Karnataka High Court
C Sarasamma vs Karnataka State Financial Corporation on 7 September, 2023
Author: Ravi V Hosmani
Bench: Ravi V Hosmani
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NC: 2023:KHC:32236
WP No. 20356 of 2018
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 7TH DAY OF SEPTEMBER, 2023
BEFORE
THE HON'BLE MR JUSTICE RAVI V HOSMANI
WRIT PETITION NO. 20356 OF 2018 (GM-KSFC)
BETWEEN:
C. SARASAMMA,
W/O P.NAGARAJ,
AGED ABOUT 54 YEARS,
R/AT NO.16, V.B.RESIDENCY,
PLOT NO.204, 2ND FLOOR,
OBALAREDDY LINE,
RAMAMURTHY NAGAR MAIN ROAD,
BANASAWADI, BENGALURU-560 043.
...PETITIONER
[BY SRI. M.N.SESHADRI, SR. COUNSEL FOR
SRI. VARUN GOWDA, ADVOCATE (PH)]
AND:
1. KARNATAKA STATE FINANCIAL CORPORATION,
A BODY CORPORATE ESTABLISHED UNDER
THE STATE FINANCIAL CORPORATION ACT, 1982,
(CENTRAL) ACT, NO.LXIII OF 1951)
HAVING ITS HEAD OFFICE AT NO.1/1,
Digitally THIMMAIAH ROAD, NEAR CONTONMENT
signed by
GURURAJ D RAILWAY STATION, BENGALURU-560 052,
Location: REP. BY ITS MANAGING DIRECTOR.
High Court
of
Karnataka 2. THE AUTHORIZED OFFICER AND
ASSISTANT GENERAL MANAGER (R),
KARNATAKA STATE FINANCIAL CORPORATION,
THIMMAIAH ROAD,
NEAR CONTONMENT RAILWAY STATION,
BENGALURU-560 052.
3. M/s. ETHNIC INFORMATICS PRIVATE LIMITED,
A PRIVATE LIMITED COMPANY,
INCORPORATED UNDER THE COMPANIES ACT,
1956, HAVING ITS REGISTERED OFFICE AT
NO.17/1, CUNNINGHAM ROAD,
BENGALURU-560 052,
REP. BY ITS MANAGING DIRECTOR.
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WP No. 20356 of 2018
4. SRI. S. BADRINARAYAN,
S/O K.SRINIVASA MURTHY, MAJOR,
DIRECTOR, M/s. ETHNIC INFORMATICS
PRIVATE LIMITED, R/AT FLAT NO.A-2,
KRISHNALEELA APARTMENT,
8TH MAIN ROAD, MALLESWARAM,
BENGALURU-560 003.
5. SMT. ROOPA JAGANNATH,
D/O JAGANNATH, MAJOR,
DIRECTOR,
M/s. ETHNIC INFORMATICS PVT. LTD.,
AGED ABOUT 44 YEARS,
NO.397, 2OTH MAIN, 11TH CROSS,
II PHASE, J.P.NAGAR,
BENGALURU-560 068.
6. O.N.RAVI SHANKAR,
S/O O.V.NARASIMHA SHETTY,
MAJOR, R/AT SITE NO.89,
CORPORATION DIVISION,
NO.5 WARD NO.7, 11TH CROSS,
2ND MAIN ROAD, MALLESWARAM,
BENGALURU-560 003.
7. O.N.RAMESH BABU,
S/O O.V. NARASIMHA SHETTY,
MAJOR, R/AT SITE NO.89,
CORPORATION DIVISION,
NO.5, WARD NO.7,
11TH CROSS, 2ND MAIN ROAD,
MALLESWARAM,
BENGALURU- 560 003.
8. M/s. TAMARIND,
PARTNERSHIP CONCERN
BY ITS MANAGING PARTNER
SRI. VIJAYAKUMAR RAJU,
NO.2, OUTER RING ROAD,
RAMAMURTHY NAGAR MAIN ROAD,
BANASWADI, BENGALURU-560 043.
...RESPONDENTS
[BY SRI. BIPIN HEGDE, ADVOCATE FOR R1 TO R2 (PH);
SRI. R.R.DEVENDRA GOWDA, ADVOCATE FOR R4;
SRI. SARAVANA S., ADVOCATE FOR R8]
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NC: 2023:KHC:32236
WP No. 20356 of 2018
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 & 227
OF THE CONSTITUTION OF INDIA, PRAYING TO DECLARE THE
DEMAND NOTICE DATED 22.02.2018 UNDER REFERENCE NO.AGM
(R)/KM/01-3928/17-18, ISSUED UNDER SECTION 13(2) OF THE
SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS
AND ENFORCEMENT OF SECURITY INTEREST (SECOND) ACT, 2002
('SARFAESI ACT') BY THE AUTHORIZED OFFICER AND ASSISTANT
GENERAL MANAGER (R) THE R2 OF THE R1 CORPORATION AS PER
ANNEXURE-A IS ILLEGAL AND ALL FURTHER PROCEEDINGS
PURSUANT THERETO AS ONE WITHOUT JURISDICTION AND
AUTHORITY OF LAW AND VOID-AB-INITIO AND NON-EST,
CONSEQUENTLY.
THIS PETITION IS HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 23.03.2023, THIS DAY, THE COURT, PRONOUNCED
THE FOLLOWING:
ORDER
This writ petition is filed seeking for following reliefs:
a) Declare Demand Notice dated
22.02.2018 under reference no.AGM
(R)/KM/01-3928/17-18, issued under Section 13 (2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Second) Act, 2002 by Authorized Officer and Assistant General Manager (R) - 2nd respondent of 1st respondent-Corporation as per Annexure-'A' as illegal and all further proceedings pursuant thereto as one without jurisdiction and authority of law and void-ab-initio and non-est, consequently,
(b) Issue a writ of certiorari quashing Demand Notice dated 22.02.2018 under reference No.AGM (R)/KM/01-3928/17-19, issued under Section 13 (2) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Second) Act, 2002 by Authorized Officer and Assistant General Manager (R) - 2nd respondent of 1st respondent-Corporation as per Annexure-'A' and all further proceedings pursuant thereto.
-4- NC: 2023:KHC:32236 WP No. 20356 of 2018 (c) and further be pleased to pass such
order or orders that this Hon'ble Court deems fit to grant to the petitioner in the attendant facts and circumstances of the case by issue appropriate writ/order in the interest of justice and equity.
2. Shri. M.N.Seshadri, learned Senior Counsel appearing for Shri. Varun Gowda, advocate for petitioner submitted that respondent no.3 herein ('Company' for short) was sanctioned a term loan of Rs.2.4 Crores on 13.01.2001 by respondent no.1 ('KSFC' for short) for developing software solutions for educational institutions. As per condition no.5(b) of sanction order, Company was required to mortgage commercial complex situated at no.89, 11th Cross, Sampige Road, Ward no.7, Malleshwaram, Bengaluru, belonging to respondents no.6 and 7 ('Guarantors' for short) valued at Rs.1.188 Crores besides other immovable properties, as collateral securities. And therefore guarantors had executed deed of guarantee on 20.04.2001. In addition, they being Managing Director and Director of Company executed deed of personal guarantee on 16.04.2001.
3. Alleging default in repayment of loan and seeking for recovery of balance sum of Rs.3,24,22,923/- with costs and interest, KSFC filed Misc.Petition.no.521/2004 before -5- NC: 2023:KHC:32236 WP No. 20356 of 2018 XXXVII Additional City Civil and Sessions Judge (CCH-38), Bangalore City, under Sections 31(1)(aa) and 32 of State Financial Corporations Act, 1951 (for short 'SFC Act') against respondents no.3 to 7.
4. It was submitted that petitioner (respondent no.6 therein) filed objections specifically denying execution of deed of guarantee dated 08.06.2002 and personal guarantee for repayment of loan of Company. She also denied offering agricultural property measuring 14 guntas bearing Sy.no.113/2 (New Sy.no.113/2B), Horamavu village (hereinafter 'schedule property') as collateral security. Fraud played by Mr.Ravi Kumar, an official of KSFC, in collusion with his colleagues was alleged by setting out details. It was further stated that in criminal case filed against said officials, charge-sheet was filed for offences punishable under Section 420 read with Section 120(b) of Indian Penal Code, which was pending.
5. However, Misc.Petn.no.521/2004 was allowed on 25.11.2015, holding KSFC entitled to recover amount claimed with interest at 19% per annum from date of petition till realization. It held petitioner was jointly and severally liable -6- NC: 2023:KHC:32236 WP No. 20356 of 2018 along with respondents no.3 to 7 for said amount. It was submitted that schedule property was not included in schedule of above petition and therefore KSFC was deemed to have given up its right against it. It was submitted that order passed in Misc.Petn.no.521/2004 was challenged and pending in MFA.no.4051/2017.
6. It was submitted that non-mentioning of terms and conditions of loan sanctioned to Company in alleged letter of deposit of title deeds in respect of schedule property as well as interpolation in deed of guarantee dated 08.06.2002 to show petitioner allegedly agreed to act as guarantor for additional term loan to extent of Rs.1.25 Crores (which was not counter signed by petitioner), substantiated fraud.
7. It was submitted that when KSFC sought to proceed against schedule property under Section 29 of SFC Act, W.P.no.21589/2005 was filed by company, directors and petitioner together. W.P.no.22389/2005 was filed by tenant. Both these petitions were disposed as infructuous, when schedule property was sold in violation of interim orders and sale was challenged in W.P.no.1348/2006. On its dismissal, -7- NC: 2023:KHC:32236 WP No. 20356 of 2018 Writ Appeal no.2263/2007 was filed. Said appeal was allowed on 13.03.2013 declaring sale in favour of tenant as null & void and holding that petitioner continued as owner.
8. However, taking advantage of illegal sale, respondent no.8, defaulted in payment of rents. Therefore, petitioner has filed O.S.no.6229/2017 against respondent no.8 for recovery of Rs.6,32,21,563/- and for eviction. In said suit, it obtained attachment of auction price deposited in Court sale.
9. Such being case, petitioner was shocked by paper notification dated 22.02.2018 issued under Section 13(2) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('SARFAESI Act' for short) as per Annexure-A. It was submitted that impugned action sought to be taken to enforce deed of guarantee dated 08.06.2002, after lapse of 16 years would be barred by limitation in view Section 36 of SARFAESI Act. Secured creditor could invoke measures under Section 13, only if claim was made within period of limitation i.e. condition precedent for invoking Section 13 would be existence of a 'live debt'. -8-
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10. It was submitted that Hon'ble Supreme Court had in B.K. Educational Services Pvt. Ltd., v/s Parag Gupta and Associates1, held that words 'debt due' used in statute would not include time barred debts. And Division Bench of High Court of Orissa in case of Indumati Pattanaik v/s Bank of India2, under similar circumstances entertained petition under Articles 226 and 227 of Constitution of India, and clarified that exercise of right under Section 13(1) of SARFAESI Act and issuance of notice under 13 (2) must be within period of limitation as per Section 36.
11. Learned Senior Counsel contended that since proceedings were time barred, initiation of action/proceedings based on erroneous assumption about jurisdictional fact that it was within period of limitation could be decided in writ jurisdiction regardless of existence of alternative remedy. In support of said proposition, reliance was placed on decisions in T.N. Wakf Board v/s Hathija Ammal (Debt) by LRs and Ors.3 and Madanuri Sri Rama Chandra Murthy v/s. 1 (2019) 11 SCC 633 2 2005 SCC OnLine Ori. 137 3 (2001) 8 SCC 528 -9- NC: 2023:KHC:32236 WP No. 20356 of 2018 Syed Jalal4. Relying on decision in Shri M.L. Sethi v/s Shri R.P. Kapur5, it was contended that merely on ground that Court may not exercise jurisdiction on any ground, would not mean that such Court did not have jurisdiction over subject matter. It was submitted that where quasi-judicial authority erroneously decided a jurisdictional fact, refusal to entertain writ petition under Article 226 of Constitution of India would not be proper by referring to decision in Raza Textiles Ltd v/s Income Tax Officer, Rampur6.
12. Referring to decision of High Court of Calcutta in Suman Lal v/s Collector of Central Excise7 rendered by reference to Apex Court decision in Raman and Raman Limited v/s State of Madras and Another8, it was submitted that where jurisdiction of a Tribunal depended on fulfillment of condition precedent or existence of particular fact, determination of fulfillment of condition or existence of particular fact would be jurisdictional fact and open for judicial review in certiorari proceedings. Reliance was also placed on 4 (2017) 13 SCC 174 5 (1972) 2 SCC 427 6 (1973) 1 SCC 633 7 AIR 1974 Cal 158 8 AIR 1956 SC 463
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NC: 2023:KHC:32236 WP No. 20356 of 2018 decision in case of Indian Farmers Fertilizer Cooperative Limited v/s Bhadra Products9.
13. Insofar as contention that in United Bank of India v/s Satywati Tondon and others10, two Judges Bench of Hon'ble Supreme Court had held that there would be bar against invocation of jurisdiction of High Court under Art.226 of Constitution of India, it was submitted that same was in context whether appeal under Section 17 of CPC was available against order passed under Section 13(4) of SARFAESI Act. It was submitted that said bar would not apply to cases falling within exceptions carved out.
14. Likewise, even Kanaiyalal Lalchand Sachdev v/s State of Maharastra11 was decided under different circumstances namely, disputed questions of fact about non- receipt of notice under Section 13(2) of SARFAESI Act, non- communication of order of Chief Judicial Magistrate and invocation of appeal remedy under Section 17 of CPC, which would clearly distinguish from facts of this case. 9 (2018) 2 SCC 534 10 (2010) 8 SCC 110 11 (2011) 2 SCC 782
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15. It was also submitted that three Judges Bench of Hon'ble Supreme Court in M/s Magadh Sugar and Energy Limited v/s State of Bihar12 has held that refusal to entertain writ petition, when there was no disputed question of fact and on pure question of law was not proper. It was contended that Hon'ble Supreme Court in Whirlpool Corporation v/s Registrar of Trade Marks, Mumbai and ors.13 followed in Harbanslal Sahnia and anr. v/s India Oil Corporation Limited and others14; M.P. State Agro Industries Development Corporation Ltd. and anr. v/s Jahan Khan15 and Kamlakar Bhimrao Patil v/s Maharastra Industrial Development Corporation16 had clarified that invocation of writ jurisdiction would be justified against orders passed or proceedings initiated without jurisdiction and in case of violation of principles of natural justice etc.
16. Alternatively, reliance was placed on Division Bench decision of this Court in case of KSRTC v/s KSTA17, wherein 12 2021 SCC OnLine SC 801 13 (1998) 8 SCC 1 14 (2003) 2 SCC 107 15 (2007) 10 SCC 88 16 (2009) 2 SCC 655 17 ILR 1983 KAR 436
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NC: 2023:KHC:32236 WP No. 20356 of 2018 it was held that existence of alternative remedy was not an absolute bar against invocation of jurisdiction under Art. 226 of Constitution of India. Additionally, learned Senior Counsel relied upon decisions in State of U.P v/s Mohd. Nooh18; Calcutta Discount Company Ltd. v/s ITO,19; Nair Service Society Ltd. v/s Rev. Father K.C.Alexander20; Ram and Shyam Company v/s State Haryana21.
17. It was contended that though Section 23 of SARFAESI Act required registration of securities, there was no registration insofar as scheduled property as indicated by Annexure-N issued by Central Registry of Securitization Asset Reconstruction and Security Interest of India. And as non- registration was fatal, issuance of notice in respect of unregistered property would be unsustainable. It was submitted that since specific contention about non- registration urged in writ petition was not even traversed in statement of objections, it was required to be held as conceded. Relying upon Hon'ble Supreme Court in case of Babu Verghese and others v/s. Bar Council of Kerala 18 AIR 1958 SC 86 19 AIR 1961 SC 372 20 AIR 1968 SC 1165 21 (1985) 3 SCC 267
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NC: 2023:KHC:32236 WP No. 20356 of 2018 and others22, highlighted principle that where power is given to do a certain thing in a certain way, then that thing must be done in that way or not at all.
18. It was further contended that respondent-Bank had not agitated its right in respect of schedule property in earlier proceedings initiated under Section 31 of SFC Act. It was contended that impugned notice was liable to be quashed on ground of doctrine of election also. KSFC had chosen not to proceed against schedule property in earlier proceedings. Since said proceedings were to enforce debt against borrower/guarantor herein, present proceedings would be barred in view of Order II Rule 2 of Code of Civil Procedure, 1908 ('CPC' for short).
19. Reliance was also placed on decision in State Bank of Patiala v/s Hargobind Fashions (Pvt.) Ltd. & Another23, wherein Appellate Tribunal had held that limitation for taking measures under Section 13(4) of SARFAESI Act would begin from date when payment of money became due and where such measure was taken after 22 AIR 1999 SC 1281 23 2013 SCC OnLine DRAT 39
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NC: 2023:KHC:32236 WP No. 20356 of 2018 expiry of 12 years from date when debt had become due, it would be barred by limitation. Since, 22.10.2003 was stated to be date of accrual of cause of action, in para 20 of Misc.Petn.no.521/04 (when loan advanced fell due), issuance of impugned notice on 22.02.2018 would be barred by limitation.
20. On other hand, Shri Bipin Hegde, learned counsel for respondents no.1 and 2 (KSFC) raised preliminary objections about maintainability of writ petition. It was submitted that prayer seeking declaration in writ proceedings would not be maintainable and therefore liable to be dismissed as misconceived. It was submitted that notice issued under Section 13(2) SARFAESI Act was only an intimation about default in repayment of debt; particulars of amount due and secured assets against which security interest created was intended to be enforced. Therefore, such a notice could not be challenged.
21. It was submitted that Section 13 (3A) of SARFAESI Act, mandated proper consideration of objections before measures contemplated under Section 13 (4) SARFAESI Act
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NC: 2023:KHC:32236 WP No. 20356 of 2018 could be invoked by KSFC. It was submitted that Hon'ble Supreme Court in Mardia Chemicals Ltd. v/s Union of India and Others24, had clarified about safeguards contemplated prior to invocation of measures under Section 13 (4) of SARFAESI by secured creditor. It was also held that thereafter, borrower/guarantor were required to avail remedy provided under Section 17 of SARFAESI Act. It was emphatically held that invocation of writ jurisdiction would not be permissible. Said ratio was reiterated in Union Bank of India v/s Satyawati Tondon and Others25, and once again recently in Phoenix ARC Pvt. Ltd. v/s Vishwa Bharati Vidhya Mandir and Others26. Hence writ petition was liable to be dismissed as premature/barred. Accordingly reply dated 16.04.2018 (Annexure-G) submitted by petitioner was considered and rejected by KSFC vide Annexure-H on 23.04.2018. Before steps under Section 13 (4) SARFAESI Act were taken, instant writ petition was filed and same was premature. Insofar as notice being barred by limitation, it was submitted that Section 36 of SARFAESI Act, clarified that period of limitation would apply only to measures contemplated under Section 13(4) of 24 2004 (4) SCC 311 25 (2010) 8 SCC 110 26 (2022) 5 SCC 345
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NC: 2023:KHC:32236 WP No. 20356 of 2018 SARFAESI Act. Moreover, as opined in Varun Steels v/s Canara Bank and Another27, question of bar of limitation would be a mixed question of law and fact and could not be addressed in writ jurisdiction. Hence, contention about proceedings being barred by limitation would be misconceived. Alternatively, it was submitted that since KSFC was pursuing remedies under provisions of SFC Act, it would be entitled for benefit of extended period of limitation under Sections 14 to 17 of Limitation Act. It was submitted that in E.P. Sreedharan v/s Manager Indian Bank28, High Court of Kerala, had taken similar view. It was submitted that KSFC had filed petition under Section 31 of SARFAESI Act against principal debtor and guarantors and obtained order for recovery of Rs.3,24,22,923/- . Moreover, while declaring sale of schedule property to tenant- respondent no.8 as null and void, this Court in W.A.no.2263/2007 and connected matters disposed of on 13.04.2013, had reserved liberty to KSFC to proceed against guarantor to realize debt dues. Therefore notice issued in pursuance of said liberty, did not call for interference. 27
(2007) SCC P & H 1038 28 2011 SCC OnLine Ker. 3959
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22. It was submitted that personal guarantee executed by petitioner was invoked by issuing notice dated 22.12.2003, in Misc.Petn.no.521/2004 filed by KSFC under Section 31 (aa) of SFC Act on 26.07.2004. Said petition was allowed on 25.11.2015 holding respondents no.2 to 6 herein liable to pay decretal amount to petitioner and holding KSFC entitled to recover it by sale of scheduled property. It was submitted that since debt against guarantor settled only on 25.11.2015, issuance of notice on 22.02.2018 was within period of limitation.
23. It was submitted that in case of M/s. Badma Tool Manufacturers v/s Indian Bank29, it was held that definition of 'debt' under SARFAESI Act was same as that under Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Therefore, impugned notice issued informing guarantor about outstanding amount in pursuance of order in Misc.Petition could not be faulted.
24. It was submitted that even schedule property was also taken over under Section 29 of SFC Act and brought to sale on 29.07.2005, which was challenged before this Court. 29
(2010) SCC OnLine MAD 4773
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NC: 2023:KHC:32236 WP No. 20356 of 2018 Ultimately, purchase of schedule property by respondent no.8 was set-aside in W.A.no.2263/2007 and connected matters by order dated 13.03.2013 and liberty was reserved to KSFC to recover its dues against guarantor in accordance with law. And after dismissal of SLP and Review Petition filed before Hon'ble Supreme Court, instant notices were issued. It was submitted that Division Bench of this Court in Sri.C.Laxman Gowda v/s Debt Recovery Appellant Tribunal and others30, had held that provisions of Sections 4 to 24 of Limitation Act would be applicable to proceedings under SARFAESI Act also. Therefore, benefit of Section 14 (2) of Limitation Act, would in any case, be available to KSFC.
25. It was submitted that Hon'ble Supreme Court in case of Sesh Nath Singh and Other v/s Baidyabati Sheoraphul Co-Operative Bank Ltd and Another31, had held that time spent in prosecuting with due diligence another civil remedy in good faith could be excluded while computing period of limitation and 'Court' employed in Section 14 (2) Limitation Act, would include any tribunal or forum for a civil proceeding.
30
2013 SCC OnLine Kar 8501 31 (2021) 7 SCC 313
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26. Insofar as non-registration of schedule property as required under Section 26D of SARFAESI Act, it was submitted that Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) Rules, 2011, ('Registration Rules' for short) provided for establishment of Central Registry. Therefore all securities created on or after date of notifying said Rules i.e., 31.03.2011, were required to be registered. However, same was not 'mandatory'. Admittedly, security interest herein was created by execution of Collateral Security Agreement, Confirmation Letter, Affidavit, Memorandum of Entry and Letter of Undertaking, prior to coming into force of Act, on 21.06.2002. Since there was no mandate under Section 23 of SARFAESI Act in respect of earlier security interests, effect of non-registration would not be fatal as contended.
27. It was also submitted that since Chapter-IVA of SARFAESI Act was notified to be effective only from 24.01.2020, bar under Section 26D would not apply to present case. It was further submitted that said aspect was clarified in Parvin Cotgin's case (supra). It was also submitted that
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NC: 2023:KHC:32236 WP No. 20356 of 2018 security interest having been registered on 22.09.2022, there was no merit subsisting in petitioner's contention.
28. And as State Financial Corporation was seeking to recover its dues of public money lent to Company, present writ petition being yet another device to avoid/delay recovery was not bonafide and prayed for dismissal of writ petition.
29. In reply, learned Senior Counsel for petitioner submitted that decisions relied on behalf of KSFC were distinguishable. It was submitted that decision in Phoenix ARC's case (supra), was rendered in facts and circumstances of said case, wherein invocation of writ jurisdiction was opined to be abuse of process of Court.
30. It was submitted that in Satyawati Tondon's case (supra), after observing that powers under Art.226 of Constitution of India were very wide and that rule of exhaustion of alternative remedy was one of discretion and not compulsion, it was observed that petitioner was required to show that his case fell within any of exception to rule of discretion.
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31. Insofar as Mardia Chemicals' case (supra), it was submitted that question for consideration therein was constitutional validity of Section 17 of SARFAESI Act and whether remedy provided in it was efficacious or otherwise. It was submitted that decisions in Varun Steel's case (supra), M/s Badma Tool's case (supra), EP Shreedharan's case (supra) and Parvin Cotgin's case (supra) were in specific and distinguishable facts and circumstances of said cases and ratio therein would not apply to present. It was submitted that in C Laxman's case (supra) as well as Sesh Nath Singh's case (supra), question involved was whether provisions of Limitation Act would apply in absence of express provision regarding delay in filing appeal, under SARFAESI Act/DRT Act.
32. It was further submitted that even if registration mandated under Section 26D SARFAESI Act, was done on 29.02.2022, same would in any case be far beyond permissible period of 30 days and maximum period of 30 days extension contemplated. Therefore, registration was also non-compliant with instructions issued by Central Registry in Circular dated 19.01.2015.
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33. Learned Senior Counsel lastly submitted that despite specific contention based on Doctrine of Election that KSFC having elected not to proceed against scheduled property in Misc.Petn.no.521/2004, was barred under Order II Rule 2 of CPC, said contention was also not traversed by KSFC. Hence same was required to be held as conceded and writ petition allowed on that count alone.
34. Heard learned counsel and perused writ petition records.
35. From above submission, it is seen that petitioner is challenging notice issued by KSFC under Section 13(2) of SARFAESI Act on ground of being barred by limitation, by Order II Rule 2 of CPC, by Doctrine of Election and Section 26D of SARFAESI Act due to non-registration and also on ground of fraud; while respondent - KSFC is opposing writ petition as premature; as not maintainable without exhausting alternative remedy available before Debt Recovery Tribunal and on contention that steps taken by KSFC were within period of limitation.
36. Insofar as bar of limitation, contention urged was that impugned notice dated 22.02.2018 was issued to enforce
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NC: 2023:KHC:32236 WP No. 20356 of 2018 right under alleged deed of guarantee executed by petitioner on 08.06.2002. As impugned notice was after more than 15 years, it would be beyond period of limitation prescribed.
37. Both parties herein concur that as per Section 36 of SARFAESI Act, secured creditor can invoke right over secured property only in respect of 'live-debt' as held in B.K. Educational Services Pvt. Ltd., case (supra). With due reverence to ratio in cases of M/s Magadh Sugar and Energy Ltd., Whirlpool Corporation, Harbanslal Sahania, M.P.State Agro Industries Development Corpn. Ltd., Kamlakar Bhimarao Patil etc., there is no dispute about jurisdiction of High Court to entertain writ petition to decide issue invoking pure questions of law not involving disputed questions of fact.
38. Indeed, as bar of limitation would be threshold bar, it would be an 'issue of jurisdiction' and as such, open for judicial review in writ jurisdiction. [T.N.Wakf Board, Madanuri Sri Rama Chandra Murthy, Sri M.L. Sethi, Raza Textiles Ltd., Raman & Raman Ltd., and also Indian Farmers' Fertilizer Cooperative Ltd.].
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39. Before consideration of above contention, it would be useful to refer to specific wordings of Section 36 of SARFAESI Act:
"36. Limitation:- No secured creditor shall be entitled to take all or any of the measures under sub-section (4) of section 13, unless his claim in respect of the financial asset is made within the period of limitation prescribed under the Limitation Act, 1963, (36 of 1963)."
40. Careful perusal reveals that bar of limitation would apply only against invoking all or any of measures under Section 13(4) of SARFAESI Act. Since, impugned notice under Section 13(2) is issued only to inform secured debtor/ guarantor about default in repayment of loan etc., it would not be such a measure contemplated under Section 13(4), and therefore, would not attract limitation prescribed in Section 36 of SARFAESI Act. Moreover, as per Magadh Sugar and Energy Ltd., & Kamlakar Bhimarao Patil (supra), invocation of writ jurisdiction would be justified only against order passed or proceedings initiated.
41. Further, notice under Section 13(2) of SARFAESI Act was issued only to provide information about default in repayment of loan, amount due and security interest created, without imposing any civil consequences upon recipient.
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NC: 2023:KHC:32236 WP No. 20356 of 2018 Therefore, it cannot be held that petitioner would be aggrieved by such issuance of notice. Notice under Section 13(2), cannot therefore be classified either as order passed or proceedings initiated so as to give rise to cause of action for filing writ petition.
42. Hon'ble Supreme Court in Satyavati Tondon & Mardia Chemicals case (supra) observed that invocation of writ jurisdiction against any measures taken by banks and financial institutions would not be proper and aggrieved parties were required to avail alternative remedy under Section 17 of SARFAESI Act. In fact, in Varun Steels (supra), it is clarified that bar of limitation would apply only in respect of measures contemplated under Section 13(4) of SARFAESI Act, since, KSFC is yet to invoke Section 13 (4), it would be premature to invoke bar of limitation.
43. Insofar as contention based on Doctrine of Election, that only on ground that KSFC did not proceed against suit property in Misc.Petn.no.521/2004 (by including scheduled property in schedule therein), KSFC had abandoned its interest against schedule property would be incorrect. In fact, schedule property was taken over under Section 29 of SFC Act and put
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NC: 2023:KHC:32236 WP No. 20356 of 2018 to sale on 29.07.2005 itself. Said sale was challenged before this Court and ultimately by order dated 13.03.2013 passed in W.A.no.2263/2007, sale was set-aside reserving liberty to KSFC to proceed against petitioner. Challenge against said order attained finality with dismissal of SLP nos.37064- 37067/2013 on 27.01.2017 and Review Petition on 12.04.2017, thereafter impugned notice is issued.
44. Further, KSFC may not have included schedule property in Misc.Petn.no.521/2004, apparently, as it was proceeding against schedule property under Section 29 of SFC Act, but, it has succeeded in obtaining order in above Misc.Petn. and Division Bench of this Court in W.A.no.2263/2007 has specifically granted liberty to KSFC to proceed against petitioner in accordance with law, in culmination of proceedings under Section 29 of SFC Act. Hence, neither Doctrine of Election would have any play herein nor Order II Rule 2 of CPC.
45. It is observed in Sesh Nath Singh & Another (supra), that time spent in prosecuting another civil remedy in good faith could be excluded under Section 14(2) Limitation Act
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NC: 2023:KHC:32236 WP No. 20356 of 2018 by clarifying that term 'Court' used therein would include 'tribunal' or 'other forum for civil proceedings'. However, as it is held above that proceedings are not yet ripe for consideration and bar of limitation, whether impugned demand notice issued within three years from date on which Misc.Petn.no.521/2004 was allowed within period of limitation would require to be deferred.
46. Insofar as bar on ground of non-registration of security interest, KSFC has specifically contended that respondents no.3 to 7 and petitioner executed Co-lateral Agreement, Confirmation letter, Affidavit, Memorandum of Entry and Letter of Undertaking prior to coming into force of SARFAESI Act on 22.06.2002.
47. Until amendment, Section 23 of SARFAESI Act, was as follows:
"Section 23: Filing of transaction of securitization reconstruction and creation of security interest:
(1) The particulars of every transaction of securitization, asset reconstruction or creation of security interest shall be filed, with the Central Registrar in the manner and on payment of such fee as may be prescribed, within thirty days after the date of such transaction or creation of security, by the securitization company or reconstruction company or the secured creditor, as the case may be:
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NC: 2023:KHC:32236 WP No. 20356 of 2018 Provided that the Central Registrar may allow filing of particulars of such transaction of creation of security interest within 30 days next following expiry of said period of 30 days on payment such additional fee not exceeding ten times amount of such fee."
(Emphasis supplied)
48. For period from 21.06.2002 (i.e., date of enactment of SARFAESI Act) till 24.01.2020, which is date of Chapter-IVA, coming into force, Section 23 (unamended) stipulated period of 30 days from date of creation of security interest for registration, with proviso permitting extension upto 30 days. Admittedly, there was no default provision, providing for consequences of non-registration. Hon'ble Supreme Court in case of Administrator, Municipal Committee Charkhi Dadri v. Ramji Lal Bagla32, has held that absence of provision for consequences in case of non-compliance with requirements prescribed would indicate that said requirement was directory in nature. Therefore, for want of specific provision about effect of non-registration, requirement of registration has to be held as directory for said period.
49. Subsequently, amending Act no.44 of 2016 omitted, highlighted portions of Section 23 and re-introduced them by 32 (1995) 5 SCC 272
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NC: 2023:KHC:32236 WP No. 20356 of 2018 way of adding Sections 26A to 26E (Sections 26B to 26E being made part of Chapter-IVA) and brought into force from 24.01.2020, providing procedure for registration, effect of registration and right of enforcement of securities as well as providing for priority of interest in favour of secured creditors. Section 26D reads as follows:
"26D. Right of enforcement of securities.-- Notwithstanding anything contained in any other law for the time being in force, from the date of commencement of the provisions of this Chapter, no secured creditor shall be entitled to exercise the rights of enforcement of securities under Chapter III unless the security interest created in its favour by the borrower has been registered with the Central Registry."
50. Consequential amendments were also made to relevant provisions of Registry Rules. Thus, prescription of time limit for registration was taken out of Section 23 and re- enacted as part of Rule 5(1) stipulating period of 30 days from date of security transaction as time limit for registration, extendable by further period of 30 days.
51. For period, after insertion of Chapter-IVA, Full Bench of High Court of Bombay in Jalgaon Janta Sahakari Bank Bank Ltd.,(supra) has held requirement of registration under Section 26D of SARFAESI Act to be mandatory. With introduction of Section 26D, no secured creditor would be
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NC: 2023:KHC:32236 WP No. 20356 of 2018 entitled to exercise rights for enforcement of security interest under Chapter-III unless such security interest has been registered with Central Registry.
52. The question next arising for consideration would be, whether impugned notice issued under Section 13(2) of SARFAESI Act amounts to enforcement of security interest as contemplated under Section 26D.
53. Insofar as nature of notice under Section 13(2) of SARFAESI Act, Division Bench of High Court of Telangana in RKI Builders (P) Ltd. v. Union of India33, referred to earlier Division Bench decision in NECX Private Limited v. Union Bank of India, held:
"27. In common judgment in NECX Private Limited v. Union Bank of India, (W.P. No. 23643 of 2020 and W.P. No. 20046 of 2021, dated 09.02.2022), learned Division Bench held as under:
"30. Thus, on a careful consideration of the statutory language employed in the proviso to Sub-Section (3A) of Section 13 of the SARFAESI Act read with the Explanation to Sub-Section (1) of Section 17 of the SARFAESI Act, it is crystal clear that a notice under Section 13 (2) of the SARFAESI Act or the rejection of the objection raised to it including the reasons in support thereof would not give rise to a cause of action for instituting an action in law. To that extent, we find sufficient force in the contention advanced by the respondents that the writ petition filed is premature. The statute does 33 2022 SCC OnLine TS 2708
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NC: 2023:KHC:32236 WP No. 20356 of 2018 not contemplate any intervention at this preliminary stage. Only when the process ripens into a definitive action taken by the secured creditor under Sub Section (4) of Section 13 of the SARFAESI Act, the aggrieved person can avail the statutory remedy under Section 17 of the SARFAESI Act by filing securitization application before the jurisdictional Debts Recovery Tribunal."
(Emphasis supplied)
54. In above case, it was held that notice issued under Section 13 (2) of SARFAESI Act would not give rise to cause of action to file writ petition. Even in Mardia Chemicals' case (supra), it is held :
"45. In the background we have indicated above, we may consider as to what forums or remedies are available to the borrower to ventilate his grievance. The purpose of serving a notice upon the borrower under sub-section (2) of Section 13 of the Act is, that a reply may be submitted by the borrower explaining the reasons as to why measures may or may not be taken under sub-section (4) of Section 13 in case of non- compliance with notice within 60 days. ......."
55. Therefore, it has to be held that mere issuance of notice under Section 13 (2) of SARFAESI Act would not amount to enforcement of security interest. Consequently, effect of non-registration cannot be a ground for testing validity of notice under Section 13 (2).
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NC: 2023:KHC:32236 WP No. 20356 of 2018
56. It is also to be noted herein that there is dispute about creation of security interest by petitioner in favour of KSFC. Fraud by officials of KSFC is alleged in respect of deeds of guarantee. In fact, C.C.no.34641/2010 charge sheet was filed against officials of KSFC is stated to be pending. Therefore, last date for registration would be disputed question of fact.
57. Hon'ble Supreme Court in Rajesh Yadav v. State of U.P.34, (though in slightly different context) held that charge sheet or final report is only collective opinion of Investigating Officer and no conclusions can be drawn until charge is proved. As long as petitioner is unable to demonstrate that no security interest was created in respect of schedule property, he cannot dictate terms or question choice of secured creditor about property against which or debtor/guarantor against whom to proceed for enforcement.
58. In Indumati Patta Naik's case (supra), it is seen that notice under Section 13(2) SARFAESI Act was issued on 05.07.2004 invoking security interest created under letter of guarantee dated 13.07.1981. Considering fact that period of 34 (2022) 12 SCC 200
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NC: 2023:KHC:32236 WP No. 20356 of 2018 limitation prescribed in Art.62 of Limitation Act would expire in year 1993 (after 12 years), it was held that notice was time barred. Present case can be distinguished from Indumati's case (supra), as KSFC herein has been bona fide in agitating its rights under provisions of SFC Act. Since, it is held above, that appropriate stage for consideration of limitation as well as non- registration of security interest would be only after issuance of notice under Section 13(4).
59. Further, in fact in Punjab National Bank v. Imperial Gift House35, Hon'ble Supreme Court has held that writ petitions against notice under Section 13(2) would not be maintainable. Since, normally question of limitation would be a mixed question of law and fact, it would not be appropriate to apply test of limitation at this stage.
60. Consequently, writ petition is devoid of merits and is accordingly dismissed.
Sd/-
JUDGE psg* List No.: 19 Sl No.: 1 35 (2013) 14 SCC 622