Karnataka High Court
Shwethambar Polymers Private Limited, vs Karnataka State Financial Corporation on 24 August, 2012
Author: Vikramajit Sen
Bench: Chief Justice, Aravind Kumar
1
IN THE HIGH COURT OF KARNTAKA AT BANGALORE
DATED THIS THE 24th DAY OF AUGUST 2012
PRESENT
THE HON'BLE MR.VIKRAMAJIT SEN, CHIEF JUSTICE
AND
THE HON'BLE MR. JUSTICE ARAVIND KUMAR
WRIT APPEAL No. 3866/2012 (GM-KSFC)
BETWEEN:
Shwethambar Polymers
Private Limited,
A registered private limited company
Having its registered office at
'Archana Complex', 37/12-1
4th Cross, Lalbagh Road,
Bangalore-560 027.
Represented by its Director
Mr. Suresh Kumar Ramsisaria. : Appellant
(By Shri. Paras Jain, Advocate)
AND:
Karnataka State Financial Corporation
1/1, Thimmaiah Road, Opposite to
Cantonment Railway Station,
Bangalore.-560 052
Represented by its Manager. : Respondent
This Writ Appeal is filed under Section-4 of the Karnataka
High Court Act, praying to set aside the order passed in Writ
Petition No.18250/2012 (GM-KSFC) dated 28.06.2012.
2
This Writ Appeal having been heard and reserved for
pronouncement of judgment, this day, the Chief Justice
pronounced the following :
JUDGMENT
Vikramajit Sen, C.J.
This Appeal assails the Order dated 28.06.2012 by which the learned Single Judge had dismissed the Appellant's Writ Petition under Article 226 of the Constitution, containing several prayers which in essence, sought for passing of a direction to the Respondent-Karnataka State Financial Corporation ('KSFC' for short) to take possession of the auctioned property from the persons in occupation thereof and only thereafter demand the remaining 75% of the bid amount from the Appellant.
2. The public notice of the sale of assets of the KSFC's debtor namely Cosmos Watches Private Limited was published by the KSFC in The Hindu on 05.03.2012. The notice stated that the subject property had been taken possession of under Section 13 (4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('SERFAESI Act' for short) and that all the terms and conditions of the e-auction were available on the KSFC website. It is not in 3 dispute that these terms clarified that the sale was on "as is where is basis". The public notice dated 15.03.2012 mentioned that the Reserve Price was Rs.56,55,000/- and the EMD was Rs.5,75,000/-. Inspection of the property was made available to all interested parties from 19.03.2012 between 11.00 a.m to 2.30 p.m; last date for paying the EMD was 30.04.2012; and the e- auction was scheduled to commence on 17.04.2012 at 10.00 a.m and close on 05.05.2012. The petitioner deposited the EMD in time, made the highest bid of Rs.58,35,000/- and also remitted 25 per cent of the bid amount. Accordingly, the sale was confirmed in favour of the appellant/petitioner with a further request to pay the aforementioned 25 per cent of the sale consideration, viz. Rs.14,58,750/-. The contention of the Appellant is that the Appellant understood the notice dated 15.03.2012 to state that the vacant possession of the property was with the KSFC, whereas the position was to the contrary.
3. The auctioned property is in the heart of Bangalore, in one of its commercial hubs and the bid price is only a fraction of its market price if vacant possession is deliverable. The exchange of correspondence between the Appellant and the KSFC included 4 the former's letter dated 09.06.2012 the concluding paragraph of which reads thus:
"Wherefore, please take the possession of the property from the tenants in occupation for which you have been empowered by the law and thereafter call upon us to tender balance 75% of sale consideration with an assurance that on the date of execution of sale deed, property will be conveyed to us free from all encumbrances and will be put in possession of the property. Further please send copies of all the statutory notices issued by you under securitization Act to the defaulter/borrower and reply received from him, to enable us to investigate the title in accordance with law. We are not interested in delaying registration or payment to you. We are interested in acquiring clear title and physical possession of the property, which is being sold by you".
4. As is to be expected this demand has been rejected by the KSFC. The balance of the sale consideration amount has not been deposited and the Appellant remains steadfast in its demand that vacant possession of the auctioned property should be tendered to it before any further payment is demanded. 5
5. Reliance has been placed by the learned counsel for the Appellant on the decisions of the Supreme Court reported as Transcore Vs. Union of India (2008) 1 SCC 125 and Kalu Ram Ahuja Vs. Delhi Development Authority (2008) 10 SCC 696. Neither of these decisions are of any assistance to the appellant or of any relevance to the question raised before us. The first paragraph of Transcore sets the pitch for this very detailed judgment inasmuch as it states that the short question of public importance is whether withdrawal of original application in terms of the first proviso to Section 19(1) of the DRT Act 1993 is a condition precedent to taking recourse to SERFAESI Act 2002. Their Lordships briefly summarized the provisions of both these Statutes which empower the taking over of possession of the secured assets of the management and of the business of the borrowers under Section 13 (4) of the Act, the object of which is to effect "recovery by non adjudicatory process . . . . . the said Act removes all fetters in the circumstances on the rights of the secured creditor". Learned counsel for the Appellant particularly relied on paragraphs 73 and 74 of the Judgment, the relevant 6 portions of which are reproduced below, but, we fail to appreciate any manner in which it advances the case of the Appellant.
"73. The word possession is a relative concept. It is no an absolute concept. The dichotomy between symbolic and physical possession does not find place the Act. As stated above, there is a conceptual distinction between securities by which the creditor obtains ownership of or interest in the property concerned (mortgages) and securities where the creditor obtains neither an interest in nor possession of the property but the property is appropriated to the satisfaction of the debt (charges). Basically, the NPA Act deals with the former type of securities under which the secured creditor, namely, the bank/FI obtains interest in the property concerned. It is for this reason that the NPA Act ousts the intervention of the courts/tribunals.
74. Keeping the above conceptual aspect in mind, we find that Section 13(4) of the NPA Act proceeds on the basis that the borrower, who is under a liability, has failed to discharge his liability within the period prescribed under Section 13(2), which enables the secured creditor to take recourse to one of the measures, namely, taking possession 7 of the secured assets including the right to transfer by way of lease, assignment for sale for realising the secured assets. Section 13(4-A) refers to the word "possession" simpliciter. There is no dichotomy in sub-section (4-A) as pleaded on behalf of the borrowers. Under Rule 8 of the 2002 Rules, the authorised officer is empowered to take possession by delivering the possession notice prepared as nearly as possible in Appendix IV prescribes the form of possession notice. It inter alia states that notice is given to the borrower who has failed to repay the amount informing him and the public that the bank/F1 has taken possession of the property under Section 13(4) read with Rule 9 of the 2002 Rules. Rule 9 relates to time of sale, issue of sale certificate and delivery of possession. Rule 9(6) states that on confirmation of sale, if the terms of payment are complied with, the authorized officer shall issue a sale certificate in favour of the purchaser in the form given in Appendix V to the 2002 Rules. Rule 9(9) states that the authorized officer shall deliver the property to the buyer free from all encumbrances known to the secured creditor or not known to the secured creditor. (emphasis supplied) Section 14 of the NPA Act states that where the possession of any secured asset is required to be taken by the secured 8 creditor or if any of the secured asset is required to be sold or transferred, the secured creditor may, for the purpose of taking possession, request in writing to the District Magistrate to take possession thereof.
6. In Kalu Ram Ahuja their Lordships were of the view that no reasons for rejection of the highest bid were forthcoming, and even a perusal of the records failed to disclose rational and tangible reasons and or the public interest for the said rejection. We fail altogether to perceive the topicality of this decision. Our attention has next been drawn to Kathikkal Tea Plantations v. State Bank of India AIR 2010 Madras 24 wherein their Lordship held as follows:
"21. Therefore, in our opinion, in the absence of any specific stipulation in Section 13, the properties could be sold only after taking physical possession and also the combined reading of sections 13 and 14 with the background of the object would show that it cannot be said that the secured creditor cannot take actual physical possession after issuing sale certificates merely for the reason that the language found in section 14 refers to the secured creditor and secured asset.9
Furthermore, as contended by the learned counsel for the petitioner in W.P.No.10228 of 2009, that under section 13(1) even after sale, the bank can approach the Debts Recovery Tribunal by filing application having jurisdiction or a competent court, for recovery of the balance amount. Further, the contention of the learned counsel for the Banks that the character of the secured creditor cannot be said to be ceased by executing the sale certificate also cannot be ignored.
22. In view of the above discussions, we hereby hold that the respondents-Banks are entitled to take possession under section 14(2) of the SARFAESI Act and the issuance of sale certificate is not a bar to take physical possession and the writ petitioners are not entitled for the reliefs sought for. Consequently all the writ petitions fail and are dismissed. No costs. Connected M.Ps. are closed."
This is not the factual matrix of the litigation before us since it is facially clear that the KSFC did not hold out any promise or assume any responsibility to eject the tenants/occupants from the auctioned property either before or after the sale, inasmuch as the auction was in terms of 'as is where is basis'. 10
7. Business India Builders Vs. Union Bank of India, AIR 2007 Kerala 114 is another Division Bench Judgment relied upon by learned counsel for the Appellant which dealt with an argument that Rule 9 (9) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (Enforcements) Rules, 2002 does not include the tenancy arrangements with respect to the secured assets sold as per Rule 8 and further that the said Rule does not authorize the eviction of tenants in occupation of secured assets. That is not the context or the situation in the case in hand. We are not called upon to countenance the letting out of the property by the Borrower to a third party. There can be no cavil that the KSFC or any other secured creditor can avail of and undertake the assumption of possession of the collateral of immovable property. However, statute does not make it mandatory for such action to be taken. The secured creditor may find it expedient to immediately auction the property in which case it will not receive the market price. The buyer cannot dictate what action has to be initiated and completed. Conspicuously, it is not the prayer of 11 the Appellant that its payments should be returned as it was mislead by the e-auction notice.
The Appeal is wholly without merit and is dismissed with costs of Rs.10,000/- payable by the Appellant within 30 days from today to the Chief Minister's Relief Fund and to produce the receipt to that effect before the Registry.
Sd/-
CHIEF JUSTICE Sd/-
JUDGE VR