Rajasthan High Court - Jodhpur
Pankaj Kumar Dagriya & Ors vs Dist. Magistrate, Udaipur & Ors on 4 October, 2016
Author: Vijay Bishnoi
Bench: Vijay Bishnoi
1
IN THE HIGH COURT OF JUDICATURE FOR
RAJASTHAN AT JODHPUR
---------------------------------------------------
CIVIL WRIT (CW) No. 6256 of 2016
PETITIONERS:
1. Pankaj Kumar Dagriya s/o Shri Jayanti Lal Dagriya,
aged about 38 years by caste Dagriya, resident of
Hiran Magri Sector 11, Udaipur.
2. Sheetal Dagriya S/o Late Shri Sumati Lal Dagriya, by
caste Dagriya, resident of Parsola, Tehsil Dhariawad,
District Udaipur.
3. Vijay Kumar S/o Late Shri Sumati Lal Dagriya, by
caste Dagriya, resident of Parsola, Tehsil Dhariawad,
District Udaipur.
4. Smt. Bhagwanti Devi wife of Shri Jayanti Lal Dagriya,
by caste, resident of Hiran Magri Sector 11, Udaipur.
VERSUS
RESPONDENTS:
1. The District Magistrate, Udaipur.
2. M/s New Age Marbles Pvt. Ltd. Registered Office C/o
Anand Mahal hotel, Inside Udiapole, Sarvaritu Vilas,
Udaipur.
3. Invent Assets Securitization and Reconstruction Pvt.
Ltd., Regd. Office : 7, Raheja Centre, Ground Floor,
214, Free Press Journal Marg, Mumbai 400021.
Date of Order : 4th October 2016
HON'BLE MR. VIJAY BISHNOI,J.
MR. BS SANDHU, for Petitioners
DR JAY CHOKSI, for respondent No.3
2
ORDER
-----
The matter comes up on an application under Article 226(3) of the Constitution of India moved on behalf of respondent No.3 with a prayer for vacation of ex parte interim order dated 27.05.2016.
Service of the notice upon respondent Nos.1 and 2 is duly effected, however, none has put in appearance on their behalf.
With the consent of the learned counsel for the petitioners and the counsel appearing on behalf of the respondent No.3, the matter is finally heard.
The petitioners have filed this writ petition while praying for granting following reliefs:
"It is, therefore, most humbly and respectfully prayed that this petition for writ in the nature of mandamus may kindly be allowed and by an appropriate writ, order and directions:
(i) the action of the respondent no.1 in not deciding the objections submitted by the petitioners in the application under Section 14 of the Act of 2002 may kindly be declared illegal.
(ii) The respondent no.1 may be directed to decide the objections filed by the petitioners in accordance with law after giving an opportunity of hearing to the petitioners.3
(iii) The application under Section 14 of the Act of 2002 filed by the respondent no.3 to the extent it proceeds for taking over possession of the shops in question owned by the petitioners may kindly be declared illegal and the same may kindly be quashed and set aside.
(iv) The respondents may be restrained from taking coercive action for dispossessing the petitioners from the shops in question.
(v) any other relief which this Hon'ble Court deems just and proper in favour of the petitioner, may kindly be granted and
(vi) the cost of the writ petition be allowed in favour of the petitioner."
The case set up by the petitioners in this writ petition is this that they purchased four shops of different measurement situated on main road from Udiapole to Gulab Bagh, Udaipur from respondent No.2 vide registered sale-
deed dated 17.05.1993. It is averred in the petition that recently representatives of respondent No.1 District Magistrate, Udaipur approached the petitioners and informed them that the said shops are to be seized and they would be dispossessed from the shops. Upon enquiry, the petitioners came to know that the shops in question are sought to be taken in possession pursuant to the application filed by the respondent No.3 under section 14 of the 4 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short 'the Act of 2002' hereinafter). When the petitioners obtained the copy of the application under section 14 of the Act of 2002 dated 29.12.2015 from the office of the respondent No.1, they came to know that respondent No.2 had obtained some loan from respondent No.3 and in lieu thereof, various properties including the properties of respondent No.2 were mortgaged. When the said loan was not repaid, the account was declared as NPA on 26.03.2004 and a sum of Rs.9,47,11,352/- was outstanding. Thereafter the Debt Relief Tribunal III, Mumbai vide order dated 02.01.2006 directed the respondent No.2 to deposit a sum of Rs.4,03,02,703/-. It is further averred in the petition that respondent No.3 issued notice to the loanees including respondent No.2 on 06.08.2013 and asked them to deposit amount as per the directions given by the Debt Relief Tribunal. When the said amount was not deposited and possession of the mortgaged property was not delivered, the respondent No.3 filed the application before the District Magistrate under section 14 of the Act of 2002. In the said application, the description of the property of the respondent No.2 was given.
5It is also averred in the petition that as the respondent No.2 has already transferred the shops in question in favour of the petitioners through a registered sale-deed even prior to the mortgage of the property, the shops cannot be a part of the mortgaged property and the possession of the shops owned by the petitioners cannot be taken for the lapse on the part of the respondent No.2. It is further averred in the petition that the petitioners never took any loan from the respondent No.2 nor their properties i.e. the shops in question were ever mortgaged and as such the same are not secured assets under section 13 of the Act of 2002.
It is further averred in the petition that the petitioners contacted respondent No.2 and enquired about the matter and they were informed that in the year 2001 M/s Imperial Clothing Impex took some loan from the bank and for the purpose of advancing security of the said firm, a guarantee was given by the respondent No.2 and in the said guarantee, the shops in question were made part of the secured assets. The petitioners have further averred in the petition that after came to know about this fact, they filed objections before the District Magistrate in the application under section 14 of the Act of 2002 filed by the respondent 6 No.3, however, the District Magistrate is not taking cognizance on the objections filed by the petitioners and without giving them opportunity of hearing is bent upon to decide the application filed on behalf of the respondent No.3 under section 14 of the Act of 2002 and, therefore, they have been compelled to file this writ petition while claiming above quoted prayers.
Reply to the writ petition has been filed on behalf of the respondent No.3, in which the preliminary objections regarding maintainability of this petition have been raised.
It is averred in the reply that the petitioners have an alternate remedy under the Act of 2002 to challenge the steps taken by the Bank. It is also contended that as a matter of fact, in the proceedings under section 14 of the Act of 2002, no person is required to be heard. It is also averred in the reply that the respondent No.3 after serving a notice under section 13(2) of the Act of 2002 initiated proceedings under section 14 of the Act of 2002 and there is no illegality in the action of the respondent No.3 in approaching the District Magistrate under section 14 of the Act of 2002. It is further averred in the petition that it is well settled that the proceedings before the District Magistrate is non-adjudicatory and no person is required to 7 be heard.
In support of the above contentions, learned counsel for the respondent No.3 has placed reliance on decision of Hon'ble Supreme Court in United Bank of India vs. Satyawati Tondon & Ors., (2010) 8 SCC 110.
He has also placed reliance on decisions of Division Bench of Bombay High Court rendered in The Saraswat Co-
operative Bank Ltd. vs. State of Maharashtra & Anr.
[Writ Petition No.4344/2011] decided on 28.07.2011;
International Asset Reconstruction Company Pvt. Ltd.
vs. Union of India & Ors. [Crl. Public Interest Litigation No.24 of 2011] decided on 20.08.2011 and;
Golf Technologies (P) Ltd & Anr.vs. Axix Bank Ltd & 28 Ors. [Writ Petition (Lodging) No.1005 of 2015] decided on 07.04.2015.
Heard learned counsel for the rival parties.
Section 14 of the Act of 2002 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 assets, 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 8 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:
[Provided that any application by the secured creditor shall be accompanied by an affidavit duly affirmed by the authorised officer of the secured creditor, declaring that-
(i) the aggregate amount of financial assistance granted and the total claim of the Bank as on the date of filing the application;
(ii) the borrower has created security interest over various properties and that the Bank or Financial Institution is holding a valid and subsisting security interest over such properties and the claim of the Bank or Financial Institution is within the limitation period;
(iii) the borrower has created security interest over various properties giving the details of properties referred to in sub-clause (ii) above;
(iv) the borrower has committed default in repayment of the financial assistance granted aggregating the specified amount;
(v) consequent upon such default in repayment of the financial assistance the account of the borrower has been classified as a non-performing asset;
(vi) affirming that the period of sixty days notice as required by the provisions of sub-section (2) of Section 13, demanding payment of the defaulted financial assistance has been served on the borrower;
(vii) the objection or representation in reply to the notice received from the borrower has been considered by the secured creditor and reasons for non-
acceptance of such objection or representation had been communicated to the borrower;
(viii) the borrower has not made any repayment of the financial assistance in spite of the above notice and the Authorised Officer is, therefore, entitled to take possession of the secured assets under the provisions of 9 sub-section (4) of Section 13 read with Section 14 of the principal Act;
(ix) that the provisions of this Act and the rules made thereunder had been complied with:
Provided further that on receipt of the affidavit from the Authorised Officer, the District Magistrate or the Chief Metropolitan Magistrate, as the case may be, shall after satisfying the contents of the affidavit pass suitable orders for the purpose of taking possession of the secured assets:
Provided also that the requirement of filing affidavit stated in the first proviso shall not apply to proceeding pending before any District Magistrate or the Chief Metropolitan Magistrate, as the case may be, on the date of commencement of this Act.] [(1-A) the District Magistrate or the Chief Metropolitan Magistrate may authorise any officer subordinate to him,-
(i) to take possession of such assets and documents relating thereto; and
(ii) to forward such assets and documents to the secured creditor.] (2) For the purpose of securing compliance with the provisions of sub-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 [any officer authorised by the Chief Metropolitan Magistrate or District Magistrate] done in pursuance of this section shall be called in question in any court or before any authority."
The Bombay High Court in The Saraswat Co-
operative Bank Ltd. vs. State of Maharashtra & Anr.
(supra) has observed as under:
"4...................The law in respect of the jurisdiction which is conferred upon the District 10 Magistrate under Section 14 is settled by a judgment of a Division Bench of this Court consisting of Smt. Ranjana Desai and Shri Anoop V. Mohta, JJ. In Trade Well vs. Indian Bank, 2007(1) Bom.C.R.(Cri) 783. The Division Bench has held as follows :-
"1 The bank or financial institution shall, before making an application under section 14 of the NPA Act, verify and confirm that notice under section 13(2) of the NPA Act is given and that the secured asset falls within the jurisdiction of CMM/M before whom application under section 14 is made. The bank and financial institution shall also consider before approaching CMM/DM for an order under section 14 of the NPA Act, whether section 31 of the NPA Act excludes the application of sections 13 and 14 thereof to the case on hand.
2 CMM/DM acting under section 14 of the NPA Act is not required to give notice either to the borrower or to the 3rd party.
3 He has to only verify from the bank or financial institution whether notice under section 13(2) of the NPA Act is given or not and whether the secured assets fall within his jurisdiction. There is no adjudication of any kind at that stage.
4 It is only if the above conditions are not fulfilled that the CMM/DM can refuse to pass an order under section 14 of the NPA Act by recording that the above conditions are not fulfilled. If these two 11 conditions are fulfilled, he cannot refuse to pass an order under section 14.
5 Remedy provided under section 17 of the NPA Act is available to the borrower as well as the third party.
6 Remedy provided under section 17 is an efficacious alternative remedy available to the third party as well as to the borrower where all grievances can be raised."
5 The Collector would be bound to follow the principle of law which has been laid down in the judgment of the Division Bench. It does not lie within the jurisdiction of the Collector under Section 14 to enter upon an adjudication of the merits of the claim of the Bank. The limited parameters of his jurisdiction have been explained by the Division Bench in Trade Well........."
Thereafter, another Division Bench of Bombay High Court in International Asset Reconstruction Company Pvt. Ltd. vs. Union of India & Ors. has held as under:
"7. In Transcore, the Supreme Court stated the reasons for enactment of the SARFAESI Act as follows:
"The NPA Act, 2002 is enacted to regulate securitization and reconstruction of financial assets and enforcement of security interest and for matters connected therewith. The NPA Act enables the banks and financial institutions to realize long term assets, manage problems of liquidity, asset liability mismatch and to improve recovery of debts by exercising powers to take possession of securities sell them and thereby reduce nonperforming assets by adopting measures for recovery and 12 reconstruction. The NPA Act further provides for setting up of asset reconstruction companies which are empowered to take possession of secured assets of the borrower including the right to transfer by way of lease, assignment or sale. The said Act also empowers the said asset reconstruction companies to take over the management of the business of the borrower."
8. The Supreme Court further made it clear that the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, "the DRT Act") did not provide for assignment of assets to Securitization Companies. The secured assets could not be liquidated in time. The SARFAESI Act was enacted to reduce mounting non- performing assets by empowering banks to liquidate the assets and secure interest. The SARFAESI Act deals with crystallized liabilities and it proceeds on the basis that the asset is created in favour of bank which could be assigned to the assets management company which steps into the shoes of the secured creditors. The Supreme Court further clarified that Section 13(2) thereof, proceeds on the basis that the borrower is under a liability and his account in the books of account of the bank is classified as sub-standard or doubtful or loss. Since Section 13(2) deals with liquidation of liability on the basis that the account of the borrower has become non-performing, there is no scope for any dispute regarding liability. The SARFAESI Act does not deal with disputes between the secured creditors and the borrowers but it deals with the rights of the secured creditors inter se. The Supreme Court further clarified that Section 13(1) and Section 13(2) of the SARFAESI Act proceed on the basis that the security interest in the bank and financial institution needs to be enforced expeditiously without the intervention of the court and that enforcement could take place by non-adjudicatory process. The SARFAESI Act provides for recovery of possession by non-adjudicatory process and it removes all fetters on the right of the secured creditor. The Supreme Court further clarified that under Section 17(2) 13 of the SARFAESI Act, the DRT is required to consider whether any of the measures referred to in Section 13(4)are in accordance with the provisions of the SARFAESI Act and the Rules made thereunder and if while examining the application under Section 17, the DRT comes to the conclusion that any of the measures taken under Section 13(4) are not in accordance with the SARFAESI Act, it shall direct the secured creditor to restore the possession to the borrower or restore management to the borrower. The Supreme Court further clarified that if the DRT declares that the recourse taken under Section 13(4) is in accordance with the provisions of the SARFAESI Act then notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to anyone or more of the measures as specified under Section 13(4) to recover his secured debt. It was further clarified that Section 17(4) shows that the secured creditor is free to take recourse to any one of the measures under Section 13 (4) notwithstanding anything contained in any other law for the time being in force. Section 35 of the SARFAESI Act gives an overriding effect to it over all other laws if they are inconsistent with it. The Supreme Court further clarified that since scheme of Section 13(4) read with Section 17(3) shows that if the borrower is dispossessed not in accordance with the provisions of the SARFAESI Act, the DRT is entitled to restore status quo ante, it cannot be said that if possession is taken before confirmation of sale, the rights of the borrower to get the dispute adjudicated upon is defeated by the authorized officer taking possession. The Supreme Court referred to Rule 8 of the Security Interest (Enforcement) Rules, 2002 (for short, "the said Rules"), which deals with sale of immoveable assets and Rule 9 which deals with time of sale, issue of sale certificate and delivery of possession, etc. The Supreme Court observed that the disputes which are sought to be avoided by Rule 8 read with Rule 9 of the said Rules are those where third party interests are created overnight and in very many cases those third parties take up the 14 defence of being a bona fide purchaser for value without notice.
9. In Satyawati Tondon, the Supreme Court reiterated its view in Transcore. The Supreme Court made it clear that in terms of Section 14 of the SARFAESI Act, the secured creditor can file an application before the DMs or the CMMs within whose jurisdiction the secured asset or other documents relating thereto are found for taking possession thereof. If any such request is made, the DM or CMM, as the case may be, is obliged to take possession of such asset or document and forward the same to the secured creditor. The Supreme Court further observed that Section 17 of the SARFAESI Act speaks of the remedies available to any person including the borrower, who may have grievance against the action taken by the secured creditor under sub-section (4) of Section 13. The Supreme Court further clarified that Sub-section (2) of Section 17 casts a duty on the DRT to consider whether the measures taken by the secured creditor for enforcement of security interest are in accordance with the provisions of the SARFAESI Act and the said Rules. Pertinently, the Supreme Court observed that if respondent 1 therein had any tangible grievance against the notice issued under Section 13(4) or action taken under Section 14 of the SARFAESI Act, then she could have availed remedy by filing an application under Section 17(1) of the SARFAESI Act. The Supreme Court clarified that the expression "any person" used in Section 17(1)is of wide import. It takes within its fold, not only the borrower but also the guarantor or any other person who may be affected by the action taken under Section 13(4) or Section 14. Both the Tribunal and the Appellate Tribunal are empowered to pass interim orders under Sections 17 and 18 and are required to decide the matters within a fixed time schedule. The Supreme Court emphasized that it is evident that the remedies available to an aggrieved person under the SARFAESI Act are both expeditious and effective and the High Court cannot be oblivious of the rules of self-imposed 15 restraint evolved by the Supreme Court as regards powers conferred upon it under Article 226 of the Constitution of India since, alternative remedy is provided under the SARFAESI Act.
10. In Kanaiyalal Lalchand Sachdev, the Supreme Court referred to Transcore and Satyawati Tondon and reiterated that Section 14 of the SARFAESI Act provides that the secured creditor can file an application before the concerned DM or CMM within whose jurisdiction, the secured asset or other documents relating thereto are found, for taking possession thereof and if any such request is made, the DM or CMM, as the case may be, is obliged to take possession of such asset or document and forward the same to the secured creditor. Therefore, the secured creditor, in order to enforce his rights under Section 13(4), in particular Section 13(4)(a), may take recourse to Section 14 of the SARFAESI Act. The Supreme Court further clarified that an action under Section 14 constitutes an action taken after the stage of Section 13(4) and, therefore, the same would fall within the ambit of Section 17(1) of the SARFAESI Act. Thus, the SARFAESI Act itself contemplates an efficacious remedy for the borrower or any person affected by an action under Section 13(4) of the Act, by providing for an appeal before the DRT.
11. In Trade Well, this court was concerned with the question whether the DM or the CMM while dealing with the written request made by secured creditor under Section 14 of the SARFAESI Act is required to give notice to the borrower or any other person, who may be in possession of the secured assets and give him a hearing. After referring to Transcore, this court answered the question in the negative and gave the following directions.
"1. The bank or financial institution shall, before making an application under section 14 of the NPA Act, verify and confirm that notice under section 13(2) of the NPA Act is given and that the secured asset falls within the jurisdiction of CMM/DM before 16 whom application under section 14 is made. The bank and financial institution shall also consider before approaching CMM/DM for an order under section 14 of the NPA Act, whether section 31 of the NPA Act excludes the application of sections 13 and 14 thereof to the case on hand.
2. CMM/DM acting under section 14 of the NPA Act is not required to give notice either to the borrower or to the 3rd party.
3. He has to only verify from the bank or financial institution whether notice under section 13 (2) of the NPA Act is given or not and whether the secured assets fall within his jurisdiction. There is no adjudication of any kind at that stage.
4. It is only if the above conditions are not fulfilled that the CMM/DM can refuse to pass an order under section 14 of the NPA Act by recording that the above conditions are not fulfilled. If these two conditions are fulfilled, he cannot refuse to pass an order under section 14.
5. Remedy provided under section 17 of the NPA Act is available to the borrower as well as the third party.
6. Remedy provided under section 17 is an efficacious alternative remedy available to the third party as well as to the borrower where all grievances can be raised.
7. In view of the fact that efficacious alternative remedy is available to the borrower as well as to the third party, ordinarily, writ petition under Articles 226 and 227 of the Constitution of India should not be entertained.
8. In exceptional cases of gravest 17 injustice, a writ petition could be entertained by this court.
9. Great care and caution must be exercised while entertaining a writ petition because in a given case it may result in frustrating the object of the NPA Act.
10. Even if a writ petition is entertained, as far as possible, the parties should be relegated to the remedy provided under section 17 of the NPA Act before the DRT by passing an interim order which will protect the secured assets. Adjudication and final order should be left to the DRT as far as possible."
12. In Union Bank of India, the Division Bench of this court was again concerned with the similar question. This court referred to Trade Well and other relevant judgments of other High Courts and concurred with the view that Section 14 of the SARFAESI Act does not permit any adjudication in respect of any dispute between the parties. It was observed that the Magistrate having exercised the said power under Section 14 virtually becomes functus officio. There is finality to the order passed under Section 14 of the SARFAESI Act and he cannot reconsider the issue with the aid of Section 21 of the General Clauses Act. The Division Bench followed the view taken by the Supreme Court that remedy provided under Section 17 is an efficacious and alternative remedy available to the third parties and the borrowers where all their grievances can be raised.
13. In Kotak Mahindra Bank Limited, the petitioner therein had applied before the CMM under Section 14 of the SARFAESI Act for possession of the secured assets. The CMM directed the Assistant Registrar to take possession of the secured assets. The CMM directed that the possession will be taken by the Assistant Registrar after issuing notice of taking possession and after giving reasonable time of not more than 15 days to hand over possession. Learned Single Judge (A.S. Oka, J.) referred to Trade 18 Well and observed that before passing order under Section 14 of the SARFAESI Act, learned CMM is not required to give notice or hearing either to the borrower or to the affected third party. There was no occasion for the CMM to issue 15 days' notice before taking possession. Learned Single Judge observed that if the law does not contemplate notice before passing the order under Section 14, no direction of issuing notice could have been given after passing the order under Section 14 of the SARFAESI Act.
14. It is distressing to note that despite the authoritative pronouncements of the Supreme Court and of this court, the DMs and CMMs continue to issue notices to the borrowers, adjudicate the disputes between the parties, grant intervention applications and give long hearing to the intervenors. At the cost of repetition, it must be stated that in Transcore, the Supreme Court specifically referred to Section 35 of the SARFAESI Act, which gives an overriding effect to it. The relevant paragraph of the Supreme Court judgment in Transcore needs to be quoted.
"34. In our view, Section 17(4) shows that the secured creditor is free to take recourse to any of the measures under Section 13(4) notwithstanding anything contained in any other law for the time being in force, e.g., for the sake of argument, if in the given case the measures undertaken by the secured creditor under Section 13(4) comes in conflict with, let us say the provision under the State land revenue law, then notwithstanding such conflict, the provision of Section 13(4) shall override the local law. This position also stands clarified by Section 35 of the NPA Act which states that the provisions of NPA Act shall override all other laws which are inconsistent with the NPA Act. Section 35 is also important from another angle. As stated above, the NPA Act is not inherently or impliedly inconsistent with the DRT Act in terms of remedies for enforcement of securities. Section 35 gives an overriding effect to the NPA Act 19 with all other laws if such other laws are inconsistent with the NPA Act. As far as the present case is concerned, the remedies are complimentary to each other and, therefore, the doctrine of election has no application to the present case."
(emphasis supplied.)
15. The following observations of the Supreme Court in Transcore also need to be quoted.
"It is well settled that third party interests are created overnight and in very many cases those third parties take up the defence of being a bona fide purchaser for value without notice. It is these types of disputes which are sought to be avoided by Rule 8 read with Rule 9 of the 2002 Rules. In the circumstances, the drawing of dichotomy between symbolic and actual possession does not find place in the scheme of the NPA Act read with the 2002 Rules."
16. In Sajay Bansal, the petitioner therein had raised a contention that he was in physical possession of the mortgaged property as a tenant and was protected under the provisions of the Delhi Rent Control Act. He contended that he cannot be dispossessed under Section 14 of the SARFAESI Act. Following the judgment of the Supreme Court in Mardia Chemicals, the Delhi High Court repelled the contention and held that the protection under the Delhi Rent Control Act was not available against the mortgagee who seeks to enforce his right under the SARFAESI Act against the principal borrower who had mortgaged the property in question by duly and validly executing the memorandum of mortgage in favour of the mortgagee.
17. In Sree Laxmi Products, the Division Bench of Madras High Court was considering the contention of the petitioners that a tenant cannot be dispossessed in pursuance of the recovery proceedings against borrower under the SARFAESI Act and, therefore, even if the landlord of the petitioner is indebted to the respondent- bank the respondent 20 bank has to take possession only by due process of law, it cannot take forcible possession from the tenant. The Madras High Court considered the Supreme Court judgment in Transcore and the Delhi High Court judgment in Sajay Bansal and held as under :
"9. On a plain reading of the observations made in Transcore case it is clear that the bank/FI is entitled to take actual possession of the secured assets from the borrower or from any other person in terms and Section 13(4) of the SARFAESI Act. Any transfer of secured assets after taking possession of the same by the bank/FI shall vest in the transferee all rights in relation to the secured assets as if the transfer has been made by the owner of such secured assets.
Any party aggrieved by such dispossession will have to take recourse to approaching the DRT under Section 17(4) of the SARFAESI Act. If the party is dispossessed, not in accordance with the provisions of the Act, then the DRT is entitled to put the clock back by restoring the status quo ante. By virtue of Section 17 (4) read with Section 35 of the SARFAESI Act, if in a given case the measures undertaken by the secured creditor under Section 13 (4) come in conflict with the provisions of any State law, then notwithstanding to such conflict, the provisions of Section 13(4) shall override the local law.
Section 13(13) of the SARFAESI Act operates as an attachment/injunction restraining the borrower from disposing of the secured assets and therefore, any tenancy created after such notice would be null and void. Any tenancy created by the mortgagor after the mortgage in contravention of Section 65-A would not be binding on the bank/FI, and in any event, such 21 tenancy rights shall stand determined once action under Section 13(4) has been taken by the bank/FI. When the petition is claiming a tenancy prior to the creation of mortgage and such tenancy is disputed by the bank the remedy of the petition is to approach DRT by way of an application under Section 17 of the SARFAESI Act to establish its rights."
18. A careful reading of the above judgments lead us to issue certain directions to the DMs and CMMs, who despite above settled legal position, are issuing notices to borrowers, granting intervention applications and adjudicating rights of the parties while dealing with applications under Section 14 of the SARFAESI Act. Such exercise is totally contrary to law laid down by the Supreme Court, this court and various other High Courts."
Thereafter another Division Bench of Bombay High Court in Golf Technologies (P) Ltd & Anr.vs. Axix Bank Ltd & 28 Ors. (supra) has held as under:
"10) After having heard both the Counsel at length, we are of view that submissions made by the learned Counsel appearing for the petitioners cannot be accepted.
Recently, we have heard a group of petitions on the issue of locus of the borrower to be heard by the Metropolitan Magistrate in an application filed by the bank under Section 14 of the SARFAESI Act and in the said group of the petitions we have considered various issues which have been raised and finally we have held that the borrower does not have any locus to appear before the Magistrate since the 22 procedure which is followed by the Magistrate is non-adjudicatory in nature and that the borrower has an alternate remedy of filing an appeal under Section 17 of the SARFAESI Act.
11) In the present case, it is submitted that the bank has exercised fraud on the Magistrate and, therefore, the Magistrate ought to have recalled the order and permitted the petitioners to bring on record the material establishing fraud committed by the bank.
12) We are afraid that if such a permission is granted, then, the entire procedure which is followed by the Magistrate would become adjudicatory and that is not permitted by law.
13) Alternatively, it is submitted that even if the borrowers are not heard, if the material is placed on record Magistrate can consider the said material after calling upon the bank to give its explanation. We afraid that such a procedure is not contemplated under Section 14 of the SARFAESI Act."
The Hon'ble Supreme Court in United Bank of India vs. Satyawati Tondon & Ors. (supra) has held as under:
"42. There is another reason why the impugned order should be set aside. If respondent No.1 had any tangible grievance against the notice issued under Section 13(4) or action taken under Section 14, then she could have availed remedy by filing an application under Section 17(1). The expression `any person' used in Section 17(1) is 23 of wide import. It takes within its fold, not only the borrower but also guarantor or any other person who may be affected by the action taken under Section 13(4) or Section 14. Both, the Tribunal and the Appellate Tribunal are empowered to pass interim orders under Sections 17 and 18 and are required to decide the matters within a fixed time schedule. It is thus evident that the remedies available to an aggrieved person under theSARFAESI Act are both expeditious and effective.
43. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc., the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi judicial bodies for redressal of the grievance of any aggrieved person. Therefore, in all such cases, High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute.
44. While expressing the aforesaid view, we are conscious that the powers conferred upon the 24 High Court under Article 226 of the Constitution to issue to any person or authority, including in appropriate cases, any Government, directions, orders or writs including the five prerogative writs for the enforcement of any of the rights conferred by Part III or for any other purpose are very wide and there is no express limitation on exercise of that power but, at the same time, we cannot be oblivious of the rules of self-imposed restraint evolved by this Court, which every High Court is bound to keep in view while exercising power under Article 226 of the Constitution.
45. It is true that the rule of exhaustion of alternative remedy is a rule of discretion and not one of compulsion, but it is difficult to fathom any reason why the High Court should entertain a petition filed under Article 226 of the Constitution and pass interim order ignoring the fact that the petitioner can avail effective alternative remedy by filing application, appeal, revision, etc. and the particular legislation contains a detailed mechanism for redressal of his grievance.
46. It must be remembered that stay of an action initiated by the State and/or its agencies/instrumentalities for recovery of taxes, cess, fees, etc. seriously impedes execution of projects of public importance and disables them from discharging their constitutional and legal obligations towards the citizens. In cases relating to recovery of the dues of banks, financial institutions and secured creditors, stay granted by the High Court would have serious adverse impact on the financial health of such bodies/institutions, which ultimately prove detrimental to the economy of the nation.25
Therefore, the High Court should be extremely careful and circumspect in exercising its discretion to grant stay in such matters. Of course, if the petitioner is able to show that its case falls within any of the exceptions carved out inBaburam Prakash Chandra Maheshwari v. Antarim Zila Parishad AIR 1969 SC 556, Whirlpool Corporation v. Registrar of Trade Marks, Mumbai (1998) 8 SCC 1 and Harbanslal Sahnia and another v. Indian Oil Corporation Ltd. and others (2003) 2 SCC 107 and some other judgments, then the High Court may, after considering all the relevant parameters and public interest, pass appropriate interim order.
47. In Thansingh Nathmal v. Superintendent of Taxes (1964) 6 SCR 654, the Constitution Bench considered the question whether the High Court of Assam should have entertained the writ petition filed by the appellant under Article 226 of the Constitution questioning the order passed by the Commissioner of Taxes under the Assam Sales Tax Act, 1947. While dismissing the appeal, the Court observed as under:
"7....The jurisdiction of the High Court under Article 226 of the Constitution is couched in wide terms and the exercise thereof is not subject to any restrictions except the territorial restrictions which are expressly provided in the Articles. But the exercise of the jurisdiction is discretionary: it is not exercised merely because it is lawful to do so. The very amplitude of the jurisdiction demands that it will ordinarily be exercised subject to certain self- imposed limitations. Resort that jurisdiction is not intended as an alternative remedy for relief which may be obtained in a suit or other mode prescribed by statute.
Ordinarily the Court will not entertain 26 a petition for a writ under Article 226, where the petitioner has an alternative remedy, which without being unduly onerous, provides an equally efficacious remedy. Again the High Court does not generally enter upon a determination of questions which demand an elaborate examination of evidence to establish the right to enforce which the writ is claimed. The High Court does not therefore act as a court of appeal against the decision of a court or tribunal, to correct errors of fact, and does not by assuming jurisdiction under Article 226 trench upon an alternative remedy provided by statute for obtaining relief. Where it is open to the aggrieved petitioner to move another tribunal, or even itself in another jurisdiction for obtaining redress in the manner provided by a statute, the High Court normally will not permit by entertaining a petition under Article 226 of the Constitution the machinery created under the statute to be bypassed, and will leave the party applying to it to seek resort to the machinery so set up."
48. In Titaghur Paper Mills Co. Ltd. v. State of Orissa (1983) 2 SCC 433, a three-Judge Bench considered the question whether a petition under Article 226 of the Constitution should be entertained in a matter involving challenge to the order of the assessment passed by the competent authority under the Central Sales Tax Act, 1956 and corresponding law enacted by the State legislature and answered the same in negative by making the following observations:
"11. Under the scheme of the Act, there is a hierarchy of authorities before which the petitioners can get adequate redress against the wrongful acts complained of. The petitioners have the right to prefer an appeal before the Prescribed Authority under sub-section (1) of Section 23 of the Act. If the petitioners are dissatisfied with the decision in the appeal, they can prefer 27 a further appeal to the Tribunal under sub-section (3) of Section 23 of the Act, and then ask for a case to be stated upon a question of law for the opinion of the High Court under Section 24 of the Act. The Act provides for a complete machinery to challenge an order of assessment, and the impugned orders of assessment can only be challenged by the mode prescribed by the Act and not by a petition under Article 226 of the Constitution. It is now well recognised that where a right or liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed of. This rule was stated with great clarity by Willes, J. in Wolverhampton New Waterworks Co. v. Hawkesford in the following passage:
'.....There are three classes of cases in which a liability may be established founded upon statute. . . . But there is a third class, viz. where a liability not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it. . .the remedy provided by the statute must be followed, and it is not competent to the party to pursue the course applicable to cases of the second class. The form given by the statute must be adopted and adhered to.' The rule laid down in this passage was approved by the House of Lords in Neville v. London Express Newspapers Ltd. and has been reaffirmed by the Privy Council in Attorney-General of Trinidad and Tobago v. Gordon Grant & Co. Ltd. and Secretary of State v. Mask & Co. It has also been held to be equally applicable to enforcement of rights, and has been followed by this Court throughout. The High Court was therefore justified in dismissing the writ petitions in limine."
49. The views expressed in Titaghur Paper Mills Co. Ltd. v. State of Orissa (supra) were echoed inAssistant Collector of Central Excise, Chandan Nagar, West Bengal v. Dunlop India Ltd. and others(1985) 1 SCC 260 in the following words:
28"3.... 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."
50. In Punjab National Bank v. O.C. Krishnan and others (2001) 6 SCC 569, this Court considered the question whether a petition under Article 227 of the Constitution was maintainable against an order passed by the Tribunal under Section 19 of the DRT Act and observed:
"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 29 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."
51. In CCT, Orissa and others v. Indian Explosives Ltd. (2008) 3 SCC 688, the Court reversed an order passed by the Division Bench of Orissa High Court quashing the show cause notice issued to the respondent under the Orissa Sales Tax Act by observing that the High Court had completely ignored the parameters laid down by this Court in a large number of cases relating to exhaustion of alternative remedy.
52. In City and Industrial Development Corporation v. Dosu Aardeshir Bhiwandiwala and others(2009) 1 SCC 168, the Court highlighted the parameters which are required to be kept in view by the High Court while exercising jurisdiction under Article 226 of the Constitution. Paragraphs 29 and 30 of that judgment which contain the views of this Court read as under:-
"29. In our opinion, the High Court while exercising its extraordinary 30 jurisdiction under Article 226 of the Constitution is duty-bound to take all the relevant facts and circumstances into consideration and decide for itself even in the absence of proper affidavits from the State and its instrumentalities as to whether any case at all is made out requiring its interference on the basis of the material made available on record. There is nothing like issuing an ex parte writ of mandamus, order or direction in a public law remedy. Further, while considering the validity of impugned action or inaction the Court will not consider itself restricted to the pleadings of the State but would be free to satisfy itself whether any case as such is made out by a person invoking its extraordinary jurisdiction under Article 226 of the Constitution.
30. The Court while exercising its jurisdiction under Article 226 is duty- bound to consider whether:
(a) adjudication of writ petition involves any complex and disputed questions of facts and whether they can be satisfactorily resolved;
(b) the petition reveals all material facts;
(c) the petitioner has any alternative or effective remedy or the resolution of the dispute;
(d) person invoking the jurisdiction is guilty of unexplained delay and laches;
(e) ex facie barred by any laws of limitation;
(f) grant of relief is against public policy or barred by any valid law;
and host of other factors.
The Court in appropriate cases in its discretion may direct the State or its instrumentalities as the case may be to file proper affidavits placing all the relevant facts truly and accurately for the consideration of the Court and particularly in cases where public revenue and public interest are involved. Such directions are always 31 required to be complied with by the State. No relief could be granted in a public law remedy as a matter of course only on the ground that the State did not file its counter-affidavit opposing the writ petition. Further, empty and self-defeating affidavits or statements of Government spokesmen by themselves do not form basis to grant any relief to a person in a public law remedy to which he is not otherwise entitled to in law."
53. In Raj Kumar Shivhare v. Assistant Director, Directorate of Enforcement and another (2010) 4 SCC 772, the Court was dealing with the issue whether the alternative statutory remedy available under the Foreign Exchange Management Act, 1999 can be bypassed and jurisdiction under Article 226 of the Constitution could be invoked. After examining the scheme of the Act, the Court observed:
"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 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."
54 . In Modern Industries v. Steel Authority of 32 India Limited (2010) 5 SCC 44, the Court held that where the remedy was available under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, the High Court was not justified in entertaining a petition under Article 226 of the Constitution.
55. 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."
From bare reading of section 14 of the Act of 2002, it is clear that the District Magistrate is not required to give any notice to borrowers, guarantors or any other person while dealing with the application under section 14 of the Act of 2002.
The Division Bench of Bombay High Court after taking into consideration its earlier pronouncements as well as the decision of Hon'ble Supreme Court on the point in issue has held that the action of the District Magistrates and Chief Metropolitan Magistrates of issuing notices to the borrowers, guarantors or any other person providing them opportunity of hearing or allowing them to file objections is 33 contrary to law laid down by the Hon'ble Supreme Court and various other High Courts.
I am in perfect agreement with the law laid down by the Bombay High Court in above referred decisions.
More over, as per the decision of Hon'ble Supreme Court in United Bank of India vs. Satyawati Tondon & Ors., (supra), the petitioners have an alternate remedy to file an appeal under section 17 of the Act of 2002 against any order passed by the District Magistrate on the application under section 14 of the Act of 2002 filed by the respondents.
In view of the above discussions, reliefs prayed for by the petitioners in this petition cannot be granted. Hence, the instant writ petition fails and is hereby dismissed.
There shall be no order as to costs.
(VIJAY BISHNOI),J.
m.asif/PS