Veerapaneni Sharat Babu, vs Andhra Bank, on 6 February, 2020

[Cites 30, Cited by 0]

Andhra Pradesh High Court - Amravati

Veerapaneni Sharat Babu, vs Andhra Bank, on 6 February, 2020

1. Despite repeated direction of Hon'ble Supreme Court to the High Courts not to exercise jurisdiction under Articles 226 and 227 of the Constitution of India, in a matter particularly financial matter having a statutory remedy available to the parties, it is yet another case in which the bank/secured creditor was prevented from realizing public money i.e., loan amount from the borrower/guarantor.

2. The petitioner, in the month of February, 2018, by way of invoking writ jurisdiction of this Court, had filed the present Writ Petition with a prayer to issue a Writ of Mandamus, or any other appropriate Writ, Order or direction declaring the Commissioner Warrant issued by the learned Chief Metropolitan Magistrate, Vijayawada, in Crl.M.P. No.4074 of 2017 in C.F. No.6933 of 2017, dated 19.01.2018, and the consequential Notice dated 15.02.2018, issued by the Advocate Commissioner fixing the date on 22.02.2018 for taking possession of the petition schedule property consisting residential building H.No.61-8/10-3/3 old and 61-8/10-3/5A new, situated in R.S. No.35/2 at 2nd lane, Satyanarayana Nagar, Krishnalanaka, Vijayawada belonging to the petitioner as illegal, arbitrary, discriminatory and contrary to the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'the SARFAESI Act') and set-aside the same.

3. On 28.02.2018 a Division Bench of this Court in I.A. No.1 of 2018 stayed further proceedings since the petitioner persuaded that the RK, J & DR, J 2 WP No.6376/2018 respondent-bank in its own wisdom proceeded in the first instance only against the property of the principal borrower and brought its mortgaged property to sale. The proceeds received therefrom are in the range of Rs.64,00,000/- which, admittedly, cover most of the outstanding dues leaving a balance of about Rs.10,00,000/- or so. The Division Bench of this Court was further persuaded that as the principal borrower moved the jurisdictional Debts Recovery Tribunal and obtained stay of confirmation of the said sale, the bank now seeks to proceed against the guarantor's residential property which was mortgaged with it. The Division Bench considered examining validity of such action and thereafter interim stay order was passed. The docket shows that after the order of stay, one way or the other, hearing in the matter was deferred on several dates, mostly at the instance of the petitioner/guarantor. In 2020 while on 08.01.2020 the case was listed, again a prayer was made on behalf of the petitioner for adjourning the case, which was opposed by learned counsel for the respondent-bank and it was submitted that a stay vacating petition has already been filed. On the prayer made on behalf of the petitioner, the case was directed to be listed on 27.01.2020 with indication that no further adjournment shall be granted and if any prayer is made on behalf of the petitioner, the court may propose to pass order on stay vacate petition. Again, on 27.01.2020, despite judicial order for not granting adjournment, the petitioner succeeded to get one day's adjournment and finally on 28.01.2020, Sri Mavidi Rama Rao, learned counsel for the petitioner, argued the case and the Writ Petition was opposed by Smt. V.Dyumani, learned counsel for the respondent-bank.

4. Learned counsel for the petitioner/guarantor has emphasized that since the 1st respondent-bank had initially initiated proceeding for recovery of the loan amount against the borrower, no action was required against RK, J & DR, J 3 WP No.6376/2018 the petitioner-guarantor that too in a case where the borrower-2nd respondent herein had already got a stay order from the Debts Recovery Tribunal. At the time of hearing, learned counsel for the petitioner has produced an order, dated 25.11.2019, passed in S.A. No.468 of 2018 by the Debts Recovery Tribunal-II at Hyderabad to show that petition filed by the borrower-2nd respondent under Section 17 of the SARFAESI Act was partly allowed by setting aside the e-auction sale held on 04.08.2016. Learned counsel for the petitioner further produced an interim order passed by a Division Bench of the High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh in I.A. No.1 of 2019 in W.P. No.27837 of 2019, filed by the borrower-2nd respondent, to show that subsequent to the order passed by the Debts Recovery Tribunal in S.A. No.468 of 2018, interim stay has been granted on 16.12.2019. It has been argued that the respondent-bank, in contravention of the provisions contained in the SARFAESI Act, has proceeded against the residential property of the petitioner. In the instant Writ Petition, in Paragraph No.13, an averment has been made regarding the non availability of alternative effective and efficacious remedy except invoking extraordinary jurisdiction of this Court, under Article 226 of the Constitution of India. Learned counsel has also referred to the facts stated in the Writ Petition to persuade the Court that action of the respondent-bank is illegal particularly in view of the fact that the Writ Petition of the 2nd respondent- borrower is already pending before the High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh and interim stay order has also been passed therein.

5. Smt.V.Dyumani, learned counsel for the respondent-bank, by way of referring to the statements made in Paragraph Nos.4 and 12 of the counter-affidavit, submits that the petitioner was having effective RK, J & DR, J 4 WP No.6376/2018 alternative remedy under Section 17 of the SARFAESI Act. She further submits that after passing the order of stay in the present Writ Petition, immediately respondent-bank filed a stay vacating petition on 25.04.2018 and also filed a detailed counter-affidavit. It has been clarified by learned counsel for the respondent-bank that the property mortgaged by the 2nd respondent-borrower and property mortgaged by the petitioner-guarantor are two distinct properties. The property regarding which dispute in the present Writ Petition has been raised lies within the territorial jurisdiction of the Hon'ble High Court of Andhra Pradesh. It has been argued that it is admitted that 2nd respondent had availed credit facility from the 1st respondent-bank and since repayment was not made, the respondent- bank was constrained to classify the said account as Non Performing Asset (NPA) on 30.06.2015 and invoked the provision of SARFAESI Act and issued demand notice, dated 10.07.2015, demanding Rs.52,34,792.00 as on 30.06.2015 together with subsequent interest. The said notice was published in the editions of BusinessLine, English daily newspaper, and Prajasakthi, Telugu daily newspaper, dated 30.07.2015. Despite valid service of notice, neither 2nd respondent-borrower nor the petitioner/guarantor endeavoured to pay the debt amount. The bank thereafter, on 09.10.2015, had issued possession notice in respect of secured assets offered by 2nd respondent-borrower and also issued sale notice in respect of the said property. Challenging the said action, 2nd respondent-borrower filed SAIR No.55 of 2016 before the Debts Recovery Tribunal at Hyderabad, wherein, on 28.03.2016, status-quo order was passed. It has been clarified by the respondent-bank that on 07.10.2015 the respondent-bank had issued possession notice in respect of secured assets offered by the petitioner. The said possession notice was sent by registered post and notice was also published in the aforesaid two RK, J & DR, J 5 WP No.6376/2018 newspapers viz., BusinessLine, English daily newspaper, and Prajasakthi, Telugu daily newspaper, dated 10.10.2015. The possession notice was also duly affixed on the secured assets. By way of referring to statement made in Paragraph No.7 of the counter-affidavit, learned counsel for the respondent-bank submitted that the petitioner has also personally received the possession notice when it was affixed. However, the petitioner, to the reasons best known to him, never challenged the possession notice and as such it would be deemed that he waived his right to challenge the same. It has also been stated in the counter- affidavit that even after issuance of possession notice, neither the petitioner/guarantor nor 2nd respondent/borrower came forward to settle the account. Subsequently, the 1st respondent-bank approached the Court of learned Chief Metropolitan Magistrate, Vijayawada, by way of filing the petition under Section 14 of the SARFAESI Act vide Crl.M.P. No.4074 of 2017. Till the date of filing Crl.M.P.No.4074 of 2017 total liability had come to Rs.75,36,390.80 paisa i.e., as on 29.09.2017. It has been reiterated in Paragraph No.9 of the counter-affidavit that the respondent-bank had duly complied with all the provisions of the SARFAESI Act and thereafter proceeding under Section 14 of the SARFAESI Act was initiated to recover the legally enforceable debt. It has also been alleged that the petitioner-guarantor and 2nd respondent-borrower are acting hand in glove and, with mala-fide intention to stall the proceedings initiated by the 1st respondent-bank, are filing one or the other petitions.

6. Besides hearing learned counsel for both the parties, we had examined all materials available on record. The allegation of the respondent-bank as the petitioner-guarantor and 2nd respondent-borrower are hand in glove can be deciphered by way of referring to facts disclosed in the Writ Petition itself. In Paragraph No.3 to almost Paragraph No.19 of RK, J & DR, J 6 WP No.6376/2018 the Writ Petition it has been virtually asserted as if the petitioner-guarantor is defending the 2nd respondent-borrower and all those facts which ought to have been within the knowledge of 2nd respondent-borrower have been incorporated in the Writ Petition. It would be appropriate to substantiate this fact by incorporating what has been stated in Paragraph Nos.3 to 10 as follows:

"3. I submit that M/s.Centre for Management Education & Development society, the 2nd respondent herein, is an Educational society under which a Management College was running on the name and style of R.K. Business School at Ravelly Village, Toopran Mandal, Medak District. The 2nd respondent society has obtained all necessary permissions from the All Indian Council for Technical Education (AICTE) a statutory body under Ministry of HRD, Govt of India.

4. I submit that the 2nd respondent Society availed certain financial facilities from the 1st respondent Bank for the purpose of running the educational Institution. The 1st respondent Bank has sanctioned an amount of Rs.49 Lakhs towards Term Loan to the 2nd respondent society against the assets creating a security interest in favour of the respondent Bank. Subsequently the respondent Bank has sanctioned an amount of Rs.6 Lakhs and the same was adjusted towards interest of the Term Loan. The 2nd respondent has executed certain documents in favour of the bank and created security by way of depositing the title deeds in respect of landed property admeasuring Ac.1.00 in Sy.No.83, situated at Ravelly Village, Toopran Mandal. The 2nd respondent has constructed permanent structures on the land for running college. The society could not repay the loan, since the Govt. of Telangana withdrawn all the welfare schemes of Fee- Reimbursement and the loan account became irregular.

5. I submit that I reliably came to know that the members of the society were seriously trying to mobilise the funds from their well wishers, friends and the relatives with an intention to regularize the account. But, without appreciating the same, in a hurried manner the Authorized Officer of the Respondent Bank has issued Demand Notice dt.10.7.2015 under section 13(2) of the SARFAESI Act, 2002, to the 2nd respondent only. The demand RK, J & DR, J 7 WP No.6376/2018 notice dt.10.7.2017 has not been served on me. In the said notice the respondent Bank has alleged that the 2nd respondent society has acknowledged the liability by executing various documents from time to time and the operation and conduct of the alleged financial facilities have become irregular and the debt has been classified as non-performing asset in accordance with the directives/guidelines issued by the Reserve Bank of India. I came to know that the 2nd respondent has cleared all the dues by 31st March, 2015 and failed to pay the amount for the months of April, May and June. In spite of the 2nd respondent request for grant of time for payment of amount due for the three months, the Bank officials for the reasons best known to them classified the account as NPA. The Respondent bank further demanded the 2nd respondent society to pay the amount Rs.52,34,792/- as on 30.06.2015 within the period of 60 days for the date receipt of the said notice. Further, it is pertinent to mention here that the Respondent Bank has not furnished any details of the facilities and the amount allegedly payable by the 2nd respondent society herein along with the said demand notice.

6. I came to know that while the 2nd respondent society is putting all his efforts to regularize the account with the Bank, without considering the same and not even considering the objections raised against the Demand Notice issued by the Bank, with a malafide intention, the authorized Officer of the Respondent Bank has initiated measures under section 13(4) of the Act, 2002 by way of issuing a possession notice dt.9.10.2015 against the alleged secured wherein, the authorized officer of the Respondent Bank stated the borrower having failed to pay the amount, notice therein given to the borrower and public in general that he has taken possession of the properties described therein in exercise of powers conferred on him under section 13(4) of the said Act, read with Rule 9 of the said Rules on 9.10.2015, the authorized Officer of the Respondent Bank further cautioned the borrower in particular and the public in general not to deal with the property and any dealings with the property will be subject to the charge of the Respondent Bank for an amount of Rs.54,69,758/- and interest and expenses thereon.

7. I submit that the respondent Bank has initiated further proceedings and taken physical possession of the schedule property and locked the college building without any prior notice.

RK, J & DR, J 8 WP No.6376/2018 Even after taking physical possession of the property the respondent Bank has neither served a copy of Panchanama nor inventory nor a possession notice as stipulated under Rule 4 and 8 of the Rules either on the 2nd respondent society or mortgagor or any of the guarantor thereof. The action of the respondent bank is illegal and against the provisions of SARFAESI Act.

8. I came to know that for the reasons best known to them the respondent Bank has issued Notice to the borrower informing about Sale 30 days notice under Rule 6(2) and 8(6) of the Security Interest (Enforcement) Rules, 2002 dated 06.01.2016, wherein the authorized Officer mentioned that he has taken possession of the property on 16.12.2015, but no such possession Notice was issued on the 2nd respondent society or any of the guarantor. Further even without waiting for the Expiry of the 30 days from the date of the above notice, the authorized officer has issued an Auction Sale notice through paper publication on 29.01.2016 wherein the respondent Bank brought the schedule property for auction fixing the date as 04.03.2016. I came to know on 4.3.2016 the auction could not be conducted since no bidders participated on that day. Thereafter the authorized officer of the respondent bank with an ulterior motive has published the E-auction sale notice in news paper on dt.1.7.2016 fixing the date for conducting auction on 4.8.2016, without serving any notice on the borrower and the guarantors. I came to know on 5.8.2016, the officials of the respondent bank informed to the relatives of the borrowers that the bank has conducted auction against the schedule property on 4.8.2016. Thereafter the borrower got the news paper publication of the said auction sale notice and found in the Hans India News paper. On coming to know about the auction, the borrowers has addressed letters by E.mail to the authorized officer and other officials of the respondent bank and requested them to furnish the information with regard to the conducting of auction. Hence it is humbly submitted that while conducting the auction on 4.3.2016 against the schedule property the Respondent Bank has not followed any of the procedures contemplated under Rules 8 and 9 of the Rules, 2002 and the said action of the Respondent Bank is against the principles laid down by the Hon'ble Apex Court in the case of Mathew Varghees Vs Amritha Kumar. I submit that the action of the authorized Officer of the Respondent Bank in conducting E-auction on 4.8.2016, is arbitrary, illegal and RK, J & DR, J 9 WP No.6376/2018 highly improper and the same is against the provisions stipulated under the SARFAESI Act and Rules. The provisions of SARFAESI Act, and the rules made there under do not provide for conducting E-auction without issuance of Notice and without following the due process. Issuances of possession notice (Symbolic) is mandatory. I respectfully submit that the respondent Bank has neither served the auction notice dt.1.7.2016 on the borrower or its guarantor nor intimated the date of auction. It appears that the authorized officer of the respondent bank with a malafide intention and in collusion with the identified parties has conducted the auction and knocked down the bid in favour of his henchmen. I reliably came to know through the Manager of the respondent bank, that three members participated in the auction and one Mr.Kurra Naveen Kumar has been declared as successful bidder and the final bid amount is Rs.64.90 lakhs and the successful bidder has deposited 25% of the bid amount with the bank and the balance amount has to be deposited within 15 days as per the terms of the sale notice. Further the respondent Bank got final bid amount of Rs.64.90 Lakhs which was more than the demanded amount of Rs.52,34,792/-.

9. I submit that it became mandatory for the secured creditor to strictly follow the provisions of section 14 of the Act. I submit that respondent bank also failed to furnish the details of the total claim as on the date of filing the application under section 14 of the Act, which is mandatory as per section 14 proviso (1) of the Act. I submit that the respondent bank has violated the provisions of section 14 of the SARFAESI Act. I came to know since the respondent bank violated the provisions of the SARFAESI Act and conducted auction irregularly, I came to know that declaring the action of the respondent bank in conducting auction of the schedule property of the society without following the procedure under the SARFAESI Act, the 2nd respondent herein, has filed S.A.No.55/2016 on the file of Debt Recovery Tribunal at Hyderabad and obtained interim orders 23.08.2016.

10. I submit that without disclosing the fact of taking physical possession of the society property which was mortgaged to the bank and conducting of E-auction sale on 4.8.2016, the 1st respondent bank for the reasons best known to them in order to harass me filed an application before the Chief Metropolitan Magistrate, Vijayawada in Criminal M.P.No.4074/2017 in RK, J & DR, J 10 WP No.6376/2018 C.F.No.6933/2017 seeking for a direction A) to take possession of my schedule property by exercising the powers conferred under section 14 of the SARFAESI Act and deliver the same to the bank, B) to appoint an advocate commissioner to direct him to take possession of the immovable properties described in the schedule by taking inventory of any articles in the schedule properties and by conducting panchanama and to hand over the possession to the petitioners bank, C) to give suitable direction or orders to the SHO to assist to evict the occupants of the schedule property and if so required break open the lock of the schedule properties and deliver physical possession of the schedule properties. Further the respondent bank has not disclosed about the E-auction which was conducted on 4.8.2016 and subsequent proceedings relating to the E-auction in the said application. The respondent Bank suppressing all the relevant facts with regard to the loan amount approached the Chief Metropolitan Magistrate court with unclean hands and obtained an ex-parte order on 19.2.2018 wherein the Hon'ble court appointed one Sri K.L.N Singh an Advocate Vijayawada to take possession of the schedule property from the hands of respondents therein or tenants by evicting him/them if, he/they are residing in the schedule premises and hand over the possession thereof to the authorized person of the petitioner's bank. Pursuant to the orders issued by the Hon'ble court the advocate commissioner Sri K.L.N Singh issued a notice to me on 15.2.2018 fixing the date of execution of the warrant of the commission on 22.2.2018, for taking possession of the petition schedule property and further directed me to vacate the schedule property and deliver the same to him on 22.2.2018 and in the said letter I was also requested to instruct my tenants in the ground floor and pent house to vacate the same and hand over the schedule property to him on the date of execution of the warrant i.e., on 22.2.2018. The learned advocate commissioner has not issued 15 days notice to the tenants as required as per the procedure."

7. On examination of aforesaid pleadings, it can easily be inferred that what is the object of the guarantor? Obviously it reflects that one way or the other right of the secured creditor/1st respondent-bank is to be frustrated in realizing the loan amount which is obviously public money.

RK, J & DR, J 11 WP No.6376/2018 The counter of the respondent-bank makes it clear that the respondent- bank has legally and validly proceeded in both the provisions under the SARFAESI Act. Had the petitioner was aggrieved with the action of the respondent-bank, under Section 17 of the SARFAESI Act, he was having an efficacious, effective and alternative remedy. The framers of the SARFAESI Act were conscious of the fact regarding difficulties and hindrances in realising the loan amount and as such for such proceeding, time frame has been framed. Sub-section (5) of Section 17 speaks that any application made under sub-section (1) shall be dealt with by the Debts Recovery Tribunal as expeditiously as possible and disposed of within sixty (60) days from the date of such application. The proviso to this Section further provides upper time limit for disposal of the matter as four (4) months.

8. Despite the fact that the petitioner was having efficacious alternative remedy, to the reasons best known to him, he preferred to invoke writ jurisdiction of this Court under Article 226 of the Constitution of India, which as per settled law is to be invoked in extraordinary situation.So far as the proceeding under the SARFAESI Act is concerned, the Hon'ble Supreme Court in United Bank of Indis v. Satyawati Tondon and others1 has elaborately dealt with the issue. We may not do better than to reproduce the relevant paragraphs of the judgment as follows:

"[2]. With a view to give impetus to the industrial development of the country, the Central and State Governments encouraged the banks and other financial institutions to formulate liberal policies for grant of loans and other financial facilities to those who wanted to set up new industrial units or expand the existing units. Many hundred thousand took advantage of easy financing by the banks 1 2010 (8) SCC 110 RK, J & DR, J 12 WP No.6376/2018 and other financial institutions but a large number of them did not repay the amount of loan, etc. Not only this, they instituted frivolous cases and succeeded in persuading the Civil Courts to pass orders of injunction against the steps taken by banks and financial institutions to recover their dues. Due to lack of adequate infrastructure and non-availability of manpower, the regular Courts could not accomplish the task of expeditiously adjudicating the cases instituted by banks and other financial institutions for recovery of their dues. As a result, several hundred crores of public money got blocked in unproductive ventures. In order to redeem the situation, the Government of India constituted a committee under the chairmanship of Shri T.Tiwari to examine the legal and other difficulties faced by banks and financial institutions in the recovery of their dues and suggest remedial measures. The Tiwari Committee noted that the existing procedure for recovery was very cumbersome and suggested that special tribunals be set up for recovery of the dues of banks and financial institutions by following a summary procedure. The Tiwari Committee also prepared a draft of the proposed legislation which contained a provision for disposal of cases in three months and conferment of power upon the Recovery Officer for expeditious execution of orders made by adjudicating bodies. The issue was further examined by the Committee on the Financial System headed by Shri M.Narasimham. In its First Report, the Narasimham Committee also suggested setting up of special tribunals with special powers for adjudication of cases involving the dues of banks and financial institutions.

After considering the reports of the two Committees and taking cognizance of the fact that as on 30-9-1990 more than 15 lakh cases filed by public sector banks and 304 cases filed by financial institutions were pending in various Courts for recovery of debts, etc. amounting to Rs. 6000 crores, the Parliament enacted the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, 'the DRT Act'). The new legislation facilitated creation of specialised forums i.e., the Debts Recovery Tribunals and the Debts Recovery Appellate Tribunals for expeditious adjudication of disputes relating to recovery of the debts due to banks and financial institutions. Simultaneously, the jurisdiction of the Civil Courts was barred and all pending matters were RK, J & DR, J 13 WP No.6376/2018 transferred to the Tribunals from the date of their establishment.

An analysis of the provisions of the DRT Act shows that primary object of that Act was to facilitate creation of special machinery for speedy recovery of the dues of banks and financial institutions. This is the reason why the DRT Act not only provides for establishment of the Tribunals and the Appellate Tribunals with the jurisdiction, powers and authority to make summary adjudication of applications made by banks or financial institutions and specifies the modes of recovery of the amount determined by the Tribunal or the Appellate Tribunal but also bars the jurisdiction of all courts except the Supreme Court and the High Courts in relation to the matters specified in Section 17. The Tribunals and the Appellate Tribunals have also been freed from the shackles of procedure contained in the Code of Civil Procedure. To put it differently, the DRT Act has not only brought into existence special procedural mechanism for speedy recovery of the dues of banks and financial institutions, but also made provision for ensuring that defaulting borrowers are not able to invoke the jurisdiction of Civil Courts for frustrating the proceedings initiated by the banks and other financial institutions.

For few years, the new dispensation worked well and the officers appointed to man the Tribunals worked with great zeal for ensuring that cases involving recovery of the dues of banks and financial institutions are decided expeditiously. However, with the passage of time, the proceedings before the Tribunals became synonymous with those of the regular Courts and the lawyers representing the borrowers and defaulters used every possible mechanism and dilatory tactics to impede the expeditious adjudication of such cases. The flawed appointment procedure adopted by the Government greatly contributed to the malaise of delay in disposal of the cases instituted before the Tribunals.

The survey conducted by the Ministry of Finance, Government of India revealed that as in 2001, a sum of more than Rs.1,20,000/- crores was due to the banks and financial institutions and this was adversely affecting the economy of the country. Therefore, the Government of India asked the Narasimham Committee to suggest RK, J & DR, J 14 WP No.6376/2018 measures for expediting the recovery of debts due to banks and financial institutions. In its Second Report, the Narasimham Committee noted that the non-performing assets of most of the public sector banks were abnormally high and the existing mechanism for recovery of the same was wholly insufficient. In Chapter VIII of the Report, the Committee noted that the evaluation of legal framework has not kept pace with the changing commercial practice and financial sector reforms and as a result of that the economy could not reap full benefits of the reform process. The Committee made various suggestions for bringing about radical changes in the existing adjudicatory mechanism. By way of illustration, the Committee referred to the scheme of mortgage under the Transfer of Property Act and suggested that the existing laws should be changed not only for facilitating speedy recovery of the dues of banks, etc. but also for quick resolution of disputes arising out of the action taken for recovery of such dues. The Andhyarujina Committee constituted by the Central Government for examining banking sector reforms also considered the need for changes in the legal system. Both, the Narasimham and Andhyarujina Committees suggested enactment of new legislation for securitisation and empowering the banks and financial institutions to take possession of the securities and sell them without intervention of the court. The Government of India accepted the recommendations of the two committees and that led to enactment of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short 'the SARFAESI Act'), which can be termed as one of the most radical legislative measures taken by the Parliament for ensuring that dues of secured creditors including banks, financial institutions are recovered from the defaulting borrowers without any obstruction. For the first time, the secured creditors have been empowered to take steps for recovery of their dues without intervention of the Courts or Tribunals.

[3] Section 13 of the SARFAESI Act contains detailed mechanism for enforcement of security interest. Sub-section (1) thereof lays down that notwithstanding anything contained in Sections 69 or 69A of the Transfer of Property Act, any security interest created in favour of any secured creditor may be RK, J & DR, J 15 WP No.6376/2018 enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act. Sub-section (2) of Section 13 enumerates first of many steps needed to be taken by the secured creditor for enforcement of security interest.

This Sub-section provides that if a borrower, who is under a liability to a secured creditor, makes any default in repayment of secured debt and his account in respect of such debt is classified as non- performing asset, then the secured creditor may require the borrower by notice in writing to discharge his liabilities within sixty days from the date of the notice with an indication that if he fails to do so, the secured creditor shall be entitled to exercise all or any of its rights in terms of Section 13(4). Sub-section (3) of Section 13 lays down that notice issued under Section 13(2) shall contain details of the amount payable by the borrower as also the details of the secured assets intended to be enforced by the bank or financial institution. Sub-section (3-A) of Section 13 lays down that the borrower may make a representation in response to the notice issued under Section 13(2) and challenge the classification of his account as non-performing asset as also the quantum of amount specified in the notice. If the bank or financial institution comes to the conclusion that the representation/objection of the borrower is not acceptable, then reasons for non- acceptance are required to be communicated within one week. Sub-section (4) of Section 13 specifies various modes which can be adopted by the secured creditor for recovery of secured debt. The secured creditor can take possession of the secured assets of the borrower and transfer the same by way of lease, assignment or sale for realising the secured assets. This is subject to the condition that the right to transfer by way of lease, etc. shall be exercised only where substantial part of the business of the borrower is held as secured debt. If the management of whole or part of the business is severable, then the secured creditor can take over management only of such business of the borrower which is relatable to security. The secured creditor can appoint any person to manage the secured asset, the possession of which has been taken over. The secured creditor can also, by notice in writing, call upon a person who has acquired any of the secured assets from the borrower to pay the money, which may be sufficient to discharge the liability of the borrower. Sub-section (7) of Section 13 lays down that where any action has been taken against a borrower under Sub-section (4), all costs, charges and RK, J & DR, J 16 WP No.6376/2018 expenses properly incurred by the secured creditor or any expenses incidental thereto can be recovered from the borrower. The money which is received by the secured creditor is required to be held by him in trust and applied, in the first instance, for such costs, charges and expenses and then in discharge of dues of the secured creditor. Residue of the money is payable to the person entitled thereto according to his rights and interest. Sub-section (8) of Section 13 imposes a restriction on the sale or transfer of the secured asset if the amount due to the secured creditor together with costs, charges and expenses incurred by him are tendered at any time before the time fixed for such sale or transfer. Sub-section (9) of Section 13 deals with the situation in which more than one secured creditor has stakes in the secured assets and lays down that in the case of financing a financial asset by more than one secured creditor or joint financing of a financial asset by secured creditors, no individual secured creditor shall be entitled to exercise any or all of the rights under Sub- section (4) unless all of them agree for such a course. There are five unnumbered provisos to Section 13(9) which deal with pari passu charge of the workers of a company in liquidation. The first of these provisos lays down that in the case of a company in liquidation, the amount realised from the sale of secured assets shall be distributed in accordance with the provisions of Section 529A of the Companies Act, 1956. The second proviso deals with the case of a company being wound up on or after the commencement of this Act. If the secured creditor of such company opts to realise its security instead of relinquishing the same and proving its debt under Section 529(1) of the Companies Act, then it can retain sale proceeds after depositing the workmen's dues with the liquidator in accordance with Section 529A. The third proviso requires the liquidator to inform the secured creditor about the dues payable to the workmen in terms of Section 529A. If the amount payable to the workmen is not certain, then the liquidator has to intimate the estimated amount to the secured creditor. The fourth proviso lays down that in case the secured creditor deposits the estimated amount of the workmen's dues, then such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount, if any, deposited with the liquidator. In terms of the fifth proviso, the secured creditor is required to give an undertaking to the liquidator to pay the balance of the workmen's dues, if any. Sub-section (10) RK, J & DR, J 17 WP No.6376/2018 of Section 13 lays down that where dues of the secured creditor are not fully satisfied by the sale proceeds of the secured assets, the secured creditor may file an application before the Tribunal under Section 17 for recovery of balance amount from the borrower. Sub-section (11) states that without prejudice to the rights conferred on the secured creditor under or by this section, it shall be entitled to proceed against the guarantors or sell the pledged assets without resorting to the measures specified in Clauses (a) to (d) of Sub-section (4) in relation to the secured assets. Sub-section (12) of Section 13 lays down that rights available to the secured creditor under the Act may be exercised by one or more of its officers authorised in this behalf. Sub-section (13) lays down that after receipt of notice under Sub-section (2), the borrower shall not transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice without prior written consent of the secured creditor. In terms of Section 14, the secured creditor can file an application before the Chief Metropolitan Magistrate or the District Magistrate, within whose jurisdiction the secured asset or other documents relating thereto are found for taking possession thereof. If any such request is made, the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, is obliged to take possession of such asset or document and forward the same to the secured creditor. [4] Section 17 speaks of the remedies available to any person including borrower who may have grievance against the action taken by the secured creditor under Sub-section (4) of Section 13. Such an aggrieved person can make an application to the Tribunal within 45 days from the date on which action is taken under that Sub-section. By way of abundant caution, an Explanation has been added to Section 17(1) and it has been clarified that the communication of reasons to the borrower in terms of Section 13(3A) shall not constitute a ground for filing application under Section 17(1). Sub-section (2) of Section 17 casts a duty on the Tribunal to consider whether the measures taken by the secured creditor for enforcement of security interest are in accordance with the provisions of the Act and the Rules made thereunder. If the Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that the measures taken by the secured creditor are not in RK, J & DR, J 18 WP No.6376/2018 consonance with Sub-section (4) of Section 13, then it can direct the secured creditor to restore management of the business or possession of the secured assets to the borrower. On the other hand, if the Tribunal finds that the recourse taken by the secured creditor under Sub-section (4) of Section 13 is in accordance with the provisions of the Act and the Rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor can take recourse to one or more of the measures specified in Section 13(4) for recovery of its secured debt. Sub-section (5) of Section 17 prescribes the time- limit of sixty days within which an application made under Section 17 is required to be disposed of. The proviso to this Sub-section envisages extension of time, but the outer limit for adjudication of an application is four months. If the Tribunal fails to decide the application within a maximum period of four months, then either party can move the Appellate Tribunal for issue of a direction to the Tribunal to dispose of the application expeditiously. Section 18 provides for an appeal to the Appellate Tribunal.

[5] Section 34 lays down that no Civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Tribunal or Appellate Tribunal is empowered to determine. It further lays down that no injunction shall be granted by any Court or other authority in respect of any action taken or to be taken under the SARFAESI Act or the DRT Act. Section 35 of the SARFAESI Act is substantially similar to Section 34(1) of the DRT Act. It declares that the provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.

[6] However, effective implementation of the SARFAESI Act was delayed by more than two years because several writ petitions were filed in the High Courts and this Court questioning its vires. The matter was finally decided by this Court in Mardia Chemicals v. Union of India [(2004) 4 SCC 311 and the validity of the SARFAESI Act was upheld except the condition of deposit of 75% amount enshrined in Section 17(2). The Court referred to the recommendations of the Narasimham and Andhyarujina Committees on the issue of constitution of special tribunals to deal with cases relating to recovery of the dues of banks etc. and observed:

RK, J & DR, J 19 WP No.6376/2018 "One of the measures recommended in the circumstances was to vest the financial institutions through special statutes, the power of sale of the assets without intervention of the court and for reconstruction of assets. It is thus to be seen that the question of non- recoverable or delayed recovery of debts advanced by the banks or financial institutions has been attracting attention and the matter was considered in depth by the Committees specially constituted consisting of the experts in the field. In the prevalent situation where the amounts of dues are huge and hope of early recovery is less, it cannot be said that a more effective legislation for the purpose was uncalled for or that it could not be resorted to. It is again to be noted that after the Report of the Narasimham Committee, yet another Committee was constituted headed by Mr. Andhyarujina for bringing about the needed steps within the legal framework. We are, therefore, unable to find much substance in the submission made on behalf of the petitioners that while the Recovery of Debts Due to Banks and Financial Institutions Act was in operation it was uncalled for to have yet another legislation for the recovery of the mounting dues. Considering the totality of circumstances and the financial climate world over, if it was thought as a matter of policy to have yet speedier legal method to recover the dues, such a policy decision cannot be faulted with nor is it a matter to be gone into by the courts to test the legitimacy of such a measure relating to financial policy."

This Court then held that the borrower can challenge the action taken under Section 13(4) by filing an application under Section 17 of the SARFAESI Act and a civil suit can be filed within the narrow scope and on the limited grounds on which they are permissible in the matters relating to an English mortgage enforceable without intervention of the Court. In paragraph 31 of the judgment, the Court observed as under:

"In view of the discussion held in the judgment and the findings and directions contained in the preceding paragraphs, we hold that the borrowers would get a reasonably fair deal and opportunity to get the matter adjudicated upon before the Debts Recovery Tribunal. The effect of some of the provisions may be a bit harsh RK, J & DR, J 20 WP No.6376/2018 for some of the borrowers but on that ground the impugned provisions of the Act cannot be said to be unconstitutional in view of the fact that the object of the Act is to achieve speedier recovery of the dues declared as NPAs and better availability of capital liquidity and resources to help in growth of the economy of the country and welfare of the people in general which would sub serve the public interest."

9. In the case in hand, on examination of the pleadings, there is no difficulty in coming to the conclusion that the respondent-bank had proceeded in accordance with the provisions contained in the SARFAESI Act. After the loan account was declared NPA, notice was issued under Section 13(2) of the Act and subsequently process was also followed under Section 13(4) of the Act and only thereafter jurisdiction of learned Chief Metropolitan Magistrate, Vijayawada, was invoked under Section 14 of the SARFAESI Act. Though petitioner had tried to develop a case as if in borrowers case the stand of the bank was defeated but fact remains that property mortgaged by the 2nd respondent-borrower and the petitioner-guarantor were two distinct properties. If in a proceeding initiated against the borrower's property, due to some procedural flaw, the Debts Recovery Tribunal interfered into the matter, the petitioner whose mortgaged property is distinct and different cannot get any benefit from the order passed in favour of the borrower's property. Moreover, on the basis of facts disclosed in the counter-affidavit, which have not been rebutted by filing any reply, it is evident that possession notice by the respondent-bank in respect of secured assets offered by the petitioner was issued on 07.10.2015 and it was also published on 10.10.2015 in the editions of BusinessLine, English daily newspaper, and Prajasakthi, Telugu daily newspaper. However, as per the counter-affidavit the petitioner had never challenged the said action meaning thereby that he RK, J & DR, J 21 WP No.6376/2018 waived his right to challenge the same. As per the provision contained in Section 17(1) of the SARFAESI Act, had the petitioner was aggrieved, within 45 days from the date of such notice he would have invoked the jurisdiction of Debts Recovery Tribunal. In the absence of any challenge to the action of respondent-bank, under Section 13(4) of the SARFAESI Act, the petitioner may not be allowed to assail subsequent action taken under Section 14 of the SARFAESI Act.

10. We are of the opinion that since the petitioner was having alternative efficacious remedy under the SARFAESI Act, he may not be allowed to invoke writ jurisdiction of this Court. In a case reported in Assistant Collector of Central Excise, Chandan Nagar, West Bengal v. Dunlop India Ltd. And others2, the Hon'ble Supreme Court observed as follows:

"Article 226 is not meant to short-circuit or circumvent statutory procedures. It is only where statutory remedies are entirely ill- suited to meet the demands of extraordinary situations, as for instance where the very vires of the statute is in question or where private or public wrongs are so inextricably mixed up and the prevention of public injury and the vindication of public justice require it that recourse may be had to Article 226 of the Constitution. But then the Court must have good and sufficient reason to bypass the alternative remedy provided by statute. Surely matters involving the revenue where statutory remedies are available are not such matters. We can also take judicial notice of the fact that the vast majority of the petitions under Article 226 of the Constitution are filed solely for the purpose of obtaining interim orders and thereafter prolong the proceedings by one device or the other. The practice certainly needs to be strongly discouraged."

1985 (1) SCC 260 RK, J & DR, J 22 WP No.6376/2018

11. Again, in Punjab National Bank v. O.C. Krishnan and Others3, the Hon'ble Supreme Court observed as follows:

"5. In our opinion, the order which was passed by the Tribunal directing sale of mortgaged property was appealable under Section 20 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short "the Act"). The High Court ought not to have exercised its jurisdiction under Article 227 in view of the provision for alternative remedy contained in the Act. We do not propose to go into the correctness of the decision of the High Court and whether the order passed by the Tribunal was correct or not has to be decided before an appropriate forum.

6. The Act has been enacted with a view to provide a special procedure for recovery of debts due to the banks and the financial institutions. There is a hierarchy of appeal provided in the Act, namely, filing of an appeal under Section 20 and this fast-track procedure cannot be allowed to be derailed either by taking recourse to proceedings under Articles 226 and 227 of the Constitution or by filing a civil suit, which is expressly barred. Even though a provision under an Act cannot expressly oust the jurisdiction of the court under Articles 226 and 227 of the Constitution, nevertheless, when there is an alternative remedy available, judicial prudence demands that the Court refrains from exercising its jurisdiction under the said constitutional provisions. This was a case where the High Court should not have entertained the petition under Article 227 of the Constitution and should have directed the respondent to take recourse to the appeal mechanism provided by the Act."

12. The Hon'ble Supreme Court in Raj Kumar Shivhare v. Assistant director, directorate of enforcement and another4, held as follows:

"31. When a statutory forum is created by law for redressal of grievance and that too in a fiscal statute, a writ petition should not be entertained ignoring the statutory dispensation. In this case the High Court is a statutory forum of appeal on a question of law. That should not be abdicated and given a go-by by a litigant for 3 2001 (6) SCC 569 4 2010 (4) SCC 772 RK, J & DR, J 23 WP No.6376/2018 invoking the forum of judicial review of the High Court under writ jurisdiction. The High Court, with great respect, fell into a manifest error by not appreciating this aspect of the matter. It has however dismissed the writ petition on the ground of lack of territorial jurisdiction.

32. No reason could be assigned by the appellant's counsel to demonstrate why the appellate jurisdiction of the High Court under Section 35 of FEMA does not provide an efficacious remedy. In fact there could hardly be any reason since the High Court itself is the appellate forum."

13. Again in the year 2018, in Authorized Officer, State Bank of Travancore and another v. Mathew K.C5, the Hon'ble Supreme Court reiterated the settled principle and deprecated interference by the High Courts in exercising jurisdiction under Article 226 of the Constitution of India in a case arising out of SARFAESI Act. This Court is reminded by the observation made in Paragraph 27 of the Hon'ble Supreme Court in Satyawati Tondon1, which is as follows:

"27. It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection."

14. In view of the aforesaid settled principles as well as the fact of the case particularly the fact that secured asset in the present Writ Petition is distinct from the property of the borrower which was subject matter before the High Court of Telangana at Hyderabad, the petitioner may not get any 5 2018 (3) SCC 85 RK, J & DR, J 24 WP No.6376/2018 benefit from the order in W.P. No.27837 of 2019, dated 16.12.2019. Moreover, the Debts Recovery Tribunal, Hyderabad, in the case of 2nd respondent-borrower i.e., in S.A. No.468 of 2018, had primarily interfered on the ground that the 1st respondent-bank in its reply statement did not say anything with regard to service of e-auction sale notice, dated 01.07.2016, on the application (2nd respondent-borrower in the present case), which is not in the present case. Accordingly, we are of the considered opinion that the present Writ Petition has got no merit and as such deserve to be dismissed and it is hereby dismissed. No order as to costs.

15. As a sequel, miscellaneous petitions pending, if any, in this Writ Petition shall stand dismissed.

________________________ RAKESH KUMAR, J ________________________ D.RAMESH, J Date: 06-02-2020.

Dsh

Unlock Advanced Research with PRISMAI

Andhra Pradesh High Court - Amravati