Judgment:
HIGH COURT OF ORISSA: CUTTACK W.P.(C) No.12453 OF 201.In the matter of an application under Articles 226 and 227 of the Constitution of India. ----------North West Sales & Marketing Ltd. Community Center and others ….... Petitioners Versus IFCI Ltd. and another ……. Opposite parties For Petitioners -- M/s.Ashok Kumar Parija, S.P.Sarangi, P.P.K.Mohanty, D.K.Das, P.K.Dash & A.Singh For Opp. Parties -- Mr.R.K.Rath -------------PRESENT : THE HONOURABLE SHRI JUSTICE L. MOHAPATRA AND THE HONOURABLE SHRI JUSTICE B.K.PATEL Date of hearing:
24. 7.2012 : Date of judgment:
17. 8.2012 L. MOHAPATRA, J.The petitioners in this writ application raise three issues for adjudication, such as:(a) whether the decision of the opposite party no.1financial institution to cancel the undisbursed amount of Rs.15,60,84,740/- in Annexure-35 is justified or not. (b) whether the order dated 19th June 2012 passed by the opposite party no.1-financial recalling institution the entire loan and directing the petitioners to pay a sum of Rs.45,59,44,677/- in Annexure-36 is justified or not. 2 (c) whether the notice issued by the opposite party no.1- financial institution under Section 13(2) of the SARFAESI Act, 2002 in Annexure-38 is premature or not.
2. The facts leading to filing of the writ application are as follows:Petitioner no.1 is a Company incorporated under the provision of Companies Act, 1956 and is involved in the business of developing commercial Malls and petitioner no.2 is a Company incorporated under the Companies Act, 1956 and is also involved in the same business. Petitioner No.2-Company is a wholly owned subsidiary of petitioner no.1. The opposite party no.1 is a public financial institution. Petitioner no.1 in the month of November, 2010 purchased a plot of land measuring 2910 sq. meter, situated in Paschim Vihar, Delhi in an auction conducted by Delhi Development Authority. It decided to construct a Mall on the said plot and, accordingly, approached the Indiabulls Financial Services Ltd. (IFSL) for financial assistance. The said financial institution by letter dtd.26.8.2010 sanctioned a loan of Rs.40 crores in favour of petitioner no.1. Against the said loan, as security, the said plot of land was mortgaged along with two other personal properties of the then promoters. Petitioner no.2-Company wanted to take over the project, but it was found that a sum of Rs.40 crores advanced by the IFSL would No.be adequate to complete the Mall. Simultaneously with the commencement of the development of the project, petitioner no.1 entered into commercial arrangements for sale of the developed area with 3 prospective customers on the agreed terms and conditions and sold about 31,648 sq. ft. of property but the sale deeds in respect of such sale have No.been executed till now. Since petitioner no.2-Company was also interested to take over the project, both the petitioners approached the opposite party no.1-financial institution for financial assistance to the tune of Rs.60 crores. The said loan was sought to be refinanced by the opposite party no.1-financial institution No.only for repaying the loan of Rs.40 crores taken from IFSL, but also to use the balance amount for completing the project. After a detailed discussion, the opposite party no.1-financial institution agreed to extend the total loan of Rs.60 crores and, accordingly, the corporate loan facility of Rs.60 crores was sanctioned in favour of the petitioners on certain terms and conditions contained therein. One of the conditions was to repay the IFSL loan of Rs.40 crores and use the balance to meet the cost of construction of the Mall. One of the pre-disbursement conditions was that the first tranche of approximate Rs.40 crores would be paid directly to IFSL by way of a demand draft and the original documents of the Mall property would be collected on the same day and the balance tranche would be disbursed on creation of mortgage. However, a sum of Rs.44.5 crores had to be paid to IFSL to clear the loan and the mortgage documents were collected. The balance was to be paid by the opposite party no.1-financial institution to the petitioners to meet the cost of construction of the Mall. The petitioners also created required security and made the same available to the opposite party no.1-financial institution to facilitate it 4 for extending the balance loan. Unfortunately, instead of accepting the security offered by the petitioners for sanction of the balance loan amount of Rs.15,60,84,740/-, in the impugned letter under Annexure-35, the petitioners were intimated that the said proposal for sanction of balance loan has been cancelled and on the very next day, another letter was issued by the opposite party no.1- financial institution recalling the entire loan with interest, liquidated damages and other monies payable aggregating to Rs.45,59,44,677/-. Challenging the aforesaid two orders, the petitioners approached this Court in W.P.(C) No.10982 of 2012.
3. financial Learned counsel appearing for the present opposite party no.1institution submitted that no step had been taken under the Securitization Act and no such steps would also be taken without following the procedure laid down under the Securitization Act. Therefore, the writ application was premature. Learned Senior Counsel appearing for the petitioners in the said writ application also submitted that without issuing notice under the Securitization Act, the financial institution is forcing the petitioners to repay the dues within three days. This Court considering the fact that no notice had been issued under the Securitization Act, found the writ application to be No.maintainable and dismissed the same. However, an observation was made that the financial institution can proceed against the petitioners after following due procedure of law. The writ application was disposed of on 26.6.2012 and on 30.6.2012 the opposite party no.1- 5 financial institution issued a notice under Section 13(2) of SARFAESI Act, 2002, which is the subject matter of Annexure-38.
4. Shri R.K.Rath, learned Senior Counsel appearing for the opposite party no.1-financial institution raised a preliminary objection with regard to maintainability of the writ application on the ground that notice under Section 13(2) of the SARFAESI Act, 2002 having been issued, the petitioners were called upon only to submit their reply and at the stage of notice only the petitioners canNo.invoke the writ jurisdiction of the High Court as no action affecting the petitioners in any manner has been taken under the SARFAESI Act till today. Reliance was placed by Shri Rath, learned Senior Counsel on a decision of the Hon’ble Apex Court in the case of United Bank of India Vrs. Satyawati Tondon and others reported in (2010) 8 Supreme Court Cases 110. With reference to Sections 13(2), 13(4) and Section 14 of the SARFAESI Act, 2002 as well as Section 128 of Contract Act, 1872, the Hon’ble Supreme Court held that the creditor Bank has a right to proceed against the guarantor directly by issuing notice under Sections 13(2) and 13(4) of the SARFAESI Act and the High Court erred in holding otherwise and restraining the creditor Bank from taking action in furtherance of its notice under Section 13(4) of the SARFAESI Act. The Hon’ble Supreme Court further held that an alternative remedy is available under Sections 17 and 18 of the Act for filing an appeal against the action taken under Section 13(4) or Section 14 of the Act and, therefore the High Court should No.have entertained the writ application. Reliance 6 was also placed on another decision of the Hon’ble Apex Court in the case Kanaiyalal Lalchand Sachdev and others Vrs. State of Maharashtra and others reported in (2011) 2 Supreme Court Cases 782. In the said decision also the Hon’ble Supreme Court held that jurisdiction under Articles 226 and 227 of the Constitution of India should No.be exercised when an appeal is provided for under Section 17 of the SARFAESI Act, 2002 against the action taken by the Bank under Section 13(4) of the said Act. Referring to the above two decisions, it was further contended by Shri Rath, learned Senior Counsel that the petitioners may give a reply to the notice issued under Section 13(2) of the SARFAESI Act, 2002 and the opposite party no.1-financial institution may accept their explanation and decide No.to take any further action. Therefore, approaching this Court at the stage of notice under Section 13(2) of the SARFAESI Act makes the writ application premature. Shri A.K.Parija, learned Senior Counsel appearing for the petitioners submitted that Section 13(2) of the SARFAESI Act has application only when the account is held to be a non-performing account. According to Shri Parija, learned Senior Counsel, as per the agreement, neither the interest had become due No.the principal on the date the entire loan was recalled and no transaction had taken place till that date. Therefore, the question of holding the account to be a non-performing asset does No.arise and in absence of any intimation to the petitioners that the 7 account has become non-performing asset, recourse to Section 13(2) of the SARFAESI Act could No.be taken.
5. In order to appreciate the contention of the learned counsel appearing for both parties, it is necessary to refer to the relevant documents and dates to find out as to whether the notice issued by the opposite party no.1-financial institution under Section 13(2) of the SARFASEI Act is premature or not. No counter has been filed by the opposite party no.1-financial institution in the writ application and, therefore, the dates mentioned in the writ application in relation to certain documents have to be accepted as correct. November”
15. h February,2012- Petitioner no.1 purchased a plot of land measuring 2910 Sq.Meter situated in Paschim Vihar, Delhi in an auction conducted by Delhi Development Authority to construct a Mall. In order to purchase the said property and develop the same, petitioner no.1 had taken a loan of Rs.40 crores from Indiabulls Financial Services Ltd.(IFSL) and mortgaged the said plot of land along with two personal properties of the then promoters. When both the petitioners realized that a sum of Rs.40 crores will No.be enough to complete the Mall, they approached the opposite party no.1Financing Bank to extend the financial assistance to tune of Rs.60 crores. The corporate loan agreement was executed between the petitioners and the opposite party no.1-financial institution and an amount of Rs.60 crores was sanctioned with a condition that the first tanche of approximately of Rs.40 crores shall be paid directly to India Bulls Financial Services Ltd. through a demand draft and original documents of the Mall property shall be collected on the same day and balance 8 tranche would be disbursed on creation of mortgage. 6th March, 2012 A demand draft for an amount of Rs.44,39,15,260/- in the name of Indiabulls Financial Service Ltd.(IFSL) was sent by the opposite party no.1-financial institution. 7th March,2012 Indiabulls Financial Services Ltd. informed that the loan amount of Rs.40 crore has been repaid fully and there were no due payable and that it had no claim or right against the property held as security in respect of the said loan. 7th June,2012 The petitioners were directed by the opposite party no.1-financial institution to pay interest over dues of Rs.58,94,416/- by 9th June, 2012. 18th June, 2012 The opposite party no.1-financial institution intimated the petitioners that un-disbursed amount of Rs.15,60,84,740/has been cancelled. 19th June, 2012 The opposite party no.1-financial institution recalled the entire loan and demanded payment of Rs.45,59,44,677/-. 30th June, 2012 Notice under Section 13(2) of the SARFAESI Act,2002 was issued.
6. The corporate loan agreement, which is annexed to the writ application as Annexure-5, stipulates that the loan was to be repaid in 16 quarterly structured installments after a moratorium of six months from the date of first disbursement. The first disbursement was made on 6.3.2012 and, therefore, the first installment towards principal was to be paid in the month of September, 2012. Therefore, it is clear that in terms of the corporate loan agreement, repayment of the principal was to start only from September, 2012. Schedule-II of the corporate loan agreement 9 provides that the borrowers shall pay to the Lender interest on the principal amount of the loan outstanding from time to time, quarterly in each year on 15th of each respective month at the quarter end. The first disbursement having been made on 6.3.2012, the first interest overdue was to be paid by 15th June, 2012. Therefore, as per the corporate loan agreement, even if the first interest over due was to be paid by 15th June, 2012, the opposite party no.1-financial institution issued a notice on 7th June, 2012 in Annexure-33 demanding payment of over due interest of Rs.58,94,416/-.
7. Shri R.K.Rath, learned Senior Counsel appearing for the opposite party no.1-financial institution submitted that two cheques given by the petitioners for a amount of Rs.78,90,411/- and Rs.81,53,425/- were dishonored on 15.5.2005 and 15.6.2012 respectively. According to Shri Rath, learned Senior Counsel, these two cheques had been issued by the petitioners towards payment of interest overdue. Shri A.K.Parija, learned Senior Counsel appearing for the petitioners submitted that the said cheques had been issued in favour of the opposite party no.1-financial institution as security in terms of Article-II of the loan agreement in the form of post dated cheques. Since the interest overdue was to be paid by 15th June, 2012, there was no reason on the part of the opposite party no.1-financial institution to present the cheques before due date. We find considerable force in the above submission of Shri A.K.Parija, learned Senior Counsel considering the fact that even those two cheques had been issued towards payment of interest overdue, they 10 could have been presented before the Bank for encashment only after 15.6.2012 when the interest overdue became payable for the first time. Apart from the above, it appears from the reply given by the opposite party no.1-financial institution on 14.6.2012 that the petitioners have defaulted in payment of interest overdue to the tune of Rs.58,94,416/which fell due on 15.5.2012. This does No.appear to be correct as in terms of the corporate loan agreement, the first payment towards interest overdue was to be made by 15th June, 2012.
8. Coming to the question as to whether there was any justification on the part of the opposite party no.1-financial institution in canceling the disbursement of the balance amount of Rs.15,60,84,740/- is justified or not, reference has to be made again to the corporate loan agreement. As stated earlier, in terms of the corporate loan agreement, the first installment towards principal was to be paid from September, 2012 and, therefore, by 18th June, 2012 when the decision of the opposite party no.1-financial institution was intimated to the petitioners regarding cancellation of un-disbursed amount, the first installment towards principal had No.become due. Obviously, it appears that the balance disbursement was cancelled for the reason stated in the reply of the Bank dated 14.6.2012. Out of the two reasons, one is that the petitioners acted in clear violation of loan agreement. which required them to take prior consent of the opposite party no.1-financial institution to sell any portion of the Mall property and the petitioners have sold some portions of the Mall 11 property without taking such consent of the of the opposite party no.1financial institution. This allegation was stoutly denied by Shri A.K.Parija, learned Senior Counsel appearing for the petitioners. We called upon Shri Rath, learned Senior Counsel appearing for the opposite party no.1 to produce any document indicating sale of any part of the Mall after the loan was sanctioned and disbursed in favour of the petitioners on 6th March, 2012. Neither any counter has been filed supporting any such allegation made against the petitioners No.could any document be produced at the time of hearing of the writ application in support of the same. We are therefore of the view that even cancellation of the un-disbursed amount was without any justification.
9. In relation to the above issue, Shri Rath, learned Senior Counsel appearing for the opposite party no.1-financial institution submitted that the petitioners had earlier challenged the said notice issued by the opposite party no.1-financial institution in W.P.(C) No.10928 of 2012 and the Court having dismissed the same, it is no more open for the petitioners to challenge the said decision of the financial institution again in this writ application. Earlier the writ application filed by the petitioners was dismissed as No.maintainable solely on the submission made before the Court that no step under the Securitization Act had been taken by the financial institution. Legality of the two notices in Annexures-35 and 36 had never been considered by the Court No.any finding has been rendered in relation to the said two notices. Therefore, the question of res-judicata 12 does No.arise. In view of the above discussion, the first two issues raised by the petitioners are answered in favour of the petitioners.
10. So far as the third issue is concerned, it relates to a notice issued by the opposite party no.1-financial institution under Section 13(2) of the SARFAESI Act, 2002. In relation to this issue, it was contended by Shri R.K.Rath, learned Senior Counsel for the opposite party no.1-financial institution that notice issued under the said provision does No.amount to take any action and it is a notice to bring certain facts to the notice of the borrower and it is open for the borrower to give a reply to the same. Therefore, no action under Section 13(4) of the Securitization Act having been taken, this Court may No.interfere at the stage of issuance of notice under Section 13(2) of the said Act. It was contended by Shri A.K.Parija, learned Senior Counsel appearing for the petitioners that stage for issuance of such notice under Section 13(2) of the Act had No.arisen and, therefore the said notice is premature.
11. For convenience, Section 13(2) of the SARFAESI Act, 2002 is quoted below:“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 installment 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 sub-section (4)”.”
12. Prerequisites for issuance of notice under Section 13(2) are that the borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any installment thereof, and when the account of the borrower in respect of such debt is classified by the secured creditor as non-performing asset. Only when these two conditions are satisfied, notice under Section 13(2) of the SARFAESI Act, 2002 can be issued. From the facts narrated earlier, it is clear that by the time notice under Section 13(2) of the SARFAESI Act, 2002 was issued on 30th June, 2012, the first installment towards principal had No.become due as the first installment for principal as per the corporate loan agreement was to be paid in September, 2012. The first installment towards over due interest was to be paid by 15th June, 2012 and, therefore, by the time notice was issued under Section 13(2) of the SARFAESI Act,2002 on 30th June, 2012, the first payment towards interest over due had become payable. But the second condition requiring the financial institution to classify the loan account as non-performing asset is No.satisfied in this case. There is nothing on record to show that the loan account of the petitioners in respect of the present loan had ever been classified as N.P.A. Therefore, notice under Section 13(2) of the SARFAESI Act issued by the financial institution in Annexure-38 even before classifying the loan account of the petitioner as N.P.A. is premature.
13. Shri R.K.Rath, learned Senior Counsel appearing for the opposite party no.1-financial institution relied upon two decisions of the 14 Hon’ble Supreme Court to substantiate his submission that when an alternative remedy is available to the petitioners, the writ application should No.be entertained. Both the decisions relate to notice under Section 13(4) of the SARFAESI Act, 2002. An appeal is provided for against an action taken by the financial institution under Section 13(4) of the SARFAESI Act but no such appeal is provided for any notice issued under Section 13(2) of the said Act. In the case of United Bank of India Vrs. Satyawati Tondon and others (supra) and also in the case of Kanaiyalal Lalchand Sachdev and others Vrs. State of Maharashtra and others (supra), the Hon’ble Supreme Court was considering the question as to whether an alternative remedy is available against the action taken by the financial institution under Section 13(4) of the Act. Therefore, the above two decisions on facts have no application to the present case. Another decision relied upon by Shri R.K.Rath, learned Senior Counsel is the case of M/s.Transcore Vrs. Union of India and another reported in AIR 200.SC 712.In the said decision, the Hon’ble Apex Court was again considering Section 13(4) of the SARFAESI Act, 2002 and in paragraphs 60 and 68 of the judgment, the Hon’ble Apex Court was considering the provision relating to appeal under Section 17(1) of the SARFAESI Act against an action taken by the financing institution under Section 13(4) of the said Act. Therefore, the said decision has also no application to the facts of the present case as the stage of Section 13(4) of the SARFAESI Act, 2002 has No.reached. On the other hand, reliance was placed by Shri 15 A.K.Parija, learned Senior Counsel appearing for the petitioners on a decision of the Hon’ble Apex Court in the case of Mardia Chemicals Ltd. Vrs. Union of India and others reported in AIR 200.Supreme Court 2371. This decision has been taken note of and affirmed in the later decision of the Hon’ble Supreme Court referred to above. The decision rendered in Mardia Chemicals Ltd. relates to also a notice under Section 13(2) of the SARFAESI Act, 2002 and in paragraphs 50 and 51 of the judgment, the Court made the following observations:“It has also been submitted that an appeal is entertainable before the Debt Recovery Tribunal only after such measures as provided in sub-section (4) of Section 13 are taken and Section 34 bars to entertain any proceeding in respect of a matter which the Debt Recovery Tribunal or the Appellate Tribunal is empowered to determine. Thus before any action or measure is taken under sub-section (4) of Section 13, it is submitted by Mr.Salve, one of the counsel for respondents that there would be no bar to approach the Civil Court. Therefore, it can No.be said no remedy is available to the borrowers. We, however, find that this contention as advanced by Shri Salve is No.correct. A full reading of Section 34 shows that the jurisdiction of the Civil Court is barred in respect of matters which a Debt Recovery Tribunal or Appellate Tribunal is empowered to determine in respect of any action taken “or to be taken in pursuance of any power conferred under this Act”.. That is to say the prohibition covers even matters which can be taken cognizance of by the Debt Recovery Tribunal though no measure in that direction has so far been taken under subsection (4) of Section 13. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. Therefore, any matter in respect of which an action may be taken even later on, the Civil Court shall have no jurisdiction to entertain any proceeding thereof. The bar of Civil Court thus applies to all such matters which maybe taken cognizance of by the Debt Recovery Tribunal, apart from those matters in which measures have already been taken under subsection (4) of Section 13. However, to a very limited extent jurisdiction of the Civil Court can also be invoked, where for example, the action of the secured creditor is alleged to be fraudulent or their claim may 16 be so absurd and untenable which may No.require any probe, whatsoever or to say precisely to the extent the scope is permissible to bring an action in the Civil Court in the cases of English mortgages. We find such a scope having been recognized in the two decision of the Madras High Court which have been relied upon heavily, by the learned Attorney General as well appearing for the Union of India, namely, V. Narasimhachariar (supra) at pp.141 and 144, a judgment of the learned single Judge where it is observed as follows in para 22: “The remedies of a mortgagor against the mortgagee who is acting in violation of the rights, duties and obligations are two fold in character. The mortgagor can come to the Court before sale with an injunction for staying the sale if there are materials to show that the power of sale is being exercised in a fraudulent or improper manner contrary to the terms of the mortgage. But the pleadings in an action for restraining a sale by mortgagee must clearly disclose a fraud or irregularity on the basis of which relief is sought: Adams V. Scott (1859) 7WR (Eng) 213 (249). I need No.point out that this restraint on the exercise of the power of sale will be exercised by Courts only under the limited circumstances mentioned above because otherwise to grant such an injunction would be to cancel one of the clauses of the deed to which both the parties had agreed and annul one of the chief securities on which persons advancing moneys on mortgages rely.(See Rashbehary Ghose Law of Mortgages. Vol.II. Forth Edn., Page 784)”..
14. Therefore, we are unable to accept the contention of Shri R.K.Rath, learned Senior Counsel appearing for the opposite party no.1financial institution that the writ is No.maintainable at this stage. On the other hand, considering the fact as stated above, we are of the view that the loan account of the petitioners having No.been classified as N.P.A. as on 30.6.2012, issuance of notice under Section 13(2) of the SARFAESI Act on 30th June, 2012 was premature. In the case of Maradia Chemicals Ltd. (supra), the Hon’ble Apex Court further held that policy has been laid down 17 by the Reserve Bank of India providing guidelines in the matter for declaring an asset to be a non-performing asset known as “RBI’s prudential norms on income recognition, asset classification and provisioning pertaining to advances”. through a circular dated 30th August, 2001. Therefore, it canNo.be said that there are no guidelines for treating the debt as a non-performing asset and classification of debt as NPA is at whims and fancies of financial institution. Therefore, before issuance of notice under Section 13(2) of the SARFAESI Act, 2002, the guidelines laid down by the R.B.I. through a circular dated 30th August, 2001 have to be followed and complied with.
15. We accordingly quash the notice under Section 13(2) of the SARFAESI Act, 2002. Before parting with the case, we would like to make an observation for benefit of both parties. By the time notice under Section 13(2) was issued on 30th June, 2012, the first interest over due could have been paid by the petitioners. It appears that the petitioners did No.pay the first interest over due on or before 15th June, 2012 considering the fact that disbursement of Rs.15,60,84,740/-had been cancelled by the opposite party no.1-financial institution. Accordingly, we are of the further view that if the petitioners are given a personal hearing by the opposite party no.1financial institution, the dispute can be resolved and a compromise can be arrived at, which would be beneficial No.only for the opposite party no.1financial institution but also to the petitioners. With the above observation, the writ application is disposed of. 18 ……..……………… L. Mohapatra, J.B.K.Patel, J.I agree. …………………….. B.K.Patel, J.Orissa High Court, Cuttack. The 17th August, 2012/C.R.Biswal.