Bombay High Court
Gsl (India) Ltd vs Asset Reconstruction Co. (India) Ltd. ... on 15 December, 2015
Equivalent citations: AIR 2016 BOMBAY 43, 2016 AIR CC 1204 (BOM), 2016 (2) ABR 291, (2016) 2 NIJ 267, (2016) 2 BANKCAS 607, (2017) 1 ALLMR 380 (BOM), (2016) 2 BOM CR 182
Author: B.P.Colabawalla
Bench: S.C. Dharmadhikari, B.P. Colabawalla
WP 73 of 14.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO.73 OF 2014
GSL (India) Ltd. ... Petitioner
v/s
Asset Reconstruction Co. (India) Ltd.
and others ... Respondents
Mr. Pravin Samdani, Senior Counsel a/w Mr. Mayur Khandeparkar, Mr.Nishit
Dhruva, Mr. Prakash Shinde, Ms. Ambreen Saheed, Ms. Purvi Joshi i/b M/s
MDP and Partners, for the Petitioner.
Mr. Chirag Mody a/w Mr. Vinod Kothari i/b M/s. Apex Law Partners, for
Respondent No.1.
Mr. B. S. Nagar a/w Mr. Balkrishna Joshi, Ms. Aarti Suvarna i/b Global Law
Offices, for Respondent Nos.2 and 3.
CORAM: S.C. DHARMADHIKARI &
B.P. COLABAWALLA JJ.
Reserved On : 16th October, 2015.
Pronounced On : 15th December, 2015.
JUDGMENT [ PER B.P.COLABAWALLA J. ] :-
1. Rule. Respondents waive service. By consent of parties,
rule made returnable forthwith and heard finally.
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2. By this Writ Petition under Article 226 of the
Constitution of India, challenge is laid to the order passed by the
Debt Recovery Appellate Tribunal, Mumbai (for short, the "DRAT")
dated 8th October, 2013 whereby the DRAT upheld the order of the
Debt Recovery Tribunal - III, Mumbai (for short the "DRT - III,
Mumbai") dated 14th August 2011. The DRT - III Mumbai, held
that it had no jurisdiction to entertain the Securitization
Application filed by the Petitioner and ordered the return of the
Securitization Application to the Petitioner so that the same could
be filed in the competent DRT. In a nutshell, both the authorities
below held that DRT - III, Mumbai would have no jurisdiction to
entertain the Securitisation Application as the secured property
was situated in the State of Gujarat and therefore the Securitization
Application could be filed only within the jurisdiction of the DRT
where the secured property was situated. To come to this
conclusion, the DRT as well as the DRAT have both relied upon a
decision of the Full Bench of the Delhi High Court in the case of
Amish Jain and another v/s ICICI Bank Ltd.1
1 2013 (1) D.R.T.C. 70 (Delhi)
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3. The brief facts to decide the present controversy are
really undisputed. In the present case, the Petitioner is a company
incorporated under the provisions of the Companies Act, 1956 and
was the Applicant in Securitization Application No.136 of 2012
before the DRT - III, Mumbai. Respondent No.1 is ARCIL which is
an asset reconstruction and securitization company and registered
with the Reserve Bank of India under the provisions of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (for short, the
"SARFAESI Act"). Respondent No.2 - Company is the successful
bidder at the auction sale conducted by Respondent No.1 of the
secured assets belonging to the Petitioner. Respondent No.3 is a
Company in whose favour the Sale Certificate was issued by
Respondent No.1. This was done on the instructions of Respondent
No.2.
4. It is the case of the Petitioner that it was incorporated in
the year 1982 and is involved in the business of manufacturing
synthetic yarns at its factory in adivasi dominated tribal area in
Gujarat. According to the Petitioner, there are about 2,000 adivasi
workers, out of which 700 are female workers employed by the
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Petitioner at its factory unit at Village Amletha, Taluka Rajpipla,
District Narmada, Gujarat and about 10,000 villagers in the nearby
area are dependent of their livelihood on the Petitioner. The
Petitioner had approached certain Banks and Financial Institutions
for financial assistance to implement its plan of business expansion
and development. However, the Petitioner became a victim of
unforeseen circumstances and underwent financial problems. In
fact, it also made a reference to the BIFR which declared the
Petitioner as a sick company under the provisions of the Sick
Industiral Companies (Special Provisions) Act, 1985.
5. It appears that some of the Banks and Financial
Institutions who had granted financial assistance to the Petitioner,
transferred and assigned their security interest in favour of the
Respondent No.1 - ARCIL. In view thereof and the fact that the
Petitioner was unable to make payment of its dues, on 16th March
2009, Respondent No.1 issued a notice under section 13(2) of the
SARFAESI Act. This notice was duly replied to by the Petitioner by
their letter dated 23rd May 2009. The record indicates that on 4th
November 2009, Respondent No.1 took possession of the assets of
the Petitioner situated at its factory premises at Village Amletha,
Taluka Rajpipla, District Narmada, Gujarat along with the plant and
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machinery (for short, the "secured property") and allowed the
Petitioner to continue its manufacturing activities.
6. Thereafter, on 19th April, 2011 Respondent No.1
published a public notice for sale of the secured property and also a
tender document detailing the terms and conditions and modalities
of the proposed auction sale. Thereafter correspondence was
exchanged between the Petitioner and Respondent No.1 wherein
the Petitioner inter alia brought to the notice of Respondent No.1
that they should disclose all the liabilities attached to the secured
property so that the prospective purchaser would not be misguided
and also the fact that the due procedure of law had not been
followed whilst conducting the auction sale and the same was not
transparent. We are not referring to this correspondence in detail
as the same it not really germane to decide the present
controversy.
7. Be that as it may, to challenge the aforesaid sale notice
dated 19th April 2011, the Petitioner approached DRT - III, Mumbai
by filing Securitisation Application No.136 of 2011 and inter alia
sought a declaration that the sale notice dated 19th April, 2011 is
illegal and arbitrary and the DRT be pleased to quash and set aside
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the same. Whilst this Securitisation Application was pending,
Respondent No.1, by public auction, sold the secured property and
confirmed the sale in favour of Respondent No.3 (who is the
nominee of Respondent No.2, the actual bidder in the auction). A
Sale Certificate was also issued in favour of Respondent No.3 dated
2nd July, 2011. In view of these subsequent developments, the
Petitioner moved an Interim Application for amendment to the
Securitisation Application for bringing these subsequent
developments on record.
8. Thereafter, Respondent No.3 filed an Application (being
Exh.62) inter alia challenging the jurisdiction of the DRT - III,
Mumbai. This Application was heard by the DRT - III, Mumbai and
by its order dated 14th August 2012, the DRT upheld the contention
of Respondent No.3 and inter alia held that it could not entertain
the Securitisation Application filed by the Petitioner as it had no
jurisdiction. In a nutshell, the DRT - III, Mumbai held that it had no
territorial jurisdiction to entertain the Securitisation Application as
the secured property was situated in the State of Gujarat and
therefore the same could be filed only within the jurisdiction of the
DRT where the secured property was situated. To come to this
conclusion, the DRT relied upon a decision of the Full Bench of the
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Delhi High Court in the case of Amish Jain.1 In these
circumstances, the DRT further ordered that the said Securitisation
Application be returned to the Petitioner for filing the same before
the competent DRT.
9. Being aggrieved thereby, the Petitioner approached the
DRAT. The DRAT too by its order dated 8th October, 2013 upheld
the order of the DRT - III, Mumbai and dismissed the Appeal. The
DRAT also placed heavy reliance on the Full Bench judgment of the
Delhi High Court in the case of Amish Jain1 to come to the
conclusion that it did. It is in these circumstances that the
Petitioner is before us in our writ jurisdiction under Article 226 of
the Constitution of India challenging the correctness, legality and
validity of the impugned order passed by the DRAT dated 8th
October, 2013.
10. In this background, Mr Samdani, learned senior counsel
appearing on behalf of the Petitioner, submitted that the
Securitisation Application filed by the Petitioner was to challenge
the Sale Notice dated 19th April, 2011 issued by Respondent No.1
and other consequential reliefs in relation thereto. He submitted
1 2013 (1) D.R.T.C. 70 (Delhi)
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that with reference to this Sale Notice, the entire cause of action
arose within the local limits of the DRT - III, Mumbai. As per the
tender document issued by Respondent No.1, the bid for purchasing
the secured property was to be submitted to the office of
Respondent No.1 situated in Mumbai. The entire bidding process
and opening of the bid was stated to be in Mumbai at the office of
Respondent No.1. The deposit of earnest money as well as the
balance amount of the bid was to be made in the name of
Respondent No.1 payable at Mumbai. Further, Mr Samdani
submitted that as per clause 31 of the tender document, disputes if
any, were subject to jurisdiction of Mumbai Courts / Tribunals only.
According to Mr Samdani, it is not in dispute that the auction
purchaser submitted its bid in the office of Respondent No.1
situated in Mumbai, which bid was accepted and confirmed in
favour of the auction purchaser by Respondent No.1 in Mumbai.
Looking to these facts, Mr Samdani submitted that the entire cause
of action had arisen within the jurisdiction of the DRT - III, Mumbai
and which was competent to entertain the Securitisation
Application filed by the Petitioner.
11. In addition thereto, Mr Samdani submitted that
Respondent No.1 and against whom the relief is sought in the
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Securitisation Application, has not denied or objected to the
territorial jurisdiction of the DRT and it is only the auction
purchaser (Respondent Nos.2 and 3) and who are resident outside
Mumbai, have taken this objection. The only objection taken by the
auction purchaser is that the secured property is situated outside
Mumbai and therefore as per section 16 of the Code of Civil
Procedure, 1908 (for short, the "CPC"), the DRT - III, Mumbai
would have no territorial jurisdiction. In other words, it was the
submission of the auction purchaser that by virtue of the provisions
of section 16, the Securitisation Application could be filed only
where the immovable secured property was situated. In the
present case, there is no dispute that the secured property
(immovable and movable) is situated in the State of Gujarat. Mr
Samdani submitted that section 16 of the CPC would be wholly
inapplicable to a Securitisation Application that is filed under the
provisions of section 17 of the SARFAESI Act. It was his
submission that firstly the Securitisation Application filed under
section 17 of the said Act is not a suit and therefore, section 16 of
the CPC would have no application. Secondly, section 17(7) itself
provides that save as otherwise provided in the SARFAESI Act, the
DRT shall, as far as may be, dispose of the Securitisation
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Application in accordance with the provisions of the Recovery of
Debts Due to Banks and Financial Institutions Act, 1993 (for short,
the "RDDB Act") and the Rules framed thereunder. He therefore
submitted that in view of this specific provision, one must look to
the provisions of the RDDB Act to determine the jurisdiction of the
tribunal and not the provisions of the CPC.
12. Mr Samdani submitted that as far as the provisions of
the RDDB Act are concerned, section 19(1) thereof clearly defines
the jurisdiction of the DRT to entertain an Original Application filed
by the Bank or Financial Institution to recover any debt owed to it
from any person. Section 19 inter alia stipulates that the Original
Application can be filed in the DRT within the local limits of whose
jurisdiction (a) the Defendant or each of the Defendants where
there are more than one, at the time of making the Application
actually and voluntarily reside or carry on business or personally
works for gain; or (b) any of the Defendants, where there are more
than one at the time of making the Application, actually and
voluntarily reside or carry on business or personally work for gain;
or (c) the cause of action, wholly or in part, arises. Mr Samdani
submitted that admittedly the SARFAESI Act does not contain any
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direct provision which lays down or circumscribes the territorial
jurisdiction of the DRT that could entertain a Securitisation
Application filed by any aggrieved person (including a borrower).
In these circumstances, it was his submission that looking to
section 17(7) of the SARFAESI Act and which stipulates that the
DRT shall, as far as may be, dispose of the Securitisation
Application in accordance with the provisions of the RDDB Act, the
provisions of section 19(1) of the RDDB Act are to be applied for
determining which DRT would have jurisdiction to entertain the
Securitisation Application. In other words, it was his submission
that the principles enshrined in section 19(1) of the RDDB Act
would determine which DRT would have jurisdiction to entertain
and decide a Securitisation Application filed by an aggrieved person
(including a borrower). It was therefore his submission that
looking to all these factors and there being no dispute about the fact
that the cause of action, wholly or in part, had arisen within the
jurisdiction of DRT - III, Mumbai, this DRT had territorial
jurisdiction to entertain and decide the Securitisation Application
filed by the Petitioner.
13. On the other hand, Mr Joshi, learned counsel appearing
on behalf of Respondent Nos.2 and 3 sought to support the orders of
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the DRT - III, Mumbai as well as the impugned order of the DRAT on
all counts. Mr Joshi placed heavy reliance on the Full Bench
judgment of the Delhi High Court in the case of Amish Jain1 and
submitted that admittedly, the RDDB Act did not contain any
provision for determining the territorial jurisdiction of the DRT to
decide a Securitisation Application under section 17(1) of the
SARFAESI Act. He submitted that the jurisdictional provisions
under section 19(1) of the RDDB Act were only applicable when a
Bank / Financial Institution approached the DRT for recovery of
their dues from any person. An Original Application filed by a Bank
/ Financial Institution for recovery of its dues can by no stretch of
the imagination be equated with a Securitisation Application filed
by the borrower or any other aggrieved person under section 17(1)
of the SARFAESI Act. If this be the case, then section 19(1) of the
RDDB Act cannot be resorted to in order to determine the
territorial jurisdiction of the DRT entertaining a Securitisation
Application filed under section 17(1) of the SARFAESI Act, was the
submission. Mr Joshi would therefore submit that the judgment of
Delhi High Court in the case of Amish Jain1 would apply with full
force and therefore, there is no merit in this Writ Petition and the
same ought to be dismissed with costs.
1 2013 (1) D.R.T.C. 70 (Delhi)
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14. With the help of learned counsel, we have perused the
papers and proceedings in the Writ Petition alongwith the orders
passed by the DRT - III, Mumbai dated 14th August, 2012 and the
impugned order passed by the DRAT dated 8th October, 2013. On
the basis of the arguments advanced and the pleadings before us,
the short controversy that needs to be decided in the present Writ
Petition is whether the jurisdiction of the DRT for entertaining a
Securitisation Application under section 17 of the SARFAESI Act
is to be determined on the basis of the principles enshrined in
section 16 of the CPC or section 19(1) of the RDDB Act.
15. Before we deal with the relevant provisions, it would be
appropriate to set out in brief the reasons for enacting the RDDB
Act as well as the SARFAESI Act and the object sought to be
achieved thereby. Prior to 1990, Banks and Financial Institutions
were experiencing considerable difficulties in recovering loans and
enforcement of securities charged with them. The then existing
procedure for recovery of debts due to these Banks and Financial
Institutions had blocked a significant portion of their funds in
unproductive assets, the value of which deteriorated with the
passage of time. The Government therefore felt that there was an
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urgent need to work out a suitable mechanism through which the
dues of Banks and Financial Institutions could be realised without
delay. In 1981, a Committee under the Chairmanship of Shri T.
Tiwari had examined the legal and other difficulties faced by Banks
and Financial Institutions and suggested remedial measures
including a change in law. This Committee also suggested setting
up a special tribunal for recovery of dues of Banks and Financial
Institutions by following a summary procedure. On 30th September
1990, more than 15,00,000 cases filed by public sector Banks and
about 304 cases filed by Financial Institutions were pending in
various Courts. The recovery of debts involved in these cases was
approximately R.6,013 crores. In order to unlock this huge sum of
public money, the Legislature enacted the RDDB Act, 1993. Under
this Act, special tribunals were set up such as the DRT and the
DRAT. The purpose of setting up these tribunals was to ensure that
the debts due to Banks and Financial Institutions were exclusively
entertained and tried by these tribunals and as per the procedure
laid down under the RDDB Act and the Rules framed thereunder.
16. Despite bringing the aforesaid Legislation (the RDDB
Act 1993) into force, the Government was of the opinion that
further remedial measures were required in the banking sector.
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The Government was mindful of the fact that the financial sector
had been one of the key drivers in India's efforts to achieve success
in rapidly developing its economy. While the banking industry in
India was progressively complying with the international
prudential norms and accounting practices, there were certain
areas in which the banking and financial sector did not have a level
playing field as compared to other participants in the financial
markets of the world. The Government found that there was no
legal provision for facilitating securitisation of financial assets of
Banks and Financial Institutions. Further, unlike international
Banks, the Banks and Financial Institutions in India did not have
the power to take possession of securities and sell them to recover
their dues. The legal framework relating to commercial
transactions, as was then existing, had not kept pace with the
changing commercial practices and financial sector reforms. This
resulted in slow recovery of defaulting loans and mounting levels of
non-performing assets. To get over these hurdles, the Government
set up two Narsimham Committees and a Andhyarujina Committee
for the purpose of further examining banking sector reforms.
These Committees, after a detailed study, inter alia suggested the
enactment of a new legislation for securitisation and empowering
Banks and Financial Institutions to take possession of the securities
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and sell them without the intervention of the Court. It is acting on
these suggestions that the Legislature enacted the SARFAESI Act
which came into effect from 21st June, 2002.
17. What can be discerned from the statement of objects
and reasons of both these enactments is that they sought to achieve
quick and speedy recovery of loans due to Banks and Financial
Institutions from the defaulting borrowers. Initially, the
Legislature enacted the RDDB Act under which the debts of Banks
and Financial Institutions were adjudicated by a special tribunal
following a summary procedure. As the Government found that this
Legislation was not adequate enough for speedy recovery, in the
year 2002, the Legislature enacted the SARFAESI Act giving wide
powers to Banks and Financial Institutions to enforce their security
without the intervention of the Court but subject to the provisions
laid down in the SARFAESI Act. Looking to the purpose for
enacting these two legislations and the object sought to be achieved
thereby, there can be no doubt that the two Acts complement each
other. In fact, a close reading of section 37 of the SARFAESI Act
shows that the provisions contained therein or the rules framed
thereunder will be in addition to the provisions of the RDDB Act.
Section 35 of the SARFAESI Act states that the provisions of the
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SARFAESI Act will have an over-riding effect notwithstanding
anything inconsistent contained in any other law for the time being
in force. Therefore, reading sections 35 and 37 together, it would
be clear that in the event of any of the provisions of the RDDB Act
not being inconsistent with the provisions of the SARFAESI Act, the
application of both the Acts viz. the SARFAESI Act and the RDDB
Act, would be complementary to each other. This is also reiterated
by the Supreme Court in the case of Mathew Varghese v/s M.
Amritha Kumar and others.2
18. Having said this, we shall now refer to certain
provisions of the SARFAESI Act in so far as they are relevant to
decide the controversy before us. This Act was brought on the
statute book to regulate securitization and reconstruction of
financial assets and enforcement of security interest and for
matters connected therewith or incidental thereto. Section 2 is the
definitions clause. The word "debt" is defined in Section 2(ha) and
stipulates that the word "debt" shall have the meaning assigned to
it in clause (g) of Section 2 of the RDDB Act The "Debts Recovery
Tribunal" has also been defined in Section 2(i) to mean the tribunal
established under sub-section (1) of Section 3 of the RDDB Act.
2 (2014) 5 SCC 610 (paragraphs 45 and 46)
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Similarly, the "Appellate Tribunal" is defined in Section 2(a) to
mean the "Debts Recovery Appellate Tribunal" established under
sub-section 1 of Section 8 of the RDDB Act. The words "secured
asset" is defined in Section 2(zc) to mean the property on which the
security interest is created and the words "security interest" are
defined in Section 2(zf) to mean the 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 of the Act.
Finally, the words "secured debt" is also defined in Section (ze) to
mean a debt which is secured by any security interest. Chapter II
of this Act and which is not really germane to our purpose, deals
with the regulation of Securitisation and Reconstruction of
Financial Assets of Banks and Financial Institutions.
19. Thereafter, Chapter III deals with Enforcement of
Security Interest and contains Sections 13 to 19. Section 13 of the
SARFAESI Act, inter alia stipulates that notwithstanding anything
contained in Section 69 or Section 69A of the Transfer of Property
Act, 1882, any security interest created in favour of any secured
creditor may be enforced, without the intervention of the Court or
tribunal in accordance with the provisions of this Act. Section
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13(2) postulates that where any borrower, who is under a liability
to a secured creditor under a security agreement, makes any
default in repayment of the secured debt or any installment thereof,
and his account in respect of such debt is classified as a non-
performing asset, then, the secured creditor, by notice in writing,
may call upon the borrower to discharge in full his liabilities to the
secured creditor within 60 days from the date of the notice, failing
which the secured creditor would be entitled to exercise all or any
of the rights/measures under Section 13(4). Sub-section 3 and 3A
of Section 13, inter alia, provide for details and contents of the
notice as well as the procedure to be followed before any of the
measures under Section 13(4) are initiated by the secured creditor.
Thereafter, Section 13(4) inter alia provides that if the borrower
fails to discharge his liability in full within the period specified in
the Section 13(2) notice, the secured creditor may take recourse to
one or more of the following measures mentioned in sub-section (4)
of Section 13. Section 13(4) reads as under:-
"(4) In case the borrower fails to discharge his liability in full
within the period specified in sub-section (2), the secured creditor
may take recourse to one or more of the following measures to
recover his secured debt, namely:--
(a) take possession of the secured assets of the borrower
including the right to transfer by way of lease, assignment
or sale for realising the secured asset;
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(b) take over the management of the business of the borrower
including the right to transfer by way of lease, assignment
or sale for realising the secured asset:
Provided that the right to transfer by way of lease,
assignment or sale shall be exercised only where the
substantial part of the business of the borrower is held as
security for the debt:
Provided further that where the management of whole of
the business or part of the business is severable, the secured
creditor shall take over the management of such business of
the borrower which is relatable to the security for the debt;]
(c) appoint any person (hereafter referred to as the manager),
to manage the secured assets the possession of which has
been taken over by the secured creditor;
(d) require at any time by notice in writing, any person who has
acquired any of the secured assets from the borrower and
from whom any money is due or may become due to the
borrower, to pay the secured creditor, so much of the money
as is sufficient to pay the secured debt."
20. Section 13(6) inter alia, stipulates that after taking
over possession or management of the secured assets under Section
13(4), any transfer of the secured assets by the secured creditor
shall vest in the transferee all rights in, or in relation to, the
secured asset transferred, as if the transfer had been made by the
owner of such secured asset. Section 13(8), thereafter provides for
a right of redemption available to the borrower and stipulates that
if the dues of the secured creditor together with all costs, charges
and expenses are tendered at any time to the secured creditor
before the date fixed for sale or transfer of the secured asset, then,
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the secured asset shall not be sold or transferred and no further
steps shall be taken by the secured creditor for transfer or sale of
that secured asset. Section 13(10) provides for a situation where
even after the sale of the secured assets, the secured creditor is not
able to recover his entire dues. In such an event Section 13(10)
provides that where the dues of the secured creditor are not fully
satisfied with the sale proceeds of the secured assets, the secured
creditor may file an Application in the form and manner as may be
prescribed, to the Debts Recovery Tribunal having jurisdiction or a
competent court, as the case may be, for recovery of its balance
dues from the borrower.
21. Section 14 of the SARFAESI Act, is a provision which
entitles the secured creditor to approach the Chief Metropolitan
Magistrate or District Magistrate to assist the secured creditor in
taking possession of secured asset. For the purposes of taking
possession or control of such secured asset, the secured creditor
could request in writing, the Chief Metropolitan Magistrate or the
District Magistrate, as the case may be, within whose jurisdiction
any secured asset or other documents thereto may be situated or
found and to take possession thereof and hand over the same to the
secured creditor.
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22. If any person is aggrieved by any of the measures taken
by the secured creditor under section 13(4), then such aggrieved
person can challenge such measure under Section 17 of the
SARFAESI Act. Section 17 of the SARFAESI Act reads as under:-
"17. Right to appeal.--(1) Any person (including borrower)
aggrieved by any of the measures referred to in sub-section (4) of
Section 13 taken by the secured creditor or his authorised officer
under this chapter, may make an application along with such fee,
as may be prescribed, to the Debts Recovery Tribunal having
jurisdiction in the matter within forty-five days from the date on
which such measure had been taken:
Provided that different fees may be prescribed for making
the application by the borrower and the person other than the
borrower.
Explanation.--For the removal of doubts, it is hereby declared that
the communication of the reasons to the borrower by the secured
creditor for not having accepted his representation or objection or
the likely action of the secured creditor at the stage of
communication of reasons to the borrower shall not entitle the
person (including borrower) to make an application to the Debts
Recovery Tribunal under this sub-section.
(2) The Debts Recovery Tribunal shall consider whether any of the
measures referred to in sub-section (4) of Section 13 taken by the
secured creditor for enforcement of security are in accordance
with the provisions of this Act and the rules made thereunder.
(3) If, the Debts Recovery Tribunal, after examining the facts and
circumstances of the case and evidence produced by the parties,
comes to the conclusion that any of the measures referred to in
sub-section (4) of Section 13, taken by the secured creditor are not
in accordance with the provisions of this Act and the rules made
thereunder, and require restoration of the management of the
business to the borrower or restoration of possession of the
secured assets to the borrower, it may by order, declare the
recourse to any one or more measures referred to in sub-section
(4) of Section 13 taken by the secured creditors as invalid and
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restore the possession of the secured assets to the borrower or
restore the management of the business to the borrower, as the
case may be, and pass such order as it may consider appropriate
and necessary in relation to any of the recourse taken by the
secured creditor under sub-section (4) of Section 13.
(4) If, the Debts Recovery Tribunal declares the recourse taken by
a secured creditor under sub-section (4) of Section 13, is in
accordance with the provisions of this Act and the rules made
thereunder, then, notwithstanding anything contained in any other
law for the time being in force, the secured creditor shall be
entitled to take recourse to one or more of the measures specified
under sub-section (4) of Section 13 to recover his secured debt.
(5) Any application made under sub-section (1) shall be dealt with
by the Debts Recovery Tribunal as expeditiously as possible and
disposed of within sixty days from the date of such application:
Provided that the Debts Recovery Tribunal may, from time to time,
extend the said period for reasons to be recorded in writing, so,
however, that the total period of pendency of the application with
the Debts Recovery Tribunal, shall not exceed four months from
the date of making of such application made under sub-section (1).
(6) If the application is not disposed of by the Debts Recovery
Tribunal within the period of four months as specified in sub-
section (5), any party to the application may make an application,
in such form as may be prescribed, to the Appellate Tribunal for
directing the Debts Recovery Tribunal for expeditious disposal of
the application pending before the Debts Recovery Tribunal and
the Appellate Tribunal may, on such application, make an order
for expeditious disposal of the pending application by the Debts
Recovery Tribunal.
(7) Save as otherwise provided in this Act, the Debts Recovery
Tribunal shall, as far as may be, dispose of the application in
accordance with the provisions of the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993 (51 of 1993) and the
rules made thereunder."
(emphasis supplied)
23. On a perusal of the said section, it is clear that any
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person (including a borrower) aggrieved by any of the measures
taken by the secured creditor under section 13(4) may make an
Application to the DRT having jurisdiction in the matter within 45
days from the date on which such measures have been taken.
Section 17(1) does not stipulate as to which DRT would have
jurisdiction to entertain the Securitization Application. However,
Section 17(7) reproduced above, stipulates that save as otherwise
provided in the SARFAESI Act, the DRT shall, as far as may be,
dispose of the Securitisation Application in accordance with the
provisions of the RDDB Act and the Rules made thereunder.
24. Section 35 stipulates that the provisions of the
SARFAESI Act shall have effect, notwithstanding anything
inconsistent therewith contained in any other law for the time
being in force or any instrument having effect by virtue of any such
law. Section 37 provides that the provisions of the SARFAESI Act
or the Rules made thereunder shall be in addition to, and not in
derogation of the Companies Act, 1956; the Securities Contracts
(Regulation) Act, 1956; the Securities and Exchange Board of India
Act, 1992; the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993; or any other law for the time being in force.
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25. On conjoint and harmonious reading of these provisions
what becomes clear is that wide powers have been given to Banks
and Financial Institutions to enforce their security without the
intervention of the Court. If the borrower or any other person is
aggrieved by such enforcement, it has to approach the DRT under
Section 17 of the Act. The DRT hearing the said Securitization
Application would then decide whether the measures taken under
Section 13(4) by the secured creditor are valid or otherwise and
pass appropriate orders accordingly. This appears to be the basic
structure of the SARFAESI Act.
26. On the other hand, the RDDB Act is an Act to provide for
the establishment of tribunals for expeditious adjudication and
recovery of debts due to Banks and Financial Institutions and for
matters connected therewith or incidental thereto. Section 2 of the
RDDB Act is the definitions clause and defines the words "banks",
"banking company", "corresponding new bank", Financial
Institutions" etc. The definition of the word "Tribunal" means the
tribunal established under sub-section (1) of Section 3 of the RDDB
Act. The word "debt" is defined in Section 2(g) and reads as under:-
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"2. Definitions.--In this Act, unless the context otherwise
requires,--
(g) "debt" means any liability (inclusive of interest) which
is claimed as due from any person by a bank or a financial
institution or by a consortium of banks or financial
institutions during the course of any business activity
undertaken by the bank or the financial institution or the
consortium under any law for the time being in force, in
cash or otherwise, whether secured or unsecured, or
assigned, or whether payable under a decree or order of
any civil court or any arbitration award or otherwise or
under a mortgage and subsisting on, and legally
recoverable on, the date of the application;"
27.
On a plain reading of this definition, it is ex-facie clear
that a very wide meaning has been given to the word "debt" in
Section 2(g) and means any liability (inclusive of interest) which is
claimed as due from any person by a Bank or a Financial Institution
or by a consortium of Banks or Financial Institutions during the
course of any business activity undertaken by such Bank or
Financial Institution under any law for the time being in force, in
cash or otherwise, whether secured or unsecured, or assigned, or
whether payable under a decree or order of any civil court or any
arbitration award or otherwise, or under a mortgage and subsisting
on, and legally recoverable on, the date of the application.
28. Section 17 of the RDDB Act, stipulates that on and from
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the appointed day, the jurisdiction, powers and authority to
entertain and decide Applications from Banks and Financial
Institutions for recovery of their debt, would be exercised by the
Debts Recovery Tribunal. Section 18 stipulates that on or from the
appointed day, no court or other authority shall have, or be entitled
to exercise any jurisdiction, powers or authority (except the
Supreme Court and a High Court exercising jurisdiction under
Articles 226 and 227 of the Constitution of India) in relation to the
matters specified in Section 17.
ig In other words, reading Sections
17 and 18 together, it is ex-facie clear that the Debts Recovery
Tribunal has exclusive jurisdiction to decide Applications filed by
Banks and Financial Institutions for recovery of their debt.
29. Thereafter comes Chapter IV which comprises of
sections 19 to 24 and deals with the procedure to be followed by the
DRT and the DRAT. Section 19 prescribes the procedure that is to
be followed by the DRT when it is approached by a Bank or
Financial Institution for recovery of its debt. The said section also
circumscribes the jurisdiction of the DRT which has to entertain
such an Application. Section 19(1) of the RDDB Act circumscribes
the jurisdiction of the DRT and reads as under:-
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"19. Application to the Tribunal.--(1) Where a bank or a
financial institution has to recover any debt from any person, it
may make an application to the Tribunal within the local limits of
whose jurisdiction,--
(a) the defendant, or each of the defendants where there are more
than one, at the time of making the application, actually and
voluntarily resides, or carries on business, or personally works for
gain; or
(b) any of the defendants, where there are more than one, at the
time of making the application, actually and voluntarily resides or
carries on business, or personally works for gain; or
(c) the cause of action, wholly or in part, arises;
Provided that the bank or financial institution may, with the
permission of the Debts Recovery Tribunal, on an application
made by it, withdraw the application, whether made before or after
the Enforcement of Security Interest and Recovery of Debts Laws
(Amendment) Act, 2004 for the purpose of taking action under the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (54 of 2002), if no such
action had been taken earlier under that Act :
Provided further that any application made under the first
proviso for seeking permission from the Debts Recovery Tribunal
to withdraw the application made under sub-section (1) shall be
dealt with by it as expeditiously as possible and disposed of within
thirty days from the date of such application :
Provided also that in case the Debts Recovery Tribunal refuses to
grant permission for withdrawal of the application filed under this
sub-section, it shall pass such orders after recording the reasons
therefor."
30. There are several other sub-sections to section 19 which
are not really germane to decide the controversy before us but it
would be relevant to make note of section 19(23) which stipulates
that where the DRT, which has issued a certificate of recovery, is
satisfied that the property is situated within the local limits of the
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jurisdiction of two or more tribunals, it may send copies of the
certificate of recovery for execution to such other DRTs where the
property is situated. The word "may" appearing in section 19(23)
would indicate that it is at the discretion of the DRT whether or not
it wants to execute the Recovery Certificate against a property not
situated within its territorial jurisdiction. If it chooses to do so, it
certainly can by virtue of the provisions of section 19(23). We must
mention here that this sub-section came up for consideration before
a Division Bench of this Court in the case of Tushar P. Shah Vs.
International Asset Reconstruction Co. Pvt. Ltd. & Ors.3 The
Division Bench, after concurring with the view of the Gujarat High
Court in the case of Bank of Baroda Vs. Balbir Kumar Kaul &
Ors.4 negated the contention that the word "may" should be read as
"shall" in section 19(23). In other words, the Division Bench held
that the DRT that issued the Recovery Certificate had the discretion
to decide whether it should itself execute it against a property not
within its jurisdiction or whether it should send it to the concerned
DRT for execution. We must also note here that just like section 35
of the SARFAESI Act, section 34 of the RDDB Act also gives an over-
riding effect to the provisions contained therein.
3 2012 (6) Bom.C.R. 200
4 AIR 2010 GUJARAT 124
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31. From the provisions of the RDDB Act, what can be
discerned is that when any liability is claimed as due from any
person by a Bank or Financial Institution during the course of any
business activity undertaken by it and whether it is secured or
unsecured or assigned etc., the concerned Bank / Financial
Institution can approach the DRT under section 19 of the RDDB Act
for recovery of its dues. The jurisdiction of the DRT would have to
be determined on the basis of section 19(1) of the RDDB Act which
stipulates that the DRT shall have jurisdiction to entertain the
application filed by the Bank / Financial Institution under section
19 where (a) the Defendant, or where there are more than one, any
of the Defendants, at the time of making the Application, actually
and voluntarily reside or carry on business or personally work for
gain; or (b) the cause of action, wholly or in part, arises. What is
important to note here is that these are the only conditions that are
required to be satisfied for the concerned DRT to be invested with
territorial jurisdiction to entertain an Application filed by the Bank
or Financial Institution for recovery of its dues. There is no
condition in section 19(1) that in case the Bank is suing for
enforcement of mortgage, the Application has to be filed within the
jurisdiction of the DRT where the mortgaged property is situated. In
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other words, the situs of the mortgaged property is not
determinative of the territorial jurisdiction of the DRT. This is a
distinct departure from the provisions of section 16 of the CPC and
to which we shall advert to shortly.
32. To understand and deal with the argument of Mr Joshi
that only that DRT would have jurisdiction to entertain a
Securitsation Application within whose local limits the secured
property is situate, it would also be necessary to refer to certain
provisions of the CPC. As the preamble suggests, the CPC is an Act
brought into force to consolidate and amend the laws relating to the
procedure of Courts of Civil Judicature. Section 9 and which falls in
Part I of the CPC, deals with Courts trying all civil suits unless
barred. Section 9 stipulates that the Courts shall, subject to the
provisions contained in the CPC, have jurisdiction to try all suits of
a civil nature excepting those suits of which cognizance is either
expressly or impliedly barred. Section 16 provides for institution of
suits where the subject matter is situate and reads as under:-
"16. Suits to be instituted where subject-matter situate.--Subject
to the pecuniary or other limitations prescribed by any law, suits--
(a) for the recovery of immovable property with or without
rent or profits,
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(b) for the partition of immovable property,
(c) for foreclosure, sale or redemption in the case of a
mortgage of or charge upon immovable property,
(d) for the determination of any other right to or interest in
immovable property,
(e) for compensation for wrong to immovable property,
(f) for the recovery of movable property actually under
distraint or attachment,
shall be instituted in the Court within the local limits of whose
jurisdiction the property is situate:
Provided that a suit to obtain relief respecting, or
compensation for wrong to, immovable property held by or on
behalf of the defendant may, where the relief sought can be entirely
obtained through his personal obedience, be instituted either in the
Court within the local limits of whose jurisdiction the property is
situate, or in the Court within the local limits of whose jurisdiction
the defendant actually and voluntarily resides, or carries on
business, or personally works for gain.
Explanation.--In this section "property" means property situate in
India."
33. Section 16 provides that subject to the pecuniary and
other limits prescribed by any law, suits relating to immovable and
movable property and of the kinds mentioned in clauses (a) to (f) of
section 16, shall be instituted in the Court within the local limits of
whose jurisdiction the property situated. In other words, section 16
of the CPC stipulates that suits of the nature described in clauses
(a) to (f) thereof have to be instituted in the Court within the local
limits of whose jurisdiction the property is situated. Ordinarily, if a
Suit is filed for foreclosure, sale or redemption of a mortgage or
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charge upon immovable property [section 16(c)], the same would
have to be filed where the mortgaged property was situated. In
contrast, we do not find any such provision / stipulation in section
19(1) of the RDDB Act. If a Bank/Financial Institution has to
recover its dues either by enforcement of its security (immoveable
or movable or both) or otherwise, it has to approach the DRT under
section 19 of the RDDB Act. In such a case, the jurisdiction of the
DRT is determined as per section 19(1) of the RDDB Act. In such a
scenario, even though the mortgaged property may be situated
outside the jurisdiction of the DRT, the same could be entertained
by the DRT provided the jurisdictional requirements as set out in
section 19(1) are satisfied. In other words, even though, the
mortgaged property maybe situate outside its jurisdiction, the only
condition that would be required to be satisfied to invest the DRT
with territorial jurisdiction would be where (a) the Defendant, or
where there are more than one, any of the Defendants, at the time
of making the Application, actually and/or voluntarily reside or
carrying on business or personally work for gain; or (b) the cause of
action, wholly or in part, arises. For the DRT to entertain an
Original Application filed by the Bank or Financial Institution under
section 19 of the RDDB Act, the provisions of section 16 of the CPC
would be wholly inapplicable.
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34. As noted earlier any person (including borrower)
aggrieved by any of the measures taken by the secured creditor
under Section 13(4) of the SARFAESI Act may approach the DRT
under Section 17 thereof within 45 days from the date on which
such measures are taken. Section 17 does not circumscribe as to
which DRT would have jurisdiction to entertain such a
Securitization Application. We are, therefore, now called upon to
decide whether jurisdiction of the DRT under Section 17 is to be
determined on the basis of the principles enshrined in Section 16 of
the CPC or whether its jurisdiction ought to be decided on the basis
of the provisions of Section 19(1) of the RDDB Act.
35. As noted earlier, the RDDB Act as well as SARFAESI Act
were brought into force to ensure quick and speedy recovery of
loans and outstandings of Banks and Financial Institutions. This
was necessitated in view of the fact that the legal framework that
was then existing was highly inadequate for speedy recovery of
these dues. It is, therefore, clear that these two legislations seek to
achieve the same object and are complementary to each other.
Section 17(7) of the SARFAESI Act categorically states that save as
otherwise provided therein, the DRT entertaining a Securitization
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Application, shall, as far as may be, dispose of the Securitization
Application in accordance with the provisions of the RDDB Act and
the Rules framed thereunder. Looking to this provision as well as
the object sought to be achieved by both the Acts (i. e. RDDB Act
and SARFAESI Act) and the fact that the two Acts are
complementary to each other, we are clearly of the view that the
jurisdiction of the DRT entertaining a Securitization Application
under Section 17 of the SARFAESI Act has to be decided on the
basis of Section 19(1) of the RDDB Act. In other words, the DRT
entertaining the Securitization Application filed by a borrower or
any other aggrieved person would entertain the same where (a) the
Defendants, or where there are more than one, any of the
Defendants, at the time of making the application, actually and
voluntarily reside or carry on business or personally work for gain;
or (b) the cause of action, wholly or in part, arises.
36. We have come to this conclusion because Section 17(7)
of the SARFAESI Act categorically stipulates that the Securitization
Application filed under Section 17(1) thereof, shall, save as
otherwise provided in the Act, be disposed of by the DRT, as far as
may be, in accordance with the provisions of the RDDB Act and the
Rules made thereunder. In other words, the Securitization
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Application filed under Section 17 of the SARFAESI Act is to be
disposed of by the DRT, in accordance with the provisions of the
RDDB Act, insofar as they are applicable. Section 19(1) of the
RDDB Act categorically circumscribes the jurisdiction of the DRT to
entertain an Original Application filed by a Bank/Financial
Institution for recovery of its dues. It stipulates that where a Bank
or Financial Institution has to recover any debt from any person, it
may make an application to the DRT within the local limits of whose
jurisdiction (a) the defendant, or where there are more than one,
any of the Defendants, at the time of making the application,
actually and voluntarily reside or carry on business, or personally
work for gain; or (b) the cause of action, wholly or in part, arises.
By virtue of the provisions of Section 17(7) of the SARFAESI Act,
we are clearly of the view that the provisions of Section 19(1) of the
RDDB Act would apply for determining the jurisdiction of the DRT
to decide a Securitization Application filed under Section 17 of the
SARFAESI Act.
37. We do not think that the principles enshrined in Section
16 of the CPC would apply to a Securitization Application filed by a
borrower under Section 17 of the SARFAESI Act. As Section 17
itself suggests, an application under the said provision is filed by
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any person (including a borrower) to challenge any of the measures
referred to in sub-section (4) of Section 13 taken by a secured
creditor. The measures referred to in Section 13(4) are either to
take possession of the secured assets from the borrower including
the right to transfer by way of lease, assignment or sale for
realising the secured asset; (b) take over the management of the
business of the borrower including the right to transfer by way of
lease, assignment or sale for realising the secured asset; (c) appoint
any person to manage the secured assets, the possession of which
has been taken over by the secured creditor; and/or (d) require at
any time, by notice in writing, any person, who has acquired any of
the secured assets from the borrower and from whom any money is
due or may become due to the borrower, to pay the secured
creditor, so much of the money as is sufficient to pay the secured
debt.
38. It is these actions of the secured creditor that are
challenged by any person aggrieved (including a borrower) under
Section 17 of the SARFAESI Act. In other words, the Securitization
Application is made to a tribunal with limited jurisdiction to decide
whether the measures taken under Section 13(4) of the SARFAESI
Act are valid or otherwise. In a Securitization Application, there is
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no real adjudication of the debt owed by the borrower to the secured
creditor and DRT does not pass any decree whilst deciding a
Securitization Application filed under Section 17 of the SARFAESI
Act. Looking to the nature of the Application filed under Section
17, we do not think that the Securitization Application can be
equated with a "suit" as understood under the provisions of the
CPC.
39.
Section 16 of the CPC, on the other hand, stipulates that
subject to the pecuniary or other limitations prescribed by any law,
"suits" of the nature prescribed in clauses (a) to (f) thereof shall be
instituted in the court within the local limits of whose jurisdiction
the property is situate. Since we are of the view that the
Securitization Application can never be termed as a "suit" as
understood in Section 16 of the CPC, the provisions thereof would
be inapplicable to a Securitization Application filed under Section
17 of the SARFAESI Act. It is pertinent to note that whilst enacting
the SARFAESI Act, when the Legislature wanted the jurisdiction of
a particular authority to be decided on the basis of the situs of the
property, it is specifically did so. This would be clear from the
provisions of section 14 of the SARFAESI Act which categorically
stipulates that where the possession of any secured asset is
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required to be taken by the secured creditor, or if any secured asset
is required to be sold or transferred by the secured creditor under
the provisions of the SARFAESI Act, the secured creditor may, for
the purpose of taking possession or control of any such secured
asset, request in writing the Chief Metropolitan Magistrate or the
District Magistrate, as the case may be, within whose jurisdiction
any such secured asset may be situated or found. Despite the fact
that the Legislature specifically empowered the concerned
Magistrate to pass orders under section 14 of the SARFAESI Act in
relation to a secured property situate within his jurisdiction, we do
not find any such stipulation in any other provision, either in the
SARFAESI Act or the RDDB Act. This would clearly indicate that
where the Legislature decided to circumscribe territorial
jurisdiction on the basis of situs of the property, it is specifically did
so.
40. We must also note here that under the provisions of the
SARFAESI Act a Securitisation Application filed under section
17(1) thereof, is to be filed before the DRT. As per the provisions of
the SARFAESI Act, it is only the DRT that would have exclusive
jurisdiction to entertain any challenge to the measures taken under
section 13(4) of the SARFAESI Act. This is clearly spelt out from
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section 34 of the SARFAESI Act which stipulates that no civil court
shall have jurisdiction to entertain any suit or proceedings in
respect of any matter which the DRT or the DRAT is empowered by
or under this Act to determine, and no injunction shall be granted
by any court or other authority in respect of any action taken or to
be taken in pursuance of any power conferred by or under the
SARFAESI Act or under the RDDB Act. In other words, a challenge
to the measures taken by a secured creditor under section 13(4) of
the SARFAESI Act can be laid only by filing an Application under
section 17(1) thereof. The jurisdiction of the civil court to entertain
such a challenge is expressly barred. What is important to note is
that the DRT is a pre-existing tribunal set up under the provisions
of the RDDB Act. Its jurisdiction is circumscribed by the provisions
of section 19(1) thereof. Considering the fact that the Legislature
decided that all Applications filed under section 17(1) of the
SARFAESI Act can be entertained only by the DRT (being a pre-
existing tribunal established under the provisions of the RDDB
Act), would also persuade us in taking the view that its jurisdiction
ought to be decided on the basis of the principles enshrined in
section 19(1) of the RDDB Act and not on the basis of section 16 of
the CPC.
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41. Another reason for coming to the conclusion that we
have is that prior to the enactments of the RDDB Act and
SARFAESI Act, Banks and Financial Institutions had to approach
the regular civil court for recovery of their dues. The Government
found that the then existing legal framework was not conducive for
speedy recovery of these public monies which were locked in
litigation for years on end. To ensure that the dues of Banks and
Financial Institutions are recovered in an expeditious manner, the
Legislature first enacted the RDDB Act in 1993 and thereafter the
SARFAESI Act in 2002. It is for this very reason that the RDDB Act
specifically stipulates (Section 22 thereof) that the DRT and DRAT
shall not be bound by the procedure laid down by the CPC but shall
be guided by the principles of natural justice, and subject to the
other provisions of the Act and Rules, the DRT and DRAT shall have
powers to regulate their own procedure including the places at
which they shall have their sittings. This provision clearly spells
out the intention of the Legislature to give powers to the DRT and
DRAT far beyond those that are granted to the civil court under the
CPC. This is to ensure that the delays that occur by approaching
the regular civil court were done away with under the aforesaid two
legislations. Keeping this object in mind and the fact that the
Legislature did not want the DRT and the DRAT to be bound by the
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procedure of the CPC whilst deciding matters brought before them,
we are of the view that Section 16 of the CPC would be inapplicable
in the facts of the present case.
42. There is yet another reason for holding that the
jurisdiction of the DRT to decide a Securitization Application under
Section 17 ought to be decided on the principles enshrined in
Section 19(1) of the RDDB Act rather than on the basis of Section
16 of the CPC.
In many cases, the Securitization Notice issued
under Section 13(2) of the SARFAESI Act, takes within its sweep
secured immovable properties situated at different places. For
example to secure the loans taken by a single borrower from the
Bank/Financial Institution, multiple immovable properties (one
situate in Mumbai and the other in Pune) could be mortgaged to
secure the Banks dues. If that borrower defaults in payments of its
dues, under the provisions of section 13(2) of the SARFAESI Act,
the borrower can be called upon to pay his dues failing which the
Bank would be entitled to take measures as contemplated under
Section 13(4) thereof against all the secured assets. In such a
scenario, as per the provisions of Section 16 of the CPC, challenge to
the aforesaid measures would have to filed in two different DRTs
and there is every possibility of conflicting decisions being rendered
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on the measures initiated on the basis of the very same notice
issued under section 13(2) of the SARFAESI Act.
43. To elaborate this point further, take for example that a
challenge is laid to the measures under Section 13(4) of the
SARFAESI Act on the ground that the account of the borrower has
been wrongly classified as a non-performing asset and therefore the
13(2) notice could never have been issued. In such a scenario, it is
very possible that one DRT could give a finding in the affirmative
whereas the other in the negative giving rise to two conflicting
decisions on the very same section 13(2) notice. We do not think
that the Legislature whilst enacting the SARFAESI Act
contemplated such a situation. Furthermore, we think that this
would run counter to the very object and purpose of the SARFAESI
Act inasmuch as the secured creditor would then be made to run
from pillar to post to defend two separate Securitization
Applications in two different places thereby further delaying the
recovery of its dues.
44. Looking to all these factors, we are clearly of the view
that the DRT whilst entertaining a Securitization Application under
Section 17 of the SARFAESI Act would have to follow the principles
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enshrined in Section 19(1) of the RDDB Act to determine whether it
has jurisdiction to try and decide the Securitization Application
filed before it. The provisions of Section 16 of the CPC would be
wholly inapplicable.
45. Having held so, we must now deal with the decision of
the Full Bench of the Delhi High Court in the case of Amish Jain.1
We are mindful of the fact that the Full Bench of the Delhi High
Court has taken the view that a Securitization Application can be
filed only in the DRT within whose jurisdiction the secured property
is situated. The reasoning of the Delhi High Court can be found in
paragraphs 11,12,13,15,16,17, 21, 22 & 23 thereof which read as
under:-
"11. We are however of the opinion that the Division Bench fell in
error in assuming the debt/money recovery proceedings to be
initiated by the Bank under the DRT Act as equivalent to legal
proceedings subject whereof is a mortgaged property, within the
meaning of Section 16 of the CPC. The proceedings referred to in
Section 19(1) of the DRT Act are merely proceedings for recovery
of debt and not for enforcement of mortgage. Even prior to coming
into force of the DRT Act, the Bank, even if a mortgagee, was not
mandatorily required to enforce the mortgage and which under
Section 16 of the CPC could be done only within the territorial
jurisdiction of the Court where the mortgaged property was
situated and the Bank was free to institute a suit, only for recovery
of money and territorial jurisdiction whereof was governed by
Section 20 of CPC, containing the same principles as in Section
1 2013 (1) D.R.T.C. 70 (Delhi)
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19(1) of the DRT Act. We are therefore unable to accept that any
departure qua territorial jurisdiction has been made in the DRT
Act, as has been observed by the Division Bench in Indira Devi.
12. The proceedings in the DRT for recovery of debt, culminate in
a 'Certificate of Recovery' which is equivalent to a Money Decree
of a Civil Court. Just like a Money Decree of a Civil Court, can be
transferred for execution to another Court where the assets of the
Judgment Debtor from which recovery is to be effected are
situated, under Section 19(23) of the DRT Act also, where the
property from which recoveries are to be effected, is situated
outside the local limits of the jurisdiction of the DRT which has
issued the Certificate, the DRT is required to send a copy of the
Certificate for execution to the DRT within whose jurisdiction the
property is situated. Section 25 provides for modes of recovery of
the debts specified in the Certificate, including by attachment and
sale of property. The recovery proceedings under the DRT Act are
thus equivalent to a suit for recovery of money before a Civil Court
and cannot be said to be for enforcement of mortgage. Thus it
cannot be said that the DRT Act has made any departure from
Section 16 of the CPC.
13. We may however notice that in State Bank of India v. Samneel
Engineering Co., MANU/DE/0462/1995 an argument was raised
that a proceeding under Section 19(1) of the DRT Act for recovery
of debt did not include a debt which was secured by a mortgage.
This contention was negatived by this Court holding a mortgage
debt to be included in 'debt' within the meaning of Section 2(g) of
the DRT Act. It was further held that the modes of recovery
prescribed in the DRT Act are inclusive of the rights of the Bank as
a mortgagee and the rights under Order 34, CPC of the
mortgagor, have been taken away by the DRT Act. This Court
explained that the DRT Act had made the recovery of debt as
distinct from enforcement of mortgage, a cause of action and for
this reason the situs of mortgaged property, relevant under Section
16 of the CPC, had become irrelevant. We respectfully concur.
Though this judgment of a Single Judge of this Court was cited
before the Division Bench in Indira Devi but was held to be not
applicable. The Division Bench did not notice that this Court in
Samneel Engineering Co. has held, the DRT Act to be not in
departure from Section 16 of the CPC, and the situs of the
mortgaged property being irrelevant to the proceedings under
Section 19(1) of the DRT Act which are for recovery of debt. We
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find the Debt Recovery Appellate Tribunal (DRAT) also in Bank of
Baroda v. Teg's Musrado Ltd., (2006) 129 Comp Cas 275 (NULL)
to have held that the relief sought under Section 19(1) of the Act is
for a money decree and even if consequent reliefs are also sought,
that cannot be a ground to construe the proceeding as for
enforcement of mortgage. We further find Samneel Engineering
Co. to have been followed in State Bank of India v. Gujarmal Modi
Hospital & Research Centre for Medical Sciences, 61 (1996) DLT
614 as well as in Hindustan Laminators Pvt Ltd. v.Central Bank of
India, AIR 1998 Cal 300.
*******
15. We may mention, that while in the DRT Act, there is no mention of mortgage and even an application under Section 19(1) is required to only specify the properties required to be attached and which may not necessarily be mortgaged property, Section 2(1) of the SARFAESI Act while defining "financial asset"
expressly includes "mortgage" and Sections 2(zc), 2(ze) and 2(zf) define the "secured asset", "secured debt" and "secured interest"
as meaning the property on which security interest is created and rights under a mortgage. Section 13 of the SARFAESI Act provides for enforcement of such mortgage without the intervention of the Court or the DRT.
16. We are therefore of the view that the question of territorial jurisdiction for the remedy of appeal provided in Section 17(1) of the SARFAESI Act has to be construed in the said light and not in the light of the DRT Act making a departure from the principle enshrined in Section 16 of the CPC.
17. Section 17(1) of the SARFAESI Act provides for filing of the appeal/application thereunder not to any DRT but only to the "DRT having jurisdiction in the matter". However, such jurisdiction is not specified. To determine which DRT will have jurisdiction in the matter, we have to find as to what is to be the matter for adjudication in a proceeding under Section 17(1) of the SARFAESI Act and what relief the DRT is empowered to grant in the said proceeding. The scope of a proceeding under Section 17(1) of the SARFAESI Act is described in Section 17(2) of the SARFAESI Act as of "whether any of the measures referred to in Sub-Section (4) of Section 13 of the SARFAESI Act taken by the secured creditor for enforcement of security are in accordance VRD 46 of 53 ::: Uploaded on - 16/12/2015 ::: Downloaded on - 16/12/2015 23:58:17 ::: WP 73 of 14.doc with the provisions of the SARFAESI Act and the Rules made thereunder". The measures which the Bank/Financial Institution is empowered to take under Section 13(4) of the SARFAESI Act are of taking over possession or management as aforesaid of the secured asset. Of course, the action of so taking over possession or management is to be preceded by (a) the borrower under a liability under a secured agreement making any default in repayment of the secured debt or any installment thereof; (b) the borrower's account in respect of such debt being classified as non-performing asset;
(c) the Bank/Financial Institution requiring the borrower by notice in writing to discharge in full his liabilities within sixty days and giving details of the amount payable and the secured asset intended to be enforced in the event of non-payment; d) consideration of representation if any made by the borrower thereagainst and communication to the borrower of the reasons for non-acceptance of such representation. Though, it could well be argued that the DRT within whose jurisdiction Bank/Financial Institution to whom the borrower is indebted is situated, would also have jurisdiction to adjudicate whether the action under Section 13(4) of taking over possession/management is in accordance with the aforesaid procedure but the explanation to Section 17(1) of the SARFAESI Act clarifies that the communication of the reasons to the borrower for not accepting the representation or the likely action of the Bank/Financial Institution shall not entitle the borrower to make an application under Section 17(1) of the SARFAESI Act. Thus the cause of action for the appeal under Section 17(1) of the SARFAESI Act is the taking over of the possession/management of the secured asset and which cause of action can be said to have accrued only within the jurisdiction of the DRT where the secured asset is so situated and the possession thereof is taken over. We are thus of the view that it is the said DRT only which can be said to be having "jurisdiction in the matter" within the meaning of Section 17(1) of the Act.
*******
19. As far as Section 17(7) of the SARFAESI Act requiring disposal of appeals under Section 17(1) of the SARFAESI Act, "as far as may be" in accordance with the provisions of the DRT Act and the Rules framed thereunder is concerned, though the learned Single Judge of this Court in Upendra Kumar v. Harpriya Kumar, MANU/DE/0136/1978 had held that Section 21 of the Hindu Marriage Act, 1955 providing for the proceedings thereunder to be VRD 47 of 53 ::: Uploaded on - 16/12/2015 ::: Downloaded on - 16/12/2015 23:58:17 ::: WP 73 of 14.doc regulated 'as far as may be' by the CPC, could not be read as incorporating every provision of CPC or making applicable the provisions of CPC to substantive aspects like jurisdiction but the Supreme Court in Guda Vijavalakshmi v. Guda Ramachandra Sekhara Sastry, (1981) 2 SCC 646 : AIR 1981 SC 1143 took a contrary view and held that Section 21 of the Hindu Marriage Act does not make a distinction between procedural and substantive provisions of CPC and thus the provisions of CPC as partake of the character of substantive law are also by implication to apply to the proceedings under the Hindu Marriage Act and the use of the expression "as far as may be" is intended to exclude only such provisions of CPC as may be inconsistent with any of the provisions of the Hindu Marriage Act. Applying the said law, Section 17(7) of the SARFAESI Act is to be read as providing for disposal of appeal under Section 17(1) of the SARFAESI Act in accordance with the provisions of the DRT Act and the Rules made thereunder save as otherwise provided in the SARFAESI Act.
20. The expression 'as far as may be' still means 'to the extent necessary and practical'. Supreme Court in Dr. Pratap Singh v. Director of Enforcement, (1985) 3 SCC 72 held that the expression 'so far as may be' has always been construed to mean that those provisions may be generally followed to the extent possible but if a deviation becomes necessary to carry out the purposes of the Act in which reference to another legislation is made, it would be permissible. Similarly, in Ujagar Prints v.Union of India, (1989) 3 SCC 488 a five Judge Bench of the Supreme Court held that the Legislature sometimes takes a shortcut and tries to reduce the length of a statute by omitting elaborate provisions where such provisions have already been enacted earlier and can be adopted for the purpose in hand. The expression 'so far as may be' was held to be meaning 'to the extent necessary and practical'.
21. What we however find is that the DRT Act is not containing any provision for territorial jurisdiction of an appeal as under Section 17(1) of the SARFAESI Act, even if it were to be construed not as an appeal and as an original application. The jurisdictional provision under Section 19(1) of the DRT Act is only for applications by the Bank/Financial Institution for recovery of debt from any person. An application by a Bank/Financial Institution for recovery of debt can by no stretch of imagination be equated with an appeal under Section 17(1) of the SARFAESI Act. We are VRD 48 of 53 ::: Uploaded on - 16/12/2015 ::: Downloaded on - 16/12/2015 23:58:17 ::: WP 73 of 14.doc therefore of the view that there is no provision in the DRT Act providing for territorial jurisdiction of an appeal under Section 17(1) of the SARFAESI Act and the question of application thereof under Section 17(7) does not arise. Under Section 17(7) of the SARFAESI Act only that much of the DRT Act can be said to be incorporated therein as is contained in the DRT Act and not more. Whether a particular provision of DRT Act would apply or not, would depend upon the nature and scope of proceeding under the SARFAESI Act.
22. Once it is held that an appeal under Section 17(1) of the SARFAESI Act cannot be equated with an application by the Bank/Financial Institution for recovery of debt under Section 19 of the DRT Act, the limits of territorial jurisdiction described under Section 19(1) of the DRT Act cannot be made applicable to Section 17(1) of the SARFAESI Act.
23. It would thus be seen that the provision for territorial jurisdiction under Section 19(1) of the DRT Act is only qua the applications to be made by the Bank or Financial Institution for recovery of its debt. However, a proceeding under Section 17(1) of the SARFAESI Act is initiated not by the Bank or the Financial Institution but by a person including the borrower aggrieved from the measures taken by the Bank or Financial Institution under Section 13(4) of the SARFAESI Act. We are thus of the view that notwithstanding Section 17(7) of the SARFAESI Act providing for the disposal of the proceedings under Section 17(1) of the SARFAESI Act in accordance with the provisions of the DRT Act and the Rules made thereunder, the same cannot make the provisions of Section 19(1) of the DRT Act applicable to proceedings under Section 17(1) of the SARFAESI Act. As aforesaid, Section 19(1) of the DRT Act is not an omnibus provision qua territorial jurisdiction. It is concerned only with providing for territorial jurisdiction for applications for recovery of debts by the Banks/Financial Institutions. The same can have no application to the appeals under Section 17(1) of the SARFAESI Act which are to be preferred, not by the Banks/Financial Institutions, but against the Banks/Financial Institutions."
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46. We have carefully perused the reasoning of the Full Bench of the Delhi High Court in the case of Amish Jain1 and with the great respect and utmost humility, we are unable to agree with the view expressed therein. Firstly, we are unable to agree with the finding of the Delhi High Court that the proceedings referred to in section 19(1) of the RDDB Act are merely proceedings for recovery of debt and not for enforcement of mortgage. According to us, this finding runs counter to the very definition of the word "debt"
appearing in section 2(g) of the RDDB Act to inter alia mean any liability (inclusive of interest) which is claimed as due from any person by a Bank or a Financial Institution during the course of any business activity undertaken by it under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the Application. We are therefore clearly of the view that proceedings under section 19(1) of the RDDB Act are not merely proceedings for recovery of debt. In proceedings under section 19(1) of the RDDB Act, the Bank / Financial Institution can certainly seek reliefs for enforcement of its mortgage. This interpretation would 1 2013 (1) D.R.T.C. 70 (Delhi) VRD 50 of 53 ::: Uploaded on - 16/12/2015 ::: Downloaded on - 16/12/2015 23:58:17 ::: WP 73 of 14.doc also be in consonance with the purpose and object of the RDDB Act.
Secondly, we are unable to agree with the reasoning of the Delhi High Court that under section 19(23) of the RDDB Act, the DRT is required to send a copy of the Recovery Certificate for execution to the DRT within whose jurisdiction the property is situated. As mentioned earlier, section 19(23) clearly stipulates that where the tribunal, which has issued a certificate of recovery, is satisfied that the property is situated within the local limits of the jurisdiction of two or more tribunals, it may send copies of the Recovery Certificate for execution to such other tribunals where the property is situated. The word "may" clearly indicates that this provision is discretionary and not mandatory in nature. Under section 19(23), discretion is given to the DRT to either itself execute the Recovery Certificate issued by it against a property not within its jurisdiction, or to send it to the concerned DRT where the property is situated.
This is a distinct departure from the provisions of the CPC and more particularly section 39 thereof. In fact, a Division Bench of this Court in the case of Tushar P. Shah3 has taken this view and we are in full agreement with the reasoning contained therein.
47. We are also unable to agree with the Delhi High Court 3 2012 (6) Bom.C.R. 200 VRD 51 of 53 ::: Uploaded on - 16/12/2015 ::: Downloaded on - 16/12/2015 23:58:17 ::: WP 73 of 14.doc judgment that in the RDDB Act, there is no mention of mortgage and an application under section 19(1) thereof is required to only specify the properties required to be attached and which may not necessarily be the mortgaged property. Section 2(g) of the RDDB Act and which defines the word "debt" would certainly take within its sweep a relief for enforcement of mortgage. For the foregoing reasons and in view of what we have held earlier in this judgment, we are unable to agree with the view of the Full Bench of the Delhi High Court in the case of Amish Jain.1
48. In view of our discussion earlier in this judgment, we hold that the DRT whilst deciding whether it has territorial jurisdiction to entertain a Securitisation Application filed under section 17 of the SARFAESI Act would be guided by the principles enshrined in section 19(1) of the RDDB Act and not by section 16 of the Code of Civil Procedure, 1908. Rule is accordingly made absolute and the Petition is granted in terms of prayer clause (a).
Securitisation Application No.136 of 2011 is restored to the file of the DRT - III, Mumbai, to be decided on merits and in accordance with law. We would request the DRT to dispose of the Securitisation Application as expeditiously as possible and in any event, within a 1 2013 (1) D.R.T.C. 70 (Delhi) VRD 52 of 53 ::: Uploaded on - 16/12/2015 ::: Downloaded on - 16/12/2015 23:58:17 ::: WP 73 of 14.doc period of three months from today. However, in the facts and circumstances of the case, we leave the parties to bear their own costs.
(B.P. COLABAWALLA, J.) (S.C.DHARMADHIKARI J.)
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