Allahabad High Court
M/S Gorakhpur Steels & Metals Pvt. Ltd. vs The Presiding Officer, D.R.T. & 12 ... on 18 July, 2017
Equivalent citations: AIR 2017 ALLAHABAD 242, (2017) 125 ALL LR 115, (2017) 9 ADJ 168 (ALL), (2017) 5 ALL WC 4999, (2017) 137 REVDEC 790, (2017) 180 ALLINDCAS 956 (ALL), (2018) 1 CIVLJ 270, (2018) 2 CURCC 207, (2019) 143 REVDEC 18
Author: Arun Tandon
Bench: Arun Tandon, Ritu Raj Awasthi
HIGH COURT OF JUDICATURE AT ALLAHABAD ?A.F.R. Court No. - 10 Case :- SPECIAL APPEAL No. - 342 of 2017 Appellant :- M/S Gorakhpur Steels & Metals Pvt. Ltd. Respondent :- The Presiding Officer, D.R.T. & 12 Others Counsel for Appellant :- Arvind Srivastava Counsel for Respondent :- C.S.C. Hon'ble Arun Tandon, J.
Hon'ble Ritu Raj Awasthi, J.
The judgment of the learned Single Judge giving rise to the present appeal dated 10.02.2017 passed in Civil Misc. Writ Petition No. 62682 of 2012 is basically assailed before us on the ground that the learned Single Judge was not correct while returning a finding that the State Bank of India, a nationalized bank and its assignee Kotak Mahindra Bank could have assigned the assets covered by the recovery certificate issued by the Debt Recovery Tribunal in proceedings under the Recovery of Debts Due to Banks & Financial Institutions Act, 1993 (herein after referred to as the Act, 1993) only in favour of a banking company and not in favour of a private person like the appellant (M/s. Gorakhpur Steels & Metals Pvt. Ltd.) before us.
It is submitted that the order of the Presiding Officer in Case No. DRC-07 of 2006 (State Bank of India vs. M/s. Ashok Iron and Steel Rolling Mills and Others) rejecting the application made by M/s. Gorakhpur Steels & Metals Pvt. Ltd.-the appellant for being substituted in place of Kotak Mahindra Bank Ltd. is also bad. Counsel for the respondents in this appeal in reply would contend that assignment of the assets represented by the recovery certificate to a private person is not permissible under the provisions of the Act, 1993 read with the Reserve Bank of India guidelines. Since Kotak Mahindra Bank Ltd. who were substituted in the application before the Recovery Tribunal had prayed for deleting their name from the proceedings and their application has been allowed, the recovery proceedings under the Act, 1993 cannot continue any further.
For appreciating the controversy so raised, it is appropriate that relevant facts may be stated at the outset.
State Bank of India had instituted Suit No. 405 of 1998 against M/s. Ashok Iron and Steel Rolling Mills and Others in the Court of Civil Judge (Senior Division), Gorakhpur for recovery of Rs. 74,96,423/- with interest along with other reliefs.
With the enforcement of Act, 1993, the suit was transferred to the Debt Recovery Tribunal, Allahabad and was registered as T.A. Case No. 884 of 2000. The claim of the bank was decreed under the judgment and order dated 03.10.2005. The Tribunal held that the bank was entitled to a sum of Rs. 74,96,423/- together with pendent elite interest and future interest @ 20.75% per annum with quarterly rest. Cost was also awarded against the defendants mentioned therein. The Tribunal further directed that the recovery certificate be issued immediately under Section 19(22) of the Act, 1993 along with details of the properties hypothecated and mortgaged as per Schedule 'A' & 'B' of the plaint. A recovery certificate dated 03.02.2005 was issued and the execution proceedings in that regard were registered as DRC Case No. 07 of 2006 on the making of the Execution Application by the State Bank of India.
While the execution proceedings were pending, State Bank of India is stated to have assigned the assets under the recovery certificate in favour of Kotak Mahindra Bank Ltd. through an assignment deed dated 29.03.2006. On an application being moved by Kotak Mahindra Bank Ltd. on 27.03.2007, it was substituted in the execution proceedings in place of State Bank of India vide order dated 25.01.2008 and fresh notices were issued to the debtors.
Kotak Mahindra Bank Ltd. is stated to have further assigned the assets under the recovery certificate in favour of a private party namely M/s. Gorakhpur Steels & Metals Pvt. Ltd., the appellant before us. The assignee in turn made an application for being substituted/impleaded in the execution case as the recovery certificate holder. Simultaneously an application was made by the Kotak Mahindra Bank Ltd. for deletion of its name from the execution proceedings.
The Tribunal under the order dated 09.08.2012 rejected the application made by the private party-the appellant while it granted the application made by the Kotak Mahindra Bank Ltd. As a result whereof the recovery proceedings have been consigned to record.
M/s. Gorakhpur Steels & Metals Pvt. Ltd. filed Writ Petition No. 62682 of 2012 challenging the order of the Debt Recovery Tribunal dated 09.08.2012.
Before the writ Court an objection was taken by the debtor that transfer of the non-performing asset as represented by the recovery certificate in favour of a private party (the petitioner-appellant) by the banking company/financial institution namely Kotak Mahindra Bank Ltd. itself was illegal and contrary to the provisions of Banking Regulation Act, 1969 and the guidelines framed by the Reserve Bank of India in exercise of powers under Section 6 of the said Act dated 13.07.2005. The guidelines which are binding, permit purchase and sale of non-performing assets inter se between the bank and financial institutions only. The bank cannot sell, purchase or transfer non-performing financial assets to a private person.
The learned Single Judge has upheld the contention so raised and has recorded that in the facts of the case the assignment deed said to have been executed by M/s. Kotak Mahindra Bank Ltd. in favour of a private party-the petitioner (appellant before us) is legally not enforceable. They have no right to proceed with the execution case based on the certificate issued in favour of the State Bank of India.
Challenging the finding so recorded by the learned Single Judge Shri Shashi Nandan, Senior Advocate assisted by Shri Arvind Srivastava, Advocate contended before us that there is no prohibition under the Banking Regulation Act, 1948 or in the policy framed there-under by the Reserve Bank of India in the matter of transfer/assignment of non-performing asset represented by the recovery certificate standing in favour of a non-banking company. In the facts of the case, the State Bank of India had assigned the assets to the Kotak Mahindra Bank Ltd. which in turn assigned the same to a private party. For the proposition he has placed reliance upon the judgment of the Delhi High Court in the case of Haryana Steel and Alloys Ltd. vs. IFCI Ltd. reported in 2007 AIR (Del), 65, specifically paragraph 16 as well as upon the judgment of the learned single Judge of this Court in the case of Kotak Mahindra Bank Ltd. v. M/s. Chopra Fabricator and Manufacturers (P) Ltd. reported in AIR 2011 Allahabad, 19 specifically paragraph 21 as also upon the judgment of the Apex Court in the case of ICICI Bank Ltd. vs. Official Liquidator of APS Star Industries Ltd. & Others reported in 2010 (10) SCC, 01 specifically paragraph nos. 38 and 44.
The competence of the Reserve Bank of India to lay down the guidelines for regulating the core banking and other banking business of banks and and banking companies has been settled by the Apex Court in the case of ICICI Bank Ltd. (Supra). It has been held that in view of Section 6(1) of the Banking Regulation Act, 1949, the Reserve Bank of India in its capacity as policy framer in the matter of advances and capital adequacy norms has enacted a policy which would enable the banking companies to engage in activities in addition to core Banking and would constitute banking business. Therefore, the competence of the Reserve Bank of India to lay down the guidelines in respect of banking business along with core banking as regulated under the RBI guidelines dated 13.07.2005 stands established. The relevant part of the Reserve Bank of India guidelines dated 13.07.20005 relevant for our purposes has been taken note of by the Apex Court in paragraph 29 of its judgment in the case of ICICI Bank Ltd. (Supra) which reads as follows :--
?Guidelines on purchase/sale of non-performing financial assets :-
1. These guidelines would be applicable to banks, Fis and NBFCs purchasing/selling non-performing financial assets, from/to other banks/FIs/NBFCs (excluding securitisation companies/reconstruction companies).
2. A financial asset, including assets under multiple/consortium banking arrangements, would be eligible for purchase/sale in terms of these guidelines if it is a non-performing asset/non-performing investment in the books of the selling bank.
3. The reference to 'bank' in the guidelines would include financial institutions and NBFCs.?
After analysing the policy in detail, it has been held that the guidelines permit inter se dealing of non-performing assets between the banks and financial institutions covered by the said policy.
To similar effect are the observations of the Apex Court in paragraph nos. 38 and 44, relevant for our purposes, are also being quoted herein below :---
?38. The BR Act, 1949 basically seeks to regulate banking business. In the cases in hand we are not concerned with the definition of banking but with what constitutes ?banking business?. Thus, the said BR Act, 1949 is an open-ended Act. It empowers RBI (regulator and policy framer in matter of advances and capital adequacy norms) to develop a healthy secondary market by allowing banks inter se to deal in NPAs in order to clean the balance sheet of the banks which guideline/policy falls under Section 6(1)(a) read with Section 6(1)(n). Therefore, it cannot be said that assignment of debts/NPAs is not an activity permissible under the BR Act, 1949.
44. Thus in our view on reading the provisions of the BR Act, 1949 with the guidelines of RBI issued from time to time in relation to advances and restructuring/management of NPAs we are of the view that the BR Act, 1949 is a complete code on banking and that dealing in NPAs inter se by the banks needs to be looked in the larger framework of ?restructuring of banking system?. Thus, we need not go into the provisions of the said TP Act. In fact, it is the case of the borrower(s) that provisions of the said TP Act has no application.?
It has been emphasized that the guidelines issued by the Reserve Bank of India are a complete code and it is not required to go into the provisions of the Transfer of Property Act. As a matter of fact it has been explained that the provisions of Transfer of Property Act have no application.
It is in this legal background we find that the learned Single Judge was more than correct in returning a finding that the assignment of NPA represented by the recovery certificate issued by the Debt Recovery Tribunal standing in favour of a banking company could be sold/assigned only in favour of other banking company strictly in accordance with the RBI guidelines dated 13.07.2005.
The assignment which has been so heavily relied upon by the counsel for the appellant before the Tribunal for being substituted in place of Kotak Mahindra Bank Ltd., in our opinion, is bad being contrary to the Reserve Bank of India policy dated 13.02.2005. The Tribunal has rightly rejected the application made for substitution of the appellant in the execution proceedings on the basis of said illegal assignment.
We may record that the counsel for the appellant had contended before us that the order impugned in the writ petition has been made in violation of principles of natural justice. On the date fixed before the Tribunal, the counsel's father was not well.
It has already been noticed above that in view of the Bank Regulation, 1949 and the policy decision dated 13.07.2005 assignment of the assets covered by the recovery certificate in favour of a private party who is not a banking company/assets covered by the guidelines is bad being contrary to the guidelines, therefore, of no legal consequence so far as the proceedings under the Debt Recovery Tribunal are concerned. Since only one view is possible in the facts of this case qua the transfer of assets represented by recovery certificate, we hold that no purpose would be served by asking the Tribunal to afford an opportunity of hearing afresh.
An attempt was also made to suggest that the learned single Judge has carved out a new case in favour of respondents that the assignment of the assets represented is the recovery certificate in favour of a third private party was bad when no such case was pleaded before the Debt Recovery Tribunal. In our opinion such objection has no substance inasmuch as it is the petitioner who is a private person had approached the writ Court and, therefore, the writ Court has rightly looked into all aspect of the matter before denying the relief. It has rightly held that the case of the petitioner does not fall within the four corners of the Banking Regulation Act, 1949 and the policy decision dated 13.07.2005, referred to above for claiming the relief prayed.
For the aforesaid reasons we do not find this to be a fit case to be entertained under Chapter VIII Rule 5 of the Allahabad High Court's Rule.
This takes the Court to another serious issue as to what happens to a recovery instituted against the defaulter namely M/s. Ashok Iron and Steel Rolling Mills and its Directors. Can this Court permit the proceedings to be brought to a nought, only because the State Bank of India and the Kotak Mahindra Bank Ltd. had assigned the asset covered by the recovery certificate to a private person.
We are definitely of the opinion that what was advanced by the State Bank of India as financial assets to M/s. Ashok Iron and Steel Rolling Mills and Others was nothing but public money. Once the State Bank of India had succeeded before the Debt Recovery Tribunal and a certificate of recovery had been issued, then recovery has to be enforced after following the procedure as applicable in respect of the recovery of income tax in view of Section 29 of the Act, 1993. The Tribunal, in our opinion, could not have permitted Kotak Mahindra Bank Ltd. to withdraw from the proceedings and should have enforced the recovery against the judgment debtor under the provisions of the Income Tax.
We may also refer to chapter XV of the Debt Recovery Tribunal Regulations of Practice, 1997. Regulations 69 to 72 which read as follows :---
?69. On receipt of the certificate, the Recovery Officer shall take the entries in the Register separately maintained in that behalf.
70. If the amount mentioned in the notice (as per the certificate) is not paid by the defaulter within the time specified or within such further time as the Recovery Officer may grant in his discretion, the Recovery Officer shall proceed to realise the amount.
71. The Recovery Officer while exercising the powers vested in him shall be guided by the principles of natural justice.
72. Every order of the Appellate Tribunal making any modification, addition, alteration in the judgement/certificate issued by the Tribunal shall be intimated to the Recovery Officer.?
We, therefore, direct that the Debt Recovery Tribunal shall proceed from the stage prior to the order dated 09.08.2012 and enforce the recovery against the debtor within four months from the date a certified copy of this order is filed before it. The money in that regard shall be transferred to Kotak Mahindra Bank Ltd. This direction we are issuing only because we are of the opinion that if the petitioner has to recoup the money it paid to Kotak Mahindra Bank Ltd. for assignment, he may do so.
We may also highlight another aspect of the matter i.e. transfer of non-performing assets by the bank in favour of a private person had necessarily to be undertaken in conformity with Article 14 of the Constitution of India and all prospective private players interested in assignment of assets represented by recovery certificate must have an opportunity to offer the best price thereof. Any attempt by the bank through private negotiation to sell non-performing assets would per se be illegal. Ultimately it is the public money which will go down the drain.
This observation we are making despite our conclusion that so far as private players are concerned they can have no right in the non-performing assets only to point out the other illegality in the assignment claimed by the writ petitioner.
At this stage Shri Anil Sharma, counsel for the judgment debtor submits that since there has been assignment in favour of private party and Kotak Mahindra Bank Ltd. is not interfered in recovery proceedings before the Tribunal, the same must come to an end and if M/s. Ashok Iron and Steel Rolling Mills want to recover the assigned assets, it may do so by way of civil suit.
The contention so raised, in our opinion, if accepted would virtually legalize the assignment in favour of a private person which we have already hold to be bad. It will frustrate the very purpose for which the Debt Recovery Tribunal Act, 1993 had been formulated/enforced. The contention is, therefore, rejected.
With the aforesaid observations/directions the appeal is disposed of.
Dated : 18.07.2017 VR/