Document Fragment View

Matching Fragments

Brief facts, which led to filing of the present Writ Petition, are as under:-

The 1st petitioner company was incorporated in the year 2000 and was engaged in the business of manufacturing MS Iron Wires, galvanized steel wires and ropes, barbed wires and binding wires and that the manufacturing unit of the 1st petitioner company is located at 6-8-110/A, I.D.A., Katedan, Ranga Reddy District, forming part of the subject property. The 1st petitioner company has been continuously engaged in the manufacturing of wires and wire products and has been successfully PNR, J & GSD, J Wp_7784_2021 operating as a going concern. In order to maintain its functioning and have access to ready funds, the 1st petitioner company has been operating a bank account with the Syndicate Bank, now merged into Canara Bank, for the past nearly 21 years. It is further stated that one of the services availed by the 1st petitioner company from the bank was a facility of SOD (Standing Overdraft) and the said facility was extended to the 1st petitioner for a sanctioned limit on the account of the 1st petitioner company, based upon the financial transactions carried out by the 1st petitioner company. The said facility was renewed and re-sanctioned in the year 2019 with a credit limit of Rs.5,00,00,000/- to the 1st petitioner company and the said sanction was provided based upon the requirements of the 1st petitioner company for additional capital and other expenses. While availing such service, the subject property was provided as a security and the stocks, inventory and book debts of the 1st petitioner company were also provided as security. An additional Temporary Overhead facility of Rs.50.00 lakhs was availed by the 1st petitioner company in the year 2019 in order to meet its working capital and raw material needs. Subsequently, the 1st petitioner company received a recall notice, dated 30.09.2019, stating that the account on which Standing Overdraft was availed by the 1st petitioner company was running in an irregular manner and as such the facility of Temporary Overhead that was extended to the 1st petitioner company was being recalled and the 1st petitioner company was asked to pay a sum of PNR, J & GSD, J Wp_7784_2021 Rs.5,46,83,982/- to the bank within seven days of the recall notice. The 1st petitioner company sent a reply to the said recall notice stating that the Temporary Overdraft and Standing Overdraft issued by the bank were secured by self-owned assets and considering the current state of the industry, it was requested that the amount due to the bank be converted into a term loan and a period of 60 months be provided for repayment of the said loan. The said proposal was accepted by the bank and the 1st petitioner company was asked to submit a form for the conversion of temporary overdraft to term loan with the bank along with other necessary documents vide letter, dated 02.11.2019. While the said request was under consideration, the bank issued a notice under Section 13 (2) of the Act, dated 22.11.2019, declaring the account of the 1st petitioner company as a NPA with effect from 21.11.2019, stating that steps would be taken by the Bank under Section 13 of the Act for recovery of the amounts due by the 1st petitioner company. The 1st petitioner company sent a reply to the said notice, vide a letter, dated 11.12.2019, wherein it was stated that due to non-payment of the amount due under Temporary Overdraft, the account of the 1st petitioner company had been classified as NPA and the 1st petitioner company had the facilities for increase of production and a good hold over the market and as such, the 1st petitioner company requested the bank that the amount due by the 1st petitioner company to the bank be converted and restructured into a Fixed Interest Term Loan with repayment period of 10 years. However, PNR, J & GSD, J Wp_7784_2021 no action was taken by the bank in relation to the restructuring of the account of the 1st petitioner company, despite several assurances provided by the officials of the Bank and repeated reminders by the 1st petitioner company. It was merely informed by the Bank, in its letter, dated 29.11.2019, that the request for conversion of the Temporary Overdraft amount to FITL was transferred to the Regional office and the same would be considered as per the merits/guidelines. While that being so, the petitioners herein were served with another notice, dated 02.12.2020 under Section 13 (2) of the Act, stating that the account of the petitioners' company was classified as N.P.A. Thereafter, the 1st petitioner company issued a reply to the said notice on 16.02.2021 stating that as the company was drastically affected by the lockdown imposed due to COVID-19 pandemic, it was unable to pay the amounts outstanding to the Banks and, therefore, six months time be provided to the petitioners' company to settle its debts under One Time Settlement scheme as proposed by the Bank. However, there was no response from the bank in relation to its request. Subsequently, a possession notice under Section 13 (4) of the Act was pasted on the building of the petitioners' company on 09.03.2021 and a notice was also received by the petitioners' company on 12.03.2021 stating that the bank was taking possession of the stocks, plant and machinery of the petitioners' company and also the subject property.

It is further stated that the respondent-bank, without considering any of the options envisaged in Section 13 (4) of the Act, or considering the PNR, J & GSD, J Wp_7784_2021 request for a One Time Settlement sought by the petitioners' company, has directly sought to take over possession of the subject property including the plant and machinery of the petitioners' company under Section 13 (4) of the Act. It is pertinent to note that the Apex Court in catena of cases has stated that any reply given to a notice issued under Section 13 (2) of the Act, must be objectively considered and any subsequent action must be taken only after due application of mind to the reply issued to the notice under Section 13 (2) of the Act. It is further stated that, in the present case, it is clear that there has been no application of mind whatsoever to the reply issued by the petitioners' company as the company vide its reply has specifically stated that the petitioners' company is willing to clear the dues to the Bank by virtue of a One Time Settlement. The said proposal for an OTS has not been addressed by the respondent-bank in the notice, dated 09.03.2021, and a mechanical notice has been issued to the petitioners' company under Section 13 (4) of the Act and thus, the said notice is required to be set aside on this ground alone. In Keshavlal Khemchand and sons v. Union of India1, the Apex Court held that the obligation imposed on the Banks under the Act, to declare an account as NPA and then take action contemplated under Section 13 of the Act, is due to the fact that the powers provided under Section 13 (4) of the Act were very wide and had the result of stopping the business carried on by the debtor and could (2015) 4 SCC 770 PNR, J & GSD, J Wp_7784_2021 therefore, impact the larger interests of the nation. Further, the Apex Court went on to state that a lot of factors are required to be taken into consideration before a step as drastic as the ones contemplated under Section 13 (4) of the Act were to be taken. As per the scheme of the Act, the respondent-bank must necessarily state the reasons for choosing any mode of recovery as provided under Section 13 (4) of the Act. It is further stated that a perusal of the notice received by the petitioners' company under Section 13 (4) of the Act would reveal that the respondent-bank has not provided any reasoning as to why the request of the petitioners for One Time Settlement was not considered, and has mechanically taken over the possession of the subject property including the stocks, plant and machinery of the petitioners' company. Further, as per the provisions of Section 13 (3-A) of the Act, the respondent-bank is required to communicate its reasons for not accepting the representation or objection issued by the petitioners company within a period of 15 days and such communication must be issued after an objective examination of the representation issued by the petitioners. In support of his contentions, learned Counsel appearing for the petitioners relied upon the judgment of the Apex Court in Mardia Chemicals Ltd. v. Union of India2 and judgment of the Andhra Pradesh High Court in Sravan Dall Mills P. Ltd., v. Central Bank3.

In M/s. Tanscore v. Union of India4 the Apex Court held as under:-

"23...On reading Section 13(2), which is the heart of the controversy in the present case, one finds that if a borrower, who is under a liability to a secured creditor, makes any default in repayment of secured debt and his account in respect of such debt is classified as non-performing asset then the secured creditor may require the borrower by notice in writing to discharge his liabilities within sixty days from the date of the notice failing which the secured creditor shall be entitled to exercise all or any of the rights given in Section 13(4). Reading Section 13(2) it is clear that the said sub-section proceeds on the basis that the borrower is already under a liability and further that, his account in the books of the bank or Manu/SC/5319/3006 PNR, J & GSD, J Wp_7784_2021 FI is classified as substandard, doubtful or loss. The NPA Act comes into force only when both these conditions are satisfied. Section 13(2) proceeds on the basis that the debt has become due. It proceeds on the basis that the account of the borrower in the books of bank/ FI, which is an asset of the bank/FI, has become non-performing.".

In Sravan Dall Mill P. Ltd., v. Central Bank (3 supra), a coordinate bench of composite State of High Court of Andhra Pradesh held as under:-

"23. The right of the borrower to have a due consideration of objections is, therefore, an important right of the borrower where the bank is bound to apply its mind and inform the borrower of its reasons as to why and how the account is classified as NPA, particularly, when the borrower raises specific objections in that regard. The reply of the bank must indicate application of mind by the bank that the decision of the bank in classifying the account as NPA was fully in conformity with the prudential norms of RBI. Non- consideration of the said objection by mere statements in the reply that the bank has considered the same cannot be said to be the fulfillment of the obligation of the bank under Sections 13(2) and 13(3)(A) of the Act. It also cannot be disputed that even assuming that particular had become NPA, the subsequent payments by the borrower entitled a borrower to upgrade the said account and may come out of the said classification of his account as NPA. Therefore, it is incorrect to presume that once an NPA is always an NPA and it is precisely for the said reason that the clause 4.2.4 of the prudential norms specifically states that if interest and principal are paid by the borrower in case of loans classified as NPA, the said account should no longer be treated as NPA and may be classified as sub-standard account. Consequently, therefore, the action under the Act with regard to the said account would not PNR, J & GSD, J Wp_7784_2021 be tenable, as jurisdictional fact under Section 13(2) of the SARFAESI Act would remain unsatisfied.