Bombay High Court
Alexis Business Solutions Pvt. Ltd. And ... vs The Board Of Directors Of The ... on 2 December, 2022
Author: Gauri Godse
Bench: Nitin Jamdar, Gauri Godse
skn 1 WPL-34253.2022.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION (L) NO. 34253 OF 2020
M/s.Alexis Business Solutions Pvt, Ltd.
and another. ... Petitioners.
V/s.
The Board of Directors of the
Represented by its Managing Director
Aditya Birla Finance Limited and others. ... Respondents.
Mr.Mathews Nedumpara with Ms.Himali K., Sharad Koli i/b.
Nedumpara & Nedumpara for the Petitioners.
Mr.Chirag Kamdar with Lalit Katariya, Mehtab Katariya and Pooja
Jhaveri i/b. Katariya & Associates for Respondent Nos.1 to 3.
Ms.Jyoti Chavan, AGP for Respondent Nos.5 and 8.
Digitally
CORAM: NITIN JAMDAR AND
GAURI GODSE, JJ.
signed by SANJAY SANJAY KASHINATH KASHINATH NANOSKAR NANOSKAR Date:
2022.12.03 13:48:51 +0530 Reserved on: 25 November 2022 Pronounced on: 2 December 2022.
P.C. :
The Petitioners- borrowers have sought several reliefs and declarations in this petition. These are- (a) a writ of mandamus against Respondent Nos.1 to 3 - a financial institution, to restore the possession of the subject property; (b) Notification dated 4 October skn 2 WPL-34253.2022.doc 2022 issued under the Recovery of Debts and Bankruptcy Act, 1993 be declared as unconstitutional; (c) The said Notification should be declared to have prospective effect; (d) to declare the transfer of the Petitioners' case from Debt Recovery Tribunal No.2 to Debt Recovery Tribunal No.3 as void; (e) to declare that the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act) being the Special Act will prevail over the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act); (f) to declare that the entire proceeding taken by Respondent Nos.1 to 3 under sections 13(2), 13(4) and of the SARFAESI Act are void with a declaration that the Petitioners owe no amount to Respondent Nos.1 and 3; (g) to direct the direct the Debt Recovery Tribunal No.1 to expeditiously hear and dispose of the proceeding filed by the Petitioners before it.
2. Several Respondents are made parties to this petition, these being the financial institution, Court Commissioner, Station House Officer, Union of India, Ministry of Micro, Small and Medium Enterprises, State of Maharashtra, Governor of Reserve Bank of India, Chief Metropolitan Magistrate, Chairperson of DRAT, and Presiding Officers of DRT-2 and DRT-3.
3. Detailed facts are not pleaded in the petition. The emphasis of the Petitioners is on the pleadings on law, with sketchy reference to factual details, few annexures such as document skn 3 WPL-34253.2022.doc regarding Petitioner No.1 as MSME, Government gazettes, circulars under challenge, notice under section 13(2) of the SARFAESI Act and the order dated 5 May 2022. The reply filed by Respondent Nos.1 to 3 (referred to as the Respondents) has placed the factual details of litigation between the parties, documents and orders pertaining to the Petitioners' case on record.
4. The Petitioners occupied flat No.401, Building 17C, New Dindoshi Parijat Co-operative Society, Malad, Mumbai, the secured asset. Possession of the secured asset is taken over by the Respondent- financial institution on 29 October 2022 pursuant to notice under section 13(4) of the SARFAESI Act. The Petitioners are seeking restoration of possession. The Petitioners contend that this Court, under Article 226 of the Constitution of India and the civil court, would have jurisdiction to entertain the challenge to the Respondents' action as the same is void. The Petitioners state that the challenge on merits would be pursued in the civil court, and for declarations sought and a mandatory injunction for restoration of possession, a writ petition should be considered. The Respondents contend that the declarations so sought are not bona fide and do not arise in the facts of the present case, and the only object is to delay the procedure somehow.
5. The Petitioners sought a loan facility from Respondent No.1- a financial institution which it sanctioned by letter dated 28 June 2019 as amended by letter dated 1 July 2019 as a term loan skn 4 WPL-34253.2022.doc facility of Rs.1,10,00,000/-. A facility agreement was executed between the Petitioners- borrowers and Respondents regarding a term loan of Rs.1,10,00,000/-. The term loan was to be repaid in 144 equal installments. The rate of interest was agreed to be 12% per annum. In default, additional interest was provided. The Petitioners created an equitable mortgage favouring the Respondent- financial institution. The Petitioners also executed a Memorandum of Equitable Mortgage by deposit of title deeds. The Petitioners also executed a Declaration-cum-Confirmation deed on 13 September 2019 in favour of Respondent No.1, confirming that they are the lawful owner of the secured asset. The Petitioners also executed irrevocable power of attorney on 13 September 2019. The Petitioners requested relief under the Covid-19 Relief Package, and the moratorium was granted to the Petitioners from 15 April 2020 to 15 August 2020. The Petitioners also approached Respondents for an emergency credit loan under Emergency Credit Line Guarantee Scheme, 2020. An amount of Rs.21,31,100/- was given to the Petitioners as per Emergency Credit Line Guarantee Scheme. This loan had to be repaid in 36 installments after the moratorium period. The Petitioners executed the second Supplemental Memorandum on 30 July 2020 for the loan amount of Rs.21,31,100/-.
6. According to the Respondents, after availing of the loan facility, the Petitioners breached the terms and conditions of the term loan and the loan under the Scheme. The interest and the skn 5 WPL-34253.2022.doc installments of the principal amount remained overdue for 90 days. The Petitioner's account was declared Non-Performing Asset (NPA) on 24 March 2021. Before declaring the account as NPA, on 2 January 2021, Respondents wrote to the Petitioners- borrowers putting them on notice that their account is on the verge of being declared as NPA.
7. A demand notice was issued by Respondents on 23 June 2021 under section 13(2) of the SARFAESI Act, calling upon the Petitioners to pay an amount of Rs.1,40,79,110.41, which, according to Respondents, was due on 10 June 2021. According to Respondents, the notice was duly served by registered post and inquiries were made at the office of the Postal Department, which confirmed that Petitioner No.2 refused to accept the notice, and it returned unclaimed. As per the Respondents, as regards other borrowers, the notice was served. The Respondents served demand notice under section 13(2) of the SARFAESI Act on 8 January 2021. According to the Respondents, no reply to the demand notice has been received. Respondent No.1 issued a possession notice on 22 October 2021 under section 13(4) of the SARFAESI Act, stating that Respondents have taken symbolic possession of the secured asset. The notice is also published in the newspaper. After 60 days, Respondents, by notice dated 22 October 2021, called upon the Police Station, Dindoshi, for the assistance of police personnel for taking symbolic possession. By communication dated 22 October skn 6 WPL-34253.2022.doc 2021, Respondents informed the Petitioners that peaceful symbolic possession of the subject flat is taken.
8. The Respondents have placed two different details regarding different properties on record. As regards Mumbai property, Respondents filed Securitisation Application No.102/SA/2022 in the Court of Chief Metropolitan Magistrate, Esplanade. The application was allowed, and by order dated 5 May 2022, an Advocate was appointed Court Commissioner to take possession. The Petitioners filed a Securitisation application to challenge the steps taken by Respondents to enforce the security interest. The matter came up on 5 July 2022 before the Debut Recovery Tribunal, and, according to the Respondents, after arguing for some time, the Petitioners did not press interim relief at that stage. On 4 August 2022, the Respondents filed a reply.
9. The Respondents filed a writ petition in this Court seeking direction to the Registrar of the Chief Metropolitan Magistrate for issuing a writ of commission. The order was passed on 3 October 2022. On 6 October 2022, the Court Commissioner notified the Petitioners about taking over physical possession of the subject property. On 29 October 2022, physical possession of the secured asset was taken in the presence of the authorised officer of the Respondents.
skn 7 WPL-34253.2022.doc
10. After the possession of the property was taken, the petition was filed by the Petitioners- borrowers. The petition was taken up before the Division Bench (Vacation Court) on 4 November 2022 wherein the Petitioners sought restoration of possession of the secured asset. The Division Bench noted the Respondents' submission that steps were taken pursuant to the order passed by the Magistrate on 5 May 2022 to take physical possession of the property, applications were also filed before the DRT, and no interim relief was obtained from the DRT, and the Division Bench, therefore, declined to grant any relief at that stage.
11. As regards Pune property, the Respondents had moved the securitisation application before the District Magistrate, Pune, which was allowed on 11 August 2022. One of the Petitioners' co- borrower filed an application before the DRT, Pune. The provisional application filed by the co-borrower was dismissed on 5 July 2022, and the physical possession of that property was taken.
12. Therefore, the position is that the Petitioner's account was declared as NPA as far back on 24 March 2021. Demand notices were issued in June 2021, and the District Magistrate passed an order on the application on 5 May 2022. The Petitioners moved the application before the DRT, and there was no interim relief; consequently, physical possession was taken. The proceedings in the DRT are pending.
skn 8 WPL-34253.2022.doc
13. As regards the challenge to the Notification dated 4 October 2022, whereby matters have been transferred from DRT-2 to DRT-3, both the Tribunals are in Mumbai/ Navi-Mumbai, and no prejudice is shown regarding the transfer of matter affecting the Petitioners, and how the notification affects the Petitioners. Unless this aspect is demonstrated, we are not inclined to consider the challenge in the abstract, which would have ramifications on various pending cases.
14. Regarding the declaration sought based on the provisions of the MSME Act, the learned counsel for the Petitioners contended that the MSME Act being the Special Act, will override the provisions of the SARFAESI Act. The learned counsel for the Petitioners further contended that the Notification dated 29 May 2015 issued under the MSME Act has a force of law and provides for certain contingencies which are binding on the financial institutions. The learned counsel submitted that the Respondent- financial institution, bound by this Notification, in breach of the same, has declared the Petitioner's account as NPA; therefore, the entire action of Respondent No.1 is void ab initio. The learned counsel for the Petitioners submitted that the language of section 13(2) of the SARFAESI Act is clear that only when the secured creditor classifies the account of the borrower as NPA, then only further action can be taken. The learned counsel for the Petitioners sought to take us skn 9 WPL-34253.2022.doc through the Notification dated 29 May 2015 and, more particularly, stressed upon Clause-1 thereof regarding the identification of Incipient Stress and also the Composition of Committee for stressed micro, small, and medium enterprises under Clause-2 and clause 4(7) and (9) whereby the Committee has to decide a corrective action plan which the Committee has to explore as per Clause-5. The learned counsel for the Petitioners also drew our attention to Clause 15 of the Notification, which deals with Review. The learned counsel for the Respondents, on the other hand, submitted that Clause-1, where categories are made, provided only guidance. It is contended that Respondent No.1 declared the account of the Petitioners- borrowers as NPA in tune with the periods stipulated in the Notification dated 29 May 2015. The learned counsel for the Petitioners submitted that even though it is permissible for MSME to make an application under Notification dated 29 May 2015, Respondent No.1- the financial institution is bound to follow the Notification as it is a beneficial provision. The learned counsel for the Respondents pointed out that as regards the classification of the Petitioners' account as NPA, the last payment received was on 4 January 2021, and since the principal amount and the interest remained unpaid for more than 90 days, the account was declared as NPA. The learned counsel for the Respondents submitted that even the period 90 is days as per the guidelines issued by the Government of India.
skn 10 WPL-34253.2022.doc
15. The Notification of 2015 deals with the framework of reviewing MSME. Clause-1 thereof has two components. Before the account turns into NPA, the bank or the creditors are required to identify three special categories, i.e. whether the principal or interest payment is overdue for 30 days, 31 to 60 days, and overdue between 61 to 90 days. The second part of this clause is that any micro or small enterprise may voluntarily initiate a proceeding when it apprehends its inability to pay the debt. A Committee, subject to regulations prescribed by the Reserve Bank of India for the banks, is constituted. Under Clause 4, any eligible MSME, a bank, or a creditor can apply to this Committee. Upon application, the Committee can explore the possibility of resolving stress rectification etc.
16. Under the Notification dated 29 May 2015, it was open to the Petitioners to voluntarily initiate proceedings when it is apprehended that it cannot pay the loan. There are no pleadings, nor is it argued that the Petitioners made any effort to apply under the Notification for the benefits thereof. Even today, it is not stated that the Petitioners intend to take benefits of the Notification of 2015. It was orally argued that there is no Committee, and in the past, no such relief was granted to anyone by the Committee. There are no pleadings to this effect, and general sweeping statements are made in oral arguments. For a legal challenge based on the Notification of 2015 having an overriding effect or binding on skn 11 WPL-34253.2022.doc Respondents, the Petitioners must demonstrate, and the Court must be satisfied that the Petitioners are interested in getting benefits under the Notification of 2015. The Petitioners also have an independent right to avail of the benefits under the Notification, which they are not inclined to take. Therefore, we agree with the Respondents' submissions that the argument based on the Notification dated 29 May 2015 is only an attempt to get the petition admitted to keep the proceedings pending.
17. As regards the merits of the challenge, under section 17 of the SARFAESI Act, the questions regarding the action taken by the secured creditor on merits can be considered by the DRT. The Bench of three judges of the Hon'ble Supreme Court in the case of K.Virupaksha v. State of Karnataka1, has observed that the SARFAESI Act is a complete code, and if there is any discrepancy in the manner of classifying the account of the borrower as NPA or in the manner in which the property was valued or was auctioned, the DRT will have jurisdiction to adjudicate the same. In the case of Indian Overseas Bank v. Ashok Saw Mills 2, the Hon'ble Supreme Court observed that DRT has the jurisdiction to question the action of the secured creditor and transaction entered into by virtue of section 13(4) of the SARFAESI Act. The DRT also has the power to set aside the transaction, including the sale, and restore the possession to the borrower in an appropriate case. Therefore, wide 1 (2020) 4 SCC 440 2 (2009) 8 SCC 366: (2009) 3 SCC (Civ) 403 skn 12 WPL-34253.2022.doc powers have been conferred on the DRT, including questioning the action or the manner in classifying the borrowers' accounts as NPA. The Hon'ble Supreme Court has repeatedly laid down that in writ petitions arising under the SARFAESI Act where the remedy is provided before the DRT, the High Court should not interfere unless exceptional circumstances are made out. In the present case, we do not find any such exceptional circumstance. The parties are already before the DRT.
18. Now, turning to the prayer of the Petitioners for the restoration of possession on the ground of equity, the learned counsel for the Petitioners placed reliance on the judgment and order passed by the Hon'ble Supreme Court in the case of Band of Baroda v. M/s.Karwa Trading Company3. Learned counsel submitted that in this case, the Hon'ble Supreme Court had directed the financial institution to restore the possession to the borrower on the ground of equitable consideration. The reliance placed by the Petitioners on this decision is misplaced. In this case, an appeal was filed by the financial institution in the Hon'ble Supreme Court against the order passed by the Rajasthan High Court directing that if the Appellant deposits further sum stated therein, the financial institution will release the property and hand over the possession of the title deeds. The facts of the case were that the bank had initiated action against the borrowers, and physical possession was taken. Bank had issued a sale notice for a public auction of the residential property. The 3 Civil Appeal No.363/2022 decided on 10 February 2022 skn 13 WPL-34253.2022.doc borrowers challenged the action before the DRT, Jaipur. In the interim order passed by the DRT, it was directed that if the borrowers deposit Rs.20 lakh by the stipulated period, the bank will accept the bids and not finalise the same. The DRT also observed that if the borrowers pay Rs.48,65 lakh on or before the stipulated date, the bank will deliver possession of the secured asset. It was not in dispute that the borrowers deposited Rs.48.65 lakh. In this context, the Hon'ble Supreme Court considered the case and, while allowing the appeal of the bank, permitted the appellant bank to proceed further with the auction process, protecting the borrowers' possession until the auction was finalised. The original title deeds were to be retained by the bank. In the present case, there is not even a whisper in the argument to deposit any amount. The learned counsel for Respondents submitted that had this been the Petitioners' stand, it would have been a different matter altogether. The Petitioners have invoked equitable remedy of this Court and seek the direction of equitable nature in this petition. We may note here that there are no averments of any offer of repayment or instalment or that if the possession is restored and the Petitioners are allowed to continue until the auction process is complete, they will not impede it. Restoration of possession is sought without any such statement.
19. The learned counsel for the Petitioner further sought to rely on the order passed by the Division Bench in Writ Petition (L) skn 14 WPL-34253.2022.doc No.32367/2022. Again this order is only adjourning the petition recording the arguments of the parties where the petitioner-borrower therein had expressed that the borrower is ready to settle the dispute and the possession be handed over. No order was passed except adjournment. To a query to the learned counsel for the Petitioners as to whether any prayer for the restoration of possession is made before the DRT, no clear answer is coming forth. The learned counsel for the Respondents states that the Petitioners made no such application, and the application for stay is still pending, for which interim relief was not pressed. The Petitioners advance arguments that the premises are residential property and there are school/college examinations, family difficulties etc. However, no answer as to why the prayer for the restoration of possession cannot be made in the proceeding before the DRT if the relief is urgent. The only answer is that the questions of law are raised in this petition. From the Petitioners' conduct, it is clear that they are more interested in keeping the proceeding pending than seeking any immediate relief from the DRT. Therefore, we find no merit in the prayer made by the Petitioners that possession of the premises be restored to the Petitioners, and the said prayer is rejected.
20. The learned counsel for the Petitioners sought to contend that the civil suit is maintainable and the Petitioners should be relegated to a civil suit, and the declarations of law be considered with a grant of the mandatory injunction. We have already observed skn 15 WPL-34253.2022.doc that we are not inclined to examine the legal challenges raised at the behest of the Petitioners, and we have rejected the prayer for mandatory injunction.
21. So far as the recourse to the Civil Court is concerned, the learned counsel for the Petitioners relied upon the decision of the Hon'ble Supreme in the case of Bank of Rajasthan v. VCK Shares & Stock Broking Services Ltd.4 and Mrs.Leelamma Mathew v. M/s.Indian Overseas Bank5. The learned counsel for the Respondents sought to contend that both cases are distinguishable on facts. Whether the Petitioners have the remedy in the Civil Court is an academic issue for the present enquiry. The Petitioners have not filed any suit. If it is filed, it is for the Civil Court to decide the aspect of jurisdiction. Therefore, all that we see before us is only an attempt to launch multiple proceedings at different forums to create as many hurdles as possible in the loan recovery process.
22. In the facts and circumstances, we are not inclined to exercise the writ jurisdiction. The Writ Petition is rejected.
(GAURI GODSE, J.) (NITIN JAMDAR, J.) 4 Civil Appeal Nos.8972-8973/2014 decided on 10 November 2022. 5 Civil Appeal No.7128/2022 was decided on 17 November 2022.