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[Cites 13, Cited by 19]

Jharkhand High Court

M/S Jayant Agencies vs Canara Bank & Anr on 15 December, 2010

Equivalent citations: AIR 2011 JHARKHAND 68, 2011 (2) AIR JHAR R 112, (2011) 3 BANKCAS 297, (2011) 2 JCR 27 (JHA)

Author: Narendra Nath Tiwari

Bench: Narendra Nath Tiwari

                IN THE HIGH COURT OF JHARKHAND AT RANCHI
                            W.P.( C ) No.4084 of 2010
             M/s. Jayant Agencies.                       ............ Petitioner. 
                                     ­Versus­
             Canara Bank & Ors.                          ............ Respondents.
                                       ­­­­­­
      CORAM : HON'BLE MR. JUSTICE NARENDRA NATH TIWARI
                                       ­­­­­­
             For the Petitioner :      Mr. Rajesh Kumar, Advocate. 
             For the Respondents:      Mrs. A. R. Choudhary, Advocate. 
                                       ­­­­­­
7/15.12.2010

: The petitioner has prayed for quashing the notice dated  13th  January, 2010 issued by the respondent under Section 13(2)  of the Securitization and reconstruction of Financial Assets and  Enforcement   of   Security   Interest   Act,   2002   (herein   after   to   be  referred   as   'SARFAESI   Act'   or   'the   Act')   and   for   quashing   the  notice   dated   31st  May,   2010   issued   under   Section   13(4)   of   the  SARFAESI   Act   read   with   Rules   8   and   9   of   the   Security   Interest  (Enforcement)   Rules,   2002   and   the   proceedings   subsequent  thereto.  

2. The   petitioner   deals   in   business   of   sale   and   services   of  electronic   goods   and   for   carrying   on   smooth   business,   the  petitioner had approached the Respondent no.1­ Canara Bank  on   30th  August,   2007   for   financial   assistance   by   way   of   Cash  Credit   Facility.   Canara   Bank   (Tharpakna   Branch)   sanctioned  cash credit facility up to Rs.50.00 lacs and, accordingly, a current  account was opened on 12th  September, 2007 in the name of  the petitioner. Since then the petitioner had been availing the  said   facility.   The   petitioner   was   also   making   repayment   of   the  loan . 

3. According to the petitioner, suddenly a notice dated 13th  January,   2010   under   Section   13(2)   of   the  SARFAESI   Act   was  served   on   him,   informing   the   petitioner   that   his   account   was  declared/classified as Non­performing Asset (for short N.P.A.) on  12th  January,   2010.   The   petitioner   was   also   asked   to   make  payment   of   Rs.56,91,642.37   paise   together   with   further   interest,  failing which the Bank would take action under Section 13(4) of  the SARFAESI Act. 

4. It   has   been  stated   that   immediately  after  receipt   of   the  said  notice,  the  petitioner  approached  the  respondent­ Bank  ­2­ and   gathered   further   information   and   facts   and   figure.   He,  thereafter,   filed   an   objection   under   Section   13(3­A)   of   the  SARFAESI Act, requesting the Bank to settle their account under  One   Time   Settlement   Scheme.   They   also   stated   that   they   are  ready   to   pay   the   entire   dues,   if   the   interest   is   waived.   The  petitioner also took stand that even on the date of the alleged  declaration,   due   in   their   account   was   within   the   limit   i.e.  Rs.43,93,479.37   paise   and   that   the   account   was   wrongly  declared as N.P.A. without taking into consideration the position  of the petitioner's account and contrary to the prescribed rules  and guidelines. 

5. According to the petitioner, the said objection was sent by  registered post as well as through courier and was duly received  by the Bank on 16th  February, 2010. However, the Bank without  considering   and   deciding   the   petitioner's   representation/  objection, as required under the provision of Section 13(3­A) of  the SARFAESI Act, issued possession notice dated 31st  May, 2010  (Annexure­5)   under the purported provision of Section 13(4) of  the SARFAESI Act read with Rules 8 and 9 of the Security Interest  (Enforcement) Rules, 2002. 

6. The   petitioner,   on   receipt   of   the   impugned   notice,   filed  representation   before   the   respondent­Bank   on   19th  July,   2010,  requesting them to recall the said notice, as the same was issued  without   following   the   mandatory   provision   of   law,   but   the  respondent­Bank   did   not   pass   any   order   on   the   petitioner's  representation. 

7. The petitioner contended that the impugned notice under  Section 13(2) as also the possession notice under Section 13(4) of  the   SARFAESI   Act   (Annexures­2   and   5   respectively)   are   wholly  arbitrary and illegal and the same are liable to be quashed. 

8. The respondent­Bank  contested the writ petition by  filing  their   counter   affidavit.   It   has   been   stated,  inter   alia,   that   the  petitioner defaulted in making payment since 2008  and in spite  of   giving     adequate     opportunity,   the   petitioner   failed   to  regularize   the   account.   The   Bank   ultimately   declared   the  petitioner's  account  as  N.P.A. and proceeded to take action as  ­3­    prescribed by SARFAESI Act. 

9. The respondent­Bank issued notice under Section 13(2) of  the SARFAESI Act, but the same was not responded. The Bank  has   not   received   any   representation/objection   from   the  petitioner.   The   Bank   took   a   preliminary   objection   regarding  maintainability   of   the   writ   petition   on   the   ground   that   the  petitioner has got effective alternative remedy of appeal under  Section   17   of   the   SARFAESI   Act,   which   he   could   have   availed  within   45   days   from   the   date   of   which   any   measure   under  Section 13(4) of the SARFAESI Act was taken by the Bank. But he  failed   to   file   appeal.   In   view   thereof,   the   writ   petition   under  Article 226 of the Constitution of India is not maintainable. 

10. At   the   time   of   hearing   of   the   writ   petition,   Mrs.   A.   R.  Choudhary,   learned   counsel,   appearing   on   behalf   of   the  respondent­Bank pressed the maintainability point with all vigour  on the basis of the decision of the Hon'ble Supreme Court in the  case of  United Bank of India Vs. Satyawati Tondon & Ors.  [Civil   Appeal No.5990 of 2010] arising out of S.L.P.(C) No.10145 of 2010.  Learned   counsel   further   placed   reliance   on   a   decision   of  Calcutta High Court in the case of Akshat Commercial Pvt. Ltd.   &   Anr.   Vs.   Kalpana   Chakraborty   &   Ors.   [2010(2)   D.R.T.C.   362   (Cal.].

11. Mr. Rajesh Kumar, learned counsel, appearing on behalf of  the petitioner, on the other hand, submitted that the action of  the   respondent­Bank   is   wholly   arbitrary,   illegal   and   unjustified.  The  account   of   the  petitioner  was   illegally  declared  as   N.P.A.,  though the due, even on the date of declaration, was within the  prescribed limit of Rs.50.00 lacs. The petitioner was always ready  and   willing   to  settle  their   account   under  One   Time  Settlement  Scheme. They are ready to pay the entire dues, if the interest is  waived   under   the   Scheme.   The   petitioner   requested   for   the  same even after receipt of notice under Section 13(2) and the  Bank had assured to accept his offer on the condition of a lump  sum amount for restoring operation of the   petitioner's account  from the category of N.P.A. On the said assurance, the petitioner ­4­   deposited   Rs.16,06,620/­,   after   he  received  notice       dated   13th  January, 2010 under Section 13(2),  up to 30th June, 2010. The said  deposit   was   accepted   and   account   was   made   operative   by  allowing transaction through the account. However, in spite of  deposit   of   the   said   amount,   the   petitioner   was   not   given   any  opportunity to settle the account under the scheme of One Time  Settlement. His representation/objection was also not considered  as required by the mandatory provision of Section 13(3­A) of the  SARFAESI Act, and the respondent­Bank     arbitrarily proceeded  further and issued possession notice (Annexure­5).  

12. Learned counsel submitted that the Bank's  denial of the  receipt of the representation is deliberate and false. On receipt  of   the   representation   through   courier,   the   Bank   has   returned  acknowledgment receipt with seal of the Bank and signature of  the   receiving   officer   (Annexures­8   &   8/1).   The   said  acknowledgment   receipt   with   the   seal   and   signature   has   not  been disputed by the Bank. The attitude of the respondent­Bank  is, thus, wholly malicious and contrary to the settled norms. He  further submitted that the SARFAESI Act is a special Act, giving  power to the secured creditor to enforce security interest even  without   intervention   of   the   Court.   The   said   stringent   special  provision must be strictly construed and followed. Section 13(3­A)  provides   for   consideration   of   the   representation   filed   by   the  borrower   on   receipt   of   the   notice   under   Section   13(2)   of   the  SARFAESI   Act.   The   said   provision   is   mandatory   and   the  respondent­Bank is bound to consider and take a decision on  the   petitioner's   objection   before   proceeding   further.   Learned  counsel   submitted   that   enforcement   of   security   under   Section  13(4) is subject to the conditions laid down under Section 13(3­A)  of the said Act. 

13. Learned counsel referred to and relied on a decision of this  Court in the case of  M/s. D. N. Motors Vs. State Bank of India &   Ors. [W.P.(C) No.231 of 2008], in which this Court has held that the  provision of Section 13(3­A) of the SARFAESI Act is mandatory in  nature  and  the  secured  creditor  is  entitled to take recourse to  ­5­   one or the other measure(s) provided under Section 13(4) after  complying   with   the   provisions   of   Section   13(3­A).   Learned  counsel   submitted   that   it   is   imperative   on   the   part   of   the  respondent­Bank to consider the petitioner's representation filed  under Section 13(3­A) before proceeding to take possession of  any secured asset or any other measure under Sub­section (4) of  Section 13 of the SARFAESI Act. 

14. Having   heard   learned   counsel,   I   examined   the   relevant  provisions of the Act. 

15. The SARFAESI Act, 2002 has  been brought  mainly for the  purpose of equipping the Bank and financial institution with the  remedy of security interest without intervention of the Court or  the Tribunal. 

16. Chapter­3   of   the   SARFAESI   Act   carves   out   a   complete  mechanism   for   enforcement   of   the   security   interest   by   the  secured creditor. In this Chapter, Section 13 of the Act is devoted  to   the   detailed   procedure   for   the   said   purpose.   Section   13   is  reproduced herein below:­  "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 the   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 non­performing 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 sub­section (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 non­payment of secured debts by   the borrower.

 

[(3A) If, on receipt of the notice under sub­section   (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 ­6­ 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:

Provided that the reasons so communicated or the   likely   action   of   the   secured   creditor   at   the   stage   of   communication of reasons shall not confer any right upon   the   borrower   to   prefer   an   application   to   the   Debts   Recovery Tribunal under section 17 or the Court of District   Judge under section 17A.] (4) In case the borrower fails to discharge his liability   in   full   within   the   period   specified   in   sub­section   (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 realizing the secured   asset;
(b) take over the management of the business of the   borrower  including  the  right   to transfer  by  way of   lease, assignment or sale for realizing the secured   asset:
Provided that the right to transfer by way of   lease,   assignment   or   sale   shall   be   exercised   only   where   the   substantial   part   of   the   business   of   the   borrower is held as security for the debt:
Provided   further   that   where   the   management   of  whole,   of   the   business   or   part   of  the business is severable, the secured creditor shall  take over the management of such business of the   borrower   which   is   relatable   to   the   security   or   the   debt;]
(c) appoint   any   person   (hereafter   referred   to   as   the   manager),   to   manage   the   secured   assets   the   possession   of   which   has   been   taken   over   by   the   secured creditor;
(d)   require at any time by notice in writing, any person  who has acquired any of the secured assets from   the borrower and from whom any money is due or  may   become   due   to   the   borrower,   to   pay   the   secured   creditor,   so   much   of   the   money   as   is   sufficient to pay the secured debt."

x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x. 

17. On plain reading of the aforesaid provision, it is clear that  sub­section   (1)   of   Section   13   begins   with   the   non­ostensive  clause and provides for enforcement of security interest created  in favour of the secured creditor without intervention of the Court  or   Tribunal   in   accordance   with   the   provisions   of   this   Act.   Sub­ section   (2)   of   Section   13   provides   for   giving   a   notice   by   the  secured   creditor   to   the   borrower   in   writing   to   discharge   his  liabilities to  the  secured creditors within 60 days from the date of ­7­ the notice failing which the provision has been made for entitling  the secured creditor to exercise all or any of the rights under sub­ section   (4).   Sub­section   (3)   of   Section   13   lays   down   that   the  notice issued under Section 13(2) shall contain the details of the  amount   payable   by   the   borrower   as   also   the   details   of   the  secured   assets   intended   to   be   enforced   by   the   financial  institution.   Sub­section   (3­A)   provides   that   on   receipt   of   the  notice   under   Section   13(2),   if   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   non­acceptance   of   the   representation   or  objection to the borrower.                                       (Emphasis supplied) 

18. Sub­section (4) of Section 13, thereafter, provides for taking  recourse   by   the   secured   creditor   to   recover   his   secured   debt  which   includes   taking   possession   of   the   secured   assets   of   the  borrower   including   the   right   to   transfer   byway   of   lease,  assignment or sale for realizing the secured asset. 

19. Section 17 gives right to appeal to an aggrieved person by  any of the measures referred to in sub­section (4) of Section 13  taken by the secured creditor. 

20. It is  to be noted that  no  appeal is provided against  the  notice issued under sub­section (2) of Section 13, but it provides  for   an   opportunity   to   the   borrower   to   make   representation   or  raise   any   objection.   The   secured   creditor,   thereafter,   has   to  consider   such   representation   or   objection.   On   consideration,  thereof,   if   the   secured   creditor   comes   to   the   conclusion   that  such representation or objection is not acceptable or tenable,  then he has to communicate the reasons for non­acceptance of  the representation or objection to the borrower within a week of  receipt of the representation.  

21. In the case in hand, notice dated 13th  January, 2010 was  issued  under Section 13(2) of the SARFAESI Act. According to the ­8­ petitioner, on receipt of the notice, he made his representation  dated   15th  February,   2010   addressed   to   the   Deputy   General  Manager,   Canara   Bank,   Zonal   Office,   Doranda,   Ranchi.  Admittedly, his representation has not been considered by the  respondent­Bank. 

22. In   the   counter   affidavit,   the   respondent­Bank   has   stated  that no such representation was received by the Bank. 

23. The petitioner has brought on record the acknowledgment  receipt   dated   15th  February,   2010,   which   contains   the  acknowledgment   of   the   Bank   with   signature   of   the   receiving  officer and the seal of the Bank. 

24. The respondent­Bank has not disputed or denied the said  seal   and   signature.   However,   at   the   time   of   hearing,   learned  counsel   for   the   respondent­Bank   tried   to   meet   the   point   by  submitting that the letter was addressed to the Zonal Manager of  the Bank, who is not the Authorized Officer, and as such in spite  of   such   acknowledgment   of   receipt   of   the   letter,   the   same  cannot be said to be received by the Bank and the respondent­ Bank was not obliged to consider the petitioner's representation,  not properly addressed. 

25. Adverting to sub­section (3) of Section 13 of the SARFAESI  Act, I find that it does not prescribe that the representation has  to   be   addressed   to   any   particular   officer.   The   words   'secured  creditor' has been used at every place in this section. 

26. In view of the said clear provision of law, it cannot be said  that the petitioner's representation was not properly addressed  and/or it did not deserve consideration due to the said reason. 

27. The   reason   assigned   for   non­consideration   of   the  petitioner's   representation   and   non­observance   of   the  mandatory  provisions   of   sub­section   (3­A)   of   Section  13   of   the  SARFAESI Act is not supported by the material on record and is  devoid of credence. Since the provision is mandatory in nature,  secured creditor cannot be allowed to refuse consideration of  the borrower's representation in a casual manner. 

28. I find that the respondent­Bank had/has no justification for  denying  the  consideration of the petitioner's representation filed ­9­ against the notice under Section 13(2) of the SARFAESI Act. Since  the mandatory   provision   of   sub­section (3­A)  of  Section 13  has not been complied with, there was no occasion for issuing  possession notice under sub­section (4)(a) . 

29. I further find that the provision for appeal under Section 17  is for the person aggrieved by any of the measures referred to in  sub­section (4) of Section 13. There is no provision for appeal on  denial   of   consideration   of   the   representation   of   the   borrower  under section (3­A) of Section 13. I, therefore, find no substance  in the submission of the respondents that the writ petition is not  maintainable   in   view   of   the   provision   of   Section   17   of   the  SARFAESI Act. 

30. The decision of the Hon'ble Supreme Court in United Bank   of India (Supra)  referred to and relied upon by learned counsel  for the respondent­Bank does not hold that even in the case of  violation of mandatory provision of law, the High Court will not  entertain   any   writ   petition.     The   decision   of   the   Calcutta   High  Court in Akshat Commercial Pvt. Ltd. & Anr. (Supra) relied by the  respondents   deals   with   the   provision   of   Section   24   of   the  Recovery of Debts due to the Banks and Financial Institution Act  along with Section 17 of the SARFAESI Act and Section 29(2) of  the   Limitation   Act   and   it   has   no   application   to   the   facts   and  controversy   involved   in   the   present   writ   petition.   The   said  decisions are of no help for the respondents.  

31. In  M/s. D. N. Motors (Supra),  this Court has held that the  provision under Section 13(3­A) of the SARFAESI Act is mandatory  and the stage for the step to be taken by the secured creditor  under Section 13(4) of the SARFAESI Act comes after compliance  of the provision of Section 13(3­A), which provides for opportunity  of representation to the borrower and obligation for considering  the representation on the secured creditor and again the right of  the borrower to know the reason for not accepting his objection/ representation.  

32. The said provision has its roots in the fundamental principle  of fair play and natural justice. 

­10­

33. It is settled principle that a power which affects right of a  person must be exercised fairly and judiciously. 

34. In  O'   Reilly   Vs.   Mackman   &   Ors.   [(1983)2   AC   237],   Lord  Diplock, speaking in the house of Lords, said that a person whose  right is to be adversely affected by any order has to be given a  fair opportunity  of   hearing.  The  right   is   so  fundamental to  any  civilized   legal   system   that   it   is   to   be   presumed   that   the  Parliament intended that a failure to observe it should render null  and void any decision reached in breach of the requirement.   

35. In view of the above discussion, I find that the respondent­ Bank , in the instant case, has failed to comply with the provisions  of   Section   13(3­A)   of   the   SARFAESI   Act   and   in   that   view   the  possession notice dated   31st   May,   2010   issued under Section  13(4) of the SARFAESI Act read with Rules 8 and 9 of the Security  Interest (Enforcement) Rules, 2002 is immature  and improper.

36. The notice dated 31st May, 2010, contained in Annexure­5,  is,   thus,   not   sustainable   in   law   and   is,   hereby,   quashed.   The  matter is remitted to the Bank for consideration of the petitioner's  representation   in   terms   of   Section   13(3­A)   of   the   SARFAESI   Act  and for disposal of the same in accordance with law. 

37. Any   action   taken   pursuant   to   the   notice   under   Section  13(4) of the SARFAESI Act, as a consequence, stands abrogated.  The   respondent­Bank   shall   be   at   liberty   to   proceed   in  accordance   with   law   after   considering   the   petitioner's  representation and disposing of the same. 

This writ petition is disposed of in the above terms.     

 (Narendra Nath Tiwari, J.) Sanjay/