Debt Recovery Appellate Tribunal - Madras
Asset Reconstruction Company (India) ... vs Kumar Metallurgical Corporation India ... on 28 February, 2005
Equivalent citations: IV(2005)BC117, [2006]134COMPCAS438(NULL)
ORDER
Pratibha Upasani, J. (Chairperson)
1. Both these appeals can be disposed of by this Common Order. Appellants in Regular Appeal RA No. 10/2005 are Asset Reconstruction Company (India) Limited (for the sake of brevity hereinafter referred to as ARCIL), while the other Regular Appeal being RA No. 11/2005, is filed by the Custodian appointed by the ARCIL. Both these appeals are arising out of the impugned Order dated 7.2.2005, passed by the learned PO of DRT, Hyderabad, in Securitisation Appeal SA No. 15/2005. By the impugned Order the learned PO allowed the application made by the applicant/defendants M/s. Kumar Metallurgical Corporation Ltd, and set aside the proceedings taken out by respondent No. 1 ARCIL under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for the sake of brevity hereinafter referred to as SARFAESI Act).
2. Few facts which are required to be stated are as follows:
The respondent No. 1 Company had availed credit facilities from ICICI Ltd. (subsequently merged with ICICI Bank Ltd.), Industrial Development Bank of India (IDBI) and IFCI Ltd. It was a consortium loan. The respondent No. 1 committed default in repayment of the said facilities and, therefore, ICICI, IDBI and IFCI, filed OA No. 945/2001 in DRT, Hyderabad for recovery of the amount due to them and for enforcement of their securities. The said OA is pending in DRT, Hyderabad. The first respondent, in between, made reference to the Board for Industrial and Financial Reconstruction (BIFR) and consequently proceedings of OA No. 945/2001, were adjourned sine die.
3. ICICI Bank Ltd. in pursuance to the Assignment Agreement dated 31.3.2004, as per provisions of Section-5 of SARFAESI Act, assigned its rights, title and interest in the financial assets to the appellants in Appeal RA No. 10/2005, namely, to ARCIL, as trustees. The appellant ARCIL are registered with the Reserve Bank of India (RBI) as per the provisions of Section 3 of the SARFAESI Act and are entitled to the rights of ICICI Bank, Ltd. under the loan documents executed by respondent No. 1 with the erstwhile ICICI Ltd. and, therefore, have become a secured creditor in terms of Section 2(zd) of the SARFAESI Act.
4. The appellants ARCIL, thereafter, in exercise of their powers under Section 13(2) of the SARFAESI Act, issued notice dated 1.11.2004, to the respondent No. 1 for taking action under the SARFAESI Act for recovery of monies due to them. The paid notice was replied to by the respondent No. 1, vide their letter dated 29.12.2004, which was received by the appellants. The appellants ARCIL also replied to the said notice vide their letter dated 5.1.2005, whereby they held the objection raised by respondent No. 1 as untenable. The appellants, thereafter, secured consent of more than 75% of the secured creditors including the SASF and IFCI Ltd. vide their letters dated 10.1.2005 and 17.1.2005, for initiating action under Section 13(4). Thereafter, the appellants ARCIL approached the District Magistrate, Nalgonda, under Section 14 of the SARFAESI Act, for the purpose of taking over possession of plant belonging to respondent No. 1 and for handing over the possession of secured assets to the Authorised Officer of the appellant. On receipt of the said application made by the appellants ARCIL, the District Collector, Nalgonda, passed orders on 20.1.2005, directing taking over of possession by the Mandal Executive Magistrate and Revenue Officer, Chityal, and for handing over the same to the Authorised Officer of the appellants. The Mandal Revenue Officer conducted a panchanama along with the list of inventories in the presence of the independent panchas and handed over possession to the appellants ARCIL. The Authorised Officer of the appellants ARCIL tendered possession notice as per Rule 8(1) of the Security Interest (Enforcement) Rules, 2002 to the representatives of the respondent No. 1. As the same was referred to be received, the appellants pasted it at a conspicuous space on the Notice Board of the factory of respondent No. 1. After taking over possession of the factory, the appellants ARCIL appointed one Manaksia Limited (Appellant in appeal RA-11/2005 and respondent No. 2 in appeal RA-10/2005), as their agent and custodian of the secured assets by issuing letter dated 22.1.2005, and the said agent-cum-custodian was put in possession of the assets on the same day. Copy of the possession notice drawn up by the Authorised Officer along with copy of the panchanama and inventory of assets was sent to the respondents with the appellants letter dated 24.1.2005. Fact of taking over possession of the factory was also notified in two English Newspapers namely, "The Economic Times", and "The Times of India" and also in one Telgu Newspaper "Eenadu" in Hyderabad and Nalgoda editions. The appellants ARCIL, thereafter informed the other secured creditors, financial institutions and BIFR by addressing letter dated 24.1.2005, informing them of the measures taken under Section 13(4) of the SARFAESI Act and placed the said facts on record for confirming that the respondents proceedings before the BIFR stood abated.
5. Respondent No. 1 Kumar Metallurgical Corporation Ltd, thereafter, filed appeal under Section 17(1) of the SARFAESI Act, being S.A. No. 15/2005, in DRT, Hyderabad, praying for declaration that the notice dated 1.11.2004, issued under Section 13(2) of the SARFAESI Act, by the respondent No. 1 ARCIL proceedings dated 21.1.2005 issued by the 2nd respondent namely, the District Collector, Nalgonda District, under Section 14 of the Securitisation Act, were null and void and praying that all the measures taken by the respondent No. 1 ARCIL under Sections 13(4) and 14 of the Securitisation Act, be set aside. The respondent No. 1 ARCIL, filed its reply in DRT opposing the said application and the learned PO after hearing both the sides, by the impugned order, allowed the said application made by the applicant M/s Kumar Metallurgical Corporation Ltd. and set aside the entire proceedings taken by respondent No. 1 namely, ARCIL. As against this, ARCIL have approached this Appellate Tribunal being aggrieved by the said order.
6. I have heard Mr. Srihari Aney, the learned Senior Counsel for the appellant in appeal RA No. 10/2005 and Mr. Milind G. Gokhale, Advocate for the appellant in appeal RA No. 11/2005. I have also heard Mr. Ravi and Mr. Anil Sakhre, Advocates for respondent No. 1 Kumar Metallurgical Corporation Ltd, and Mr. K.V. Simhadri, Advocate for respondent No. 3, in the respective appeals and in my view, the learned PO has erred in passing the impugned Order and setting aside the entire proceedings taken by the 1st respondent ARCIL
7. The learned PO while giving reasons for setting aside the proceedings taken under Section 13(4) by respondent No. 1, has observed that the action taken by respondent No. 1 ARCIL, could not be sustained firstly, because there was no consent of creditors having 3/4th in value of the total outstanding at the time of giving notice under Section 13(2) and that such a consent of the other creditors namely, ICICI, IDBI and IFCI, was contemplated at that stage also. Second point on which the learned PO held the proceedings as void was that OA in the DRT, Hyderabad, was already pending and action under SARFAESI Act could not have been taken when that OA was pending and that in view of the amendment of November, 2004, to the RDDB and FI Act, 1993, two simultaneous proceedings could not have been taken, one under the RDDB and FI Act of 1993, and another under SARFAESI Act of 2002. The third ground on which the proceedings were held to be void in law was that according to the learned PO reference under Section 22 of the Sick Industrial Companies (Special Provisions) Act (SICA), was pending before the BIFR as on 23.1.2004 and those proceedings before the BIFR could not be said to have been abated because the proceedings under Section 13(4) of the SARFAESI Act were taken by only one of the secured creditors and not by other creditors representing more than 3/4th in value of the amount outstanding. The learned PO also held that the District Collector was not empowered to delegate his authority vested in him under Section 14 of the SARFAESI Act and he could not have delegated the authority to the Mandal Executive Magistrate to take possession of the mortgaged properties. He also was of the opinion that the act of taking physical possession was sort of suspicious and the facts narrated in the Panchanama could not be believed. These were the grounds on which the action taken under Section 13(4) of the SARFAESI Act was held to be void in law and it was on these grounds that those proceedings were set aside by the learned PO.
8. Mr. Aney the learned Senior Counsel appearing for the appellants ARCIL in appeal RA-10/2005, made the following three basic submissions. They can be briefly narrated as follows.
9. Mr. Aney argues that in view of the Hon'ble Supreme Court decision in Mardia Chemicals Ltd. case. II (2004) SLT 991=110 (2004) DLT 665 (SC)=II (2004) BC 397 (SC), that notice issued under Section 13(2) of the SARFAESI Act, cannot be challenged and what can be challenged is only action taken under Section 13(4) of the SARFAESI Act. He argued that it was permissible for one of the lenders of the Consortium to issue notice under Section 13(2) as was done by the appellants and that at the stage of issuance of notice, there is no necessity of obtaining consent of the other creditors having 75% of the secured assets representing not less than 3/4th in value of the amount outstanding from the borrower. He submitted that such a consent was contemplated before action under Section 13(4) was taken and that it was not contemplated at a stage earlier than that.
10. Mr. Aney, further submitted that once action under Section 13(4) is legally and validly taken as per the provisions of Section 13(4) of the SARFAESI Act, then even if there is some impropriety in the actual taking of physical possession, then that cannot be the reason for setting aside the entire proceedings because the secured creditors right to take possession under Section 13(4) is different and distinct from the actual physical act of taking possession and some alleged irregularity in the act of taking possession cannot make the validly taken action under Section 13(4), illegal. He submitted that it was not that in the present case at hand, any irregularities were committed, but assuming that there was any irregularity they were only ministerial acts and had nothing to do with the legal right which the secured creditor has exercised under Section 13(4).
11. Mr. Aney, further argued that Judgment of the Chairperson of DRAT, Delhi, I (2005) BC 97 (DRAT/DRT), which held that if the OA is pending in the DRT, then action under SARFAESI Act cannot be initiated without permission from DRT and that both the actions cannot be taken simultaneously, is correct and in any case that judgment is not binding on this DRAT and at the most it has only persuasive value.
12. Mr. Aney, also argued that in view of the second proviso in the Schedule to Section 41 of the SARFAESI Act, once action is taken under Section 13(4), the proceedings before BIFR stood abated and, therefore, in the present case at hand, even though the respondent No. 1 Company was before BIFR as on 23.1.2004, in view of the action taken by the appellant as per Section 13(4), after due consent of the other lenders/secured creditors representing not less than 3/4th in value of the amount outstanding given as financial assistance to the borrower, the proceeding before the BIFR stood abated.
13. Mr. Aney drew my attention to Section 14 of the SARFAESI Act, especially to the words used in Sub-clause (2), which state as follows:
"For the purpose of securing compliances with the provisions of Sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such stabs and use, or cause to be used, such force, as may, in his opinion, be necessary."
Mr. Aney argued that delegation of power or authority, was implicit in the words of Section 14. He argued that in the hierarchy, post of District Magistrate or Chief Metropolitan Magistrate, is such that he is not expected to go himself or personally to take physical possession of the property and it is but natural and also necessary that any person in the hierarchy who is below him in the hierarchy is assigned the said job.
14. Relying upon Sub-clause (2), Mr. Aney, submitted that when the phraseology used in the sub-section is "cause to be used", delegation of power or authority is implicit and implied and, therefore, when the District Magistrate, Nalgonda, assigned the job under Section 14(2) to the Mandal Executive Magistrate for taking actual physical possession of the property, then it cannot be said that this act of his was illegal or that he had no authority to delegate this power to the Mandal Executive Magistrate. He argued that in any case, Sub-clause (3) of Section 14 is a saving grace because it says that no act of the Chief Metropolitan Magistrate or the District Magistrate done in pursuance of this section shall be called in question in any Court or before any authority. He further argued that if at all there is breach of any provision of Section 14, then that is not appealable and the appeal contemplated under Section 17(1) is only an appeal against the action taken under Section 13(4) of the SARFAESI Act.
14(a). As far as simultaneous proceedings under RDDB and FI Act and SARFAESI Act are concerned, Mr. Aney submitted that these two acts operate in two different spheres. He argued that both the Acts are passed by Parliament and, therefore, their legislative competency cannot be questioned. He further argued that the RDDB and FI Act is adjudicatory in nature, while the SARFAESI Act is mostly an executory law. He pointed out that while RDDB and FI Act, covers secured as well as unsecured debts, the SARFAESI Act, covers only secured debts. He also argued that when SARFAESI Act was passed, the parliament was fully conscious of the fact that there is another Act namely, RDDB and FI Act, which is in force, but still SARFAESI Act was passed for speedy recovery of secured assets only. He further argued that no doubt there is an element of overlapping but both these acts provide different remedies, their nature is also different and they operate in different fields. He argued that the provisions of both these Acts have to be reconciled and while interpreting the provisions of these Acts one has to resort to harmonious interpretation. He also argued that if the interpretation give by DRAT, Delhi, that the Bank or financial institution before initiating action under Section 13(4) has to obtain permission of DRT and for the shortfall again has to go back to the DRT is accepted then the Bank and the financial institutions will be faced with the problem of limitation and res judicata and, therefore, intimation to DRT and the PO's permission to withdraw the OA cannot be a pre-condition for taking action under Section 13(4). Taking these points, Mr. Aney urged that the appeal be allowed and the impugned order be set aside.
15. Mr. Aney, submitted that his clients have taken possession of the property in question and have handed over possession of the same to the appellant in appeal RA No. 11/ 2005, namely, Manaksia Ltd., and have appointed them as the custodian Mr. Gokhale, appearing for Manaksia Ltd. in the companion appeal, on similar grounds, prayed for allowing their appeal by setting aside the impugned order.
16. Mr. Ravi, Advocate for respondent No. 1, vehemently that when the OA is pending in the DRT, simultaneous proceedings under the SARFAESI Act cannot be taken and that when two remedies are provided, the Bank or the Financial Institution has to elect one of the remedies as is the case under State Financial Corporations Act. Special reference was made by Mr. Ravi to the decision of the Supreme Court in Andhra Pradesh State Financial Corporation v. GAR Re-Rolling Mills and Anr., AIR 1994 Supreme Court 2151, in which scope of Sections 29 and 31 of the A.P. State Financial Corporations Act, was discussed at length and doctoring foe election was highlighted. It was observed by the Supreme Court that the Corporation cannot simultaneously pursue two remedies at the same time, the reach and scope of the two remedies is essentially different even if somewhat similar result flows by taking recourse to either of the two provisions in certain respects.
17. Mr. Aney, however, counted this argument by highlighting the observations made by the Supreme Court in Para 15 of the very same judgment (supra) where it has been specifically observed by the Supreme Court that the doctrine of election would not apply to cases where the ambit and scope of the two remedies is essentially different.
18. Mr. K. V. Simhadri, Advocate appearing for respondent No. 3 (one of the guarantors) supported and adopted the submissions of Mr. Aney, the learned Counsel, which need not be repeated.
19. Mr. Sakhre, Advocate appearing for the respondent No. 1 vehemently argued that the notice was given by only ARCIL, under Section 13(2) of the SARFAESI Act, action was also taken by only one creditor namely, ARCIL and that the consent Contemplated by Section 13(9) should be obtained even prior to the giving of notice under Section 13(2) and also while taking action under Section 13(4). It was also argued that the consent contemplated under Section 13(9) and the consent contemplated in the proviso in the Schedule to Section 41 is of a different type and that the consent of the other creditors should be not only with respect to the debt but that it should also be with respect to the outstanding the due to each of the lender. Much emphasis was also laid upon the validity of the action taken by ARCIL when the respondent No. 1 Company was before BIFR and it was argued that the proceedings before BIFR did not abate as the action was taken by only one creditor and it was not as per the provision of Section 13(9). Doctrine of election also was harped upon and it was reiterated that when the O. A. was pending, parallel and dual proceedings under SARFAESI Act were not permissible. Much reliance was placed upon the decision of the DRAT, Delhi, on this point.
20. I have heard all the Advocates at length. I have also gone through the proceedings and the relevant provisions of RDDB and FI Act, SARFAESI Act, and Sick Industrial Companies (Special Provisions) Act, 1985. I have also carefully gone through the citations shown across the Bar and having given my thoughtful consideration to the same, I find myself in agreement with the submissions made by Mr. Aney, the learned Senior Counsel appearing for ARCIL
21. The impugned Order reveals that much discussion has been made by the learned PO criticising the "delegation of authority made by District Collector, Nalgonda". According to the learned PO, the District Collector himself ought to have taken possession in pursuance to the authority vested in him under Section 14 and ought not to have delegated that authority to the Mandal Executive Magistrate. According to him, Section 14 of the SARFAESI Act empowers only the Chief Metropolitan Magistrate or District Magistrate to take possession or to cause steps to take possession and it has not empowered either the Chief Metropolitan Magistrate or District Magistrate to further delegate their authority to any one subordinate to them.
(Emphasis supplied)
22. I find myself unable to accept this finding. As rightly pointed out by Mr. Aney, wording of Sub-section (2) of Section 14 makes it amply clear that the Chief Metropolitan Magistrate or the District Magistrate may either himself take or cause to be taken such steps or cause to be used such force as may in his opinion be necessary for the purpose of securing compliance of Section 13(4) for taking possession of the secured assets. Therefore, in my view, to interpret Sub-section (2) in such a rigid way would be erroneous. Delegation of authority is implicit in the wording of Section 14(2). Moreover, Sub-clause (3) is indeed, a saving grace if at all one comes to the conclusion that such authority ought not to have been delegated, because Sub-clause (3) states that no act of the Chief Metropolitan Magistrate or the District Magistrate done in pursuance of this clause shall be called in question in any Court or before any authority. Sub-clause (3) makes it quite clear that the action taken by the Chief Metropolitan Magistrate or the District Magistrate is not appealable. Section 17(1) restricts the right of appeal only to action taken under Section 13(4). Section 17(1) can be reproduced below:
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 prefer an appeal to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measures had been taken.
(2) ...
(3) ...
23. I, therefore, reject the contention of the respondent of the respondent No. 1's Advocate that the District Magistrate, Nalgonda, ought not to have delegated the authority to the Mandal Executive Magistrate and that he himself personally should have gone to take possession. The finding on this point given to that effect by the learned PO is, therefore, in my view, erroneous.
24. As far as to the question of taking action under Section 13(4) of the SARFAESI Act, while the OA is pending in DRT is concerned, with respect, I find myself unable to agree with the views expressed by the Chairperson of DRAT, Delhi, in Industrial Bank Ltd. v. Deva Tools and Forgings (supra).
25. The Government of India issued the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Ordinance, 2004 (which has now become an Act), amending certain provisions of the Securitisation Act as also the RDDB and FI Act, 1993. One of the amendments is to Section 19 of the RDDB and FI Act to 1993:
"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) Ordinance, 2004, for the purpose of taking action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, if no such action had been taken earlier under that Act."
26. By this amendment, a proviso has been added to Sub-section (1) of Section 19 of the RDDB and FI Act, 1993 it provides that the Bank or the financial institution may, with the permission of the DRT, on an application filed by it, withdraw the application (OA). It is also provided that the said OA could have been filed either before or after the Ordinance of 2004, and that the withdrawal must be for the purpose of taking action under the SARFAESI Act. According to the second proviso introduced by this amendment, when any application is made under the first proviso for seeking permission from the Presiding Officer, DRT to withdraw the application made under Sub-section (1), it should be disposed of within thirty days from the date of such application. The third proviso enables the Presiding Officer of DRT to refuse permission for withdrawal of the application under this sub-section by giving reason therefor. The learned Chairperson of DRAT, Delhi, was of the view that the intention behind amendment to Section 19(1) of the Act, 1993, by providing these provisos was that Banks and financial institutions should pursue one of these remedies only, either under the Act of 1993 or under the Securitisation Act, at a time, because even under the general law the Banks and financial institutions have the right to withdraw the OA pending before any DRT. According to him, the purpose of this specific proviso is to allow the Banks and financial institutions to withdraw the OA, with liberty to, and for the purpose foe pursuing the remedy under the Securitisation Act. Therefore, though the word "may" has been used, the learned Chairperson was of the view, that it should be read in the context as "shall" and that it is mandatory for the Banks and financial institutions to apply to the Presiding Officer of DRT for withdrawing the pending OA for the purpose of taking action under the Securitisation Act.
27. Relying upon this judgment of DRAT, Delhi, Mr. Anil Sakhre, Advocate appearing for the respondent No. 1, also took recourse to the Supreme Court decision in A.P. State Financial Corporation v. GAR Re-rolling Mills and Anr., (supra) for the purpose of drawing analogy. In the said judgment, the Supreme Court has discussed the provisions of Sections 29 and 31 of the State Financial Corporations Act and on principle has observed that out of the two remedies of Sections 29 and 31, the Corporation cannot simultaneously pursue the remedies at the same time. The Supreme Court further discussed the doctrine of election (on facts, however, in this case the Supreme Court allowed the appeals of A.P. State Financial Corporation after much discussion on Sections 29 and 31 of the State Financial Corporations Act, so also the doctrine of election). The Supreme Court thus answered in the affirmative the following question:
"Whether the Financial Corporation set up under Section 3 of the State Financial Corporations Act is entitled to take recourse to the remedy available to it under Section 29 of the Act even after having obtained an order or a decree after invoking the provisions of Section 31 of the Act but without executing that decree/order?"
28. I have gone through the aforesaid decision of the Supreme Court. In my view, Para 15 of the said decisions, is a complete answer to the submissions made by the respondents' Advocate that two simultaneous proceedings cannot go on, one under the RDDB and FI Act and the other under SARFAESI Act. The said Para 15 can be reproduced below:
"The Doctrine of Election clearly suggests that when two remedies are available for the same relief, the party to whom the said remedies are available has the option to elect either of them but that doctrine would not apply to cases where the ambit and scope of the two remedies is essentially different to hold otherwise may lead to injustice and inconsistent results. Since the Corporation must be held entitled and given full protection by the Court to recover its dues it cannot be bound down to adopt only one of the two remedies, provided under the Act...."
29. The distinguishing point here is that the Hon'ble Supreme Court has discussed the remedies provided under Sections 29 and 31 of the State Financial Corporations Act. Both these sections and the remedies provided therein are under the same Act. One, however, has to remember that in the present case at hand, the two remedies which are being taken into account are not the two remedies under one and the same Act. While one remedy is under the RDDB and FI Act, 1993, the other remedy is under some other Act, namely SARFAESI Act. Therefore, there is no question of Doctrine of Election here. The ambit and scope of these two remedies provided by the RDDB and FI Act and SARFAESI Act, is different. As observed earlier, RDDB and FI Act is an adjudicating act. Here there are two adversaries who come before the Tribunal and the issues raised by them are adjudicated by the PO. As far as the SARFAESI Act is concerned, it is more of an executory nature. There is no adjudication process at least, till action under Section 13(4) is taken. It is another thing that thereafter, the legality or otherwise action taken by the Bank or Financial Institution can be challenged by filing appeal under Section 17 of the Act.
30. In short, provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 are to be harmoniously construed. Both the Acts are enacted by the Parliament and are on the statute book. Harmonious construction therefore has to be such that it would allow the statute to flourish and not to perish. For this purpose, preambles of the respective Acts can be looked into. The preamble of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 states that "this Act is 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". Preamble of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 states that "this Act is to regulate the securitization and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto".
31. Thus, the intention in enacting RDB Act was to establish Tribunals for expeditious adjudication and recovery of debts due to Banks and Financial institutions and for matters connected therewith or incidental thereto and the intention in enacting the SARFAESI Act was to regulate the securitization and reconstruction of financial assets and enforcement of security interest. Paramount interest is expeditious recovery of the Banks and financial institutions dues, which is public money and enforcement of the securities of the Banks and financial institutions and to regulate procedure for securitization and reconstruction. The RDB Act covers secured as well as unsecured dues, while the SARFAESI Act takes into account only secured assets and secures interest of the secured creditors only. The intention in enacting both the Acts therefore is complimentary to each other, but they operate in different sphere. The RDB Act is for expeditious adjudication at the hands of the Tribunals, while the SARFAESI Act bypasses intervention of the Courts for expeditious recovery of dues of Banks and Financial Institutions which is public money of which they are custodian.
32. Section 37 of the SARFAESI Act also has to be kept in mind which states as follows:
"37. Application of other laws not barred--The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force."
33. Thus, Section 37 makes it clear that the provisions of the SARFAESI Act are in addition to the provisions of the RDDB and FI Act, 1993. Under the RDDB and FI Act of 1993, all the creditors can approach whether the debts are secured or not secured, while under the SARFAESI Act, those who can resort to the remedies under the SARFAESI Act, are only the secured creditors and not others.
34. The question with respect to limitation also is a question mark. In SARFAESI Act, if the secured creditor has to first recover its dues by taking recourse to the provisions of the SARFAESI Act then it is not known as to how much time those proceedings will consume and if he has to come back to DRT for filing OA for recovering the shortfall, then there is no specific and categorical provision for saving limitation. Therefore, in my view, withdrawal of OA before taking action under Section 13(4) of SARFAESI Act has to be treated as directory and not mandatory. The word 'may', therefore, in the amendment has to be interpreted as 'may' only and not as 'shall'.
35. I do not find force in the submissions made by the respondent's Advocate that in view of the second proviso to the Schedule to Section 41 of the SARFAESI Act, when the respondent No. 1 Company is before the BIFR, the proceedings against the Company are not abated automatically when action is taken by all the lenders representing not less than 3/4th in value of the amount outstanding. I am in agreement with the submissions made by Mr. Aney, that when there is a communication that the lenders having more than 3/4th of the value of the total outstandings have consented to one of the lenders to take action under Section 13(4) of the SARFAESI Act, then the proceedings before the BIFR stand abated. This interpretation has to be given in view of the phraseology used "shall abate" as abatement is always automatic and no declaration to that effect has to be obtained from any authority. I find myself in agreement with the submission of Mr. Aney that by adding schedule to Section 41 of SARFAESI Act, the Legislature has amended Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985, by resorting to Legislation by Reference. The amendment to Section 15 of SICA can be reproduced below which is as follows:-
"In Section 15, in Sub-section (1), after the proviso, insert the following:
Provided further that no reference shall be made to the Board for Industrial and Financial Reconstruction after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where financial assets have been acquired by any securitisation company or reconstruction company under Sub-section (1) of Section 5 of that Act.
Provided also that on or after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is pending before the Board for Industrial and Financial Reconstruction, such reference shall abate if the secured creditors, representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measure to recover their secured debt under Sub-section (4) of Section 13 of that Act".
36. Another contention taken by respondent's Advocate was that before District Collector takes actual possession of the secured assets, hearing has to be given to the defaulter in compliance with the principles of natural justice. This contention also, has to be rejected. Once the Bank considers the reply sent by the defaulter to the notice sent by the Bank under Section 13(2) and communicates its decision no further hearing is contemplated before taking action under Section 13(4). Therefore hearing before the act of taking physical possession is not at all necessary and is not contemplated. What is contemplated in view of the amendment is the giving of reply by the Bank or Financial Institution to the reply given by the defaulter to the notice sent by the Bank. Even that is not mandatory because the amendment again says that not giving reply by the Bank or Financial Institution to the reply given by the defaulter to the notice, by itself does not give any cause of action to the defaulter to challenge the notice under Section 13(2). The cause of action occurs only when action under Section 13(4) is taken and such an action is challengeable by filing appeal under Section 17(1) of the SARFAESI Act. When no hearing is contemplated before taking action under Section 13(4) there is no question of granting any hearing before resorting to physically taking possession under Section 14 of the SARFAESI Act.
37. Respondents' Advocate also argued that the Assignment agreement between ICICI Bank and ARCIL (present appellants) dated 31.3.2004, is not properly stamped and that there is breach of provisions of Indian Stamp Act, etc. This submission is stated only to be rejected. In my view, if the respondents have any grievance on that count they may agitate that if they are so advised, in the appropriate forum. They cannot agitate the issue of insufficiency of stamp, etc. before Debts Recovery Tribunal or before Appellate Tribunal.
38. In view of the aforesaid discussion, in my view, the impugned Order dated 7.2.2005, passed by the learned PO of DRT, Hyderabad in SA No. 15/2005, will be required to be set aside and both the appeals will have to be allowed. As pointed out earlier, the second appeal being RA No. 11/2005, is filed by the Agent-cum-appointed Custodian who is actually in charge of the property in question and they are also aggrieved by the same Order and for the same reasons for which ARCIL are aggrieved. Accordingly, following Order is passed.
ORDER Both the Regular Appeals RA No. 10/2005 and RA No. 11/2005, are allowed. The impugned Order dated 7.2.2005, passed by the learned PO of DRT, Hyderabad, in SA No. 15/2005, is hereby set aside.