all party concerned to enable us to send para wise reply to your representation.

Your faithfully Authorized Officer"

(emphasis supplied)

26. Indisputably, bank did not proceed further on the basis of first set of correspondence mentioned hereinabove.

27. The bank sent another letter dated 21/1/2017 to the counsel of the petitioner relevant portion of which reads as under:-

"Dear Sir, M/s Indison Agro Foods Ltd (IAFL) Please refer to our letter No.SAMB/BPL/RKJ/707 dated 09-Nov-2016 on the captioned matter. Till we have not received any Communication regarding authorization from you hence it is decided that your representation will not be considered being unauthorized and third party representation and the bank will proceed further action under the SARFAESI Act assuming that no representation has been made.

Your faithfully Authorized Officer"

(emphasis supplied)

28. Indisputably, no action was taken by the bank in furtherance of previous demand notices (Annexure P/3 and P/4). A fresh second demand notice was issued on 2/8/2017 (Annexure P/9). The counsel for petitioner knowing fully well that bank did not entertain his correspondence for want of authorisation, again sent a similar objection on 28/9/2017 (Annexure P/10) u./S.13(3-A) of SARFAESI 11 WP No.21803/2021 Act. The bank issued letter dated 21/10/2017 (Annexure P/11). Relevant portion of which reads as under:-

"Dear Sir, M/s Indison Agro Foods Ltd (IAFL) With reference to your letter/ representation bearing reference number S-1666 13(2) dated 28.09.2017 on the captioned subject addressed to our Commercial Branch, Indore, which we have received o 06.10.2017 through them. At the outset, we wish to state that, you claimed to have been authorized by your client M/s Indison Agro Foods Limited ("the Borrower"), Mr. Vijay Kumar Jain, Mr. Devraj Jain, Mahendra Kumar Jain, Mrs. Kusum Jain, Mrs. Sangeeta Jain, Mrs. Sarikar Jain, M/s Indian Pulse Mills, M/s Tara Agro Industries and M/s Raja Agro Industries (herein after jointly referred as "the Guarantors"). However, you have not provided the valid authorization proof along with so called alleged representation.

Please note in absence of the same and in order to maintain the confidentiality of your borrower and guarantors, we would not be able to share the vital information(s) with you. Though, we deny the content of your letter primarily, your are requested to provide us a copy of the authorization letter(s) from all party concerned, to enable us to send a para wise reply to your representation."

(emphasis supplied) In the aforesaid factual backdrop, we are unable to hold that the action of bank u/S.13(4) of SARFAESI Act impugned before the DRT u./S.13(4) came either as a bolt from blue to the petitioners or as a shocking surprise. The bank in the first round of correspondence with utmost clarity made it clear that it will not enter into any correspondence with the advocate allegedly engaged by the counsel unless the petitioner produces the 'authorisation'.

29. The DRAT in our considered opinion, rightly held that bank was well within its right to ask for an authorisation from the counsel in order to decide whether objection is to be entertained. It is difficult to gather as to what prevented the Advocate to show the authorisation. No law, in our opinion, gives authority to an Advocate to put forth the case of a litigant without showing the authority to plead or enter into correspondence/negotiate on behalf of such party. The bank has 12 WP No.21803/2021 assigned a plausible and justifiable reason while demanding the authorisation in its letters dated 9/11/2016 and 21/10/2017 (Annexure P/7 and P/11). The vital information of a party cannot be shared with anybody/Advocate unless such Advocate is able to show that he is duly authorised by such party. The self serving statement/declaration of Advocate that he has been duly authorised by his client is not sufficient. The authorisation of client should be discernable if demanded. A famous adage is that "sunlight is the best disinfectant".

This is equally settled that one cannot take advantage/benefit of its own wrong. The petitioner could not give a single justifiable reason for not providing authorisation to the bank by his Advocate. The DRAT has rightly considered this aspect and we are unable to hold that finding is either illegal or perverse in nature. Apart from this, the bank maintains a fiduciary relation with the borrower which cannot be breached without showing the authorisation by the counsel for the borrower. However, we deem it proper to observe that if a valid authorisation exists and shown, the Advocate has a right to prefer representation on behalf of borrower and even file an objection u/S.13(3-A) and SARFAESI Act.

30. So far argument of petitioner based on the judgment of ITC Ltd (supra) is concerned, the principle laid down in the said case cannot be doubted. However, since the objection raised by Advocate in absence of authorisation was not treated to be the objection of the petitioners, the said judgment is of no assistance to the petitioners.

Shri Agrawal, learned Sr.Counsel also placed reliance on two judgments to bolster his submission that if conditions mentioned in an interim order are breached, in all circumstances the litigant cannot be deprived from the right of hearing, suffice to say that DRT and DRAT both have decided the matter on merits and, therefore, the said point pales into insignificance.

13 WP No.21803/2021

31. The DRT in the impugned judgment dated 11/11/2019, in our view, has taken a plausible view. The scope of interference under Article 227 of the Constitution is limited. If impugned judgment is passed by a court having no jurisdiction, suffers from palpable perversity or a manifest procedural impropriety, interference can be made. There is no such ingredient in this case. Hence, interference is declined. Petition is dismissed.

         (Sujoy Paul)                                      (Pranay Verma)
           Judge                                                Judge


vm/sourabh



 Digitally signed by
 VARGHESE MATHEW
 Date: 2021.11.08
 14:12:37 -08'00'

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