Gujarat High Court
Indian Overseas Bank vs District Magistrate on 5 December, 2018
Author: J.B.Pardiwala
Bench: J.B.Pardiwala
C/SCA/15048/2018 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 15048 of 2018
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE J.B.PARDIWALA
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1 Whether Reporters of Local Papers may be allowed to see the
judgment ? YES
2 To be referred to the Reporter or not ?
NO
3 Whether their Lordships wish to see the fair copy of the
judgment ? NO
4 Whether this case involves a substantial question of law as to
the interpretation of the Constitution of India or any order
NO
made thereunder ?
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INDIAN OVERSEAS BANK
Versus
DISTRICT MAGISTRATE
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Appearance:
HARSHADA K DARJI(7537) for the PETITIONER(s) No. 1
KULDEEP K ADESARA(9222) for the RESPONDENT(s) No. 2
MR KM PARIKH(575) for the RESPONDENT(s) No. 2
NOTICE SERVED(4) for the RESPONDENT(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
Date : 05/12/2018
ORAL JUDGMENT
1 By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs:
"(A) Your Lordships be pleased to issue a writ of prohibition and/or a writ of certiorari and/or a writ of mandamus or a writ in the nature of Page 1 of 10 C/SCA/15048/2018 JUDGMENT prohibition or certiorari or mandamus or any other appropriate writ, order or direction, quashing and setting aside the impugned order dated 24.05.2017 passed by the respondent no.1, which is at Annexure B to the present petition and declare that the respondent No.1, may pass an order on the application filed by the petitioner under Section 14 of the SARFAESI Act,when the basic requirement as laid down by the Hon'ble Supreme Court in the case of Noble Kumar vs. Standard Chartered Bank are complied with.
(B) Be pleased to direct the Respondent No. l to accept the Application of the Petitioner under section 14 of the SARFAESI Act and pass fresh orders thereon.
(C) Your Lordships may grant such further and other reliefs as may be deemed fit and proper and as the facts and circumstances of the case require."
2 The case of the writ applicant, as pleaded in the writ application, is as under:
"'2 The petitioner is a Body Corporate constituted under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970 having its registered office at 763, Anna Salai, Chennai - 600002 and one of the Branches amongst other places known as, Indian overseas bank, Thaltej, Branch at 1st Floor, Khemka House, Ahmedabad - 380054. The petitioner is secured creditor in terms of section 2 (m) of SARFAESI Act.
3 The Respondent No. l is the 'State' within the meaning of Article 12 of the Constitution of India. In any event, the Respondent No. l is, even otherwise, amenable to the writ jurisdiction of this Hon'ble Court. The Petitioner had extended financial assistance in the form of Cash Credit against Stock and Book Debts of Rs.l2,50,00,000/ (after review/renewal of the Limit) to M/s. D. B. Shapriya Construction Ltd, the Respondent No. 2 (hereinafter referred to as 'the Borrower' for sake of brevity), on the terms and conditions contained in the Loan Agreement as well as other documents executed in this context. It is further submitted that (1) Shri Page 2 of 10 C/SCA/15048/2018 JUDGMENT Kishor Dhanji Shapriya (2) Shri Dhiren Pratapmal Bhandari (3) Ms. Mrudula Kishor Shapriya (4) Ms. Jayaben Dhanjibhai Shapriya (5) Ms. Meena Dhirenbhai Bhandari (6) Mr. Amish Kishor Shapriya in their personal capacity stood as guarantor (hereinafter referred to as 'the said Guarantors' for sake of brevity) for the various credit facilities granted to the said Borrower. The Borrowers and the Guarantors had, with a view to secure the aforesaid financial assistance, created an equitable mortgage in favour of the Petitioner by way of deposit of title deeds with respect to their immovable property mentioned herein below. The Petitioner craves leave to produce and refer to and rely upon the Loan Agreement and other documents executed in this context, as and when required.
DESCRIPTION OF THE MORTGAGED SECURED ASSETS Residential F'Iat No. 41, 4'" floor, IRIS EXOTICA, Opp, Royal Orchid, Corporate Road, Near Prahladnagar Garden, Prahladnagur. Ahmedabad in the name of M/s. D. B. Shapriya Construction Ltd. (the Borrower) 5 The said mortgaged property is a "secured asset" in terms of the provision of Section 2 (2c) of the SARF'AESI Act. In view of the defaults committed by the Borrowers, the Petitioner had classified their account as a "Non Performing Asset" on 30.06.2015 and issued notice dated 13.08.2015 under Section 13 (2) of the SARF'AESI Act to the Borrower and copy of which was marked to the Guarantors, inter alia, calling upon the Borrowers and Guarantors to pay to the Petitioner the amount stated in the said notice within 60 days from the date of the said notice. Though more than 60 days passed since the date of receipt of the said notice, neither the Borrowers nor the Guarantors paid the amount stated in said notice. Therefore, the Petitioner was entitled to take recourse to one or more measures referred to in Section 13 (4) of the SARFAESI Act. The Petitioner in exercise of the powers conferred under Section 13 (4) of the SARF'AESI Act, decided to take possession of the mortgaged property. The Authorised Officer of the Petitioner went to take possession of the mortgaged property on 27.11.2015, after intimating the Borrowers to remain present. However, the Borrowers did not remain present on the said date. Therefore. The Authorised Officer of the Petitioner could not take physical possession of the aforesaid mortgaged property.
6 As the possession of the mortgaged property was required to be taken by the Petitioner, the Petitioner filed an Application on 16.02.2016 under section 14 of the SARFAESI Act, before the Respondent No. l, inter alia, seeking assistance of the Respondent No. l in taking possession of the mortgaged property and handing over the same to the Petitioner. Section 14 of the SARFAESI Act reads as follows:
Page 3 of 10C/SCA/15048/2018 JUDGMENT "S. 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.
(2) For the purpose of securing compliance with the provisions of subsection (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 done in pursuance of this section shall be called in question in any court or before any authority."
The language of the section clearly indicates that the Ld. District Magistrate is empowered by the statute to exercise the administrative powers under the Act to assist from the defaulters and to assist tin the process of recovery of public money.
7 The Petitioner states that the Additional District Magistrate/ the Respondent No.1, thereafter, addressed a letter/order dated 24.05.2017 to the Petitioner and informed that the Petitioner has already filed an Original Application before the Debt Recovery Tribunal for recovery of its dues. Therefore, no steps are required to be taken from the office of the DM, and the Application filed by the Petitioner u/s. 14 of the SARFAESI Act, is disposed off accordingly."
3 Thus, it appears from the materials on record that the Bank preferred an application before the District Magistrate, Ahmedabad under Section 14 of the Securitisation and Reconstruction of Financial Page 4 of 10 C/SCA/15048/2018 JUDGMENT Assets and Enforcement of Security Interest Act, 2002 (for short, 'the SARFAESI Act'). The said application was ordered to be filed by the District Magistrate on the ground that the Bank has already preferred an original application before the Debts Recovery Tribunal, and in such circumstances, the appropriate remedy would be to seek relief from the Tribunal itself.
4 The impugned communication dated 24th May 2017 reads thus:
"Office of the Collector and District Magistrate, Nr. Subhash Bridge, Ashram Road, Ahmedabad.
Date: 24/05/2017 To, Authorized Bank Officer, The Indian Oversees Bank, Thaltej Branch, First Floor, Khemka House, Ahmedabad380054 Subject: Possession of the secured asset as per section14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act2002 Name of Defaulter: Ms. D.B. Shapriya With reference to the subject noted above, this is to inform you that, you have filed a petition under section14 of the SARFAESI Act on 16/02/2016 before the court of Hon'ble District Magistrate. In this regard, you are informed that, as you have filed O.A. before the Debts Recovery Tribunal, no action is required to be taken from this office. Therefore, as no action is required to be taken under section14 of the SARFAESI Act, your petition is filed.
Sd/ Additional District Magistrate, Ahmedabad."Page 5 of 10
C/SCA/15048/2018 JUDGMENT 5 Being dissatisfied with such decision of the District Magistrate, the
Bank has come up with this writ application under Article 226 of the Constitution of India.
6 The main grounds of challenge raised in this writ application are as under:
"B) The SARFAESI Act confers limited jurisdiction upon the Chief Metropolitan Magistrate or the District Magistrate for the purpose of assisting the Secured Creditors in obtaining possession of the secured assets, by itself ensuring that possession of such secured assets is obtained, for the benefit of the Secured Creditor. Evidently, exercise of such jurisdiction for taking possession of the secured assets, upon request in that behalf emanating from the Secured Creditor is not premised upon the Chief Metropolitan Magistrate or the District Magistrate considering the recovery application for recovery of the dues is filed before the appropriate court/ tribunal and / or considering the steps which may or may not have been taken by the Secured Creditor, against the Borrower, etc., much less adjudicate upon such issues. The overall scheme of the SARFAESI Act provides various other safeguards and contemplates various other provisions, whereby the action of a Secured Creditor is regulated and a Borrower has opportunity to ventilate his grievances, should the action of the Secured Creditor not be legal. In the facts of the present case, the Respondent No. 1 has wrongly usurped jurisdiction it does not have by going into a fishing inquiry as to whether the recovery application for recovery of dues, is med by the Bank and the steps taken by the Secured Creditor for recovery of the debt, etc., which are all issues completely outside the scope of inquiry, much less consideration, by the Respondent No. 1. Such a course of action, while being exfacie without jurisdiction, also defeats the letter and spirit of the SARFAESI Act. In the facts of the present case, the Petitioner Secured Creditors applied to the Respondent No. 1 under Section 14 of the SARFAESI Act, as back as on 16.02.2016.
The Respondent No. 1 passed order on 24.05.2017, interalia, declining to pass order on the Application of the Petitioner and disposed off the application filed by the Petitioner under section 14 of the SARFAESI Act.
C) The impugned order indicates a complete lack of application of mind and shows complete obliviousness to the provisions of the SARFAESI Act. In issuing the impugned order, the Respondent No. 1 has wrongly presumed:
(i) that by taking steps of tiling the original Application for Page 6 of 10 C/SCA/15048/2018 JUDGMENT recovery of dues, the Petitioner is not entitled to proceed under the provisions of SARFAESI Act and seek assistance as per the provisions of section 14 of the SARFAESI Act.
(ii) That before giving assistance as sought by the Petitioner, the Respondent No. 1 is entitled to make inquiry as to what steps are taken by the Petitioner for recovery of dues and the steps taken / efforts made by the Petitioner for taking possession of the mortgaged property prior to making application under section 14 of the SARFAESI Act.
(iii) that the Petitioner is not entitled to the assistance as sought for under section 14 of the SARFAESI Act."
7 Having heard the learned counsel appearing for the parties and having considered the materials on record, the only question that falls for my consideration is whether the District Magistrate committed any error in declining to pass an appropriate order on an application filed by the Bank under Section 14 of the SARFAESI Act.
8 Section 14 of the SARFAESI Act reads as under:
"14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset (1) Where the possession of any secured assets 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 assets and documents to the secured creditor.
(2) For the purpose of securing compliance with the provisions of sub Page 7 of 10 C/SCA/15048/2018 JUDGMENT 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 done in pursuance of this section shall be called in question in any court or before any authority."
9 It appears from the materials on record that the Bank has filed original application before the Debts Recovery Tribunal under the provisions of the Recovery of Debts due to Banks and Financial Institutions Act, 1993. The question that falls for consideration is whether the Bank having elected to seek their remedy in terms of the R.D.B.I. Act, 1993 (D.R.T. Act) can still invoke the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (N.P.A. Act) for realisation of the secured assets.
10 I can do no better to answer the above referred question than by relying upon a direct decision of the Supreme Court in the case of Transcore and Union of India and others reported in (2008) 1 SCC
125. I may quote the relevant observations of the Supreme Court as under:
"66 We have already analysed the scheme of both the Acts. Basically, the NPA Act is enacted to enforce the interest in the financial assets which belongs to the bank/FI by virtue of the contract between the parties or by operation of common law principles or by law. The very object of Section 13 of NPA Act is recovery by nonadjudicatory process. A secured asset under NPA Act is an asset in which interest is created by the borrower in favour of the bank/FI and on that basis alone the NPA Act seeks to enforce the security interest by nonadjudicatory process. Essentially, the NPA Act deals with the rights of the secured creditor. The NPA Act proceeds on the basis that the debtor has failed not only to repay the debt, but he has also failed to maintain the level of margin and to maintain value of the security at a level is the other obligation of the debtor. It is this other obligation which invites applicability of NPA Act. It is for this reason, that Sections 13(1) and 13(2) of the NPA Act proceeds on the basis that Page 8 of 10 C/SCA/15048/2018 JUDGMENT security interest in the bank/FI; needs to be enforced expeditiously without the intervention of the Court/Tribunal; that liability of the borrower has accrued and on account of default in repayment, the account of the borrower in the books of the bank has become nonperforming. For the above reasons, NPA Act states that the enforcement could take place by nonadjudicatory process and that the said Act removes all fetters under the above circumstances on the rights of the secured creditor.
67 The question still remains as to the object behind insertion of the three provisos to Section 19(1) of DRT Act vide amending Act 30 of 2004. The DRT is a tribunal, it is the creature of the statute, it has no inherent power which exists in the Civil Courts. Order XXIII, Rule 1(3), CPC states inter alia that where the court is satisfied that there are sufficient grounds for allowing the plaintiff to institute a fresh suit for the subjectmatter of a suit or part of a claim then the civil court may, on such terms as it thinks fit, grant the plaintiff permission to withdraw the entire suit or such part of the claim with liberty to institute a fresh suit in respect thereof. Under Order XXIII, Rule 1(1)(4)(b), in cases where a suit is withdrawn without the permission of the court, the plaintiff shall be precluded from instituting any fresh suit in respect of such subjectmatter. Order XXIII, Rule 2 states that any fresh suit instituted on permission granted shall not exclude limitation and the plaintiff should be bound by law of limitation as if the first suit had not been instituted. Order XXIII, Rule 3 deals with compromise of suits. It states that where it is proved to the satisfaction of the court that a suit has been adjusted wholly or in part by any lawful agreement or compromise or where the defendant satisfies the plaintiff in respect of whole or any part of the subjectmatter of the suit, the Court shall order such agreement, compromise or satisfaction to be recorded, and shall pass a decree in accordance therewith.
68 The object behind introducing the first proviso and the third proviso to Section 19(1) of the DRT Act is to align the provisions of DRT Act, the NPA Act and Order XXIII, CPC. Let us assume for the sake of argument, that an O.A. is filed in the DRT for recovery of an amount on a term loan, on credit facility and on hypothecation account. After filing of O.A., on account of nondisposal of the O.A. by the tribunal due to heavy backlog, the bank finds that one of the three accounts has become sub standard/loss, in such a case the bank can invoke the NPA Act with or without the permission of the DRT. One cannot lose sight of the fact that even an application for withdrawal/leave takes time for its disposal. As stated above, with inflation in the economy, value of the pledged property/asset depreciate on dayto day basis. If the borrower does not provide additional asset and the value of the asset pledged keeps on falling then to that extent the account becomes nonperforming. Therefore, the bank/FI is required to move under NPA Act expeditiously by taking one of the measures by Section 13(4) of the NPA Act. Moreover, Order XXIII, CPC is an exception to the common law principle of nonsuit, hence the proviso Page 9 of 10 C/SCA/15048/2018 JUDGMENT to Section 19(1) became a necessity.
69 For the above reasons, we hold that withdrawal of the O.A. pending before the DRT under the DRT Act is not a precondition for taking recourse to NPA Act. It is for the bank/FI to exercise its discretion as to cases in which it may apply for leave and in cases where they may not apply for leave to withdraw. We do not wish to spell out those circumstances because the said first proviso to Section 19(1) is an enabling provision, which provision may deal with myriad circumstances which we do not wish to spell out herein."
11 The law is well settled. Even if the Bank has initiated proceedings before the D.R.T. under the provisions of the D.R.T. Act, it is always open for the Bank to invoke the provisions of the N.P.A. Act if need arises having regard to the situation.
12 In such circumstances, the stance of the District Magistrate is not correct and tenable in law. The District Magistrate is obliged to take into consideration the application filed by the Bank under Section 14 of the N.P.A. Act.
13 In the result, this petition succeeds and is hereby allowed. The District Magistrate is directed to adjudicate the application filed by the Bank under Section 14 of the SARFAESI Act in accordance with law and pass an appropriate order within a period of four weeks from the date of receipt of the writ of this order. It shall be open for the writ applicant - Bank to even file a fresh application under Section 14 of the SARFAESI Act. If any such fresh application is filed, the same shall be decided by the District Magistrate at the earliest in accordance with law.
14 With the above, this writ application is disposed of.
(J.B.PARDIWALA, J) CHANDRESH Page 10 of 10