Kambala Venkanna Naidu Vs. the Andhra Bank, Rep.by Its Authorised O - Court Judgment

HON'BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE G.KRISHNA MOHAN REDDY WRIT PETITION NO.27821 OF 201.24.01.2012 Kambala Venkanna Naidu The Andhra Bank, Rep.by its Authorised Officer & The Chief Manager, Palkole Branch, Palakole, West Godavari District and another Counsel for Petitioner: Sri P.S.P.Suresh Kumar Counsel for Respondents: Sri V.Raghu Cases referred 1.

AIR 198.SC 105.ORDER: (Per the Hon'ble Sri Justice V.V.S.Rao) A short question of considerable significance in the enforcement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereafter, the SARFAESI Act or the Act), would arise for consideration in this Writ Petition filed by a borrower of Andhra Bank, Royapet Branch, Narsapur, West Godavari District.

The question is whether the Branch Chief Manager (BCM) of Andhra Bank, Palakol Branch, is competent to issue a demand notice under Section 13 (2) of the said Act when the loan was sanctioned by the Royapet Branch.

The brief undisputed fact of the matter is as follows.

M/s.Kambala Subba Lakshmi and two others availed agricultural loan in July 2006 from Royapet Branch.

The petitioner herein as co-obligant, executed a guarantee agreement and mortgaged his immovable property to secure the loan.

The Royapet Branch filed O.S.No.158 of 2009 on the file of the Court of Senior Civil Judge, Narsapur, against the principal borrowers as well as the guarantors, which is still pending.

Nonetheless, BCM, Palakol, on behalf of Royapet Branch, issued a demand notice under Section 13 (2) of the SARFAESI Act.

In this Writ Petition, the only contention raised is that the loan having been sanctioned by Royapet Branch, the BCM, Palakol, is not an authorised officer to initiate action and issue demand notice under Section 13 (2) of the Act impugned in the Writ Petition.

At the stage of admission itself, the second respondent filed a brief counter and also necessary supporting documents.

For ready reference, we excerpt below paragraphs 4 and 5 from the counter affidavit of the second respondent.

In reply to para 4 of the affidavit it is submitted that allegation that the respondent No.1 is not at all having jurisdiction to proceed in the matter is absolutely incorrect and the petitioner is put to strict proof of the same.

All the Chief Managers working at Branches/Controlling offices are empowered to Act as "Authorized Officers" and can exercise the powers given under the SARFAESI Act, 2002.

The 2nd respondent branch is headed by Branch Manager who is not a Chief Manager.

Hence, the 1st respondent is authorized to issue notice under Section 13 (2) of SARFAESI Act, 2002.

It is further humbly submitted that through letter dated 03.11.2011 all the Branch Managers are informed regarding the Authorized Officers of the respective Branches.

As per the said letter Asst.

General Manager (Cr) is the Authorized Officer for the 2nd respondent.

The possession notice dated 28.11.2011 was also issued to the petitioner and the same was duly acknowledged by the petitioner.

The petitioner filed the writ petition suppressing the above mentioned material facts.

Hence the writ petition is liable to be dismissed with costs.

The term "secured creditor" is defined in Section 2 (zd) as to mean any bank or financial institution or any consortium or group of banks or financial institutions and also includes certain other categories dealing in financial transactions.

The term "borrower" is defined in Section 2 (f) as a person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution.

The "secured debt" is a debt which is secured by any security interest (Section 2 (ze)) and as per Section 2 (zf), "secured interest" means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment etc.

If there is a default in payment of secured debt or any instalment thereof, the secured creditor can enforce the secured interest notwithstanding anything contained in Section 69 or Section 69A of the Transfer of Property Act, 1882.

The procedure for enforcement of security interest is provided for by Sections 13 to 19 in Chapter-III of the SARFAESI Act.

Most of the steps in enforcing the security interest are to be carried on and taken by an authorised officer.

When a bank or a financial institution with large number of operating branches spread all over India or elsewhere provide loans/credit facilities to the borrowers, how and by whom the security is enforced? This is the core issue in this case.

The contentious issue can be appreciated by referring to Sub Sections (1), (2), (4) and (12) of Section 13 of the Act as well as Rule 2 (a) of the Security Interest (Enforcement) Rules, 2002 (hereafter, the Rules).

As per Rule 2 (a) of the Rules an "Authorised Officer" means an officer not less than a Chief Manager of a public sector bank or equivalent, as specified by the Board of Directors or Board of Trustees of the secured creditor or any other person or authority exercising powers of superintendence, direction and control of the business or affairs of the secured creditor empowered to exercise the rights of the secured creditor under the SARFAESI Act.

As per Section 13 (12), the rights of a secured creditor under the Act may be exercised by one or more of his officers authorised in that behalf, can exercise all the rights of secured creditor i.e., enforcement of security interest under Sections 13 to 19 of the Act and the relevant Rules.

Having regard to the language of Section 12 read with Rule 2 (a), "one or more of officers authorised" are competent to exercise the powers of enforcing the security interest.

In a given case, any one local area or in the same branch, there may be more than one authorised officers in which event, there cannot be any bar for any of them exercising the powers of the authorised officer under the Act.

Similarly, in a local area, if in one branch if there is no officer of the bank so authorised under Rule 2 (a), any other officer in the bank authorised thereunder can exercise powers of enforcing the security interest even though such authorised officer is not a Branch Manager or any other manager in the branch which advanced loan/credit facilities to the borrowers.

In other cases, however, it must be shown that there is authorisation as contemplated under Rule 2 (a) of the Rules.

The SARFAESI Act was preceeded by Central Ordinance No.3 of 2002 of similar title.

Immediately after it was promulgated, the Head Office of Andhra Bank issued Circular in Cir.Lr.No.666/125 Ref.No.11/01 dated 25.11.2002 communicating guidelines for enforcement of securities under SARFAESI Ordinance.

In the preamble portion of the said Circular, Head Office of Andhra Bank directed that "The Chief Managers and Assistant General Managers working at Branches/Controlling Offices are empowered to act as "Authorized Officers" and can exercise the powers given under the said ordinance".

Subsequently, by another letter in Lr.No.674/11/541 dated 29.07.2008, the Zonal Office, Andhra Bank, Eluru, clarified the position as follows.

Sub: Authorised Officer under SARFAESI Act 2002.

In view of the Head Office Legal Dept.Circular Letter No.666/125 Ref.No.11/01 dated 25.11.2002, the Chief Managers working at Branches/Controlling Offices are empowered to act as "Authorised Officer" and can exercise the powers given under the said Ordinance".

Accordingly Zonal Manager vide order dated 12.07.2008 designated all the Chief Managers of our Zone as "Authorized Officer" under SARFAESI Act-02.

In view of HO Legal Dept Letter No.71/11/170 dated 23.05.2008, we advise all the Chief Managers to ensure that the actions have been taken as per the check-list, enclosed herewith, while enforcing the security under the SARFAESI Act 02 for recovery of our dues.

The latest letter of the Zonal Office in Lr.No.674/11/LG-3/319 dated 03.11.2011 has also been annexed to the counter affidavit.

To the extent relevant, it reads as follows.

To The Branch Manager, All Branches in the Zone.

Reg: Delegation of power to act as Authorised Officer under SARFAESI Act 2002 on behalf of Branches for proceedings under SARFAESI Act 02.

Ref: Head Office Circular Letter No.666/009-Ref.No.44/03-dt.18.08.2011.

The Scale IV Managers of Branches were designated as Authorised Officers on behalf of other Branches which are not headed by Scale IV Managers, for taking steps under SARFAESI Act 2002.

It is observed that Scale IV Managers are unable to devote much time for the accounts pertaining to other Branches.

For effective implementation of SARFAESI Act-2002, it is now decided To designate the Chief Managers and the Asst.General Managers in Zonal Office as Authorised Officers and to allot the following Branches (not headed by Scale IV Manager) to act as Authorised Officer under SARFAESI Act-02.

Chief Managers heading the Branches should be continued as Authorised Officers for their Branches.

In case of necessity, like vacancy/leave of designated Authorised Officer, etc the Branch can act through other Authorised Officers at Zonal Office.

CODE BRANCH NAME AUTHORISED OFFICER 4 420 PALAKOL Branch Chief Manage”

382. NARASAPUR Chief Manager - P&D 7.489 ROYAPET Asst.General Manager (Cr.) All Branch managers are advised to comply with the above instructions and to take steps under SARFAESI Act-02 in time bound manner for early recovery in the accounts.

On reading the earlier Circular issued by the Head Office of Andhra Bank and the two letters of Zonal Office, it becomes clear that when the demand notice dated 09.08.2011 under Section 13 (2) was issued by the BCM, the Branch Manager of Royapet Branch, Narsapur, was not having any power to act as authorised officer.

There was also no Assistant General Manager (Cr.) there.

Therefore, the demand notice impugned cannot be faulted.

The counsel for the petitioner however points out that as per latest letter dated 03.11.2011 of the Zonal Office, the Chief Manager (P & D) of Narsapur Branch is also authorised officer and therefore, there is no justification for the Chief Manager of Palakol to issue the impugned notice.

We cannot however, find fault with the impugned notice on this ground.

It is not the case of the petitioner even by 09.08.2011, there was a Chief Manager available at Narsapur Branch.

The presumption that all the official acts are carried on in accordance with law is attracted in a situation like this, which remains intact in this case.

Therefore, we are not able to countenance the submission of the counsel for the petitioner.

It is now well settled that a curable defect in the administrative decision or administrative action is not a ground to interfere in exercise of power of judicial review.

A reference may be made to decision of the Supreme Court in B.K.Srinivasan v.

State of Karnataka1, wherein it was held as under.

"We are inclined to agree with the High Court that a defective publication which has otherwise served its purpose is not sufficient to render illegal what is published and that such defect is cured by S.76-J.

The High Court relied on the two decisions of this Court, Bangalore Wollen, Cotton & Silk Mills Co.

Ltd., Bangalore v.

Corpn.

Of the City of Bangalore, (1961) 3 SCR 70.: (AIR 196.SC 562.and Municipal Board, Sitapur v.

Prayag Narain Saigal, (1969) 3 SCR 38.: (AIR 197.SC 58).

In the first case objection was raised to the imposition of octroi duty on the ground that there was failure to notify the final resolution of the imposition of the tax in the Government Gazette as required by S.

98(2) of the City of Bangalore Municipal Corporation Act.

A Constitution Bench of the Court held that the failure to publish the final resolution in the Official Gazette was cured by S.

38 (1)(b) of the Act which provided that no act done or proceeding taken under the Act shall be questioned merely on the ground of any defect or irregularity in such act or proceeding, not affecting the merits of the case.

The Court said that the resolution had been published in the newspapers and was communicated to those affected and failure to publish the resolution did not affect the merits of its imposition and failure to notify the resolution in the Gazette was not fatal to the legality of the imposition.

In the second case it was held that the non-publication of a special resolution imposing a tax was a mere irregularity, since the inhabitants had no right to object to special resolutions and had otherwise clear notice of the imposition of the tax.

It is true that both these cases relate to non-publication of a resolution regarding imposition of a tax where the imposition of a tax was otherwise well known to the public." We, therefore, hold that impugned notice issued by the Branch Chief Manager, Palakol Branch, is valid.

It is brought to our notice subsequently that the Assistant General Manager, Royapet Branch, who has been authorised as per the letter dated 03.11.2011 issued by the Zonal Office, issued the possession notice in exercise of powers under Section 13 (4) of the SARFAESI Act, on 28.11.2011.

This, in our opinion, is also valid.

In the result, for the above reasons, the Writ Petition fails and is, accordingly, dismissed without any order as to costs.

_______________ (V.V.S.RAO, J) _________________________________ (G.KRISHNA MOHAN REDDY, J) 24th January 2012