Varsani Construction Company - A ... vs Authorised Officer - Rajkot Nagrik Bank ... on 2 November, 2015

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Gujarat High Court

Varsani Construction Company - A ... vs Authorised Officer - Rajkot Nagrik Bank ... on 2 November, 2015

Bench: Abhilasha Kumari

                 C/SCA/18296/2015                                            ORDER




                  IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                    SPECIAL CIVIL APPLICATION NO. 18296 of 2015

         ==========================================================
          VARSANI CONSTRUCTION COMPANY - A REGISTERED PARTNERSHIP
                               FIRM....Petitioner(s)
                                     Versus
         AUTHORISED OFFICER - RAJKOT NAGRIK BANK LIMITED....Respondent(s)
         ==========================================================
         Appearance:
         MR ADITYA A GUPTA, ADVOCATE for the Petitioner(s) No. 1
         MR AR GUPTA, ADVOCATE for the Petitioner(s) No. 1
         MR ANAND B GOGIA, ADVOCATE for the Respondent(s) No. 1
         MR BB GOGIA, ADVOCATE for the Respondent(s) No. 1
         MS MUSKAN A GOGIA, ADVOCATE for the Respondent(s) No. 1
         ==========================================================

                 CORAM: HONOURABLE SMT. JUSTICE ABHILASHA
                        KUMARI

                                    Date : 02/11/2015


                                     ORAL ORDER

1. Mr.Aditya A. Gupta, learned counsel for the petitioner, who is the principal borrower, has raised certain legal questions and made submissions on the basis of those questions.

1.1 The first legal question raised by learned counsel is (i) Whether, the Authorised Officer of the respondent Bank ought to deal with the objections Page 1 of 16 HC-NIC Page 1 of 16 Created On Wed Nov 04 02:14:45 IST 2015 C/SCA/18296/2015 ORDER filed by the borrower under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("the SARFAESI Act" for short) himself, or can he instruct an advocate to reply to the said objections and (ii) Whether the Authorised Officer or his advocate communicate a copy of the reply to the advocate of the borrower, instead of the borrower, directly. 1.2 It is the contention of learned counsel for the petitioner that in reply to the objections preferred by the petitioner under Section 13(3A) of the SARFAESI Act, a reply has been sent by the advocate of the Authorised Officer and not by the Authorised Officer, himself. According to learned counsel for the petitioner, Section 13(3A) of the SARFAESI Act has been incorporated in the statute after the decision of the Supreme Court in Maradia Chemicals Ltd. Vs. Union of India reported in (2004) 4 SCC 311 wherein, in paragraph44, the Supreme Court has held as below:

"44. ....Nonetheless, dues or disputes regarding classification of NPAs should be considered and resolved by some internal mechanism. In our view, Page 2 of 16 HC-NIC Page 2 of 16 Created On Wed Nov 04 02:14:45 IST 2015 C/SCA/18296/2015 ORDER the above position suggests the safeguards for a borrower, before a secured asset is classified as NPA. If there is any difficulty or any objection pointed out by the borrower by means of some appropriate internal mechanism it must be expeditiously resolved."

1.3 It is submitted that the scheme of Section 13 of the SARFAESI Act, especially, subsection (3A) thereof, clearly empowers only the Authorised Officer to deal with the objections raised by the borrower and, after due application of mind, arrive at a conclusion whether such representation or objection is acceptable, or not. After coming to a conclusion, the Authorised Officer is required to communicate his decision regarding the acceptance or nonacceptance, within a period of fifteen days, to the borrower. It is submitted that this provision clearly recognises the principles of natural justice and is based upon the said principles. A violation of the principles of natural justice can always be looked into by this Court, in exercise of jurisdiction under Article 226 of the Constitution of India and the petitioner is not required to be relegated to avail of an alternative remedy. In support of this submission, reliance has Page 3 of 16 HC-NIC Page 3 of 16 Created On Wed Nov 04 02:14:45 IST 2015 C/SCA/18296/2015 ORDER also been placed upon a judgment of the Supreme Court Whirpool Corporation Versus Registrar of Trade Marks, Mumbai And Others reported in (1998) 8 SCC 1. 1.4 It is further submitted that in subsection (1) of Section 13, there is a qualification that any security interest created in favour of the secured creditor may be enforced, without the intervention of the Court or Tribunal, by such creditor, in accordance with the SARFAESI Act. It is submitted that the action of the secured creditor, is required to be in accordance with the provisions of the SARFAESI Act and there cannot be any deviation therefrom. 1.5 Learned counsel for the petitioner has further submitted that the right to property is a constitutional right, therefore, taking into consideration the drastic nature of the powers under the SARFAESI Act, the right to enforce a security interest has to be undertaken in accordance with law. 1.6 In support of the above submissions, reliance has been pleased upon a judgment of the Supreme Court in the case of J.Rajiv Subramaniyan And Another Versus Page 4 of 16 HC-NIC Page 4 of 16 Created On Wed Nov 04 02:14:45 IST 2015 C/SCA/18296/2015 ORDER Pandiyas And Others reported in (2014) 5 SCC 651, wherein the Supreme Court has held in Paragraph12 as below:

"12. ....With regard to Section 13(1), this Court observed that Section 13(1) of the SARFAESI Act , 2002 gives a free hand to the secured creditor for the purpose of enforcing the secured interest without the intervention of Court or Tribunal. But such enforcement should be strictly in conformity with the provisions of the SARFAESI Act, 2002....."

Further, in Paragraph13, it is held as under:

"13. ....Therefore, the secured creditor as a trustee of the secured asset cannot deal with the same in any manner it likes and such an asset can be disposed of only in the manner prescribed in the SARFAESI Act, 2002..."

1.7 It is urged by learned counsel for the petitioner that Section 13(3A) vests power to deal with the objections filed by the borrower on the secured creditor, and not on anyone else. The application of mind has to be that of the secured creditor. Besides, the procedure for dealing with the objections filed Page 5 of 16 HC-NIC Page 5 of 16 Created On Wed Nov 04 02:14:45 IST 2015 C/SCA/18296/2015 ORDER under subsection (3A) of Section 13 has been clearly delineated in Rule 2(a) read with Rule 3A of the Security Interest (Enforcement) Rules, 2002 ("the Rules" for short). It is submitted that the definition of "Authorised Officer" under Rule 2(a) of the Rules has been defined to mean 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. Read with Rule 3A, it delineates the procedure of dealing with the objections filed by the borrower under Section 13(3A) of the SARFAESI Act. There can be no manner of doubt that it is only the Authorised Officer who has been vested with the power to consider such representation or objection and examine whether the same is tenable, or not, and no other person. The intention of the Legislature in vesting power upon a highranking Bank officer shows that the power, being drastic, is to be exercised after careful scrutiny and Page 6 of 16 HC-NIC Page 6 of 16 Created On Wed Nov 04 02:14:45 IST 2015 C/SCA/18296/2015 ORDER consideration.

1.8 That, an adjudicatory role has been conferred upon the Authorised Officer and not an adversarial role. The role of the Authorised Officer is to examine, consider and pass necessary orders, with reasons, as per Section 13(3A) of the SARFAESI Act. It is a quasijudicial power which cannot be delegated, except as provided by the Act. After considering the objections, the Authorised Officer may come to a conclusion that the objections are valid and further action may not be contemplated. This shows that the power vested is only on the Authorised Officer and not upon his advocate, considering the drastic nature of the power under the SARFAESI Act.

1.9 It is contended that the Authorised Officer has no power to further delegate the power vested in him, as he himself acts on behalf of the secured creditor. The delegate cannot further delegate the power to an advocate, in consonance with the maxim delegatus non potest delegare. If such power is permitted to be delegated to an advocate, it would have a drastic Page 7 of 16 HC-NIC Page 7 of 16 Created On Wed Nov 04 02:14:45 IST 2015 C/SCA/18296/2015 ORDER effect, as the delegation could be either to an advocate or any other representative, leading to absurd results and a negation of the intention of the Legislature.

1.10 It is further urged that, in the reply to the objections preferred by the advocate for the respondent Bank, there is nothing to show that there has been any application of mind by the Authorised Officer. The reply is not even signed by him. Merely by stating that it is under the instructions of the secured creditor does not disclose due application of mind.

1.11 Learned counsel for the petitioner has relied upon certain other judgments as follows:

(1) M/s. Tetulia Coke Plant Pvt. Ltd. Vs. Bank of India reported in AIR 2013 Jhar 12, wherein the High Court of Jharkhand has taken the view that the reply to the objections of the borrower under Section 13(3A) at the behest of the secured creditor is not in accordance with the provisions Page 8 of 16 HC-NIC Page 8 of 16 Created On Wed Nov 04 02:14:45 IST 2015 C/SCA/18296/2015 ORDER of the SARFAESI Act.

(2) Benarsi Krishna Committee And Others Versus Karmyogi Shelters Private Limited reported in (2012) 9 SCC 496, wherein the Supreme Court has held, in Paragraph15, that it is one thing for an advocate to act and plead on behalf of a party in a proceeding and it is another for an advocate to act as the party himself.

1.12 It is, accordingly, submitted that the reply filed by the advocate of the secured creditor to the objections of the petitioner under Section 13(3A) is not only in violation of the principles of natural justice but is also without jurisdiction.

2. The submissions advanced by learned counsel for the petitioner have been strongly opposed by Mr.Anand B. Gogia, learned counsel for the respondent Bank, appearing on Caveat. He has filed two affidavits inreply. In the second affidavitinreply, it is stated that a notice dated 27.10.2015, despatched on 28.10.2015, under Section 13(4) of the SARFAESI Act, Page 9 of 16 HC-NIC Page 9 of 16 Created On Wed Nov 04 02:14:45 IST 2015 C/SCA/18296/2015 ORDER has been issued to the petitioner and has been received by him on 30.10.2015. Hence, as proceedings under Section 13(4) of the SARFAESI Act have now commenced, the petitioner has an alternative remedy of approaching the Debt Recovery Tribunal under Section 17 of the SARFAESI Act. This Court, therefore, may not entertain the petition.

2.1 Learned counsel for the respondent has submitted that initially, recovery proceedings were initiated against the petitioner under the Arbitration Act. The petitioner has filed two petitions in this Court against the said proceedings, one of which is still pending, in which no disclosure has been made about the order passed in the earlier matter.

2.2 It is submitted that the movable and immovable properties of the petitioner, which were hypothecated, such as, plant, machinery and heavy vehicles, have been sold. The present proceedings under the SARFAESI Act are in connection with the movable and immovable properties. Civil Suits are pending before the Civil Court, in connection with the immovable properties at Page 10 of 16 HC-NIC Page 10 of 16 Created On Wed Nov 04 02:14:45 IST 2015 C/SCA/18296/2015 ORDER the behest of persons inducted by the petitioner as tenants.

2.3 It is next submitted that Section 13(3A) of the SARFAESI Act requires a borrower to raise an objection or file a representation. In the present case, objections have been raised by the petitioner through an advocate, therefore, they have replied to by the advocate of the Bank. There is no representation by the borrower himself, till date.

2.4 In support of the submission that it is legal and valid for an advocate of the secured creditor to reply to the objections under Section 13(3A) of the SARFAESI Act, learned counsel for the respondent has placed reliance upon the following judgments:

(1) Asset Reconstruction Company India Ltd.

Versus Amit Ventures Private Ltd., reported in AIR 2007 Cal 49 (2) Mayur Coirs P. Ltd. Versus Development Credit Bank Ltd., reported in 2008(0) AIJDL 1328954 (Writ Petition (CIVIL) No.191 of 2008, Page 11 of 16 HC-NIC Page 11 of 16 Created On Wed Nov 04 02:14:45 IST 2015 C/SCA/18296/2015 ORDER judgment dated 11.04.2008), wherein both the Calcutta and Delhi High Courts have taken a view that there is nothing in the scheme of the SARFAESI Act or Section 13 to support the contention that a notice must be issued to the borrower by the Authorised Officer himself and not, under his instructions, by an advocate authorised by him. So long as the advocate is duly authorised and instructed by the Bank, the notice under Section 13(2) would be valid and cannot be faulted.

3. In rejoinder, Mr.Aditya A. Gupta, learned counsel for the petitioner, has submitted that the judgments of the Calcutta and Delhi High Courts relied upon by learned counsel for the respondent Bank, do not deal with the provisions of Rule 2(a) of the Rules which defines "Authorised Officer", or Rule 3A, which lays down the procedure required to be followed by the Authorised Officer in dealing with the objections under Section 13(3A) of the SARFAESI Act. 3.1 In support of this contention, reliance has been placed by learned counsel for the petitioner on the Page 12 of 16 HC-NIC Page 12 of 16 Created On Wed Nov 04 02:14:45 IST 2015 C/SCA/18296/2015 ORDER following two judgments:

(1) Sampoorna Battu Versus I.C.I.C.I Bank, Navi Mumbai And Other reported in 2012 SCC OnLine AP 468 (2) Bobby Sebastian And Another Vs. The Authorised Officer And Another reported in AIR 2014 Kerala 139 3.2 In the above judgments, the Andhra Pradesh and Kerala High Courts have both distinguished the judgment of the Calcutta High Court in Asset Reconstruction Company India Ltd. Versus Amit Ventures Private Ltd.(supra), cited by the learned counsel for the respondent.

3.3 It is submitted on behalf of the petitioner that Section 13 (3A) of the SARFAESI Act is required to be read in consonance with the provisions of Rule 2(a) and 3A of the Rules, and only then can the true intention of the Legislature be ascertained. Page 13 of 16 HC-NIC Page 13 of 16 Created On Wed Nov 04 02:14:45 IST 2015 C/SCA/18296/2015 ORDER 3.4 Learned counsel for the petitioner has further submitted that Section 13(2) requires that a notice, in writing, be given to the borrower, which is different from the words used in Section 13(4). Besides, in Section 13(3A) the words 'representation or objections' are used. These words imply that the representation or objections can be made by the borrower himself, or through his counsel. The borrower is not a statutory authority, whereas the Authorised Officer is a statutory authority and is liable to perform certain duties and obligations as required by the Act and Rules, being a statutory authority. 3.5 It is submitted that Article 300A of the Constitution of India applies against a statutory authority and not vice versa. Where the right to property of an individual is involved, strict construction ought to be made of the provisions of the statute. A borrower may be an uneducated person and, therefore, may require the aid of an advocate in drafting his representation or objections, whereas the Authorised Officer, as defined under the SARFAESI Act, is a highranking Bank Officer who has been appointed Page 14 of 16 HC-NIC Page 14 of 16 Created On Wed Nov 04 02:14:45 IST 2015 C/SCA/18296/2015 ORDER to perform certain special duties with the purpose of deal with the objections of the borrower, as per the dictates of the Supreme Court in Maradia Chemicals Ltd. Vs. Union of India (supra).

4. Having heard learned counsel for the respective parties at length and after careful consideration of the rival submissions and the judgments relied upon by both sides, the Court is of the view that the matter requires much deeper consideration. Certain important legal questions have been raised in the matter that require to be conclusively answered. There appears to be a cleavage of opinion between different High Courts of the country, as is evident from the judgments relied upon by either side.

5. Certain implications and ramifications would also be implicit in the decision of the issues before this Court. Whether the principles of natural justice would be violated and whether the advocate of the secured creditor can exercise the power vested in the Authorised Officer and whether such power can be delegated, are serious issues that are required to be Page 15 of 16 HC-NIC Page 15 of 16 Created On Wed Nov 04 02:14:45 IST 2015 C/SCA/18296/2015 ORDER examined minutely. If the consideration of the objections is not found to be in accordance with the provisions of the Act, it would, primafacie, have a direct effect on the proceedings under Section 13(4) of the SARFAESI Act.

6. Considering the above aspects, this Court considers it just and appropriate to pass the following order:

Issue Rule, returnable on 30.11.2015.

Interim relief in terms of Paragraph27(c) is granted.

Mr.Anand B. Gogia, learned advocate, waives service of notice of Rule on behalf of the respondent.

(SMT. ABHILASHA KUMARI, J.) piyush Page 16 of 16 HC-NIC Page 16 of 16 Created On Wed Nov 04 02:14:45 IST 2015

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