Full Judgment
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT THE HONOURABLE MR.JUSTICE MURALI PURUSHOTHAMAN THURSDAY, THE 4TH DAY OF APRIL 2024 / 15TH CHAITHRA, 1946 PETITIONER: AMAL MATHEW AGED 40 YEARS PROPRIETORM/S. ANNZ TVSBYEPASS ROADMUTTATHARATHIRUVANANTHAPURAM BY ADV SMT.LIZA P.CHERIAN RESPONDENTS: 1 THE MANAGER PHOENIX ARC PRIVATE LIMITEDCIN: U67190MH 2007 PTC1683035TH FLOOR, DANI CORPORATE PARK, 158CST ROADKALINA, SANTACRUZ (E), MUMBAI. 2 THE SOUTH INDIAN BANK TVM MAIN BRANCH,SPENCER JUNCTIONTRIVANDRUMREPRESENTED BY ITS MANAGER. BY ADVS. SRI.ASISH K.JOHN SRI.K.K.JOHN SRI. K.K. JOHN ,STANDING COUNSEL. THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 04.04.2024, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: : 2 :
JUDGMENT
The petitioner has filed this writ petition challenging Ext.P2 notice of assignment of financial assets, which was issued under Section 6 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
2. The petitioner had availed a housing loan
from the 2nd respondent Bank by mortgaging his properties. Alleging default in repayment of the loan amount, the 2nd respondent Bank initiated proceedings under the SARFAESI Act and issued Ext.P1 notice in exercise of powers under Section 13(4) and symbolic possession of the secured assets was taken on : 3 : 18.01.2017.
3. While so, the petitioner was issued with
Ext.P2 notice dated 23.03.2017 by the 2nd respondent Bank stating that pursuant to Assignment Agreement dated 17.03.2017, the Bank has assigned to the 1 st respondent, an asset reconstruction company, the financial assistance granted by the Bank to him, together with all underlying securities, rights, title and interest in respect thereof, in terms of Section 5 of the SARFAESI Act. The petitioner states that before assignment of the financial assets to the 1 st respondent, the 2nd respondent did not issue notice to the petitioner. It is also stated that the details of the outstanding amount or the secured assets are not mentioned in Ext.P2 notice. It is further stated that : 4 : the copy of the assignment deed is not furnished to the petitioner. The petitioner, therefore, prays to quash Ext.P2 and for a direction to the respondents not to initiate coercive measures against his properties without giving an opportunity of being heard.
4. A counter affidavit has been filed on behalf of
the 1st respondent wherein it is stated that Ext.P2 is only an intimation issued under Section 6 of the SARFAESI Act, informing about the assignment of the financial assets of the Bank in favour of the 1 st respondent. It is stated that the SARFAESI Act does not envisage the consent of the borrower or notice before assigning the rights to the asset reconstruction company and that the Act also does not provide for serving a copy of the assignment deed to the : 5 : borrower.
5. The 1st respondent asset reconstruction
company has acquired the financial assets of the 2 nd respondent bank granted to the petitioner, in terms of Section 5(1) (b) of the SARFAESI Act. Section 5 of the SARFAESI Act reads as follows; “Acquisition of rights or interest in financial assets
(1) Notwithstanding anything contained
in any agreement or any other law for the time being in force, any 3[asset reconstruction company] may acquire financial assets of any bank or financial institution, --
(a) by issuing a debenture or bond or any other security in the nature of debenture, for consideration agreed upon between such company and the bank or financial institution, : 6 : incorporating therein such terms and conditions as may be agreed upon between them; or
(b) by entering into an agreement with such bank or financial institution for the transfer of such financial assets to such company on such terms and conditions as may be agreed upon between them.
[(1A) Any document executed by any bank or financial institution under sub- section (1) in favour of the asset reconstruction company acquiring financial assets for the purposes of asset reconstruction or securitisation shall be exempted from stamp duty in accordance with the provisions of section 8F of the Indian Stamp Act, 1899:
Provided that the provisions of this sub- section shall not apply where the acquisition of the financial assets by the asset reconstruction company is for the : 7 : purposes other than asset reconstruction or securitisation.]
(2) If the bank or financial institution is
a lender in relation to any financial assets acquired under sub-section (1) by the [asset reconstruction company], such [asset reconstruction company] shall, on such acquisition, be deemed to be the lender and all the rights of such bank or financial institution shall vest in such company in relation to such financial assets.
[(2A) If the bank or financial institution is holding any right, title or interest upon any tangible asset or intangible asset to secure payment of any unpaid portion of the purchase price of such asset or an obligation incurred or credit otherwise provided to enable the borrower to acquire the tangible asset or assignment or licence of intangible asset, such right, title or interest shall vest in
: 8 : the asset reconstruction company on acquisition of such assets under sub- section (1).] (3)Unless otherwise expressly provided by this Act, all contracts, deeds, bonds, agreements, powers-of-attorney, grants of legal
(3) representation,permissions, approvals,
consents or no-objections under any law or otherwise and other instruments of whatever nature which relate to the said financial asset and which are subsisting or having effect immediately before the acquisition of financial asset under sub- section (1) and to which the concerned bank or financial institution is a party or which are in favour of such bank or financial institution shall, after the acquisition of the financial assets, be of as full force and effect against or in favour of the 3[asset reconstruction company] , as the case may be, and
: 9 : may be enforced or acted upon as fully and effectually as if, in the place of the said bank or financial institution, 3[asset reconstruction company], as the case may be, had been a party thereto or as if they had been issued in favour of 3[asset reconstruction company], as the case may be.
(4)If, on the date of acquisition of financial asset under sub-section (1), any suit, appeal or other proceeding of whatever nature relating to the said financial asset is pending by or against the bank or financial institution, save as provided in the third proviso to sub- section (1) of section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), the same shall not abate, or be discontinued or be, in any way,prejudicially affected by reason of the acquisition of financial asset by the [asset reconstruction company], as the case may be, but the suit, appeal or
: 10 : other proceeding may be continued, prosecuted and enforced by or against the [asset reconstruction company], as the case may be.
(5) On acquisition of financial assets
under sub-section (1), the [asset reconstruction company], may with the consent of the originator, file an application before the Debts Recovery Tribunal or the Appellate Tribunal or any Court or other Authority for the purpose of substitution of its name in any pending suit, appeal or other proceedings and on receipt of such application, such Debts Recovery Tribunal or the Appellate Tribunal or Court or Authority shall pass orders for the substitution of the [asset reconstruction company] in such pending suit, appeal or other proceedings.]”
: 11 :
6. Section 6 of the SARFAESI Act reads as follows; “Notice to obligor and discharge of obligation of such obligor
(1) The bank or financial institution
may, if it considers appropriate, give a notice of acquisition of financial assets by any [asset reconstruction company], to the concerned obligor and any other concerned person and to the concerned registering authority (including Registrar of Companies) in whose jurisdiction the mortgage, charge, hypothecation, assignment or other interest created on the financial assets had been registered.
(2)Where a notice of acquisition of financial asset under sub-section (1) is given by a bank or financial institution, the obligor, on receipt of such notice, shall make payment to the concerned [asset reconstruction company], as the : 12 : case may be, and payment made to such company in discharge of any of the obligations in relation to the financial asset specified in the notice shall be a full discharge to the obligor making the payment from all liability in respect of such payment.
(3)Where no notice of acquisition of financial asset under sub-section (1) is given by any bank or financial institution, any money or other properties subsequently received by the bank or financial institution, shall constitute monies or properties held in trust for the benefit of and on behalf of the 1[asset reconstruction company], as the case may be, and such bank or financial institution shall hold such payment or property which shall forthwith be made over or delivered to such [asset reconstruction company], as the case may be, or its agent duly authorised in this behalf.”
: 13 :
7. Section 5 of the SARFAESI Act provides that
an asset reconstruction company may acquire financial assets of any bank or financial institution by entering into an agreement with such bank or financial institution for the transfer of such financial assets to such company on such terms and conditions as may be agreed between them. Under sub section (2) of section 5 of the SARFAESI Act, the asset reconstruction company shall be deemed to be the lender and all rights of the bank shall vest in them. Section 6 of the SARFAESI Act provides that the bank or financial institution may, if it considers appropriate, give a notice of acquisition of financial assets by any asset reconstruction company, to the : 14 : concerned obligor and the obligor, on receipt of such notice, shall make payment to the concerned asset reconstruction company, and payment made to such company in discharge of any of the obligations in relation to the financial asset specified in the notice shall be a full discharge to the obligor, and where no such notice is given by any bank or financial institution, any money or other properties subsequently received by the bank or financial
institution, shall constitute monies or properties held
in trust for the benefit of and on behalf of the asset reconstruction company, and such bank or financial institution shall hold such payment or property which shall forthwith be made over or delivered to such asset reconstruction company. The purpose of notice : 15 : under Section 6(1) being as above, no prejudice is caused by not serving the notice on the obligor, as the Section takes care of the situation where no notice is served on the obligor. The petitioner has, however, been issued with Ext. P2 notice under Section 6 (1) by the 2nd respondent bank. The SARFAESI Act does not contemplate a notice to the borrower before the assignment of the financial assets in favour of the asset reconstruction company. By virtue of Section 5(2), the 1st respondent shall be deemed to be the lender and all the rights of the bank shall vest in the 1st respondent as per deed of assignment. The rights of the borrower are not affected by any such assignment of debt. Therefore, the contention of the petitioner that he is entitled to notice before : 16 : assignment of financial assets to the asset reconstruction company is not sustainable. Accordingly, the writ petition is dismissed. However, the dismissal of the writ petition will not stand in the way of the petitioner in seeking any other remedy, as may be available in law, as against any proceedings under the SARFAESI Act, 2002. Sd/- MURALI PURUSHOTHAMAN JUDGE SRJ : 17 : APPENDIX OF WP(C) 12757/2017 PETITIONER EXHIBITS EXHIBIT P1 TRUE COPY OF THE POSSESSION NOTICE 18.1.2017. EXHIBIT P2 THE TRUE COPY OF THE ASSIGNMENT NOTICE DATED 20.3.2017.