Gujarat High Court
Parvin Cotgin Pvt Ltd vs Axis Bank Ltd on 17 August, 2020
Author: Vikram Nath
Bench: Vikram Nath, Ashutosh J. Shastri
C/LPA/1025/2018 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/LETTERS PATENT APPEAL NO. 1025 of 2018
In
R/SPECIAL CIVIL APPLICATION NO. 11312 of 2018
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2018
In
R/LETTERS PATENT APPEAL NO. 1025 of 2018
With
CIVIL APPLICATION (FOR STAY) NO. 2 of 2018
In
R/LETTERS PATENT APPEAL NO. 1025 of 2018
With
CIVIL APPLICATION (FOR VACATING INTERIM RELIEF) NO. 3 of 2018
In
R/LETTERS PATENT APPEAL NO. 1025 of 2018
With
R/LETTERS PATENT APPEAL NO. 1026 of 2018
In
SPECIAL CIVIL APPLICATION NO. 11313 of 2018
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2018
In
R/LETTERS PATENT APPEAL NO. 1026 of 2018
In
SPECIAL CIVIL APPLICATION NO. 11313 of 2018
With
CIVIL APPLICATION (FOR VACATING INTERIM RELIEF) NO. 3 of 2018
In
R/LETTERS PATENT APPEAL NO. 1026 of 2018
In
SPECIAL CIVIL APPLICATION NO. 11313 of 2018
FOR APPROVAL AND SIGNATURE:
HONOURABLE THE CHIEF JUSTICE MR. VIKRAM NATH Sd/-
and
HONOURABLE MR. JUSTICE ASHUTOSH J. SHASTRI Sd-
===============================================================
Page 1 of 73
Downloaded on : Thu Feb 11 02:30:46 IST 2021
C/LPA/1025/2018 CAV JUDGMENT
1 Whether Reporters of Local Papers may be allowed Yes to see the judgment ?
2 To be referred to the Reporter or not ? Yes 3 Whether their Lordships wish to see the fair copy No of the judgment ?
4 Whether this case involves a substantial question No of law as to the interpretation of the Constitution of India or any order made thereunder ?
========================================================== PARVIN COTGIN PVT LTD Versus AXIS BANK LTD ================================================================ Appearance:
MR SIDDHARTH S RAMI(8342) for the Appellant(s) No. 1,2,3,4,5,6 MR ANIP A GANDHI(2268) for the Respondent(s) No. 1 NOTICE SERVED BY DS(5) for the Respondent(s) No. 2 ================================================================ CORAM: HONOURABLE THE CHIEF JUSTICE MR. VIKRAM NATH and HONOURABLE MR. JUSTICE ASHUTOSH J. SHASTRI Date : 17/08/2020 CAV COMMON JUDGMENT (PER : HONOURABLE THE CHIEF JUSTICE MR. VIKRAM NATH) 1 We have time and again stressed how the judicial system is overburdened with cases and that the biggest obstacle to obtaining justice today, is pendency of cases.
The present matter before us is a typical instance of how the system is getting completely occluded, leading to wastage of time of the Court and thereby, preventing the Court from Page 2 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT dispensing justice to genuine litigants. This assumes greater significance in today's time when the entire country is battling the pandemic of COVID-19 and courts are doing their best to function in whatever manner possible under the limitations of the circumstances.
2 The most perplexing aspect of this litigation before us is that the appellants have mainly chosen to challenge the consequential action with only a formal challenge to the foundation of such consequential action. This in our opinion reflects utter non-application of mind to the issue by the appellants and further indicates that the appellants have engaged in a frivolous and impractical litigation which has been dragged on unnecessarily for years by raising such unsustainable contentions. There are not enough words for us to express our anguish on such approach being adopted by the appellants as the valuable time of the Court which could have been spent in resolving other pending cases and reducing the pendency, has been unnecessarily wasted.
Page 3 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT 3 These two appeals under Clause 15 of the Letters Patent have been preferred by the borrowers assailing the correctness of the judgment and order dated 24.07.2018 passed in two Special Civil Application Nos.11312 of 2018 and 11313 of 2018 filed by the present appellants whereby both the petitions were dismissed.
4 M/s. Parvin Agro Private Limited as petitioner No.1 along with its Promoters and Directors, petitioner Nos.2 to 4 preferred Special Civil Application No.11313 of 2018 against its Secured Creditor namely Kotak Mahindra Bank Limited (respondent No.1) and the District Magistrate, Ahmedabad as respondent No.2. The reliefs claimed in the said petition are reproduced below :
"(a) This Honourable Court may be pleased to issue a writ of mandamus or in the nature of mandamus or any other appropriate writ, order or direction, quashing and setting aside the notice issued by Respondent No.1 u/s. 13(2) SARFAESI Act, symbolic possession of the said assets of Petitioner No.1 Company taken by Respondent No.1 Bank u/s. 13(4) of SARFAESI Act, application filed by Respondent No.1 Bank u/s. 14 of SARFAESI Act and the order dated 5.7.2018, passed by the Respondent No.2, directing the Page 4 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT Mamlatdar & Executive Magistrate, Bavla to take over possession of the secured assets being Plant and Machinery of M/s. Pravin Agro Pvt.Ltd.
Bearing block/revenue survey No.712 paiki, 713 paiki, 600 paiki, admeasuring 16043 sq.mtrs, Op:
Rupal Rice Mill, Pravin Group, Rupal-Bavla Road, Mouje Rupal, Taluka:Bavla, Dist:Ahmedabad and hand over the same to the Respondent No.1 Bank and to complete the entire proceedings within a period of 14 days from the date of the order, as the said order is absolutely illegal, unlawful and in violation of statutory provisions of SARFAESI Act and the Rules framed there-under, evidence on record, settled principles of law, equity and justice;
(b) During the pendency and final disposal of this petition, this Honourable Court may be pleased to grant stay against the operation, implementation and operation of order dated
5.7.2018, passed by the Respondent No.2;
(c) Grant such other and further relief/s as may be deemed fit and proper in the interest of justice." 5 The said Borrower - M/s. Parvin Agro Private Limited along with its three Promoters and Directors have preferred Letters Patent Appeal No.1026 of 2018 against the dismissal of their petition No.11313 of 2018 by the learned Single Judge vide judgment and order date 24.07.2018. 6 Similarly, the Borrower - M/s. Parvin Cotgin Private Limited along with its Promoters and Directors Page 5 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT including the writ petitioner of writ petition No.11313 of 2018 (M/s. Parvin Agro Private Limited) preferred Special Civil Application No.11312 impleading Axis Bank Limited as respondent No.1 and the District Magistrate, Ahmedabad as respondent No.2. The reliefs claimed in the said petition are reproduced below :
"(a) This Honourable Court may be pleased to issue a writ of mandamus or in the nature of mandamus or any other appropriate writ, order or direction, quashing and setting aside the notice issued by Respondent No.1 purported to be u/s.
13(2) SARFAESI Act, application filed by Respondent No.1 Bank u/s. 14 of SARFAESI Act and the order dated 4.7.2018 passed by the Respondent No.2, to take over possession of the secured assets of Petitioners and hand over the same to the Respondent No.1 Bank, as the said order is absolutely illegal, unlawful and in violation of statutory provisions of SARFAESI Act and the Rules framed thereunder, evidence on record, settled principles of law, equity and justice;
(b) During the pendency and final disposal of this petition, this Honourable Court may be pleased to grant stay against the operation, implementation and operation of proceedings initiated by Respondent No.1 Bank before Respondent No.2 to take over possession of the secured assets of Petitioners and hand over the same to the Respondent No.1 Bank;
(c) Grant such other and further relief/s as may be deemed fit and proper in the interest of justice." Page 6 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT 7 M/s. Parvin Cotgin Private Limited along with its Promoters and Directors has preferred Letters Patent Appeal No.1025 of 2018 assailing the correctness of the judgment and order of the learned Single Judge dated 24.07.2018 dismissing their writ petition.
8 The legal issues raised in both the petitions are more or less similar and it is for this reason that the learned Single Judge decided both the writ petitions by a common judgment and order. We have also heard both the appeals together with the consent of learned counsel for the parties. 9 We may briefly record the facts of both the cases as they are not identical.
SCA NO.11313/2018 - LPA NO.1026/2018 - M/S. PARVIN AGRO PRIVATE LIMITED :
10 M/s. Parvin Agro Private Limited, the principal borrower (hereinafter referred to as "the Borrower PAPL") availed Cash Credit and Term Loan facility of Rs.15 Crores Page 7 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT from Kotak Mahindra Bank Limited (hereinafter referred to as "the Secured Creditor KMBL") in May, 2016 and accordingly the necessary documents were executed. The Borrower PAPL mortgaged its immovable properties as detailed in the Agreement and its schedule to secure the due repayment of the credit facilities to the extent of Rs.15 Crores together with interest and other charges thereon in favour of the bank. A Mortgage Deed was also executed and registered before the Sub-Registrar of Bavla, Ahmedabad at Serial No.3119 dated 10.09.2014. The Borrower PAPL had further executed Hypothecation Deed dated 21.07.2014 along with their movable properties which included all current assets, investments and other movable fixed assets of the Borrower including all movable and immovable plant and machineries, vehicles, other accessories both present and future. The Loan Agreement was executed on 21.07.2014 along with other necessary documents. A Guarantee Deed was also executed by the Promoters/Directors dated 21.07.2014 and 05.08.2014. Page 8 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT 11 The Borrower PAPL did not honour the repayment schedule and committed default. As such, the Secured Creditor KMBL declared their accounts as Non-Performing Assets on 30.10.2016 in its books as per the existing RBI guidelines. Further, the Secured Creditor KMBL issued demand notice dated 09.12.2016 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "the 2002 Act") raising a demand of Rs.14,72,38,161/- along with future interest to be deposited within 60 days from the date of the notice.
12 The Borrower PAPL filed its objection / representation dated 06.02.2017 under Section 13(3A) of the 2002 Act which was duly considered and rejected for the reasons recorded in the communication of the Secured Creditor KMBL dated 28.02.2017.
13 The Secured Creditor KMBL further proceeded under Section 13(4) of the 2002 Act by issuing notice dated 02.03.2017 as the Borrower PAPL did not pay any Page 9 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT outstanding amount as demanded under Section 13(2) of the 2002 Act within 60 days of the said notice. The Secured Creditor KMBL further proceeded to take symbolic possession of the secured assets on 09.03.2017 and also published the same in two local widely circulated dailies namely "Indian Express" in English and "Sandesh" in Gujarati in the Ahmedabad Edition on 12.03.2017. 14 The Secured Creditor KMBL thereafter proceeded for appropriate orders under Section 14 of the 2002 Act by moving an application supported by affidavit as required under law for taking possession of secured assets through the assistance of the District Magistrate, Ahmedabad. This application was filed on 20.04.2017. Shri Lovelesh Dwivedi, Associate Vice President and Authorized Officer of the Kotak Mahindra Bank Limited had filed his affidavit in support of the application under Section 14 of the 2002 Act. 15 When the District Magistrate, Ahmedabad, was not passing appropriate orders on the said application under Section 14 of the 2002 Act filed by the Secured Page 10 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT Creditor KMBL, it approached the High Court by way of Special Civil Application No.3823 of 2018 which was disposed of by the learned Single Judge vide order dated 12.03.2018 requiring the District Magistrate to decide the application under Section 14 within 4 weeks. It was thereafter that the District Magistrate, Ahmedabad, passed an order dated 05.07.2018 issuing the necessary directions to the Mamlatdar and Executive Magistrate, Bavla, to ensure handing over the possession to the Secured Creditor KMBL as per law.
16 It is this order dated 05.07.2018 which was challenged before the learned Single Judge by way of Special Civil Application No.11313 of 2018 which having dismissed by the learned Single Judge gave rise to filing of Letters Patent Appeal No.1026 of 2018 by the borrower PAPL.
SCA NO.11312 OF 2018 - LPA NO.1025 OF 2018 - M/S. PARVIN COTGIN PVT. LTD:
17 M/s. Parvin Cotgin Pvt. Ltd., principal borrower Page 11 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT (hereinafter referred to as "the Borrower-PCPL") availed Cash Credit and Term Loan facility of Rs. 16,55,00,000/- in March, 2015 from Axis Bank Ltd. (hereinafter referred to as "the Secured Creditor-ABL"). The necessary documents were executed between the parties. The Borrower-PCPL not only executed the Loan Agreement but also executed the Mortgage Deed, the Guarantee Deed, the Hypothecation Deed and all other necessary documents in favour of the Secured Creditor-ABL, to secure the due repayment of all the credit facilities.
18 The Borrower-PCPL committed default in repayment of the loan amount and accordingly the Secured Creditor-ABL on 30th October, 2016 declared the account of the Borrower-PCPL as Non-Performing Asset as per the guidelines issued by the Reserve Bank of India from time to time. The notice under Section 13(2) of the 2002 Act was issued by the Secured Creditor-ABL on 14 th February, 2017 requiring the Borrower-PCPL along with its Promoters and Directors to jointly and severally make payment of an amount of Rs.15,54,31,349/-, being the outstanding Page 12 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT amount plus further interest till the date of payment within a period of 60 days from the notice. The notice further mentioned that in case the Borrower-PCPL failed to make the payment, the Secured Creditor-ABL would proceed to recover the outstanding amount by enforcing the measures prescribed under Section 13(4) of the 2002 Act and other provisions thereof.
19 The above notice under Section 13(2) was issued by the Bank by Speed Post with Acknowledgment Due. 20 The Borrower-PCPL did not file any objection / representation under Section 13(3A) of the 2002 Act nor did it make the payment of the outstanding amount as demanded vide notice dated 14th February, 2017. 21 The Secured Creditor-ABL, after waiting for the statutory period, moved an application under Section 14 of the 2002 Act before the District Magistrate, Ahmedabad, praying for appropriate directions to the Subordinate Officer/Executive Magistrate for taking over physical Page 13 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT possession as there was likelihood of resistance being created by the Borrower-PCPL and its Promoters and Directors. This application was filed on 3rd May, 2017. The application was supported by an affidavit of Shri Vijay Shetty, Senior Manager and Authorized Officer of the Secured Creditor-ABL. It was also supported by a certificate of the Authorized Officer fulfilling the requirements of an application under Section 14 of the 2002 Act as prescribed under the law. Despite several opportunities given by the District Magistrate, the Borrower-PCPL did not appear and ultimately vide order dated 4th July, 2018, the application under Section 14 of the 2002 Act was allowed and appropriate directions were issued to the Mamlatdar and Executive Magistrate, Bavla, Dist. Ahmedabad. 22 The said order dated 4th July, 2018 passed by the District Magistrate, Ahmedabad under Section 14 of the 2002 Act was challenged by the Borrower-PCPL before this Court vide Special Civil Application No. 11312 of 2018, the said petition came to be dismissed by the learned Single Judge vide order dated 24th July, 2018. Aggrieved by the Page 14 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT same, the Borrower-PCPL has preferred Letters Patent Appeal No. 1025 of 2018.
23 We have heard Shri A.L.Shah, learned counsel for Shri Siddharth Rami, learned advocate for the borrowers- appellants in both the appeals, Shri Rashesh Sanjanwala, learned Senior Advocate assisted by Shri Nikunt Raval, learned counsel for respondent No.1 in Letters Patent Appeal No.1026 of 2018 and Shri Anip Gandhi, learned counsel for the respondent No.1 in Letters Patent Appeal No.1025 of 2018.
24 Pleadings have been exchanged as we find that affidavit in reply has been filed by the respondent No.1 and an additional affidavit is also filed in both the appeals. 25 The appellants of Letters Patent Appeal No.1026 of 2018 viz. M/s.Parvin Agro Pvt. Ltd. is a company of which Shri Nasruddin Akbarbhai Vahora, Shri Akbarbhai Noorbhai Vahora and Shri Tausif Ahmad Abdulbhai Vahora are its directors, guarantors and promoters. The appellants Page 15 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT in Letters Patent Appeal No.1025 of 2019 viz. Parvin Cotgin Pvt. Ltd. is a company apparently a sister company with Shri Tausif Ahmad Vhora, Shri Tanvir Ahmad Vhora, Shri Nasrudin Akbarbhai Vahora, Shri Akbarbhai Noorbhai Vahora as also M/s. Parvin Agro Pvt. Ltd. being its promoters, guarantors and directors. What is to be noticed is that the promoter directors are common. That is to say that both the companies have promoters who are common and even one of the companies M/s. Parvin Agro Pvt. Ltd. is a promoter of Parvin Cotgin Pvt. Ltd., which could be its sister concern. Although the facts of both the appeals are slightly different, but the legal issues being the same, we have heard them together on the joint request of the counsels for the parties.
26 It would be worthwhile to record at the outset that the appellants - borrowers have not disputed the demand raised as outstanding against them in the notice under Section 13(2) of the 2002 Act. They have also not denied that they had taken loan or that the loan documents have been fabricated or forged or that the rate of interest Page 16 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT had been incorrectly applied. In fact, the silence on the above facts normally indicates admission of the borrowers about the loan having been taken and there being an outstanding demand as mentioned in the notice under Section 13(2) of the 2002 Act to both the borrowers. The grounds raised before the learned Single Judge and before us are purely technical and in fact are the grounds which would otherwise were helping the secured creditors rather than helping the borrowers.
27 We may also record here that once the borrowers having availed the remedy under Article 226 of the Constitution, which is an extraordinary equitable and discretionary remedy and having insisted that their petitions be heard on merits and even the present appeals may also be heard on merit and not dismissed on the ground of alternative remedy, it is clarified that this Court while exercising its powers under Article 226 of the Constitution would be doing complete justice to the parties and would also be balancing the equities between the parties and also protecting the interest of the parties. Page 17 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT 28 Another caveat which we would like to register before proceeding further is that even if there is a technical lacuna on the part of the secured creditor in one of the matters i.e. Parvin Cotgin Pvt. Ltd. (PCPL), by the Axis Bank Ltd. (ABL), it would not inure any benefit to the borrower PCPL as it would ultimately not affect the final outcome. A technical lapse on the part of the secured creditor where the borrower does not even dispute outstanding amount on any ground, but only raises frivolous and technical pleas, cannot get away from its liability on clearing the dues of the secured creditor. We have dealt with this issue at a later stage.
29 Both the borrowers - petitioners - appellants did not avail remedy of filing application under Section 17 of the 2002 Act before the Debts Recovery Tribunal. The petitioners were aware of the proceedings under Section 13 of the 2002 Act. The notice under Section 13(2) had been duly served against which the objection/representation was filed by the borrower-PAPL under Section 13(3A) of the Page 18 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT 2002 Act. The said objection / representation was rejected by the secured creditor-KBML and the same was communicated to the petitioners. Thereafter, the secured creditor-KMBL took recourse under Section 13(4) of the 2002 Act by taking symbolic possession publishing due notices in the newspapers and also called upon the borrower-PAPL to hand over the possession. When the possession was not handed over voluntarily, both the secured creditors - KMBL & ABL moved an application under Section 14 of the 2002 Act before the District Magistrate, Ahmedabad.
30 Before the District Magistrate also, no objection was raised by both the petitioners - borrowers - PAPL & PCPL. After the order was passed by the District Magistrate under Section 14 of the 2002 Act, the petitioners - borrowers approached the High Court under Article 226 of the Constitution of India. Ex-parte interim order was granted by this Court on 05.09.2018 and 11.09.2018 in Letters Patent Appeal No.1026 of 2018 and Letters Patent Appeal No.1025 of 2018 respectively whereby the Page 19 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT respondents were directed to maintain status quo as on that date with regard to the secured assets.
31 Before the learned Single Judge, only two grounds were pressed by Mr. A.L.Shah, learned counsel for the borrowers. First was that the District Magistrate while exercising powers under Section 14 of the 2002 Act was required to record subjective satisfaction and ought to have recorded reasons before granting the relief. It was also submitted that the District Magistrate has passed the order without application of mind, without recording any satisfaction and without assigning any reasons. The second argument raised was with regard to non-compliance by the secured creditor of getting the security registered under the Central Registry as set up under Section 20 (Chapter IV) of the 2002 Act. In effect the ground was that no secured creditor would be entitled to exercise the right of enforcement of security under Chapter-III of the 2002 Act unless the security interest created in its favour by the borrower has been registered with the Central Registry relying upon Section 26(D) (Chapter IV-A) of the 2002 Act. Page 20 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT 32 Learned Single Judge did not find any merit in either of the above two arguments raised and dismissed the petition in limine.
33 Although only two grounds were pressed before the learned Single Judge as is apparent from a perusal of the judgment but several grounds were raised in the petition to which we are referring briefly.
• The action of the District Magistrate has been questioned as being illegal and without jurisdiction. • Once the secured interest was not registered with the Central Registry, the District Magistrate would not have any jurisdiction to allow the application under Section 14 of the 2002 Act.
• The writ petition was maintainable as the impugned action was without jurisdiction.
• The respondent No.1 banks KMBL & ABL are not secured creditors as such no enforceable security Page 21 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT interest is created in their favour.
• The impugned action was illegal as there was non- payment of sufficient stamp duty on the mortgage deed.
• The affidavit filed in support of the application under Section 14 is not by an authorized officer of the respondent Banks and that the said affidavit contains false and incorrect averments.
• The application of the respondent Banks under Section 14 of the 2002 Act does not bear proper verification and as such the application was liable to be rejected.
• Respondent No.1 has wrongly classified the borrowers - petitioners as Non-Performing Assets. • The District Magistrate has not recorded his subjective satisfaction in the order under Section 14 of the 2002 Act.
34 Before the learned Single Judge, the learned counsel for the writ petitioners (appellants herein). Shri A.L.Shah, addressed the following main submissions as Page 22 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT recorded in the judgment of the learned Single Judge.
[a] The District Magistrate passed the order without satisfying itself on the contents of the affidavit and without examining the factual correctness of the assertions made in the said affidavit.
[b] That in view of Section 26D of the 2002 Act, as the security interest was not registered with the Central Registry, the entire exercise carried out by the respondent No.1 under Sections 13 and 14 of the 2002 Act would be illegal, unlawful and in violation of statutory provisions of law.
35 Apart from the above two grounds apparently no other ground was raised as is recorded in para 2 of the judgment of the learned Single Judge. The learned Single Judge dealt with both the grounds and returned the findings against the borrowers and accordingly dismissed both the petitions.
36 Before us, Shri A.L.Shah, same learned counsel, Page 23 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT who argued the matter before the learned Single Judge raised several issues almost similar in both the appeals. Two additional pleas have been taken in the appeal of PCPL (Letters Patent Appeal No.1025 of 2018) which also we will deal separately. Shri Shah has furnished written submissions running into 42 pages further accompanied by case laws in support of the submissions. We have considered all of them in detail.
37 Challenge to the notice under Section 13(2) of the 2002 Act in both the cases is solely on the ground of the action being violative of Section 26D of the 2002 Act. Chapter IV of the 2002 Act deals with Central Registry comprising of Sections 20 to 26A. Further, Chapter IVA of the 2002 Act deals with registration by secured creditors and other creditors, comprising of Sections 26B to 26E. Chapter IVA has been introduced by Section 18 of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 (in short, Act No.44 of 2016). It was provided in Section 1 of the Act No.44 of 2016 that various amendments brought Page 24 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT about by different sections of the said Act, the date of enforcement would be as per the notification issued by the Central Government for each of the sections therein. The said provision is reproduced below:
"1. (1) This Act may be called the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016. (2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint:
Provided that different dates may be appointed for different provisions of this Act, and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision."38 The Act No.44 of 2016 was published in the
Gazette of India dated 16th August, 2016. The first notification which was issued regarding the enforcement of certain provisions brought about by the Act No.44 of 2016, under subsection (2) of Section 1 thereof was published on 1st September, 2016. According to which the 1 st day of September, 2016 was the date on which the provisions mentioned in the said notification would come into force. The said notification is attached as Annexure "C" to Civil Page 25 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT Application No. 3 of 2018 in Letters Patent Appeal No. 1025 of 2018. The list of the provisions mentioned therein does not include Section 18. The said notification is reproduced below:
"MINISTRY OF FINANCE (Department of Financial Services) NOTIFICATION New Delhi, the 1st September, 2016 S.O.2831 (E) - In exercise of the powers conferred by sub-section (2) of section 1 of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 (44 of 2016), the Central Government hereby appoints the 1 st of September, 2016 as the date on which the following provisions of the said Act shall come into force, namely:-
Sl.No. Sections
1. Sections 2 and 3 (both inclusive);
2. Sections 4 [except clause (xiii)]
3. Section 5 and 6 (both inclusive);
4. Sections 8 to 16 (both inclusive);
5. Sections 22 to 31 (both inclusive);
6. Sections 33 to 44 (both inclusive);
[F.No.3/5/2016-DRT] ANANDRAO VISHNU PATIL, Jt. Secy."
39 It may further be relevant to state here that Chapter IVA has been enforced in the 2002 Act w.e.f. 24 th January, 2020 vide notification dated 26 th December, 2019. The same is reproduced below:
Page 26 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT
"MINISTRY OF FINANCE (Department of Financial Services) NOTIFICATION New Delhi, the 26th December, 2019 S.O.4619 (E) - In exercise of the powers conferred by sub-section (2) of section 1 of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 (44 of 2016), the Central Government hereby appoints the 24 th day of January, 2020 as the date on which the following provisions of the said Act shall come into force, namely:-
Sl.No. Sections
1. Section 17 to Section 19 (both inclusive) [F.No.3/1/2017-DRT] VANDITA KAUL, Jt. Secy."
40 Thus, the very ground taken for challenge to the notice under Section 13(2) of the 2002 Act was not tenable prior to 24th January, 2020. The borrowers in both the appeals, without disclosing this fact in their petitions and in the appeals have tried to mislead the Court. The concealment of this fact speaks volumes about the conduct of the borrowers. It was for the borrowers to have not raised such an argument. If it was to be raised then only after verifying whether the said provision had been enforced or Page 27 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT not and if yes then the said fact should have been mentioned. Merely because the provision has been placed in the Statute Book does not mean that such provision has come into force.
41 This argument of the appellants-borrowers having failed, the challenge to the notice under Section 13(2) of the 2002 Act being based on no other ground, no challenge survives to the action under Section 13(2) of the Act. There is no averment in the petitions that the loan had not been taken, the interest had been wrongly applied or the outstanding demand mentioned in the notice is incorrect or that the Bank had no right to recover the amount. In effect both the borrowers accept the liability and the outstanding amount mentioned in the notice under Section 13(2) of the 2002 Act.
42 Before we proceed to consider the other submissions, it would be appropriate to reproduce Section 14 of the 2002 Act, which reads as under:
Page 28 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT
"14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset-
[1] Where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of this 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 within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the Chief Metropolitan Magistrate or as the case may be, the District Magistrate shall, on such request being made to him-
[a] take possession of such asset and documents relating thereto; and [b] forward such asset and documents to the secured creditor.
Provided that any application by the secured creditor shall be accompanied by an affidavit duly affirmed by the authorised officer of the secured creditor, declaring that -
[i] the aggregate amount of financial assistance granted and the total claim of the Bank as on the date of filing the application;
[ii] the borrower has created security interest over various properties and that the Bank or Financial Institution is holding a valid and subsisting security interest over such properties and the claim of the Bank or Financial Institution is within the limitation period;
[iii] the borrower has created security interest Page 29 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT over various properties giving the details of properties referred to in sub-clause (ii) above;
[iv] the borrower has committed default in repayment of the financial assistance granted aggregating the specified amount;
[v] consequent upon such default in repayment of the financial assistance the account of the borrower has been classified as a nonperforming asset;
[vi] affirming that the period of sixty days notice as required by the provisions of sub-section (2) of section 13, demanding payment of the defaulted financial assistance has been served on the borrower;
[vii] the objection or representation in reply to the notice received from the borrower has been considered by the secured creditor and reasons for non-acceptance of such objection or representation had been communicated to the borrower;
[viii] the borrower has not made any repayment of the financial assistance in spite of the above notice and the Authorised Officer is, therefore, entitled to take possession of the secured assets under the provisions of sub-section (4) of section 13 read with section 14 of the principal Act;
[ix] that the provisions of this Act and the rules made thereunder had been complied with:
Provided further that on receipt of the affidavit from the Authorised Officer, the District Magistrate or the Chief Metropolitan Magistrate, as the case may be, shall after satisfying the contents of the affidavit pass suitable orders for the purpose of taking possession of the secured assets within a period of thirty days from the date of application:Page 30 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT
Provided also that if no order is passed by the Chief Metropolitan Magistrate or District Magistrate within the said period of thirty days for reasons beyond his control, he may, after recording reasons in writing for the same, pass the order within such further period but not exceeding in aggregate sixty days.
Provided also that the requirement of filing affidavit stated in the first proviso shall not apply to proceeding pending before any District Magistrate or the Chief Metropolitan Magistrate, as the case may be, on the date of commencement of this Act.] [1A] The District Magistrate or the Chief Metropolitan Magistrate may authorise any officer subordinate to him,-
[i] to take possession of such assets and documents relating thereto; and [ii] to forward such assets and documents to the secured creditor.
[2] For the purpose of securing compliance with the provisions of sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary.
[3] No act of the Chief Metropolitan Magistrate or the District Magistrate 5[any officer authorised by the Chief Metropolitan Magistrate or District Magistrate] done in pursuance of this section shall be called in question in any court or before any authority."
43 The first proviso to Section 14 of the 2002 Act provides that the request of the secured creditor should be Page 31 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT by way of an application, the said application should be accompanied by an affidavit and the affidavit must be by the authorized officer of the secured creditor. Referring to the first proviso the submission is that the affidavit was not by an authorized officer. In this respect, it is further submitted that the authorized officer is defined under Rule 2(a) of The Security Interest (Enforcement) Rules, 2002, which reads as under:
"2(a) `authorised officer' means an officer not less than a chief manager of a public sector bank or equivalent, as specified by the Board of Directors or Board of Trustees of the secured creditor or any other person or authority exercising powers of superintendence, direction and control of the business or affairs of the secured creditor, as the case may be, to exercise the rights of a secured creditor under the Act."
44 According to the above Rule, as stressed by Shri Shah, the authorized officer must not be less than a Chief Manager and he must be so specified by the Board of Directors of the Bank and he must be specifically authorised to exercise the rights of the security credit under the 2002 Act. It is further submitted that the officer, who signed the affidavit was not the Chief Manager nor was Page 32 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT authorized by the Board of Directors nor has the authority to act on behalf of the secured creditors and as such the affidavit was liable to be rejected in both the cases. 45 The next submission made by Shri Shah is to the effect that the amendments brought about in Section 14 of the 2002 Act in 2013 and 2016 were to provide safeguard to the interest of the borrower, and therefore, all the provisions and requirements as laid down in Section 14 and its sub- sections, provisos and explanations need to be strictly adhered to.
46 Shri Shah further placed reliance on the judgment of the Supreme Court in the case of Harshad Govardhan Sondagar vs. International Assets Reconstruction Company Limited [(2014)6 SCC 1] for the proposition that the writ petition would be maintainable against an order passed under Section 14 of the 2002 Act by the District Magistrate or the Chief Metropolitan Magistrate.
Page 33 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT 47 Shri Shah further laid much emphasis that the Chief Metropolitan Magistrate or the District Magistrate under Section 14 of the 2002 Act would not have any jurisdiction in case any of the conditions required under Section 14 or its provisos were not fulfilled. He has drawn our attention to the relevant provisos of section 14 and its sub-sections. In support of his submissions, Shri Shah has placed reliance on the judgment in the case of Standard Chartered Bank vs. V.Noble Kumar & Ors. [(2013)9 SCC 620], which in effect clarified the law laid down by the Supreme Court in the case of United Bank of India vs. Satyavati Tandon [(2010)3 SCC 260], to the extent that the amendments brought about in 2013 in the 2002 Act were not before the Supreme Court in 2010 when it decided the case of Satyavati Tandon (supra). Relying upon the judgment of V.Noble Kumar (supra), more particularly para 23 whereof, Shri Shah submitted that the District Magistrate ought to have recorded his satisfaction before passing suitable orders for taking possession of the secured assets which, according to him has not been done in the present case. According to Shri Shah, the District Page 34 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT Magistrate completely failed to look into nine points required to be considered before recording his satisfaction, and therefore, the order is liable to be set aside. 48 Shri Shah next contends that the District Magistrate did not pass the order within the period prescribed under the second and third provisos as modified w.e.f. 01.09.2016, according to which, the order ought to have been passed within 30 days from the date of application and in case it could not be passed, then after recording reasons, the District Magistrate could have passed order beyond the period of 30 days, but not exceeding in aggregate 60 days. According to Shri Shah, in the present case, there is a violation of the time period and after expiry of 60 days any exercise of power by the District Magistrate would be without jurisdiction.
49 Shri Shah then referred to the proposition that the provisions of the 2002 Act are to be given strict interpretation as the right to hold property is a constitutional right as well as human right and a person Page 35 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT cannot be deprived of his property except in accordance with the provisions of statute. In support of this submission, he has placed reliance upon the following decisions:
[1] Division Bench judgment of the Madras High Court in the case of Bharath Post Graduate College vs. Indiabulls Housing Finance Limited & Ors. [(2018)147 CLA 395 (Mad.)].
[2] Mathew Verghese vs. M. Amrutha Kumar & Ors. [(2014)5 SCC 601].
[3] Ram Kishan & Ors. vs. State of Utter Pradesh & Ors. [(2012)11 SCC 511].
[4] D.B.Basnett (D) through Lrs vs. The Collector, East District, Gangtok, Sikkim & Anr. in Civil Appeal No.196 of 2011 delivered on 02.03.2020.
50 Shri Shah then canvassed his proposition that the word `shall' used with negative phraseology the term becomes mandatory and not directory. Referring to the time period mentioned in the Second and Third provisos of Section 14 he has relied on the following judgments; Page 36 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT
[1] Vijay Narayan Thatte & Ors. vs. State of Maharastra & Ors. [(2009)9 SCC 92].
[2] Rajendra Agricultural University vs. Ashok Kumar Prasad & Ors. [(2010)1 SCC 730].
[3] Dipak Babaria & Ors. vs. State of Gujarat & Ors. [(2014)3 SCC 502].
51 Lastly, it was submitted by Shri Shah that the learned Single Judge having entertained the petitions on merits and having dismissed on merits, the appeals may not be dismissed on the ground of alternative remedy as there was a jurisdictional error. In support of his submission, he placed reliance upon the proposition laid down in the case of Whirlpool Corporation vs. Registrar of Trade Marks [(1998)8 SCC 1].
52 In response, Shri Rashesh Sanjanwala, learned Senior Advocate vehemently urged that the borrowers - appellants have mischievously and for ulterior motives Page 37 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT dragged the litigation by raising false and frivolous pleas. The petitions under Article 226 of the Constitution of India themselves were liable to be dismissed on the ground of alternative remedy as the borrowers had right to move securitization application under Section 17 of the 2002 Act if they were aggrieved by the action under Section 14 of the 2002 Act. It is next submitted that the proceedings under Section 14 of the 2002 Act are merely consequential, whereas, the substantive action is under sub-Sections (2), (3), (3A) and (4) of Section 13 of the 2002 Act to which there is limited challenge only by alleging violation of Section 26(D) of the 2002 Act. Shri Sanjanwala has placed reliance upon the following judgments in support of the above submissions:
[1] United Bank of India vs. Satyawati Tondon & Ors. [(2010)8 SCC 110] [2] Standard Chartered Bank vs. V. Noble Kumar [(2013)9 SCC 620] [3] Authorised Officer, State Bank of Travancore & Ors. vs. Mathew K.C. [(2018)3 SCC 85] Page 38 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT [4] Kotak Mahindra Bank Ltd. Vs. The State of Maharashtra & Ors. [Writ Petition No.1273 of 2017 of Bombay High Court] [5] ICICI Bank Ltd. vs. Umakant Mohapatra [(2019)13 SCC 497].
53 Shri Sanjanwala has also made submissions on merits insofar as the submission that the District Magistrate did not apply his mind or rather did not record its satisfaction. Shri Sanjanwala submitted that the District Magistrate had applied his mind and reached subjective satisfaction, which is apparent on record. According to Shri Sanjanwala, the District Magistrate considered all aspects of the matter before passing the order for taking possession. The borrowers are unnecessarily raising technical objections which have no merit. Even otherwise, the District Magistrate has afforded various opportunities to the borrowers, but they have failed to appear and as such it is not open to the borrowers to now allege that the District Magistrate did not apply his mind.
Page 39 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT 54 Insofar as the issue relating to affidavit having not been filed by an authorized officer, Shri Sanjanwala has referred to the resolutions authorizing the Associate Vice President to be the authorized officer for KMBL, who had filed the affidavit in support of the application under Section 14 of the 2002 Act. In support of his submissions he has placed reliance upon the judgment of the High Court of Calcutta in the case of Asset Reconstruction Company India Ltd. vs. Amit Ventures Pvt. Ltd. & Ors. [AIR 2007 CALCUTTA 49].
55 He further submitted that insofar as the question of delay and the District Magistrate having lost the jurisdiction on account of not having passed order within 60 days, is also misplaced and incorrect. The District Magistrate passed the order after direction was issued by this Court in Special Civil Application No.3823 of 2018. The borrowers were issued several notices by the District Magistrate in the proceedings under Section 14 of the 2002 Act which caused the delay. They cannot take advantage of Page 40 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT their own inactions.
56 Lastly it was submitted by Shri Sanjanwala that the submission relating to non-registration of mortgaged property (security interest) in the Central Registry is concerned, it is totally incorrect as alleged by the borrowers. The properties have been duly registered in August, 2014 and the property referred to by the petitioners at page 172 of the petition is a different property which is not subject matter of the order under Section 14 of the 2002 Act. It is further submitted that the provisions contained in Section 26(D) of the 2002 Act were not enforced till the steps / action under Sections 13 & 14 of 2002 Act were taken in 2016-17. The said provision has been enforced w.e.f. 24.01.2020.
57 Shri Sanjanwala then submitted that the appeals are devoid of any merit and accordingly deserve to be dismissed with costs.
58 Shri Anip Gandhi, learned counsel appearing for Page 41 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT the Axis Bank Limited - Secured creditor in Letters Patent Appeal No.1025 of 2018 having extended financial assistance to PCPL, submitted that Shri Vijay Shetty, Senior Manager of the secured creditor was the attorney appointed by the Board of Directors vide power of attorney dated 05.12.2014 and was duly authorized to file the affidavit. According to him, the power of attorney has already been attached as part of the application under Section 14 of the 2002 Act which is also part of the writ petition and the paper book of the appeal. He also submitted that the purpose of an authorized officer filing an affidavit in support of the application under Section 14 is only to ensure that a responsible officer duly authorized by the bank files the affidavit so that the bank may owe the responsibility of the contents of the affidavit. The reference to the word Chief Manager in Rule 2(a) of the Security Interest Enforcement Rules, 2002 is not limited therein, but it could be of an equivalent officer also. The word used is authorized officer means an officer not less than a Chief Manager of a public sector bank or equivalent as specified by the Board of Directors or the Board of Trustees. According to him, the Page 42 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT arguments raised by Shri Shah has no merits. 59 Shri Gandhi further submits that once the borrower - PCPL did not raise any objection to the notice under Section 13(2) of the 2002 Act, the Axis Bank Ltd. proceeded further as the borrower - PCPL also failed to discharge its liability within the time period specified under Section 13(2) to take possession of the secured assets and in the process approached the District Magistrate to assist in taking possession under Section 14 of the 2002 Act. The borrower having not challenged the action under Section 14 by way of securitization application before the Debts Recovery Tribunal under Section 17 of the 2002 Act and having opted to approach this Court under Article 226 of the Constitution, the scope of which is very limited, the Court may not exercise its extra-ordinary powers for defaulters not objecting to the outstanding amount and the security having been validly created in favour of the secured creditor.
Page 43 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT ANALYSIS 60 Learned counsel for the appellants has insisted that these appeals may be decided on merits rather than dismissing them on the ground of availability of alternative remedy. Shri Ashok L. Shah, learned counsel for the appellants has also referred to the case law on the point. Shri Rashesh S. Sanjanwala, learned Senior Counsel, appearing for the respondent has vehemently contended that the writ petitions ought not to have been entertained on the ground of alternative remedy, but were liable to be dismissed on the said ground and accordingly, these appeals also may be dismissed on the same ground. 61 We, however, are of the view that once the borrowers-appellants had no intention of challenging the proceedings under Section 13 of the 2002 Act on merits and also the correctness of the order passed under section 14 of the 2002 Act before the Debt Recovery Tribunal under section 17 of the said 2002 Act and also for the reason that the learned Single Judge decided the petition on merits and Page 44 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT further before us also the appeals have been argued on merits at great length and Shri A.L.Shah, learned counsel having insisted for the judgment to be delivered on merits, we proceed to decide the appeal on merits without going into the question of alternative remedy. We are conscious of the fact that availability of alternative remedy does not debar this Court from entertaining a petition under Article 226 of the Constitution, rather it is a self-imposed restriction developed over a period of time by the Courts. In the present case, for the reasons recorded above, we proceed to deal with the matter on merits.
62 The ground of attack relating to Section 13 proceedings under the 2002 Act has already been dealt with above and we have found that the ground taken was totally untenable in law, rather misleading. The next attack is to the proceeding and the order passed under Section 14 of the 2002 Act with which we will deal hereafter. Before we discuss the arguments advanced by Mr. Shah, the learned counsel for the appellants, we give a brief history of the provisions of Section 14, the amendments brought about in Page 45 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT due course and what has been held by the Supreme Court and the various High Courts with respect to the scope of Section 14 of the 2002 Act.
63 In the matter of Mardia Chemicals vs. Union of India, 2004 (4) SCC 311, the Supreme Court examined the vires of the 2002 Act and upheld it accordingly. 64 The constitutional validity of Section 14 of the 2002 Act came up for consideration in the case of Siddhi Vinayak Hotels (P.) Ltd. vs. Union of India, (W.P. No.2663 and 27553 respectively of 2005, decided on 17 th February, 2006) before the Andhra Pradesh High Court. While upholding the Constitutional validity of Section 14 of the 2002 Act, the Andhra Pradesh High Court observes thus;
"An analysis of the above reproduced provisions show that by virtue of non obstante clause contained in Subsection (1) of section 13 any security interest created in favour of any secured creditor may be enforced without the intervention of the court or Tribunal. In terms of Subsection (2) the secured creditor can issue notice to the borrower requiring the latter to discharge his liabilities within sixty days from the date of notice. Such notice is required to be delivered in accordance with rule 3 of the Rules. On receipt of Page 46 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT notice issued under Sub-section (2), the borrower can make a representation or raise objection against the demand. The secured creditor is required to consider such representation or objection. If it is found that the representation or objection is not acceptable or tenable, then the secured creditor is duty bound to communicate the reasons for non-acceptance to the borrower. If the borrower fails to discharge his liability in full within a period of sixty days specified in Sub-section (2), the secured creditor can take recourse to one or the other mode as specified in Sub-section (4). One of the modes is to take over the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset. The secured creditor can also appoint any person to manage the secured assets of which possession has been taken over. Any person who may have acquired any of the secured assets from the borrower can also be called upon to pay such sum of money as may be sufficient to pay the secured debt. Section 14(1) lays down that where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor, then he may, for the purpose of taking possession or control of any such secured asset make an application in writing to the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto is situated or is found for taking possession thereof. On receipt of such request, the Chief Metropolitan Magistrate or as the case may be, the District Magistrate shall take possession of the asset or document and forward the same to the secured creditor. Sub-section (2) of Section 14 empowers the Chief Metropolitan Magistrate or the District Magistrate to take appropriate steps or use, or cause to be used, such force, as may be necessary for taking possession of secured assets and documents relating thereto. Subsection (3) of Section 14 declares that any action taken by the Chief Metropolitan Magistrate or the District Magistrate under Section 14 shall not be called Page 47 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT in question by any court or before any authority. Section 17 which is captioned as "Right to appeal" lays down that any person (including the borrower) aggrieved by any of the measures taken under Sub-section (4) of Section 13 by the secured creditor or his authorized officer can make an application to the Debts Recovery Tribunal within forty five days from the date of taking such measures. Under Sub-section (2) of Section 17 the Debts Recovery Tribunal is required to consider whether any of the measures taken by the secured creditor under Sub-section (4) of Section 13 for enforcement of security is in accordance of the provisions of the Act and Rules made thereunder. If the Tribunal comes to the conclusion that such measure is not in accordance with the provisions of Securitisation Act and Rules, then it may require restoration of management of business to the borrower or restoration of possession of the secured assets and declare that the action taken by the secured creditor is invalid. The Tribunal can pass any other appropriate order in regard to the steps taken by the secured creditor under Section 13(4). If the Tribunal declared that the action taken by the secured creditor is in consonance with Sub-section (4) of Section 13 then such creditor can take recourse to one or more of the modes mentioned in Section 13 for the purpose of recovery of secured debts.
A conjoint reading of Sections 13(4) and 14 makes it clear that the source of power to take possession of the secured assets of the borrower can be traced in Section 13(4) and not under Section 14, which has been enacted as an aid for execution of decision taken by the secured creditors to take possession of the secured assets or documents. To put it differently the substantive provision entitling the secured creditor to take possession of the secured assets is contained in Section 13(4) and Section 14 merely contains a provision to facilitate taking over of possession without any impediment. If a person feels aggrieved by the action of the secured creditor to take possession of the secured asset, then he can file an application under Page 48 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT Section 17(1) before the Tribunal and the Tribunal can, after examining the facts and circumstances of the case and evidence produced by the parties declare that the action taken by the secured creditor is not inconsonance with Section 13(4). The Tribunal can also direct the secured creditor to restore the possession of secured assets of the borrower.
In view of the above analysis of the relevant provisions, we are inclined to agree with Mr. Mohan Parasaran that right of appeal/representation available to the aggrieved person under Section 17 can be exercised as and when the secured creditor decides to take possession of the property. He can also challenge order passed by the Chief Judicial Magistrate or the District Magistrate, as the case may be, under Section 14 of the Securitisation Act.
If Section 14 is read in the manner indicated above, it is not possible to accept the argument of the learned counsel for the petitioners that the same is violative of Article 14 of the Constitution."
65 This High Court while upholding the constitutional validity of Section 14 of the 2002 Act in the matter of Mansa Synthetic Pvt. Ltd. v. Union of India, AIR 2012 Gujarat 90 has held that in taking the possession of the secured assets, the District Magistrate/Chief Metropolitan Magistrate has a ministerial role to perform in form of rendering assistance to the secured creditor in taking possession and he is not vested with any adjudicatory powers and further not empowered to decide the question of legality and propriety of any actions Page 49 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT taken by secured creditor under Section 13(4) of the 2002 Act. This Court observed thus;
"15.2 On a plain reading it is apparent that the said provision is a procedural provision whereunder the Chief Metropolitan Magistrate or the District Magistrate, (the Authority) as the case may be, shall, on a request being made to him - (a) take possession of such asset and documents relating to the assets; AND (b) forward such assets and documents to the secured creditor. Under Sub-section (2) of Section 14 of the Securitisation Act the authority is empowered to take such steps and use such force as may be necessary for taking possession of the secured assets and the documents relatable thereto. Under sub-section (3) of Section 14 of the Securitisation Act, such act of the authority is protected and the action shall not be questioned in any Court or before any authority. Thus, it is apparent that the role envisaged by the legislature insofar as the Authority is concerned, is a ministerial role in the form of rendering assistance and exercising powers by virtue of the authority vested in the District Magistrate or the Chief Metropolitan Magistrate including use of force as may be necessary. The said Authority, namely, the Chief Metropolitan Magistrate or the District Magistrate is not vested with any adjudicatory powers. There is no other provision under the Securitisation Act in exercise of which the said Authority, who is approached by a secured creditor, can undertake adjudication of any dispute between the secured creditor and the debtor or the person whose property is the secured asset of which possession is to be taken. If such adjudicatory powers were to be vested in the Authority, the Securitisation Act would have made a specific provision in this regard.
15.5 Hence, the Authority who is called upon to act under Section 14 of the Securitisation Act can only Page 50 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT assist, nay, is bound to assist the secured creditor in taking possession of the secured asset. Any dispute between the parties regarding the secured asset raised before the Authority cannot be gone into by the Authority.
21. Our final conclusions are summarised thus:
(i) Section 14 of the Act is a valid piece of legislation and is declared intra vires.
(ii) The District Magistrate or Chief Metropolitan Magistrate, as the case may be, is bound to assist the secured creditor in taking possession of the secured assets and is not empowered to decide the question of legality and propriety of any of the actions taken by the secured creditor under Section 13(4) of the Act.
(iii) Though Section 14 of the Act provides that no act of the Chief Metropolitan Magistrate or District Magistrate done in pursuance of Section 14 shall be called in question in any Court or before any authority, the right of judicial review under Articles 226 and 227 of the Constitution of India cannot be taken away, but that power can be exercised only in cases where the concerned Magistrate or the Commissioner, as the case may be, exceeds his power or refuses to exercise his jurisdiction vested in him under the law.
(iv) Absence of an appeal does not necessarily render the legislation unreasonable as only because no appeal is provided under the Act against the order passed under Section 14 of the Act will not render Section 14 ultra vires the provisions of the Constitution of India."
66 A Division Bench of the Kerala High Court, in the matter of Rafeeque v. Union Of India I 2014 BC 414 DB Ker, while upholding the constitutional validity of Section 14 of the 2002 Act held that the process by means of which Page 51 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT assistance is provided by the Chief Metropolitan Magistrate or the District Magistrate is non-adjudicatory. It was pertinently held as under:--
"However, the restriction provided by sub-section (3) to section 14, does not at all ensure to benefit the borrower to contend that the total absence of an appellate or revisional remedy makes the provision itself unconstitutional. As has been found by us, section 14 is an enabling provision in the nature of assistance extended to the secured creditor to bring to culmination the proceedings issued under section 13(4). Any action taken under section 13(4) is appealable under section 17 of the Act and in the event of such appeal being allowed, necessarily the order of the jurisdictional magistrate issued under section 14 will not survive thereafter."
67 The Madras High Court in the matter of Kanderi Fruitpack Pvt. Ltd. v. Bank of Baroda AIR 2015 Mad 50 succinctly held as under:--
"The learned Chief Metropolitan Magistrate, in fact does not adjudicate any dispute, but renders assistance to ensure that the powers of secured debtor to take over possession as one of measures to recover the debt under Section 13(4) of the Act of 2002."
68 In the matter of Nagarathna v. The Indian Bank, Koramangala Branch IV 2015 BC 179 Kar., the Karnataka High Court speaking through S. Abdul Nazeer, J (as His Page 52 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT Lordship then was), considered the legislative mandate as contained in Section 14 of the 2002 Act and summarised the law as under:--
"10. Section 14 of the Act provides for granting assistance to the secured creditor to take possession of the secured asset. It states that where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of the 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 within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession therefore, and the Chief Metropolitan Magistrate or, as the case may be, the District Magistrate shall, on such request being made to him forward such assets and documents to the secured creditor provided that any application by the secured creditor shall be accompanied by an affidavit duly affirmed by the Authorised Officer of the secured creditor, declaring that the Provision of the Act and the Rules made thereunder had been complied with. Provided further that on receipt of the affidavit from the Authorised Officer, the District Magistrate or the Chief Metropolitan Magistrate, as the case may be, shall after satisfying the contents of the affidavit pass suitable orders for the purpose of taking possession of the secured assets. ..."
69 A Division Bench of the Allahabad High Court in the matter of Lakshya Concosts Pvt. Ltd., Aligarh v. Bank of Baroda AIR 2017 All 172 while dealing with Section 14 of Page 53 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT the 2002 Act has held that Section 14 of the 2002 Act does not empower the District Magistrate with any power to adjudicate regarding the dispute pertaining to the secured assets and held as under:--
"11. ... In our considered opinion, Section 14 of the Act is procedural in nature and only empowers the authorities to assist the secured creditor in taking over possession of the secured assets as per the procedure contemplated therein. The Section does not empower the authorities specified therein with any power to adjudicate in respect of any dispute pertaining to the secured assets. Power exercised by the authorities specified in Section 14, since is only an administrative power, authorizing any authority to exercise the same, will not amount to delegation of power."
70 In a decision rendered by the Bombay High Court in the matter of S.I.C.O.M Ltd., Nagpur v. District Magistrate/Collector, Nagpur AIR 2011 BOMBAY 32, the Bombay High Court has clearly held that the District Magistrate cannot enter into the question of validity of mortgage in respect of the secured asset and declare the mortgage to be invalid, as he cannot adjudicate on the validity of the instruments by which the asset is secured. The report of the Bombay High Court reads thus:--
"7. Having considered the matter, we are of the view that the District Magistrate to whom the petitioner had Page 54 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT forwarded the request in writing for taking over possession of the mortgaged asset, had no power or authority in law to enter into the question of the validity of the mortgage in respect of secured asset and declare the mortgage to be invalid and thus refuse to perform the duty imposed upon him by the SARFAESI Act. Section 14 contains a clear mandate for the District Magistrate that he shall take possession of such asset and documents relating thereto and upon such request he shall forward such assets and documents to the secured creditor. The Act does not confer any power on the District Magistrate to transform himself into the Court of law with powers to adjudicate on the validity of the instrument by which the assets is secured. ..."
71 Similarly, in the matter of Jawahar Singh v. United Bank Of India, AIR 2015 Calcutta 306, similar proposition has been explained by the Calcutta High Court and in paragraphs 63 and 72, it has been held as under:--
"63. The marginal note of section 14 shows what section 14 is all about. It provides an avenue for the secured creditor, when faced with resistance by the borrower or anyone else, or when the borrower simply refuses to surrender possession, to seek administrative assistance of the CMM/DM to facilitate taking of possession of a secured asset and/or documents in relation thereto to ultimately enable the secured creditor to put up the secured asset for sale and to recover its dues.
72. In view of such understanding based on authoritative decisions of the supreme Court, I am sure the Supreme Court in V. Noble Kumar (supra) never intended to lay down as law declared under Article 136 read with Article 141 of the Constitution that Page 55 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT the power exercised by the CMM/DM under section 14 of the SARFAESI Act granting assistance for obtaining possession of the secured asset is the exercise of the judicial power of the State. That this observation does not constitute the ratio of the decision is evident from observations made in paragraph 25 thereof, where it has been clearly held that the legal niceties of the transaction between the secured creditor and the borrower are not to be examined by the CMM/DM. If indeed a lis were involved, it would not be open to the CMM/DM to say that it would examine factual aspects only and not the legal niceties. Since the CMM/DM does not decide any lis between parties upon receiving evidence from them, the judicial power of the State is not exercised by him."
72 The Bombay High Court, in the matter of Bank of Maharashtra, Nagpur v. Additional District Magistrate, Nagpur AIR 2017 BOMBAY 92 while dealing with the provisions contained in Sections 14 and 31(i) of the 2002 Act in respect of taking possession of secured asset i.e agricultural land, held that the District Magistrate while assisting secured creditor in taking possession of secured asset is not empowered to determine the nature of such asset, he is only duty bound to verify the declarations and affidavit tendered by the creditor and pass order of taking actual possession.
73 The 2002 Act suffered amendment by the Page 56 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2012 with effect from 15-1-2013. The Act now requires an affidavit to be filed by the secured creditor, duly affirmed by its authorized officer confirming therein the aggregate amount of financial assistance granted, total claim existing as on the date of filing application, details of properties of the borrower on which security interest has been created, and declaring that the borrower has made a default in repaying the financial assistance, that his account has been classified as an NPA, that notice has been served under section 13(2), that reply has been given under section 13(3A), that the secured creditor is entitled to take steps under section 13(4), and in general that all the provisions of the Act and the rules made thereunder have been complied with. Thus, the scope of the affidavit is pervasive.
74 Going further, by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 with effect from 1-9- 2016, which amends Section 14 of the Act as to provide Page 57 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT timelines - a time period of 30 days has been provided for the disposal of applications filed by the banks or financial institutions. By amendment, after the second proviso, another proviso has been inserted which states that if no order is passed by the CMM or DM within the said period of 30 days for reasons beyond his control, he may, after recording reasons in writing for the same, pass the order within such further period but not exceeding in aggregate 60 days.
75 The second proviso to Section 14(1) of the 2002 Act states as under:--
"Provided further that on receipt of the affidavit from the Authorised Officer, the District Magistrate or the Chief Metropolitan Magistrate, as the case may be, shall after satisfying the contents of the affidavit pass suitable orders for the purpose of taking possession of the secured assets within a period of thirty days from the date of application:"
76 Thus, what is required to be done by the DM/CMM is to satisfy with the contents of the affidavit before passing order under Section 14 of the 2002 Act. 77 At this stage, it would be appropriate to notice Page 58 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT para 25 of the decision of the Supreme Court in the matter of Standard Chartered Bank v. V. Noble Kumar 2013 9 SCC 620 which states as under:--
"25. The satisfaction of the Magistrate contemplated under the second proviso to Section 14(1) necessarily requires the Magistrate to examine the factual correctness of the assertions made in such an affidavit but not the legal niceties of the transaction. It is only after recording of his satisfaction the Magistrate can pass appropriate orders regarding taking of possession of the secured asset."
78 In the Standard Chartered Bank (supra) and in the aforesaid cases, it has been clearly held that the District Magistrate has no power to adjudicate the legal niceties of the transaction between the secured creditor and the borrower.
79 Thus, Section 14 of the 2002 Act is an enabling provision which is non-adjudicatory provision and executory in nature. The function of the District Magistrate under Section 14 of the Act is non-adjudicatory in nature subject to examination of factual correctness of the assertions made in the affidavit filed under the proviso to Section 14(1) of the Act as held in Standard Chartered Bank (supra). Page 59 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT 80 The first argument advanced by Shri Shah, learned counsel for the appellants attacking the exercise of power under section 14 of the 2002 Act by the District Magistrate is to the effect that there was no affidavit accompanying the application under section 14, duly affirmed by the Authorized Officer of the Secured Creditor. Shri Sanjanwala, learned Senior Counsel for the respondent-Bank KMBL has drawn our attention to the resolution dated 12th July, 2018 passed in favour of the Associate Vice President Shri Lovelesh Dwivedi, filed along with the affidavit in reply at page 62. The same is reproduced below:-
"CERTIFIED THAT THE FOLLOWING IS A TRUE COPY OF THE RESOLUTION DATED NOVEMBER 22, 2016 PASSED BY CIRCULATION BY THE SHARE TRANSFER AND OTHER MATTERS COMMITTEE (DELEGATED) OF KOTAK MAHINDRA BANK LIMITED.
"RESOLVED that in partial modification of the earlier Resolution dated October 13, 2016, passed in this regard, the following officials, in their respective area of operation:Page 60 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT
Name of the Designation Area Operation
official
Radhakrishna Vice President Karnataka,Tamilnadu,
Shastry Puduchery, Kerala,
Telengana & Andhra
Pradesh
Neeraj Gaur Vice President Delhi, Haryana, Punjab,
Rajasthan, Uttar Pradesh,
Uttarakhand & Chandigarh
Lovelesh Dwivedi Associate Vice Gujarat, Maharashtra, President M.P.& Chhattisgarh Prashant Dhokne Chief Manager Maharashtra, Gujarat & Andhra Pradesh be and are hereby authorized to:
a. To represent the Bank in any Court/s, Tribunals including but not limited to Arbitration Tribunals, Boards, Forums, Commissions, Ombudsmen and other authority/ies in connections with all types of legal proceedings (including but not limited to the matters relating to administrative, admiralty, civil, criminal, company, constitutional, competition, tax, regulatory proceedings, labour, intellectual property rights, securities law etc. initiated by or against the Bank.
b. To file or defend any Proceedings, Suits Appeal, Applications, References, Reviews, Revisions, Petitions including winding up petitions, writ petitions and Special Leave Petitions, filed by or against the Bank, in any court/s, tribunals including but not limited to Arbitration Tribunals, Boards, Forums, Commissions, Ombudsmen and other authority/ies.
c. To engage advocates, sign vakalatnamas and if necessary, to sign, execute and file, written Page 61 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT statements, affidavits, replies, criminal complaints, civil suits, plaints, appeals, petition, applications, police complaint, claims, any legal proceedings before any competent court, tribunal/s, Boards, Forum, commission, Ombudsmen or any other authority/ies having jurisdiction mentioned above and to give evidence on oath and otherwise on behalf of the Bank, file all necessary documents, before the court, competent authority, tribunal/s, Boards, Forum, commission, Ombudsmen or any other authority/ies and take necessary steps under The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002( "Act"), including issuing notices for enforcement of any security provided by the borrowers / customer / guarantors / security providers to the Bank, to enforce such security including taking possession of any security and the sale thereof and to do all acts, deeds and things necessary for enforcement of the security and the sale/disposal/transfer thereof under the Act and the Rules framed there under as also take all steps as may be deemed expedient to defend the Bank in the proceedings filed against the Bank under the Act, on behalf of the Bank in respect of transactions entered into by the Bank, pertaining to the Agriculture Finance Division of the Bank.
d. The authority shall be valid till September 30, 2017.
e. To settle and withdraw any complaints/ applications, petitions etc. in consultation with the advocates of the Bank and, if advised, submit compromise, get the same attested or withdraw the complaints/applications, petitions as the case may be and issue valid receipt for the payment that may be received under the compromise/settlement.
f. To receive or take possession of various documents, copies, originals etc., on behalf of the Page 62 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT Bank from the Court/Tribunal/Arbitrator(s)/ Boards/Forums/Commissions, Ombudsmen and other Authority/ies."
81 The said resolution authorizing the Associate Vice President Shri Lovelesh Dwivedi is passed by the Share Transfer and Other Matters Committee of the respondent Bank. He further submitted that the said Committee is formed of the Directors of the respondent-Bank and had been duly authorized by the resolution dated 11 th May, 2016 of the Board of Directors to undertake the following actions in the interest of the bank.
"(i) To authorize employee(s) or others to represent the Company before Court, Tribunal, Consumer Redressal Forum or any Statutory or other Authority on any matter relating to the operations of the Company or with which the Company is in any way connected or to represent the Company generally or for any specific purpose or purposes and, if required, issue Power of Attorney in favour of such persons for the purpose."
82 A perusal of the aforesaid two resolutions of the Board of Directors as also the Share Transfer and Other Matters Committee it is crystal clear that Shri Lavlesh Dwivedi, Associate Vice President of the KMBL was duly Page 63 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT authorised to file affidavit. The Associate Vice President would be an officer much above the rank of the Chief Manager and as such, this argument of the appellants also cannot be sustained. Thus, this submission stands rejected. 83 Insofar as the other appeal is concerned, we have perused the record and we find that there is a power of attorney in favour of Shri Vijay Shetty, Senior Manager executed by the authorized officer of the Axis Bank Ltd., which is of the year 2014, the submission advanced by Shri Gandhi with regard to interpretation of Rule 2(a) of the Security Interest Enforcement Rules, 2002 appears to be logical and reasonable and we find no reason to differ with the same. Merely because the borrower - appellants says that the facts stated are incorrect, is not enough. No inconsistency or inaccuracy in the contents of the affidavit has been pointed. Thus with respect to Shri Vijay Shetty being officer of the Axis Bank Ltd. in filing the affidavit in support the application under Section 14 of the 2002 Act there appears to be no infirmity.
Page 64 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT 84 The next argument raised by Shri Shah is to the effect that the District Magistrate under the 2 nd and 3rd proviso to section 14 of the 2002 Act had lost jurisdiction to decide the application under section 14 after a period of 60 days from the date of its filing i.e. 20.04.2017 and 03.05.2017 by KMBL and ABL respectively. That time would be over in June/July, 2017 whereas the order came to be passed by the District Magistrate on 4th/5th July, 2018. This argument of Shri Shah also has no legs to stand upon. Such time or period provided under the second or third proviso to section 14 of the 2002 Act was only directory and not mandatory as no consequences are spelled out in case of non-compliance of the time frame. Even otherwise, the District Magistrate had been issuing notices to the borrowers-appellants, but despite several notices having been issued, the borrowers did not appear and the matter was being delayed. As a result, the respondent-Bank was compelled to file the writ petition before this Court being Special Civil Application No. 3823 of 2018 for appropriate directions to the District Magistrate for deciding the application under section 14 of the 2002 Act. It was only Page 65 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT thereafter when the Court fixed a time-limit vide order dated 12th March, 2018 that the District Magistrate under the judicial order proceeded to decide the application. No illegality can be attached to the same on the ground of delay, which even otherwise was directory and not mandatory. The order passed by the High Court dated 12 th March, 2018 is reproduced below:
"1. Heard Mr. Nikunt K. Raval, learned advocate with Mr. Kaivan Desai, learned advocate for the petitioner and Mr. Bhargav Pandya, learned AGP Swapneshwar Goutam, learned AGP for the respondent no.1 on advance copy.
2. By way of this petition under Article 226 of the Constitution, the petitioner has prayed for appropriate writ, order or direction directing the respondent no.1 to expedite the hearing of the application and take decision upon the application filed by the petitioner under section 14 of the SARFAESI Act.
3. The record indicates that the application is filed by the petitioner before the District Magistrate under section 14 of the SARFAESI Act on 20.04.2017 and the same is pending.
4. Without expressing any opinion on merits, the respondent authority is directed to decide the application filed by the petitioner (Annexure A) as expeditiously as possible, preferably within a period of four weeks from the date of the receipt of this order. It is however clarified that this Court has not expressed any opinion on merits and the authority shall decide the same in accordance with law within Page 66 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT the stipulated time. This order shall not prejudice the rights of either parties before the authority.
5. The petition is disposed of accordingly."
85 The case law relied upon by Shri Shah on the above point would not be applicable in the facts of the present case and are of no benefit to the appellant. We may record our displeasure that learned counsel without any sense of responsibility tried to burden the Court with catena of judgments which have no application to the facts and circumstances of the case in hand. Expecting the Courts to deal with all those judgments would be travesty of justice inasmuch as it not only takes away the time of the Court, but also unnecessarily burden the judgment. Law is to be applied on the facts and not devoid of facts. We are not burdening the judgment by dealing with each and every case relied upon by Shri Shah in support of his submissions as we find that none of the case has any application to the facts of the present case.
86 Insofar as the submission regarding no steps under Section 13(4) having been taken by the Axis Bank Page 67 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT Ltd., we have already observed above in the earlier paragraphs that technical lacuna may not be of any relevance where outstanding amount is not disputed. 87 It may also be worthwhile to mention that time period prescribed in the 2nd and 3rd provisos to Section 14 of the 2002 Act is for the benefit and advantage of the secured creditor. Failure on the part of the District Magistrate in passing orders within the time frame prescribed actually jeopardizes the interest of the secured creditor. Non- compliance of such time frame cannot enure to the benefit of the defaulter / borrower. The defaulter / borrower cannot take advantage of any inaction of the District Magistrate within the time frame prescribed under the law which is actually for the benefit of the secured creditor. There is a fixed time frame prescribed so that the secured creditor may not suffer at the hands of State Government officers. It is public dues which are being recovered. Sooner the better once the substantive proceedings under Section 13 of the 2002 Act are successfully over.
Page 68 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT 88 From the above discussion, it is apparent that the borrower has been taking all the measures somehow or the other to delay the proceedings for recovery by the Secured Creditor of the defaulted amount. The proceedings under Section 13 of the 2002 Act and the order passed under section 14 thereof for taking possession has been challenged before this Court on technical grounds and even such technical grounds are not tenable in view of the material produced on record by the Secured Creditors, the respondent-Bank. The borrowers - appellants have been enjoying ex-parte interim order dated 5th September, 2018 granted in their favour. The borrowers have been successful in not permitting the bank to proceed with the recovery and its valid dues as there is no objection with regard to the outstanding amount indicated in the demand notice. 89 The Supreme Court in the case of Dnyandeo Sabaji Naik and Others vs. Pradhya Prakash Khadekar and Others reported in (2017) 5 SCC 496 has frowned upon frivolous and groundless filings. We quote the relevant observations:
Page 69 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT
"13. This Court must view with disfavour any attempt by a litigant to abuse the process. The sanctity of the judicial process will be seriously eroded if such attempts are not dealt with firmly. A litigant who takes liberties with the truth or with the procedures of the Court should be left in no doubt about the consequences to follow. Others should not venture along the same path in the hope or on a misplaced expectation of judicial leniency. Exemplary costs are inevitable, and even necessary, in order to ensure that in litigation, as in the law which is practised in our country, there is no premium on the truth.
14. Courts across the legal system - this Court not being an exception - are choked with litigation. Frivolous and groundless filings constitute a serious menace to the administration of justice. They consume time and clog the infrastructure. Productive resources which should be deployed in the handling of genuine causes are dissipated in attending to cases filed only to benefit from delay, by prolonging dead issues and pursuing worthless causes. No litigant can have a vested interest in delay. Unfortunately, as the present case exemplifies, the process of dispensing justice is misused by the unscrupulous to the detriment of the legitimate. The present case is an illustration of how a simple issue has occupied the time of the courts and of how successive applications have been filed to prolong the inevitable. The person in whose favour the balance of justice lies has in the process been left in the lurch by repeated attempts to revive a stale issue. This tendency can be curbed only if courts across the system adopt an institutional approach which penalizes such behavior. Liberal access to justice does not mean access to chaos and indiscipline. A strong message must be conveyed that courts of justice will not be allowed to be disrupted by litigative strategies designed to profit from the delays of the law. Unless remedial action is taken by all courts here and now our society will breed a legal culture based on evasion instead of abidance. It is the Page 70 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT duty of every court to firmly deal with such situations. The imposition of exemplary costs is a necessary instrument which has to be deployed to weed out, as well as to prevent the filing of frivolous cases. It is only then that the courts can set apart time to resolve genuine causes and answer the concerns of those who are in need of justice. Imposition of real time costs is also necessary to ensure that access to courts is available to citizens with genuine grievances. Otherwise, the doors would be shut to legitimate causes simply by the weight of undeserving cases which flood the system. Such a situation cannot be allowed to come to pass. Hence it is not merely a matter of discretion but a duty and obligation cast upon all courts to ensure that the legal system is not exploited by those who use the forms of the law to defeat or delay justice. We commend all courts to deal with frivolous filings in the same manner."
90 In Union of India and others vs. Pirthwi Singh and others reported in (2018) 16 SCC 363, the Supreme court observed thus:
"15. To make matters worse, in this appeal, the Union of India has engaged 10 lawyers,including an Additional Solicitor General and a Senior Advocate! This is as per the appearance slip submitted to the Registry of this Court. In other words, the Union of India has created a huge financial liability by engaging so many lawyers for an appeal whose fate can be easily imagined on the basis of existing orders of dismissal in similar cases. Yet the Union of India is increasing its liability and asking the taxpayers to bear an avoidable financial burden for the misadventure. Is any thought being given to this?
16. The real question is: When will the Rip Van Page 71 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT Winkleism stop and Union of India wake up to its duties and responsibilities to the justice delivery system?
17. To say the least, this is an extremely unfortunate situation of unnecessary and avoidable burdening of this Court through frivolous litigation which calls for yet another reminder through the imposition of costs on the Union of India while dismissing this appeal. We hope that someday some sense, if not better sense, will prevail on the Union of India with regard to the formulation of a realistic and meaningful National Litigation Policy and what it calls 'ease of doing business', which can, if faithfully implemented benefit litigants across the country."
91 The facts and circumstances surrounding the present case, the contentions of the parties and the law on the issue, as discussed by us in the paragraphs hereinabove, indicate the impetuous attitude of the appellants before us. As we have stated before, this is a typical instance of how the judicial system is getting clogged with frivolous litigation. The Hon'ble Supreme Court has held in catena of cases that such frivolous and vexatious litigation must be discouraged by imposing exemplary costs or by adopting similar novel methods. The facts as they stand before us, leave us with no option, but to impose costs to the tune of Rs.10,00,000/- (Rupees Ten Lakhs only) on each of the appellants. We hope that the imposition of Page 72 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021 C/LPA/1025/2018 CAV JUDGMENT costs shall have a deterrent effect on all such litigants who have approached or attempt to approach the forums with such frivolous litigation.
92 For the reasons recorded above, the Letters Patent Appeals are dismissed with costs quantified at Rs.10,00,000/- (Rupees Ten Lakhs only) on each of the appellants. Consequently, the connected Civil Applications for stay and vacating interim relief stand disposed of.
(VIKRAM NATH, CJ) (ASHUTOSH J. SHASTRI, J) subbu/pirzada/radhan/Vahid Page 73 of 73 Downloaded on : Thu Feb 11 02:30:46 IST 2021