Amitava Roy, J.
1. Notices dated 16.12.2006 and 26.4.2007 under Section 13(2) and 13(4) respectively, of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the 'Act') have been assailed to be transgressive of the mandatory pre requisites embodied in the above provisions of the legislation and thus non est in law. The petitioners are the sureties for the financial accommodation availed by M/s. NAP Agencies Private Limited, Guwahati, District Kamrup. The borrower, however, is not on record. This Court while issuing notice on 23.5.2007 directed maintenance of the status quo of the petitioners property involved.
2. I have heard Mr. G.N. Sahewalla, Senior Advocate assisted by Mr. M. Singh, Advocate for the petitioners and Mr. K.K. Bhatra, learned Counsel for the creditor Bank.
3. The pleaded assertions constituting the factual edifice deserve to be scripted for better appreciation of the rival submissions.
4. The petitioners averment is that, M/s. NAP Agencies, Guwahati having approached the Respondent Bank for availing cash credit facility, was sanctioned financial accommodation to the tune of Rs. 1,10,000.00. To secure the repayment of the loan amount, the borrower approached the petitioners and their deceased father/husband Late Jamini Prasad Singh to be sureties and furnish securities by creating equitable mortgage of immovable properties. Acceding to the request, the petitioners and their father/husband aforenamed offered equitable mortgage of their immovable properties by way of collateral securities guaranting repayment of the loan. It is not essential to detail the particulars of the properties mortgaged. Suffice it to mention that according to the petitioners, they along with their families are residing on the said property and are carrying on business therefrom.
5. The petitioners have alleged that they remained in a bonafide belief that the borrower had been duly repaying the dues inasmuch as, at no point of time, the respondent Bank had complained to them of any default in the liquidation schedule. To their shock and surprise therefore, they came to learn from the officials of the Bank when they visited their property on 7.11.2006 that they had decided to take over the possession thereof in exercise of powers under the Act as the borrower had grossly defaulted in clearing the outstanding dues of the Bank generated by the loan sanctioned.
According to the petitioners at that point of time, their predecessor-in-interest Late Jamini Prasad Singh who was also one of the sureties, was critically ill and therefore they pleaded with the bank officials for some time in their hour of crisis as they had no prior notice of the default of the borrower. Jamini Prasad Singh eventually expired on 7.11.2006 for which the petitioners immediately thereafter could not pursue the necessary steps with the respondent Bank. On enquiries made thereafter, they could learn that M/s. NAP Agencies Pvt. Ltd. had defaulted in payment of the dues and that the respondent Bank proposed to take over the possession of their immovable properties by invoking its powers under Section 13(4) of the Act. The petitioners, however, have pleaded ignorance of initiation of any proceeding under the Act contending that the borrower as well, had not apprised them thereof.
Situated thus, they approached this Court with WP(C) No. 5837/2006 contending inter alia that no notice as required under the Act had been served on them to authorize the proposed action under Section 13(4) thereof. The petition was disposed of on 15.12.2006 allowing the Bank to cause service of fresh notices on the petitioners, if so advised. The respondent Bank on 16.12.2006 issued notices under Section 13(4) of the Act which were served on the petitioners on 17.12.2006. Thereby a demand was raised for Rs. 96,29,667.04 together with the contractual rate of interest from 1.12.2006 payable within 60 days of the receipt of the notice. The petitioners submitted a representation before the Bank on 14.2.2007 assuring clearance of the outstanding dues and deposited a sum of Rs. 7,50,000/- as a testimony of their bonafide to fulfill their obligations in that regard. Thereafter, they also made the following deposits:
Date Amount
26/03/2007 Rs. 1,30,000/-
02/05/2007 Rs. 5,000/-
03.05.2007 Rs. 5,000/-
04.05.2007 Rs. 5,000/-
05.05.2007 Rs. 5,000/-
In all, according to the petitioners, on the date of institution of the instant petition, they had deposited Rs. 11,70,000/- in the cash credit account of M/s. NAP Pvt. Ltd.
While the matter rested at that, the impugned notice dated 26.04.2007 was served on them on 01.05.2007 demanding Rs. 96,29,667.04 with the intimation that the Bank would take over the possession the security assets on 7.05.2007 on the failure to make payment.
6. The petitioners besides disputing the amount of demand in the face of the deposits made by them in between, have questioned the validity of the notice dated 16.12.2006 for non compliance of the peremptory statutory prerequisites engrafted in Section 13 of the Act. They have pleaded that as they have been regularly making deposits in the borrower's account with an earnest desire to liquidate the outstanding amount and that the notice dated 26.04.2007 consequential to the one dated 16.12.2006 is also invalid besides being violative of the principles of natural justice. The petitioners have contended that as in between, the borrower had deposited a sum of Rs. 15,00,000/- in its loan account which the respondent Bank has accepted, the account is not liable to be declared as 'non performing asset' under the 'Prudential norms on Income Recognition, Asset Classification and Provisioning' pertaining to advances' (hereinafter referred to as the 'norms').
7. The respondent Bank in its affidavit has challenged the maintainability of the petition in the teeth of the statutory provision for appeal under Section 17 of the Act. They have disputed the petitioners' claim of residence and business over the property furnished as collateral security and has denied that they had been remained in bonafide belief that the borrower had been duly repaying the dues. While denying the petitioners claim of ignorance of the default of the borrower or initiation of the proceeding under the Act, the respondent Bank has asserted that the petitioners liability as guarantor/surety is coextensive with that of the principal debtor and in that view of the matter, they are joinly and severally liable to discharge its dues. It also denied that with the deposite of Rs. 15 lakhs by the borrower, the account could not be classified as a Non-Performing Asset (hereinafter for short also as 'NPA'). The bank has maintained that the account of the borrower which had been classified as NPA with effect from 31.3.2005 continues to be so as per the norms and the guidelines of the Reserve Bank of India (for short 'RBI') since it had closed down its business activities and further, no prime security is available. According to the Bank, even the hypothecated stock of the borrower has either been disposed of or allowed to deteriorate in quality, quantity and value thereby undermining the Banks prospects of recovery therefrom due to loss of valuable security. The Bank insisted that once an account is declared as NPA, it can be upgraded by payment of overdue interest and instalments provided that the prime security is available and the business transactions in the borrower's account are satisfactory.
8. It, therefore maintained that as in the instant case neither the prime security is available nor, there is any turn over in the account recorded since May, 2005 in absence of business activity of the borrower consequent upon closure of its unit, the impugned action taken is in accordance with the provisions of the Act. The bank also denied that account of the borrower could not be assigned 'out of order' status in view of the deposit of Rs. 15 lakhs by the borrower and Rs. 11,70,000/- 'by the petitioners. As the borrower as well as its guarantors faired to clear the amount due inspite of notice under Section 13(2) of the Act, the action as per provision of Section 13(4) thereof is permissible.
9. Referring to the petitioners representation dated 14.2.2007, the answering respondent has pleaded that thereby they assured to clear all dues with interest and besides depositing Rs. 7,50,000/- they undertook to pay further sum of Rs. 10,00,000/- on or before 10.3.2007. The Bank has claimed that on receipt of the representation, it informed the petitioners over phone as well as during their personal visits about its inability to consider the proposal made in the representation and in the circumstances, the impugned notice dated 24.4.2007 had to be issued. The bank referred to a letter dated 31.8.2006 of the borrower admitting its liability to the tune of Rs. 97.42 lakhs and asserted that the petitioners as sureties are liable to make good the payment demanded in the impugned notice dated 16.12.2006. The bank also referred to WP (C) No. 5681/2006 instituted by the borrower challenging the notices dated 22.11.2005 and 8.8.2006 as well as the order dated 17.11.2006 of this Court suspending the operation thereof subject to deposite of Rs. 50% of the defaulted amount on or before the returnable date i.e. 7.12.2006. The Bank asserted that till date, the borrower has not paid the amount as directed by this Court. According to the respondent Bank the unit of NAP Agencies Pvt. Ltd. had been closed down and the business activities abandoned with no turn over in the account since May, 2005 and therefore, as per the norms, it has become a doubtful debt incapable of being upgraded as. performing assets since the entire amount had become over due in absence of any business activity.
10. In their reply affidavit, the petitioners while generally reiterating the averments in the writ petition, instead that their representation dated 14.2.2007 has not yet been rejected by the Bank and that they having undertaken to clear the outstanding dues, the action launched in face of the deposits made by them is grossly illegal, unfair and unjust.
11. Mr. Sahewalla, has urged with reference to the extract of the bank's statement annexed to the petition that in terms of the norms, the borrower's account cannot be classified as 'NPA' as the outstanding debts therein within ninety days prior to the notice dated 16.12.2006 was less than the sanctioned amount of Rs. 1,10,00,000/-. He also drew the attention of this Court to the relevant provision of the norms to substantiate his contention. Relying on Section 13(2) of the Act, the learned Senior counsel contended that the essential pre requisites for any action thereunder being consequentially absent in the instant case, the notice dated 16.12.2006 is ineffectual, null and void. He further urged that the Bank as the secured creditor having consciously allowed the loss and dissipation of the hypothecated stock of the borrower without the knowledge of the sureties, the petitioners are absolved of their liability to the extent of the value thereof as enjoined by Section 141 of the Indian Contract Act, 1872 (hereinafter referred to as 'Contract Act'). Mr. Sahewalla was particularly critical about the notice dated 24.4.2007 as in his contention, the same was impermissible under the Act in view of the non disposal of the petitioners representation dated 14.2.2007 as obligatorily required under Section 13(3)(A) of the Act. As the petitioners are making payments accepted by the bank, the impugned action in any view of the matter is not sustainable in law, he urged.
12. Mr. Sahewalla to buttress his arguments has placed reliance of the decisions of the Apex Court in Mardia Chemicals v. Union of India : AIR2004SC2371 and of the Mysore High Court in P. Janakiram Chetty, Appellant v. Punjab National Bank Ltd. New Delhi and Anr. respondents AIR 1968 Mysore 56.
13. Mr. Bhatra in reply has at the threshold challenged the maintainability of the writ petition for non exhaustion of the alternative remedy of appeal under Section 17 of the Act. According to him, as statutory remedy is obtainable by the petitioners, this Court would refrain from exercising its extra ordinary jurisdiction under Article 226 of the Constitution of India.
14. Referring to the borrower's account as well as the norms, the learned Counsel has argued that it is apparent therefrom that the balance had remained in excess of sanctioned limit of Rs. 1,10,000,00/- for over 90 days, which in terms of the norms was rightly determined to be a NPA. In absence of the borrower's drawing power and the closure of its unit, intermittent deposits claimed to have been made would not upgrade the account to be a performing asset, he urged. Pointing out that under the loan sanctioning stipulations, a borrower can withdraw 95% of the value of the stock hypothecated, he argued that once an account is identified as NPA it would remain as such and deposits per se would not upgrade the same, unless the borrower has the borrowing power which presupposes availability of stocks. Mr. Bhatra dismissed the plea based on Section 141 of the Contract Act contending that the said provision was inapplicable in the instant case as the stock in trade though hypothecated to the Bank, had remained in the exclusive custody of the borrower. No objection/dispute having been raised by the petitioners in their representation dated 14.2.2007 and they having undertaken to liquidate the outstanding dues admitting the same, the contention of non compliance of Section 13(3A) of the Act is also untenable, he urged. The petitioner having failed to clear the outstanding dues inspite of repeated reminders, the impugned notice dated 26.4.2007 had to be issued as a last resort and as the endeavour is for realization of public money invested, any interference with the impugned action besides being unwarranted would be mutilitive of the underlying objectives of the Act.
15. The contrasting pleadings and the arguments have received the anxious consideration of this Court. The peripheral debate bearing on the maintainability of the writ petition warrants immediate attention. Under Section 17 of the Act any person including a borrower aggrieved by any of the measures referred to in Sub-section (4) of Section 13 taken by creditor or his authorized officer may make an application along with such fee as may be prescribed to the jurisdictional Debt Recovery Tribunal.
16. The Apex Court in Mardia Chemicals Ltd. (supra) while assaying a challenge to the various provisions of the Act had observed that the proceedings under Section 17 of the Act in fact, are not appellate in nature and rather akin to that of a suit in the court of the first instance. Their Lordships held the view that a proceeding under the said provision of the Act has been wrongly described as an appeal and the Debt Recovery Tribunal in fact is a forum where proceedings are originally initiated in case of any grievance against the creditor in response to any measure taken under Section 13(4) of the Act. The Apex Court upheld the condition of deposit of 75% of the amount claimed as a condition precedent for availing the remedy under Section 17(2) [as it was then)] of the Act as irrational, arbitrary and violative of Article 14 of the Constitution of India. It eventually recorded that where as required, the creditor has taken action under Section 17(4) of the Act, it would be open to the borrower to file an appeal under Section 17 of the Act within the period of limitation as prescribed therefore. The pronouncement in M/s. Mardia Chemicals Ltd. (supra) does not admit of a predication of absolute bar on the exercise of the writ jurisdiction under Article 226 of the Constitution pf India in face of the alternative remedy of appeal under Section 17 of the Act.
17. The Apex Court in Whirlpool Corporation, Appellant v. Registrar of Trade Marks, Mumbai and Ors. Respondents : AIR1999SC22 while elaborating on the plenary power of a High Court under the above constitutional provision observed that the same is not restricted by any other provision thereof and that the same can be exercised not only for issuing a writ in the nature as contemplated therein for enforcement of the fundamental rights contained in Pt. III of the Constitution, but also for other purposes. It, however, added that the High Courts though have the discretion not to entertain a writ petition by way of self imposed restrained if effective and sufficient remedy is otherwise available, but such a alternative remedy is not a bar in at least three contigencies; namely-(1) where any writ petition has been filed for the enforcement of any Fundamental Right; (2) there has been a violation of the principles of natural justice; (3) where the order or proceedings are wholly without jurisdiction or (4) where the vires of any Act is challenged.
The petitioners in the instant case have challenged the notice dated 16.12.2006 as ultra vires Section 13(2) of the Act contending that at all relevant times, the borrower's account not being NPA, the same was without any authority of law. They have contended as well, that recourse to Section 13(4) was impermissible in absence of compliance of the essentialities of Section 13(3A) of the Act.
18. The issues raised are of considerable moment and the impugned notice dated 26.4.2007 if enforced would obviously visit the petitioners with serious adverse consequences. The petition having been admitted for hearing, in the above factual and legal premise, I am not inclined to nonsuit the petitioners for not availing the statutory remedy under Section 17 of the Act. Non compliance of the statutory provisions as well as infraction of the principles of natural justice having been urged which demand a scrutiny, I do not feel persuaded to sustain the plea against the maintainability of the petition on this ground.
19. In the decisions in UCO Bank (Agartala Bench(supra), Noorbari Tea Co.(P) Ltd and Anr. (supra), Sushil Kumar Agarwalla and Anr. (supra) and Hemant Automobiles (Pt) Ltd. (supra), though it had been held in substance that the statutory remedy under Section 17 of the Act could not have been sidetracked, none of the petitions had been dismissed solely on the ground that the same had not been availed of. On the other hand, the narrations therein reveal a detailed adjudication on the issues involved based on contextual facts.
20. It is not in dispute that the stock in trade of the borrower as security for thefinancial accommodation though hypotheticated with the respondent bank had remained in the possession and custody of the borrower. Though it was expected that the above notwithstanding, the creditor would maintain a close vigil thereon to guard against the same being frittered away by the borrower to its prejudice, the materials on record do not unequivocally suggest any deliberate and intentional lapse of the respondent bank in this regard. The present therefore is not a case where any security in the custody or control of the creditor had been lost due to any overt or covert omission or negligence on its part so as to entitle the surety to claim a discharge to the extent of the value thereof as contemplated under Section 141 of the Contract Act. This view is reinforced by the decision in Bank of India, Bombay (supra) where their Lordships of the Punjab and Haryana High Court had held in categorical terms that a surety in the case of hypothecation is not entitled to invoke Section 141 of the Contract Act for his benefits. It was held that if any hypothecated goods remain with the borrower, it would be wrong to say that they are in the constructive possession of the creditor Bank because, it has no effective control over them.
21. The decision of Mysore High Court in P. Janaldram Chetty(supra) vis a vis Section 141 of the Contract Act is in general terms and does not comprehend a fact situation where the security is hypothecated goods in the custody of the borrower
22. The representation dated 14.2.2007 of the petitioners does not even betray a trace of objection or dispute vis a vis the amount of Rs. 96,29,667.04 demanded by notice dated 16.12.2006 for non payment of which impugned action under the Act was notified on 26.4.2007. To the contrary, the petitioners thereby acknowledged their liabilities to liquidate the said amount in full with interest entreating the Bank to appreciate their difficulties leading to the delay in discharging their obligation in time. Along with the representation, they deposited an amount of Rs. 7,50,000/- and undertook to deposit a further amount of Rs. 10,000,00/- on or before 10.3.2007 and suggested that a mutually agreed methodology for payment of the dues be worked out.
23. Under Section 13(3A) of the Act, it is obligatory on the part of the creditor, if a representation or objection by the borrower submitted on receipt of the notice under Section 13(2) is construed to be unacceptable or untenable, to communicate the reasons therefore to the former within a week of receipt thereof (representation objection). Though the petitioners have stated on oath that thereafter they had made further deposits on 26.3.2007, 2.5.2007, 4.5.2007 and 5.5.2007, according to their capacity and are trying to liquidate the outstanding amount gradually as much as possible, but regardless thereof, the notice dated 26.4.2007 had been issued, the respondent Bank while silent about the payments after 14.2.2007 has asserted that on receipt of the representation, it had informed the petitioners over phone as well as in course of their personal visits about its inability to accede to their request made therein as they had failed to honour their commitment. This statement is true to the knowledge of the deponent who is the Chief Manager of the Gauhati Branch. Significantly, as is obvious, there is neither an order rejecting the said representation nor a written communication of the reasons in support thereof to the petitioners who admittedly are borrowers in terms of Section 2(f) of the Act. The petitioners as well, in their reply affidavit have insisted to the said effect.
24. The Apex Court in Mardia Chemicals Ltd. and Ors. (supra) while dwelling on the Act before its amendment by Act 30 of 2004 incorporating Section 13(3A) had held that the purpose of serving a notice upon the borrower under Section 13(2) is to enable him to submit a reply explaining the reason as to why the measures may or may not be taken under Section 13(4) for non compliance of the notice within 60 days. Their Lordships were of the view that the creditor must apply its mind to the objections raised in the reply. It emphasized in favour of some meaningful consideration of the objections raised rather ritual rejection thereof before proceeding to take drastic measures under Sub-section (4) of Section 13. This, their Lordships underlined was conducive to the principles of fairness on the part of the banks and financial institutions in dealing with the borrowers to apprise them of the response for not accepting their objections or points raised in reply to the notice before proceeding under Sub-section 4 of Section 13. The Apex Court ruled that suchreasons rejecting the objections of the borrower may also be communicated to him by the creditor as a requirement of the reasonableness and fairness in the dealings of institutional financing from the point of view of the economy of the country and the growth of healthy economy. It was recorded that the communication of reasons not to accept the objection of the borrower would certainly be for the purpose of his knowledge, which would be a step towards his right to know as to why his objection has not been accepted by the secured creditor who decides to resort to harse steps for taking over the management/business of the secured assets without the intervention of the Court. The Court was of the view that such a person in respect of whom steps under Section 13(4) of the Act are likely to be taken cannot be denied the right to know the reason of not accepting his objection. Their Lordships therefore held the requirement of communication of reasons for rejection of the objections of the borrower as essential as it would cater to the cause of transparency and contribute to the bujlding of healthy commercial practice. Such a duty was inherent in Section 13(2) of the Act, it ruled. The legislature in its wisdom following the above pronouncement amongst others incorporated Section 13(3A) engrafting a statutorymandate in alignment with the above verdict.
25. True, it is that, in their representation, the petitioners did not dispute the amount due and demanded, but expressed their unqualified desire of working out a mutually agreed procedure to liquidate the same in viewofattendant difficulties to do so at a time. They not only deposited an amount of Rs. 7,50,000/-, but also offered to pay Rs. 10,00,000/-within 10.03.2007 and made deposits thereafter as well. Admittedly, the petitioners representation as such has neither been disposed of by any written order by the Bank, nor the reason therefore has been forwarded to them in writing. The words 'representation or raises any objection' appearing in Section 13(3A) in the opinion of this Court are suggestive of the pleas that can be raised 'by a borrower against the notice under Section 13(2) of the Act. The words 'representation' signifies the permissibility of an offer to pay even the admitted dues on easy terms as acceptable to the Bank. Axiomatically therefore the response of a borrower to the notice under Section 13(2) ought not to be necessarily limited to an objection, denial or reservation against the demand made, but can presumably be comprehended to be a request as well, for time or relaxation of the payment schedule for discharging the outstanding liability Be it an objection to the tenability of the demand or beseechment for further time or easy terms for payment of the demanded dues, the creditor if not inclined to accede to the request is statutorily obliged to record reasons therefore and communicate the same to the borrower within a week of the receipt of the representation or objection as the case may be. The provision being impelled by the wholesome objective of providing an opportunity to the borrower to record his stand against the demand or make a representation in connection therewith, on the threshold of an action under Section 13(4) and to be apprised of the decision of the creditor, the duty cast on the latter has to be strictly construed so much so that any digression therefrom by the borrower would be at the pain of invalidation of the steps subsequent thereto to enforce the demand by adopting one or more of the measures under Section 13(4) of the Act.
26. The respondent Bank in the present case has thus failed to act in accordance with the letter and spirit of Section 13(3A) of the Act as has been propounded by the Apex Court in Mardia Chemicals Ltd. and Ors. (supra). In that view of the matter, the notice dated 26.4.2007 warrants interference and is thus set aside.
27. The respondent Bank would take an appropriate decision on the petitioners represantation dated 14.2.2007 and communicate the same to the petitioners within a week from the date of receipt of the certified copy of this order. Needless to say that depending on the decision so taken, it would be open for the parties to take necessary steps thereafter in terms of the Act. In the face of this conclusion, it is considered inessential at this stage to deal with the competing assertions bearing on the norms and the status of the borrower's account on the basis thereof.
28. In the result, the petition is partly allowed. No costs.