Punjab-Haryana High Court
M/S Om Educational And Charitable Trust ... vs Punjab National Bank Model Town And ... on 14 August, 2014
Author: Hemant Gupta
Bench: Hemant Gupta
CWP No.15673 of 2014 (O&M) (1)
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH
CWP No.15673 of 2014
Date of decision: 14.8.2014
M/s Om Educational and Charitable Trust and others
....Petitioners
Versus
Punjab National Bank Model Town and others .....Respondents
CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA
HON'BLE MR. JUSTICE KULDIP SINGH
Present: Mr. Ashish Aggarwal, Senior Advocate with
Mr. Diwan Sharma, Advocate for the petitioners.
HEMANT GUPTA, J.
The challenge in the present writ petition is to an order passed by Debts Recovery Appellate Tribunal (for short 'the Appellate Tribunal') on 24.02.2014 whereby an application filed by the petitioners under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, Act, 2002 (for short 'the Act') was dismissed by setting aside the order of the Debts Recovery Tribunal-1, Chandigarh (for short 'the Tribunal') dated 14.12.2012.
The petitioner, an educational institution, availed credit DALBIR SINGH 2014.08.14 17:07 I attest to the accuracy of this document High Court Chandigarh CWP No.15673 of 2014 (O&M) (2) facilities from the Punjab National Bank (for short 'the Bank') by way of term loan and overdraft facility. The same are as under:-
Sr. Date Nature of Sanctioned Amount
No. Facility
1. 26.03.2008 Term Loan Rs.575.00 lacs
2. 18.05.2009 Term Loan Rs.175.00 lacs
3. 03.12.2009 Term Loan Rs.688.00 lacs
4. 31.08.2010 Over Draft Rs.280.00 lacs
The assertion of the petitioners is that all the payments in the term loans were regular as on 30.09.2011 as the interest stood paid except for the months of August and September, 2011. The petitioners were facing financial crunch, therefore, they approached the Bank with a request dated 22.09.2011 for reduction in the rate of interest on the term loans to charge base rate only. On 31.10.2011, the petitioners were advised to pay overdue amount of Rs.53.59 lacs in the term loan and Rs.263.62 lacs in the overdraft account as on 29.10.2011. On 07.12.2011, the petitioners were advised to pay irregular amount of Rs.3,17,81,000/- as on 30.09.2011 with further interest w.e.f. 01.10.2011 and to submit concrete plan for regularization of all the accounts. The Bank also informed that due to non-payment of over-dues towards principal and interest of the aforesaid amount, the Bank has been left with no other recourse, but to classify the account as Non Performing Asset (for short 'NPA') as on 30.09.2011 as per the Reserve Bank of India (for short 'RBI') guidelines. The Bank informed the petitioners on 23.01.2012 that time to pay the over-dues has been extended to 10.02.2012 and if the payment is not made, the Bank will be constrained to initiate action under the Act.
It was on 11.02.2012, the Bank served a notice under Section 13(2) of the Act informing the petitioners that the account has been classified DALBIR SINGH 2014.08.14 17:07 I attest to the accuracy of this document High Court Chandigarh CWP No.15673 of 2014 (O&M) (3) as NPA as on 30.09.2011 and an amount of Rs.15,93,00,554/- including interest up to 30.09.2011 is due and payable. The petitioners were advised to make the payment within 60 days.
The petitioners submitted objections to the notice dated 11.02.2012 which were rejected by the Bank on 13.04.2012. The petitioners, thereafter, submitted a proposal for rehabilitation and rescheduling of the credit facilities but the Bank issued a notice under Section 13(4) of the Act on 30.04.2012 for taking over the symbolic possession of the properties of the petitioners on 22.05.2012. The petitioners filed an application under Section 17 of the Act on 10.07.2012 before the Tribunal. The Tribunal granted an order of status quo but in appeal, the learned Appellate Tribunal directed the Tribunal to decide the application by 15.10.2012. There were some proceedings before learned Appellate Tribunal and the Tribunal but ultimately the Tribunal passed an order on 14.12.2012 allowing an application filed by the petitioners under Section 17 of the Act. The said order has been set aside by the learned Appellate Tribunal vide order dated 24.02.2014.
The challenge to the action of the Bank before the Tribunal, inter alia, was that the account of the petitioners is not a Non Performing Asset and that the possession notice has not been served upon the petitioners in terms of Rule 8 (1) of the Security Interest (Enforcement) Rules, 2002 (for short 'the Rules'). The learned Tribunal, inter alia, returned a finding that since the current market value of security charged being sufficient to ensure recovery of the dues of Bank in full, the assets could not have been declared as sub-standard (in other words Non Performing Asset) in terms of the Master Circulars issued by RBI. Reliance was placed upon the reserve price fixed for these assets in the sale notice DALBIR SINGH 2014.08.14 17:07 I attest to the accuracy of this document High Court Chandigarh CWP No.15673 of 2014 (O&M) (4) dated 14.09.2012 as Rs.18.62 crores as against outstanding dues of Rs.15.93 crores. The Tribunal also found that penal interest has been charged in contravention of the judgment reported as Central Bank of India v. Ravindra and others, AIR 2001 SC 3095, and that the possession notice has not been delivered to the petitioners in terms of mandate of Rule 8 (1) of the Rules. It was also found that though the process of affixation of possession notice has been placed on record but there is nothing on record that the possession notice was delivered to the petitioners. It was further found that the affixation of possession notice and the personal delivery of possession notice both are mandatory.
However, in appeal, the Learned Appellate Tribunal discussed Master Circulars of RBI dated 01.07.2011 and 02.07.2012 and held that Non Performing Asset is a loan or advance where the account remains 'out of order' as indicated in para 2.2. The 'out of order' status is if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. Any amount due to the Bank under any credit facility is 'overdue' if it is not paid on the due date fixed by the Bank. Circular dated 01.07.2011 provides that after classification of the credit facility as NPA, the Bank and the financial institution would be required to further categorize the same as substandard, doubtful or loss assets. It was found that substandard account falls within the scope of NPA as defined in Section 2(o) of the Act. The learned Appellate Tribunal recorded the following finding after considering circular dated 01.07.2011:-
"The Tribunal, in my view, has completely ignored the relevant clauses of the circular noted above. Clause 4.2.3 clearly states that the availability of security or net-worth of the borrower / guarantor should not be taken into account for treating an advance as NPA or otherwise, DALBIR SINGH 2014.08.14 17:07 I attest to the accuracy of this document High Court Chandigarh CWP No.15673 of 2014 (O&M) (5) (except to the extent provided in clause 4.2.9,) as income recognition is based on the record of recovery. Perusal of clause 4.2.9 would show that where there is erosion in the value of the security and existence of other factors such as frauds committed by the borrowers, it will not be prudent that such account go through various stages of asset classification. In such cases of serious credit impairment, the assets should be straightway classified as doubtful or loss asset. That there are and can be instances where the assets in the loan account are so inter-locked and suffer from such infirmities, as may render the liquidity of the same extremely difficult and doubtful. In this back ground, the finding by the Tribunal that against the assets valued at Rs.13.62 crores the loan amount was only Rs.15.93 crores to say that the account could not have been declared as NPA is apparently misconceived and misplaced. If the value of the mortgaged assets are more, obviously a part of it could be utilized to recover the amount. It may need appreciation here that generally while granting the credit facilities the bank would look to secure such facilities with the property which has a value more than what is the loan amount. If we accept this interpretation, then no loan amount may remain safe."
While considering another argument in respect of delivery of notice, the learned Appellate Tribunal found that the argument that Bank has not published a public notice in the two leading newspapers is not correct as notice was published in 'The Tribune' in English and 'Dainik Bhaskar' in vernacular language Hindi. Therefore, the learned Appellate Tribunal returned a finding that the Tribunal has come to the conclusion without any discussion as to the delivery of the notice.
The learned Appellate Tribunal also observed that filing of objections means that petitioners were aware of the possession notice and therefore, the argument in respect of delivery of possession notice, was not tenable. Learned counsel for the petitioners, before this Court, has vehemently argued that the finding of the learned Appellate Tribunal that the petitioners have filed objections to the possession notice is factually DALBIR SINGH 2014.08.14 17:07 I attest to the accuracy of this document High Court Chandigarh CWP No.15673 of 2014 (O&M) (6) incorrect as the objections were filed to a notice served under Section 13(2) of the Act.
We do not find that such factual error in any way renders the order of the learned Appellate Tribunal as illegal or unwarranted. The possession notice under Section 13(4) of the Act was issued to the petitioners on 12.06.2012 which is Annexure A-16 with the application filed by the petitioners before the Debts Recovery Tribunal-I, Chandigarh. Apart from such notice, the Bank has resorted to publication in the two leading newspapers and also affixation of the notices at the conspicuous place. The action taken by the Bank is in terms of the statutory provisions.
Learned counsel for the petitioners has vehemently argued that no notice as contemplated under Rule 8(1) of the Rules was served upon the petitioners. We do not find any merit in the said argument. Notice for taking possession is contemplated to be served under Section 13(4) of the Act whereas the procedure for taking possession is contemplated under Rule 8 (1) of the Rules. The relevant extract from the statute and the Rules reads as under:-
"2. Definitions.-
xx xx xx xx
(o) "non-performing asset" means an asset or account of a borrower, which has been classified by a bank or financial institution as sub- standard, doubtful or loss asset,--
(a) in case such bank or financial institution is administered or regulated by any authority or body established, constituted or appointed by any law for the time being in force, in accordance with the directions or guidelines relating to assets classifications issued by such authority or body;
(b) in any other case, in accordance with the directions or guidelines relating to assets classifications issued by the Reserve Bank;
xx xx xx xx
DALBIR SINGH
2014.08.14 17:07
I attest to the accuracy of this
document
High Court Chandigarh
CWP No.15673 of 2014 (O&M) (7)
13. Enforcement of security interest.-(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of court or tribunal, by such creditor in accordance with the provisions of this Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under subsection (4). (3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.
(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non- acceptance of the representation or objection to the borrower:
(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:--
(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;
xx xx xx xx The Security Interest (Enforcement) Rules, 2002
8. Sale of immovable secured assets.- (1) Where the secured asset is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property.
DALBIR SINGH 2014.08.14 17:07 I attest to the accuracy of this document High Court Chandigarh CWP No.15673 of 2014 (O&M) (8) (2) The possession notice as referred to in sub-rule (1) shall also be published in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorised officer. (3) In the event of possession of immovable property is actually taken by the authorised officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as an owner of ordinary prudence would, under the similar circumstances, take of such property.
(4) The authorised officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of.
(5) Before effecting sale of the immovable property referred to in sub- rule (1) of rule 9, the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:--
a) xxx (6) The authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5):
Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers; one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include,--
(a) to (f) xxxx."
Learned counsel for the petitioners has argued that account of the petitioners could not have been declared NPA without passing an order to declare the account of the petitioners to be NPA. Reliance is placed upon a Division Bench judgment of this Court reported as Bhupinder Singh v. The State Bank of Patiala, The Mall, Patiala and others, 2008 AIR Punjab & Haryana 148. It is also argued that petitioners have a buyer who is ready and willing to purchase the running institute along with the assets and liabilities for a sum of Rs.15.50 lacs.
Therefore, the Bank should consider such procedure for settlement. DALBIR SINGH 2014.08.14 17:07 I attest to the accuracy of this document High Court Chandigarh CWP No.15673 of 2014 (O&M) (9) We do not find any substance in the argument that Non Performing Asset has not been declared by an order or a specific order is required to be passed as a quasi judicial authority. In the writ petition itself, the petitioners have averred to the following effect:-
"17. That the respondent bank vide letter dated 07.12.2011 advised the applicants to pay the overdue/irregular amount of Rs.3,17,81,000/-
as on 30.09.2011 and further interest w.e.f. 01.01.2011 and to submit concrete plan for regularization of all the account. The bank also informed that the worthy CMD of the bank has been monitoring the progress of the account from his own desk. The bank also informed that due to non-payment of the over-dues towards principal and interest of Rs.3,17,81,000/- as on 30.,09.2011, the bank has left with no recourse, but to classify the account as NPA as on 30.09.2011 as per the RBI guidelines."
Apart from the stand in the writ petition itself, the Tribunal has examined the RBI circular dated 01.07.2011 to return a finding that an account which is 'out of order' or 'overdue' is a Non Performing Asset as per the Reserve Bank of India guidelines. Since on 30.09.2011, the petitioners were in default of over Rs.3 crores, the account of the petitioners was a Non Performing Asset being in default of the payment of loan amount, in terms of the agreements signed.
The judgment of this Court in Bhupinder Singh's case (supra) is of no help to the petitioners as in that judgment a housing loan in the sum of Rs.4,80,000/- was availed by a mason. In the said judgment, the house was put to auction for the amount of Rs.4,75,000/- by allegedly conducting a fake auction. The Court summoned the record and noticed that it was not clear when the account of the petitioner was classified as NPA. The account was declared NPA without notice to the borrower nor was any notice served upon the borrower. The Court noticed that the Bank has not produced the original accounts of the DALBIR SINGH 2014.08.14 17:07 I attest to the accuracy of this document High Court Chandigarh CWP No.15673 of 2014 (O&M) (10) petitioners in which the same was classified as NPA. The photocopies of the documents produced reflected list of hundreds of accounts prepared by Chartered Accountant of the Bank. In these circumstances, the Court gave a finding that Bank has classified the account of the petitioner as NPA without any specific order to that effect without application of mind.
However, in the present case, it was a categorical case of the petitioners itself that the notices were received by them declaring the account of the petitioners as NPA when a sum of over Rs.3 crores was overdue. The petitioners were given an opportunity to pay the said amount. Later, time was extended till 10.02.2012 whereas the notice under Section 13(2) of the Act was issued on 11.02.2012. The notice served upon the petitioners on 07.12.2011 (Annexure A-7 in the application before the Tribunal) reads as under:-
"We regret to inform you that your all accounts are running irregular/overdue due to nonpayment of principal and interest there on. As a result, your accounts have become highly irregular and the present amount of irregularity is Rs.3,17,81,000/- as on 30.09.2011, and total amount outstanding due against you as on 14.11.2011 is Rs.160602091/- (including interest calculated upto 30.09.2011 + further interest w.e.f. 01.10.2011). Left with no recourse, the bank had to classify your loan accounts, as Non Performing Assets on 30.09.2011 as per the Reserve bank of India guidelines. Time and again, we have been requesting you to pay the irregular amount and run the accounts as per the terms of loaning documents and agreed repayment schedule. The bank also held several meetings with representative of the trust i.e. Sh. Chander Bhan Bansal, and Sh. Sudhir Sharma last on 06.12.2011 at Circle Office, Kurukshetra. But neither you deposited any handsome amount in the account nor given any concrete plan to deposit the overdue amount. We therefore, again request you to pay the overdue/irregular amount as mentioned above with up-to-date interest as agreed upon within 7 days from the receipt of this letter, failing which the Bank shall be constrained to initiate action under SARFARESI Act and take DALBIR SINGH 2014.08.14 17:07 I attest to the accuracy of this document High Court Chandigarh CWP No.15673 of 2014 (O&M) (11) possession/management of secured assets besides getting the personal properties attached in recovery suit to be filed before DRT. You are hereby advised again to pay the overdue/irregular amount of Rs.3,17,81,000/- as on 39.09.2011, and further interest w.e.f. 01.10.2011 and submit concrete plan for regularization of all the loan accounts as the matter is very urgent and serious. Our worthy CMD is monitoring the progress of your accounts from his own desk."
In view of the said notice and the averments made in the petition as well as in the RBI Circulars dated 01.07.2011 and 02.07.2012, which were examined by the Tribunal, the accounts of the petitioners were rightly declared NPA. The judgment in Bhupinder Singh's case (supra) has no applicability to the facts and circumstances of the present case.
After notice under Section 13(2) of the Act was served upon the petitioners, the objections filed by the petitioners were considered by the Bank vide communication dated 13.04.2012. It is, thereafter, notice under Section 13(4) of the Act was issued on 30.04.2012 (Annexure A- 15 with the application). The petitioners were called upon to deliver possession of the secured assets before 21.05.2012, failing which the Authorised Officer of the Bank was to take possession of the secured asset on or after 22.05.2012. Thereafter, notices were published in the newspaper 'The Tribune' in English and 'Dainik Bhaskar' in vernacular language Hindi dated 26.05.2012 to inform the General Public that possession has been taken over. Such notice is required to be published within 7 days of the taking over possession in terms of Rule 8(2) of the Rules. Thereafter another notice dated 12.06.2012 (Annexure A-16 with the application) was issued to the Petitioners of the fact that possession has been taken on 22.5.2012.
DALBIR SINGH 2014.08.14 17:07 I attest to the accuracy of this document High Court Chandigarh CWP No.15673 of 2014 (O&M) (12) The scheme of Act is that a borrower is to be served with a notice under Section 13(2) of the Act. The notice is required to give the details of the amount payable by the borrower and the secured assets intended to be enforced by the Bank in the event of non-payment of the secured debts by the borrower. The borrower is at liberty to make any representation or raise any objection to such notice. The secured creditor is to consider such representation/objections and communicate the reasons for non-acceptance of the representation or objections to the borrower. If the borrower fails to discharge his liability, then a notice under Section 13(4) of the Act is required to be served to take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset. In case of default, the possession is to be taken in terms of Rule 8(1) of the Rules and a notice is required to be published in the Newspapers in accordance with the Rule 8(2) of the Rules.
Rule 8 of the Rules, reference of which was made by the learned counsel for the petitioners, deals with the procedure to take possession of a property, the right of which vests with the secured creditor after notice in terms of Section 13(4) (a) of the Act is served. The notice is of the fact that the possession has been taken over and is supposed to be as nearly as possible to Appendix IV of the Rules. The notice should be delivered to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property (Rule 8(1). Sub Rule (2) of Rule 8 of the Rules contemplates publication of notice in two leading newspapers. Under sub-rule (6) of Rule 8 of the Rules, the borrower is to be served with a notice for sale of the secured asset.
DALBIR SINGH 2014.08.14 17:07 I attest to the accuracy of this document High Court Chandigarh CWP No.15673 of 2014 (O&M) (13) It was on 30.04.2012, notice under Section 13(4) of the Act was served upon the petitioners. Such notice was produced by the petitioners before the Debts Recovery Tribunal as Annexure A-15. Since, the Petitioners failed to make payments; a notice containing all the details as are contemplated in Appendix IV appended to the Rules was published in the Newspapers, pasted at the conspicuous part of the property and also delivered to the borrowers (Annexure A-16). Therefore, the Bank has complied with the statutory provisions of the Act and the Rules scrupulously.
Learned counsel for the petitioners also referred to a Division Bench judgment of Karnataka High Court reported as K.R. Krishnegowda and Another v. The Chief Manager/Authorised Officer, Kotak Mahindra Bank, AIR 2012 Karnataka 116, to contend that action of the Bank in taking possession without delivery of notice is void. However, a perusal of the judgment shows that after objections were filed by the borrower, but the Bank without complying with the procedure prescribed under Section 13(4) of the Act, took steps under Section 14 of the Act for the purpose of taking possession. The Court has rightly said that the issuance of notice to the borrower as well as publication in the newspapers is expressly provided and hence would have to be complied with by the secured creditor.
In the present case, we have found that all steps as required by the secured creditor under the Act read with Rules were taken by the Bank.
Consequently, we do not find any reason to interfere with the order passed by the Tribunal in the writ jurisdiction of this Court.
The argument that the petitioners have a purchaser for purchase of the assets of the petitioner-Society in the sum of Rs.15.50 DALBIR SINGH 2014.08.14 17:07 I attest to the accuracy of this document High Court Chandigarh CWP No.15673 of 2014 (O&M) (14) lakhs cannot be permitted to be raised to defer the process of sale though we do not wish to stand in the way of the petitioners and the Bank, who can arrive at a settlement on any amount which is considered feasible in economic interest of the Bank.
Dismissed.
(HEMANT GUPTA)
JUDGE
AUGUST 14, 2014 (KULDIP SINGH)
'D. Gulati'/ds JUDGE
DALBIR SINGH
2014.08.14 17:07
I attest to the accuracy of this
document
High Court Chandigarh