| SooperKanoon Citation | sooperkanoon.com/950033 |
| Court | Andhra Pradesh High Court |
| Decided On | Apr-13-2012 |
| Case Number | Writ Petition Nos. 20579 of 2010 & 14487 of 2011 |
| Judge | V.V.S. RAO & G.KRISHNA MOHAN REDDY |
| Appellant | Rohini Footwears and Another |
| Respondent | The Vijaya Bank, West Marredpally Branch, Hyderabad, Rep. by Authorised Officer |
Excerpt:
constitution of india - article 226 - securitization and reconstruction of financial assets and enforcement of security interest act, 2002 (sarfaesi) - section 13(4) – transfer of property act - section 69 - security interest (enforcement) rules, 2002 - rule 8 - writ of mandamus – issue whether to take possession of the secured asset of the borrower in terms of section 13(4) of the act comprehends power to take actual possession of the schedule property - petitioners 1 and 2 availed loan facility separately for business from the respondent bank - smt.sulochana stood as guarantor for both the loans and petitioners mortgaged their residential houses as securities to repay the loan amounts on the ground that the loan facilities became non performing assets (npa) - demand notice issued under section 13(2) of the sarfaesi act - apart from that the respondent bank obtained order from metropolitan magistrate under section 4 of the act to take possession of the property - petitioners claim that they could not pay the loans payable by them and therefore approached the legal heirs of guarantor and informed them about their difficulty - legal heirs agreed to handover schedule property to the respondent bank for the purpose of selling the property to clear the loan amounts - legal heirs wrote a letter to the respondent bank with a request to take necessary action under section 13(3a), which has not been considered - no notice was issued to them under section 13(2) or section 13(4) of the act, but bank obtained order under section 14 of the act and steps to take possession of their properties – as aggrieved petitioners filed writ petition on the ground that respondent bank took steps to dispossess petitioners from the secured asset under section 14 of the act – petitioners question the issuance of notice under section 13(2) of the act -(prayer: petition under article 226 of the constitution of inida praying that in the circumstances stated in the affidavit filed herein the high court will be pleased to issue writ, order or direction especially one in the nature of writ of mandamus declaring the action of the respondent bank in invoking the provisions of section 14 of the securitisation and reconstruction of financial assets and enforcement of security interest act, 2002 (sarfaesi act) straight away without passing any orders under section 13(4) of the act and tying to take the physical possession of the petitioner’s property bearing house no. 8-41/3, ganeshpuri colony, kothapet, l.b. ngar municipality, uppal mandal, r.r. district, as illegal, arbitrary, violative of principles of natural justice, contrary to the provisions of the sarfaesi act and one without jurisdiction. petition under article 226 of the constitution of inida praying that in the circumstances stated in the affidavit filed herein the high court will be pleased to issue writ, order or direction, more particularly, in the nature of writ of mandamus declaring the action of the 1st respondent, authorized officer in not considering and passing any orders against the objections of the petitioners in terms of section 13(3a) of sarfaesi act 2002 (as amended from time to time) in respect of the demand notice dated 09.12.2010 issued under section 13(2) of under section 13(4) of the sarfaesi act, proceeding straight away under section 14 of the sarfaesi act through criminal m.p. no. 1525 of 2011 of the chief metropolitan magistrate, hyderabad, vide its order dated 20.4.2011 and to take over possession through learned advocate commissioner vide her notice dated 18.05.2011 to dispossess the petitioners from the residential flat, as being illegal, arbitrary and violative of article 14 of the constitution of india and contrary to sarfaesi act. consequently, direct the respondents not to dispossess the petitioners from residential flat no. 202, in 2nd floor, plot nos. 48 and 49 with a plinth area of 978 sq. feet (including common area) with an undivided share of land admeasuring 27 sq. yds or equivalent to 22.57 sq.mts. out of 968 sq.yds. forming part of survey nos. 209, 217 and 218 situated at sai kiran residency ward no. 17, block no.1, vinaya nagar colony of saidabad, hyderabad, without following due process of law.)common order: g. krishna mohan reddy writ petition no.20579 of 2010 is filed to declare the action of the respondents in proceeding to take possession of the secured assets of the petitioners having obtained orders from the chief metropolitan magistrate, hyderabad under section 14 of the securitisation and reconstruction of financial assets and enforcement of security interest act, 2002, (for short ‘the act’) without considering the representation of the petitioner therein and without issuing any notice to them under section 13(2) or section13(4) of the act respectively as illegal and arbitrary and also direct the respondents not to dispossess the petitioners from the secured assets respectively. writ petition no.14487 of 2011 is filed to declare the action of the respondents to take possession of the secured assets of the petitioners having obtained orders from the chief metropolitan magistrate, hyderabad under section 14 of the act, without considering the representation of the petitioner therein, pursuant to the issuance of notice under section 13(2) of the act and without issuing any notice to them under section 13(4) of the act respectively, as illegal and arbitrary and direct the respondents not to dispossess the petitioners from the secured assets respectively. the background facts which lead to the filing of the writ petitions are as follows: the 1st petitioner in w.p.no.20579 of 2010, for business, availed loan facility of rs.20,00,000/- vide trade account no.4008 0611 1000 029 from the respondent bank. the respondent bank also extended similar loan facility to the 2nd petitioner for its business. one smt.sulochana stood as guarantor for both the loans. all of them mortgaged their residential houses as securities to repay the loan amounts. on the ground that the loan facilities became non performing assets (npa), demand notice dated 7.1.2010 was issued under section 13(2) of the act. apart from that the respondent bank obtained order dated 15.7.2010 from the chief metropolitan magistrate, hyderabad under section 4 of the act to take possession of the property. the petitioners claim that they could not pay the loans payable by them and therefore they approached the legal heirs of smt.sulochana and informed them about their difficulty, for which her legal heirs agreed to handover their property to the respondent bank for the purpose of selling the property to clear the loan amounts. accordingly her legal heirs wrote a letter to the respondent bank with a request to take necessary action under section 13(3a), which has not been considered. it is also their claim at the outset that no notice was issued to them under section 13(2) or section 13(4) of the act, but surprisingly the respondent bank obtained order dated 15.7.2010 under section 14 of the act and has been taking steps to take possession of their properties. hence, in this writ petition the petitioners assail the impugned order passed under section 14 of the act on the ground that the order was passed without taking any steps under section 13(4) of the act and also assail the consequential steps being taken to dispossess them from the properties. ultimately, however, no dispute is raised about the issuance of section 13(2) notice by reason which this factor need not be deliberated. the petitioners in w.p.no.14487 of 2011, in order to purchase a residential flat, obtained housing loan from hdfc bank at basheerbagh for rs.6,00,000/- which was scheduled to be paid in 180 equal monthly installments at the rate of rs.7,539/- each per month and created secured asset of the same property for the repayment of the loan. however, on persuasion and assurance of the respondent bank, the petitioners approached and were sanctioned a loan of rs.9,00,000/- payable together with interest in monthly equal instalments @ rs.9,945/- per month by the respondent bank. an amount of rs.6,06,453/- was disbursed to the petitioner by the respondent bank consequently. thereby the account of hdfc bank was foreclosed. the respondent bank on the ground that the account became npa issued notice under section 13(2) of the act dated 16.2.2006 demanding the petitioners to pay rs.8,18,162/- within a period of sixty days. however, the respondent bank issued another notice under section 13(2) of the act dated 9.12.2010 itself to the petitioners claiming rs.20,76,862/-. the said amounts were claimed against the total sanctioned amount of rs.9,00,000/- even though only rs.6,06,453/- was disbursed out of it. thereafter, the petitioners made representation to the respondent bank under section 13(3a) of the act, which was not considered. however, consequently steps were taken by the respondent bank to take possession of the property invoking section 14 of the act vide order of the chief metropolitan magistrate, nampally, hyderabad dated 20.4.2011. further, advocate commissioner was appointed to dispossess the petitioners from the residential flat, following which the advocate commissioner went and issued notice dated 18.5.2011 to comply with the order, thereby the writ petition has been filed. the petitioners herein mainly contend that without issuing notice under section 13(4) of the act, the respondent bank is taking steps to dispossess them from the secured asset having obtained order dated 20.4.2011 under section 14 of the act. the petitioners question the issuance of notice dated 16.3.2006 and 9.12.2010 under section 13(2) of the act for the entire sanctioned amount of rs.9,00,000/- and also excess amount claimed in the second notice. thereby this writ petition is filed assailing the order passed under section 14 of the act and also the steps being taken to dispossess them from the secured asset with a request to direct the respondents not to dispossess them from the secured asset. here section 13 around which the main controversy resolves is relevant here. section 13(1) provides that a secured creditor may enforce any security interest without the intervention of the court or tribunal irrespective of section 69 or section 69a of the transfer of property act. so, the very object of the provision is recovery of secured interest by non adjudicatory process. section 13(2) contemplates “where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of the secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as npa, 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).” by reading section 13(2), it is clear that if a borrower who is under a liability to a secured creditor makes any default in repaying a secured debt and his account in respect of such debt is classified as npa, then the secured creditor may require the borrower giving demand notice in writing to discharge his liability within 60 days from the date of notice, failing which the secured creditor must be entitled to exercise all or any of the rights given in section 13(4). section 13(2) is thereby applicable when the borrower is already under a liability to pay the secured debt and further his account is classified as substandard or doubtful. when there is non payment of the secured debt only the question of issuing demand notice under section 13(2) arises. in other words, section 13(2) is a condition precedent to invoke section 13(4) by the secured creditor. hence, the question of application of section 13(4) arises when section 13(2) is not complied. by virtue of sub-section (3) of section 13, a notice given to the borrower must contain the details of the amounts payable and the secured assets against which the secured creditor proposes to proceed in the event of non-compliance with the notice given under sub-section (2) of section 13. under section 13(3a), the borrower is permitted to make representation or file objection to the secured creditor against the classification of his account as npa pursuant to the issuance of notice under section 13(2) of the act and if the secured creditor rejects such representation or objection being not acceptable he shall communicate to the borrower within one week the reasons thereof. sub-section (4) of section 13 of the act provides for taking four measures which can be taken by the secured creditor in the case of non-compliance with the notice served upon the borrower. under clause (a) of sub-section (4) the secured creditor may take possession of the secured assets including the right to transfer the secured assets by way of lease, assignment or sale; may take over the management of the secured assets under clause (b) including right to transfer; under clause (c) of sub-section (4) a manager may be appointed to manage the secured assets which have been taken possession of by the secured creditor and may require any person who has acquired any secured assets from the borrower or from whom any money is due to the borrower to pay the same to him as it may be sufficient to pay the secured debtor as provided under clause (d) of section 3(4) of the act. a reading of the ambit of section 13(2) read with section 13(4) makes it categorical that the notice under section 13(2) is not a mere show cause notice and it constitutes an action taken to recover the npa. sub-section (5) of section 13 provides that any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower. sub-section (6) provides that any transfer of secured asset after taking possession thereof or take over of the management under sub-section (4) by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset. sub-section (8) of section 13 however, provides that if all the dues of the secured creditor ncluding all costs, charges and expenses etc. as may be incurred are tendered to the secured creditor before sale or transfer no further steps be taken in that direction.sub-section (9) deals with exercise of rights with regards to a financial asset financed by more than one secured creditor or joint financing of a financial asset by secured creditor. sub-section (10) deals with recovery of that part of the secured debt not satisfied by selling the secured asset. sub-section (11) deals with proceeding against the guarantors of the secured debt. sub-section (12) deals with the exercise of rights of the secured creditor by his officer or officers. by virtue of sub-section (13), after receiving 13(2) notice the borrower shall not transfer by way of sale, lease or otherwise the secured asset or assets noted in that notice. section 5 of the act is with regards to acquisition of rights or interest in financial assets (which includes right or interest over the secured asset). by virtue of sub-section (2) thereunder, if the bank or financial institution is a lender in relation to any financial assets acquired under sub-section (1) by the securitization company or the reconstruction company, such securitization company or 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. therefore owing to the creation of secured assets in favour of the respondent bank, all the rights of the borrowers stood vested with the bank in relation to those financial assets.in terms of section 14, the secured creditor can file an application before the chief metropolitan magistrate or the district magistrate (for short ‘cmm/dm’) within whose jurisdiction the secured asset or other documents relating thereto are found for taking possession thereof. if any such request is made, the chief metropolitan magistrate or the district magistrate, as the case may be, is obliged to take possession of such asset or document and forward the same to the secured creditor. section 17 speaks of the remedies available to any person including borrower who may have grievance against the action taken by the secured creditor under sub-section (4) of section 13. such an aggrieved person can make an application to the tribunal within 45 days from the date on which action is taken under that sub-section. an explanation has been added to section 17(1) and it has been clarified that the communication of reasons to the borrower in terms of section 13(3a) shall not constitute a ground for filing application under section 17(1). sub-section (2) of section 17 casts a duty on the tribunal to consider whether the measures taken by the secured creditor for the enforcement of security interest are in accordance with the provisions of the act and the rules made thereunder. if the tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that the measures taken by the secured creditor are not in consonance with sub-section (4) of section 13, then it can direct the secured creditor to restore the management of the business or possession of the secured assets to the borrower. on the other hand, if the tribunal finds that the recourse taken by the secured creditor under sub-section (4) of section 13 is in accordance with the provisions of the act and the rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor can take recourse to one or more of the measures specified in section 13(4) for the recovery of the secured debt. sub-section (5) of section 7 prescribes the time-limit of sixty days within which an application made under section 17 is required to be disposed of. the proviso to this sub-section envisages extension of time, but the outer limit for the adjudication of an application is four months. if the tribunal fails to decide the application within a maximum period of four months, then either party can move the appellate tribunal for issue of a direction to the tribunal to dispose of the application expeditiously. section 18 provides for an appeal to the appellate tribunal. section 34 lays down that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a tribunal or appellate tribunal is empowered to determine. it further lays down that no injunction shall be granted by any court or other authority in respect of any action taken or to be taken under the sarfaesi act or the drt act. section 35 of the sarfaesi act is substantially similar to section 34(1) of the drt act. it declares that the provisions of this act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. rule 8 of the security interest (enforcement) rules, 2002 (for short ‘the rules’) is also relevant here. this rule refers to taking possession and sale of immovable secured asset. rule 8(1) envisages that where the secured asset is an immovable property, the authorized officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in appendix iv to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. rule 8(2) envisages that the possession notice as referred to in sub-rule (1) shall also be published, as soon as possible but in any case not later than seven days from the date of taking possession, in two leading newspapers one in vernacular language having sufficient circulation in the locality, by the authorized officer. rule 8(3) and (4) relate to keeping custody of the secured assets and preserve and protect them after taking possession of those secured assets respectively. rule 8(5) is about securing valuation of the secured asset from an approved valuer and fixation of its price for the purpose of selling it to realize the amount due. rule 8(6) is with regards to serving 30 days notice on the borrower for the sale of the immovable secured asset under rule 8(5). learned counsel in both the writ petitions would contend that when the petitioners made representations under section 13(3a) of the act, the respondent bank was under an obligation to consider them and communicate the consequential actions taken but that was not done. he also contends that before taking recourse under section 14 of the act, the respondent bank should have issued possession notice under section 13(4) read with rule 8(1) and (2) of the rules. he further contends that without initiating any proceedings under section 13(4), the petitioners got no alternative remedy except to invoke the extraordinary jurisdiction of this court under article 226 of the constitution of india.in response to the claims or contentions of the petitioners, the respondents counsel would contend as follows: section 13(2) of the act alone provides for the issuance of notice calling upon the borrower to pay the amount due or to make necessary representations or file objections under section 3a of the act which shall be considered by the secured creditor. the proceedings issued under section 14 of the act only render assistance to the secured creditor in taking possession of the secured assets under section 13(4) and hence the plea that no proceedings were initiated under section 13(4) is not correct. neither section 13(4) nor the corresponding procedure prescribed under section 14 of the act or rule 8 mandates or directs issuance of such notice while proceeding to take possession of the secured asset. apart from that, failure on the part of the borrower to comply with 13(2) gives right to the secured creditor to proceed under section 13(4). he also contends that the petitioners have alternative remedy under section 17(1) of the act which debars the filing of the writ petitions. he also claims that the writ petitions do not lie in the circumstances of the case. therefore the following points are to be considered for the disposal of the writ petitions. 1. whether the actions of the respondent bank in trying to take possession of the secured assets are invalid on the ground that necessary proceedings were not initiated under section 13(4) and also on the ground that the representation or objections made under section 13(3a) of the act have not been considered; 2. whether the writ petitions are maintainable in view of the alternative remedy provided under section 17(1) of the act. if the second point is answered in the affirmative, the question of going into the merits of the cases does not arise at all.it is quite emphatical that only section 13(2) envisages in specific terms issuance of a notice to the borrower in writing to discharge in full his liability to the secured creditor within sixty (60) days from the date of receiving the notice giving all relevant details in consequence of declaring the debt as npa, failing which the secured creditor would get a right to invoke the provisions contemplated under section 13(4) of the act. however, under sub-section (3a) a right is given to the borrower to make necessary representation or file necessary objections on receiving section 13(2) notice by which the secured creditor is mandated to consider the representation or objections and communicate to the borrower the consequential decision taken within one week of receiving the representation or objections. this discretion should be exercised by the secured creditor judiciously. thereby any approach of the secured creditor which is not judicious in arriving at the consequential decision on the representation made or objections filed by the borrower is always questionable but at appropriate stage. in mardia chemicals v. union of india (2004) 4 scc 311 the supreme court elaborately considered the ambit of section 13(2) and (3a) of the act and held; “45. in the background we have indicated above, we may consider as to what forums or remedies are available to the borrower to ventilate his grievance. the purpose of serving a notice upon the borrower under sub-section (2) of section 13 of the act is, that a reply may be submitted by the borrower explaining the reasons as to why measures may or may not be taken under sub-section (4) of section 13 in case of non- compliance of notice within 60 days. the creditor must apply its mind to the objections raised in reply to such notice and an internal mechanism must be particularly evolved to consider such objections raised in the reply to the notice. there may be some meaningful consideration of the objections raised rather than to ritually reject them and proceed to take drastic measures under sub-section (4) of section 13 of the act. once such a duty is envisaged on the part of the creditor it would only be conducive to the principles of fairness on the part of the banks and financial institutions in dealing with their borrowers to apprise them of the reason for not accepting the objections or points raised in reply to the notice served upon them before proceeding to take measures under sub-section (4) of section 13. such reasons, overruling the objections of the borrower, must also be communicated to the borrower by the secured creditor. it will only be in fulfillment of a requirement of reasonableness and fairness in the dealings of institutional financing which is so important from the point of view of the economy of the country and would serve the purpose in the growth of a healthy economy. it would certainly provide guidance to the secured debtors in general in conducting the affairs in a manner that they may not be found defaulting and being made liable for the unsavoury steps contained under sub-section (4) of section 13. at the same time, more importantly we must make it clear unequivocally that communication of the reasons not accepting the objections taken by the secured borrower may not be taken to give an occasion to resort to such proceedings which are not permissible under the provisions of the act. but communication of reasons not to accept the objections of the borrower, would certainly be for the purpose of his knowledge which would be a step forward towards his right to know as to why his objections have not been accepted by the secured creditor who intends to resort to harsh steps of taking over the management/business of viz. secured assets without intervention of the court. 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 non- acceptance and of his objections.” in this background, we consider the ambit of section 13(4) and the corresponding procedure laid down thereunder. whereas section 13(2) only provides for the issuance of a notice to the borrower giving sixty (60) days time to pay the amount due and sub-section (3a) gives right to the borrower to make necessary representation or file objections, section 13(4) does not specifically provide for the issuance of any such notice to the borrower before proceeding to take possession of the secured asset. a plain reading of section 13(4) makes it categorical that no further notice like the one given under section 13(2) is contemplated thereunder before proceeding to do so. in fact, when section 13(2) enjoins issuance of a statutory notice giving opportunity to the borrower to pay the amount due or to make necessary representation or file objections, there is no point in insisting upon the issuance of similar notice while proceeding under section 13(4). when there is already a comprehensive provision to do so, the question of framing similar other provision in the act does not arise at all. significantly, rule 8 of the rules and section 14 lay down procedure to be followed for taking possession of the secured asset and rule 8 further contemplates steps for taking possession and sale of the secured asset and also consequential measures to be taken. rule 8(1) infers in fact two aspects i.e. (1) to take actual possession of the secured asset and (2) alternatively to take symbolic possession of the secured asset which would happen when the actual possession of the property could not be taken, probably due to the borrowers resistance. neither under this rule nor under any other provisions of the act contemplated that only actual possession of the secured asset should be taken before proceeding to sell the secured asset. in transcore v. union of india (2008) 1 scc 125 the supreme court considered as to whether the recourse to take possession of the secured asset of the borrower in terms of section 13(4) of the act comprehends power to take actual possession of the property. the supreme court, examining various provisions of the act held; “the dichotomy between symbolic and physical possession does not find place in the npa act.” thereby what is relevant or the criteria is just taking possession either physical or symbolical of the secured asset. as a matter of fact, if possession is given without resistance from the borrower or somebody on his behalf pursuant to the issuance of possession notice under rule 8(1), there is no need to approach the chief metropolitan magistrate or the district magistrate as the case may be under section 14. if actual possession of the property cannot be taken because there is resistance, symbolic possession of the property can be taken by issuing possession notice and also by affixing the possession notice on the outer door of the property. with regards to the plea that the steps taken under section 14 do not fall within the ambit of section 13(4), what is significant is that section 13(4) provides that if the borrower fails to discharge his liability within the period specified in section 13(2), then the secured creditor may take recourse to any of the actions mentioned therein. section 14 and in fact so also rule 8(1) and (2) only deal with the question of taking possession of the secured asset in pursuance of section 13(4), by reason of which these provisions are only incidental or subsidiary and thereby they are subject to section 13(4). in kanaiyalal lalchand sachdev v. state of maharashtra (2011) 2 scc 782, the supreme court considered this aspect. it is held by the supreme court that if any request is made under section 14 of the act, the chief metropolitan magistrate or the district magistrate, as the case may be, is obliged to take possession of such asset or document and forward the same to the secured creditor. therefore, it follows that a secured creditor may, in order to enforce his rights under section 13(4), in particular section 13(4)(a), may take recourse to section 14 of the act. in the following decisions similar view was taken. in trade well v. indian bank air 2007 bom. 656 the bombay high court considered the question of issuing notice to the borrower or any person who may be in the possession of a secured asset for the purpose of giving opportunity to him of being heard while taking action under section 14. the bombay high court imposed ten (10) conditions in that behalf, whereas the conditions 1 to 4 read; (1) the bank or financial institution shall, before making an application under section 14 of the act, verify and confirm that notice under section 13(2) of the act is given and that the secured asset falls within the jurisdiction of cmm/dm before whom application under section 14 is made. the bank and financial institution shall also consider before approaching cmm/dm for an order under section 14 of the act, whether section 31 of the act excludes the application of sections 13 and 14 thereof to the case on hand (2) cmm/dm acting under section 14 of the act is not required to give notice either to the borrower or to the third party (3) he has to only verify from the bank or financial institution whether notice under section 13(2) of the act is given or not and whether the secured assets fall within his jurisdiction, whereas there is no adjudication of any kind at that stage. (4) it is only if the above conditions are not fulfilled that the cmm/dm can refuse to pass an order under section 14 of the act by recording that the above conditions are not fulfilled. if these two conditions are fulfilled, he cannot refuse to pass an order under section 14. in muhammed ashraf v. union of india air 2009 kerala 14 the high court of kerala had an occasion to examine as to whether the cmm/dm is vested with the power and jurisdiction to deal with application under section 14. the high court considering various aspects held “but, even as an executing or administering authority, before taking action, he must himself be satisfied that notice under section 13(2) was issued and the property to be proceeded is the secured property. even though there is no scope of adjudication or trial of a dispute under section 14, the chief metropolitan magistrate or district magistrate is not like an amin of the court executing a court order. the fact that authority is entrusted with a senior functionary shows that magistrate must satisfy himself that petition is maintainable. arbitrary and high handed action at the instance of secured creditor also has to be avoided as taking possession of the property may some times affect substantial rights which may not always be curable by subsequent restoration of possession. if the application is in order, the magistrate has no option except to allow the application to take possession of the property.” in an unreported judgment in m/s siddhi vinayaka hotels (p) ltd., v. union of india, decided on 17.2.2006 (w.p.nos.26663 and 27553 of 2005), which was considered in ashok sharda v. small industries development bank of india 2007 (5) alt 494, this court while examining the ambit of sections 13(4) and 14 held; “a conjoint reading of section 13(4) and 14 makes it clear that the source of power to take possession of the secured assets of the borrower can be traced in section 13(4) and not under section 14, which has been enacted as an aid for execution of the decision taken by the secured creditors to take possession of the secured assets or documents. to put it differently the substantive provision entitling the secured creditor to take possession of the secured assets is contained in section 13(4) and section 14 merely contains a provision to facilitate taking over of possession without any impediment”. the principles laid down reiterate that under section 14 of the act, the magistrate is only rendering assistance to the secured creditor in taking possession of the secured asset as provided under section 13(4). after issuing 13(2) notice, subject to the non compliance of it, within sixty (60) days therefrom, the secured creditor can approach the magistrate for taking possession of the property, in respect of which no notice need be issued to the borrower. the same principles laid down are applicable to rule 8(1) which is also subject to section 13(4) with regards to taking possession of the secured assets. consequently, the plea that no steps were initiated under section 13(4), by reason of which, the action taken under section 14 is not valid is dismissed. then it is to be considered as to what rights are vested with the secured creditor and by what means necessary action taken by the secured creditor can be questioned.emphatically by virtue of section 5 of the act, the moment the secured assets were created, all the rights of the petitioner over the secured assets stood vested with the respondent bank. as laid down in transcore v. union of india (2 supra),by the supreme courtthere is a conceptual distinction between the securities by which the creditor obtains ownership of or interest in the property concerned and the securities where the creditor obtains neither any interest in nor possession of the property, but the properties appropriated to the satisfaction of the debt (charges) and basically the act deals with the former type of securities under which the secured creditor, namely the bank/financial institution obtains interest in the property concerned. it is for this reason that the act ousts the intervention of the courts/tribunals.in the same decision, the supreme court also held; “basically, the npa act is enacted to enforce the interest in the financial assets which belongs to the bank/fi by virtue of the contract between the parties or by operation of common law principles or by law. the very object of section 13 of the npa act is recovery by non-adjudicatory process. a secured asset under the npa act is an asset in which interest is created by the borrower in favour of the bank/fi and on that basis alone the npa act seeks to enforce the security interest by non-adjudicatory process. essentially, the npa act deals with the rights of the secured creditor. the npa act proceeds on the basis that the debtor has failed not only to repay the debt, but he has also failed to maintain the level of margin and to maintain value of the security at a level is the other obligation of the debtor. it is this other obligation which invites applicability of the npa act. it is for this reason, that sections 13(1) and 13(2) of the npa act proceed on the basis that security interest in the bank/fi needs to be enforced expeditiously without the intervention of the court/tribunal; that liability of the borrower has accrued and on account of default in repayment, the account of the borrower in the books of the bank has become non-performing. for the above reasons, the npa act states that the enforcement could take place by non-adjudicatory process and that the said act removes all fetters under the above circumstances on the rights of the secured creditor.”with regards to the availability of alternative remedy, what is to be very much emphasized is that under the explanation to section 17(1) it has been clarified that the communication of reasons to the borrower in terms of section 13(3a) shall not constitute a ground for filing application under section 17(1). it is also to be very much emphasized that section 17(1) enjoins that any person (including borrower) aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorized officer under this chapter, may make an application along with such fee, as may be prescribed to the debts recovery tribunal having jurisdiction in the matter within forty five days from the date on which such measures had been taken. this clearly excludes in clear terms or without any ambiguity that no appeal is provided against any steps taken under section 13(2) also apart from section 13(3a).in kanaiyalal lalchand sachdev v. state of maharashtra (3 supra) the supreme court also held with reference to relevant circumstances that the disputed questions of facts, namely non-receipt of notice under section 13(2) and non-communication of orders under section 14 were to be resolved by availing alternative and efficacious remedy provided under section 17(1) of the act. in united bank of india v. satyawati tondon(2010) 8 scc 110 : air 2010 sc 3413with reference to grievance against notice issued under section 13(4) or action taken under section 14, the supreme court held that the aggrieved party concerned therein could have availed the alternative remedy by filing an application under section 17(1). it is also held by the supreme court that the expression “any person” used in section 17(1) is of wide import and it would take within its fold not only the borrower but also the guarantor or any other person who may be affected by the action taken under section 13(4) or section 14. it is also held by the supreme court that the high court will not ordinarily entertain a petition under article 226 of the constitution if an effective remedy is available to the aggrieved person and that rule applies with greater rigor in matters involving recovery of taxes, cess and other types of public money and the dues of banks and other financial institutions. in authorised officer, indian overseas bank v. ashok saw mill (2009) 8 scc 366, it is held by the supreme court with reference to relevant circumstances that the consequences of the authority vested in the drt under sub-section (3) of section 17 necessarily implies that the drt is entitled to question the action taken by the secured creditor and the transactions entered into by virtue of section 13(4) of the act. the legislature by including sub-section (3) in section 17 has gone to the extent of vesting the drt with authority to even set aside a transaction including sale and to restore possession to the borrower in appropriate cases. resultantly, the submissions advanced by mr.gopalan and mr altaf ahmed that the drt has no jurisdiction to deal with a post-section 13(4) situation, cannot be accepted. it is also held by the supreme court that they are unable to agree with or accept the submissions made on behalf of the appellants that the drt has no jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated under section 13(4) of the act. on the other hand, the law is otherwise and it contemplates that the action taken by a secured creditor in terms of section 13(4) is open to scrutiny and cannot only be set aside but even the status quo ante can be restored by the drt. therefore, eventually the questions raised by the petitioners with regards to the plea under section 13(3a) and also section 14 are not tenable. in the result, the writ petitions are dismissed accordingly, giving liberty to the petitioners to pursue their remedies before the debts recovery tribunal, as per law.
Judgment:(Prayer: Petition under Article 226 of the constitution of Inida Praying that in the circumstances stated in the Affidavit filed herein the High Court will be pleased to issue writ, order or direction especially one in the nature of writ of Mandamus declaring the action of the respondent bank in invoking the provisions of Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI ACT) straight away without passing any orders under Section 13(4) of the Act and tying to take the Physical possession of the petitioner’s property bearing House No. 8-41/3, Ganeshpuri Colony, Kothapet, L.B. Ngar Municipality, Uppal Mandal, R.R. District, as illegal, arbitrary, violative of principles of natural justice, contrary to the provisions of the SARFAESI Act and one without jurisdiction.
Petition under Article 226 of the constitution of Inida Praying that in the circumstances stated in the Affidavit filed herein the High Court will be pleased to issue writ, order or direction, more particularly, in the nature of Writ of Mandamus declaring the action of the 1st respondent, Authorized officer in not considering and passing any orders against the objections of the petitioners in terms of Section 13(3A) of SARFAESI Act 2002 (as amended from time to time) in respect of the Demand Notice dated 09.12.2010 issued under section 13(2) of under Section 13(4) of the SARFAESI Act, proceeding straight away under section 14 of the SARFAESI Act through Criminal M.P. No. 1525 OF 2011 of the Chief Metropolitan Magistrate, Hyderabad, vide its order dated 20.4.2011 and to take over possession through learned Advocate Commissioner vide her Notice dated 18.05.2011 to dispossess the petitioners from the residential flat, as being illegal, arbitrary and violative of Article 14 of the Constitution of India and contrary to SARFAESI Act. Consequently, direct the respondents not to dispossess the petitioners from residential Flat No. 202, in 2nd Floor, Plot Nos. 48 and 49 with a plinth area of 978 Sq. Feet (including common area) with an undivided share of land admeasuring 27 Sq. Yds or equivalent to 22.57 Sq.Mts. Out of 968 Sq.Yds. forming part of Survey Nos. 209, 217 and 218 situated at Sai Kiran Residency Ward No. 17, Block No.1, Vinaya Nagar colony of Saidabad, Hyderabad, Without following due process of law.)COMMON ORDER:
G. Krishna Mohan Reddy
Writ Petition No.20579 of 2010 is filed to declare the action of the respondents in proceeding to take possession of the secured assets of the petitioners having obtained orders from the Chief Metropolitan Magistrate, Hyderabad under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (for short ‘the Act’) without considering the representation of the petitioner therein and without issuing any notice to them under Section 13(2) or Section13(4) of the Act respectively as illegal and arbitrary and also direct the respondents not to dispossess the petitioners from the secured assets respectively.
Writ Petition No.14487 of 2011 is filed to declare the action of the respondents to take possession of the secured assets of the petitioners having obtained orders from the Chief Metropolitan Magistrate, Hyderabad under Section 14 of the Act, without considering the representation of the petitioner therein, pursuant to the issuance of notice under Section 13(2) of the Act and without issuing any notice to them under Section 13(4) of the Act respectively, as illegal and arbitrary and direct the respondents not to dispossess the petitioners from the secured assets respectively.
The background facts which lead to the filing of the writ petitions are as follows:
The 1st petitioner in W.P.No.20579 of 2010, for business, availed loan facility of Rs.20,00,000/- vide Trade Account No.4008 0611 1000 029 from the respondent Bank. The Respondent Bank also extended similar loan facility to the 2nd petitioner for its business. One Smt.Sulochana stood as guarantor for both the loans. All of them mortgaged their residential houses as securities to repay the loan amounts. On the ground that the loan facilities became non performing assets (NPA), demand notice dated 7.1.2010 was issued under Section 13(2) of the Act. Apart from that the respondent Bank obtained order dated 15.7.2010 from the Chief Metropolitan Magistrate, Hyderabad under Section 4 of the Act to take possession of the property. The petitioners claim that they could not pay the loans payable by them and therefore they approached the legal heirs of Smt.Sulochana and informed them about their difficulty, for which her legal heirs agreed to handover their property to the respondent Bank for the purpose of selling the property to clear the loan amounts. Accordingly her legal heirs wrote a letter to the respondent Bank with a request to take necessary action under Section 13(3A), which has not been considered. It is also their claim at the outset that no notice was issued to them under Section 13(2) or Section 13(4) of the Act, but surprisingly the respondent Bank obtained order dated 15.7.2010 under Section 14 of the Act and has been taking steps to take possession of their properties. Hence, in this writ petition the petitioners assail the impugned order passed under Section 14 of the Act on the ground that the order was passed without taking any steps under Section 13(4) of the Act and also assail the consequential steps being taken to dispossess them from the properties. Ultimately, however, no dispute is raised about the issuance of Section 13(2) notice by reason which this factor need not be deliberated.
The petitioners in W.P.No.14487 of 2011, in order to purchase a residential flat, obtained housing loan from HDFC Bank at Basheerbagh for Rs.6,00,000/- which was scheduled to be paid in 180 equal monthly installments at the rate of Rs.7,539/- each per month and created secured asset of the same property for the repayment of the loan. However, on persuasion and assurance of the respondent Bank, the petitioners approached and were sanctioned a loan of Rs.9,00,000/- payable together with interest in monthly equal instalments @ Rs.9,945/- per month by the respondent Bank. An amount of Rs.6,06,453/- was disbursed to the petitioner by the respondent Bank consequently. Thereby the account of HDFC Bank was foreclosed. The respondent Bank on the ground that the account became NPA issued notice under Section 13(2) of the Act dated 16.2.2006 demanding the petitioners to pay Rs.8,18,162/- within a period of sixty days. However, the respondent Bank issued another notice under Section 13(2) of the Act dated 9.12.2010 itself to the petitioners claiming Rs.20,76,862/-. The said amounts were claimed against the total sanctioned amount of Rs.9,00,000/- even though only Rs.6,06,453/- was disbursed out of it. Thereafter, the petitioners made representation to the Respondent Bank under Section 13(3A) of the Act, which was not considered. However, consequently steps were taken by the respondent Bank to take possession of the property invoking Section 14 of the Act vide order of the Chief Metropolitan Magistrate, Nampally, Hyderabad dated 20.4.2011. Further, Advocate Commissioner was appointed to dispossess the petitioners from the residential flat, following which the Advocate Commissioner went and issued notice dated 18.5.2011 to comply with the order, thereby the writ petition has been filed. The petitioners herein mainly contend that without issuing notice under Section 13(4) of the Act, the respondent Bank is taking steps to dispossess them from the secured asset having obtained order dated 20.4.2011 under Section 14 of the Act. The petitioners question the issuance of notice dated 16.3.2006 and 9.12.2010 under Section 13(2) of the Act for the entire sanctioned amount of Rs.9,00,000/- and also excess amount claimed in the second notice. Thereby this writ petition is filed assailing the order passed under Section 14 of the Act and also the steps being taken to dispossess them from the secured asset with a request to direct the respondents not to dispossess them from the secured asset.
Here Section 13 around which the main controversy resolves is relevant here. Section 13(1) provides that a secured creditor may enforce any security interest without the intervention of the court or Tribunal irrespective of Section 69 or Section 69A of the Transfer of Property Act. So, the very object of the provision is recovery of secured interest by non adjudicatory process. Section 13(2) contemplates “Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of the secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as NPA, 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).” By reading Section 13(2), it is clear that if a borrower who is under a liability to a secured creditor makes any default in repaying a secured debt and his account in respect of such debt is classified as NPA, then the secured creditor may require the borrower giving demand notice in writing to discharge his liability within 60 days from the date of notice, failing which the secured creditor must be entitled to exercise all or any of the rights given in Section 13(4). Section 13(2) is thereby applicable when the borrower is already under a liability to pay the secured debt and further his account is classified as substandard or doubtful. When there is non payment of the secured debt only the question of issuing demand notice under Section 13(2) arises. In other words, Section 13(2) is a condition precedent to invoke Section 13(4) by the secured creditor. Hence, the question of application of Section 13(4) arises when Section 13(2) is not complied. By virtue of sub-section (3) of Section 13, a notice given to the borrower must contain the details of the amounts payable and the secured assets against which the secured creditor proposes to proceed in the event of non-compliance with the notice given under sub-section (2) of Section 13. Under Section 13(3A), the borrower is permitted to make representation or file objection to the secured creditor against the classification of his account as NPA pursuant to the issuance of notice under Section 13(2) of the Act and if the secured creditor rejects such representation or objection being not acceptable he shall communicate to the borrower within one week the reasons thereof. Sub-section (4) of Section 13 of the Act provides for taking four measures which can be taken by the secured creditor in the case of non-compliance with the notice served upon the borrower. Under clause (a) of sub-section (4) the secured creditor may take possession of the secured assets including the right to transfer the secured assets by way of lease, assignment or sale; may take over the management of the secured assets under clause (b) including right to transfer; under clause (c) of sub-section (4) a manager may be appointed to manage the secured assets which have been taken possession of by the secured creditor and may require any person who has acquired any secured assets from the borrower or from whom any money is due to the borrower to pay the same to him as it may be sufficient to pay the secured debtor as provided under Clause (d) of Section 3(4) of the Act. A reading of the ambit of Section 13(2) read with Section 13(4) makes it categorical that the notice under Section 13(2) is not a mere show cause notice and it constitutes an action taken to recover the NPA.
Sub-section (5) of Section 13 provides that any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower. Sub-section (6) provides that any transfer of secured asset after taking possession thereof or take over of the management under sub-section (4) by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset. Sub-section (8) of Section 13 however, provides that if all the dues of the secured creditor ncluding all costs, charges and expenses etc. as may be incurred are tendered to the secured creditor before sale or transfer no further steps be taken in that direction.Sub-section (9) deals with exercise of rights with regards to a financial asset financed by more than one secured creditor or joint financing of a financial asset by secured creditor. Sub-section (10) deals with recovery of that part of the secured debt not satisfied by selling the secured asset. Sub-section (11) deals with proceeding against the guarantors of the secured debt. Sub-section (12) deals with the exercise of rights of the secured creditor by his officer or officers. By virtue of sub-section (13), after receiving 13(2) notice the borrower shall not transfer by way of sale, lease or otherwise the secured asset or assets noted in that notice. Section 5 of the Act is with regards to acquisition of rights or interest in financial assets (which includes right or interest over the secured asset). By virtue of sub-section (2) thereunder, if the bank or financial institution is a lender in relation to any financial assets acquired under sub-section (1) by the securitization company or the reconstruction company, such securitization company or 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. Therefore owing to the creation of secured assets in favour of the respondent Bank, all the rights of the borrowers stood vested with the Bank in relation to those financial assets.In terms of Section 14, the secured creditor can file an application before the Chief Metropolitan Magistrate or the District Magistrate (for short ‘CMM/DM’) within whose jurisdiction the secured asset or other documents relating thereto are found for taking possession thereof. If any such request is made, the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, is obliged to take possession of such asset or document and forward the same to the secured creditor.
Section 17 speaks of the remedies available to any person including borrower who may have grievance against the action taken by the secured creditor under Sub-section (4) of Section 13. Such an aggrieved person can make an application to the Tribunal within 45 days from the date on which action is taken under that Sub-section. An Explanation has been added to Section 17(1) and it has been clarified that the communication of reasons to the borrower in terms of Section 13(3A) shall not constitute a ground for filing application under Section 17(1). Sub-section (2) of Section 17 casts a duty on the Tribunal to consider whether the measures taken by the secured creditor for the enforcement of security interest are in accordance with the provisions of the Act and the Rules made thereunder. If the Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that the measures taken by the secured creditor are not in consonance with Sub-section (4) of Section 13, then it can direct the secured creditor to restore the management of the business or possession of the secured assets to the borrower. On the other hand, if the Tribunal finds that the recourse taken by the secured creditor under Sub-section (4) of Section 13 is in accordance with the provisions of the Act and the Rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor can take recourse to one or more of the measures specified in Section 13(4) for the recovery of the secured debt. Sub-section (5) of Section 7 prescribes the time-limit of sixty days within which an application made under Section 17 is required to be disposed of. The proviso to this Sub-section envisages extension of time, but the outer limit for the adjudication of an application is four months. If the Tribunal fails to decide the application within a maximum period of four months, then either party can move the Appellate Tribunal for issue of a direction to the Tribunal to dispose of the application expeditiously. Section 18 provides for an appeal to the Appellate Tribunal.
Section 34 lays down that no Civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Tribunal or Appellate Tribunal is empowered to determine. It further lays down that no injunction shall be granted by any Court or other authority in respect of any action taken or to be taken under the SARFAESI Act or the DRT Act. Section 35 of the SARFAESI Act is substantially similar to Section 34(1) of the DRT Act. It declares that the provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.
Rule 8 of the Security Interest (Enforcement) Rules, 2002 (for short ‘the Rules’) is also relevant here. This rule refers to taking possession and sale of immovable secured asset. Rule 8(1) envisages that where the secured asset is an immovable property, the authorized officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. Rule 8(2) envisages that the possession notice as referred to in sub-rule (1) shall also be published, as soon as possible but in any case not later than seven days from the date of taking possession, in two leading newspapers one in vernacular language having sufficient circulation in the locality, by the authorized officer. Rule 8(3) and (4) relate to keeping custody of the secured assets and preserve and protect them after taking possession of those secured assets respectively. Rule 8(5) is about securing valuation of the secured asset from an approved valuer and fixation of its price for the purpose of selling it to realize the amount due. Rule 8(6) is with regards to serving 30 days notice on the borrower for the sale of the immovable secured asset under Rule 8(5). Learned counsel in both the writ petitions would contend that when the petitioners made representations under Section 13(3A) of the Act, the respondent Bank was under an obligation to consider them and communicate the consequential actions taken but that was not done. He also contends that before taking recourse under Section 14 of the Act, the respondent Bank should have issued possession notice under Section 13(4) read with Rule 8(1) and (2) of the Rules. He further contends that without initiating any proceedings under Section 13(4), the petitioners got no alternative remedy except to invoke the extraordinary jurisdiction of this Court under Article 226 of the Constitution of India.In response to the claims or contentions of the petitioners, the respondents counsel would contend as follows: Section 13(2) of the Act alone provides for the issuance of notice calling upon the borrower to pay the amount due or to make necessary representations or file objections under Section 3A of the Act which shall be considered by the secured creditor. The proceedings issued under Section 14 of the Act only render assistance to the secured creditor in taking possession of the secured assets under Section 13(4) and hence the plea that no proceedings were initiated under Section 13(4) is not correct. Neither Section 13(4) nor the corresponding procedure prescribed under Section 14 of the Act or Rule 8 mandates or directs issuance of such notice while proceeding to take possession of the secured asset. Apart from that, failure on the part of the borrower to comply with 13(2) gives right to the secured creditor to proceed under Section 13(4). He also contends that the petitioners have alternative remedy under Section 17(1) of the Act which debars the filing of the writ petitions. He also claims that the writ petitions do not lie in the circumstances of the case.
Therefore the following points are to be considered for the disposal of the writ petitions.
1. Whether the actions of the respondent Bank in trying to take possession of the secured assets are invalid on the ground that necessary proceedings were not initiated under Section 13(4) and also on the ground that the representation or objections made under Section 13(3A) of the Act have not been considered;
2. Whether the writ petitions are maintainable in view of the alternative remedy provided under Section 17(1) of the Act.
If the second point is answered in the affirmative, the question of going into the merits of the cases does not arise at all.It is quite emphatical that only Section 13(2) envisages in specific terms issuance of a notice to the borrower in writing to discharge in full his liability to the secured creditor within sixty (60) days from the date of receiving the notice giving all relevant details in consequence of declaring the debt as NPA, failing which the secured creditor would get a right to invoke the provisions contemplated under Section 13(4) of the Act. However, under sub-section (3A) a right is given to the borrower to make necessary representation or file necessary objections on receiving Section 13(2) notice by which the secured creditor is mandated to consider the representation or objections and communicate to the borrower the consequential decision taken within one week of receiving the representation or objections. This discretion should be exercised by the secured creditor judiciously. Thereby any approach of the secured creditor which is not judicious in arriving at the consequential decision on the representation made or objections filed by the borrower is always questionable but at appropriate stage. In Mardia Chemicals v. Union of India (2004) 4 SCC 311 the Supreme Court elaborately considered the ambit of Section 13(2) and (3A) of the Act and held;
“45. In the background we have indicated above, we may consider as to what forums or remedies are available to the borrower to ventilate his grievance. The purpose of serving a notice upon the borrower under sub-section (2) of Section 13 of the Act is, that a reply may be submitted by the borrower explaining the reasons as to why measures may or may not be taken under sub-section (4) of Section 13 in case of non- compliance of notice within 60 days. The creditor must apply its mind to the objections raised in reply to such notice and an internal mechanism must be particularly evolved to consider such objections raised in the reply to the notice. There may be some meaningful consideration of the objections raised rather than to ritually reject them and proceed to take drastic measures under sub-section (4) of Section 13 of the Act. Once such a duty is envisaged on the part of the creditor it would only be conducive to the principles of fairness on the part of the banks and financial institutions in dealing with their borrowers to apprise them of the reason for not accepting the objections or points raised in reply to the notice served upon them before proceeding to take measures under sub-section (4) of Section 13. Such reasons, overruling the objections of the borrower, must also be communicated to the borrower by the secured creditor. It will only be in fulfillment of a requirement of reasonableness and fairness in the dealings of institutional financing which is so important from the point of view of the economy of the country and would serve the purpose in the growth of a healthy economy. It would certainly provide guidance to the secured debtors in general in conducting the affairs in a manner that they may not be found defaulting and being made liable for the unsavoury steps contained under sub-section (4) of Section 13. At the same time, more importantly we must make it clear unequivocally that communication of the reasons not accepting the objections taken by the secured borrower may not be taken to give an occasion to resort to such proceedings which are not permissible under the provisions of the Act. But communication of reasons not to accept the objections of the borrower, would certainly be for the purpose of his knowledge which would be a step forward towards his right to know as to why his objections have not been accepted by the secured creditor who intends to resort to harsh steps of taking over the management/business of viz. secured assets without intervention of the court. 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 non- acceptance and of his objections.”
In this background, we consider the ambit of Section 13(4) and the corresponding procedure laid down thereunder.
Whereas Section 13(2) only provides for the issuance of a notice to the borrower giving sixty (60) days time to pay the amount due and sub-section (3A) gives right to the borrower to make necessary representation or file objections, Section 13(4) does not specifically provide for the issuance of any such notice to the borrower before proceeding to take possession of the secured asset. A plain reading of Section 13(4) makes it categorical that no further notice like the one given under Section 13(2) is contemplated thereunder before proceeding to do so. In fact, when Section 13(2) enjoins issuance of a statutory notice giving opportunity to the borrower to pay the amount due or to make necessary representation or file objections, there is no point in insisting upon the issuance of similar notice while proceeding under Section 13(4). When there is already a comprehensive provision to do so, the question of framing similar other provision in the Act does not arise at all.
Significantly, Rule 8 of the Rules and Section 14 lay down procedure to be followed for taking possession of the secured asset and Rule 8 further contemplates steps for taking possession and sale of the secured asset and also consequential measures to be taken. Rule 8(1) infers in fact two aspects i.e. (1) to take actual possession of the secured asset and (2) alternatively to take symbolic possession of the secured asset which would happen when the actual possession of the property could not be taken, probably due to the borrowers resistance. Neither under this rule nor under any other provisions of the Act contemplated that only actual possession of the secured asset should be taken before proceeding to sell the secured asset. In Transcore v. Union of India (2008) 1 SCC 125 the Supreme Court considered as to whether the recourse to take possession of the secured asset of the borrower in terms of Section 13(4) of the Act comprehends power to take actual possession of the property. The Supreme Court, examining various provisions of the Act held; “The Dichotomy between symbolic and physical possession does not find place in the NPA Act.” Thereby what is relevant or the criteria is just taking possession either physical or symbolical of the secured asset. As a matter of fact, if possession is given without resistance from the borrower or somebody on his behalf pursuant to the issuance of possession notice under Rule 8(1), there is no need to approach the Chief Metropolitan Magistrate or the District Magistrate as the case may be under Section 14. If actual possession of the property cannot be taken because there is resistance, symbolic possession of the property can be taken by issuing possession notice and also by affixing the possession notice on the outer door of the property. With regards to the plea that the steps taken under Section 14 do not fall within the ambit of Section 13(4), what is significant is that Section 13(4) provides that if the borrower fails to discharge his liability within the period specified in Section 13(2), then the secured creditor may take recourse to any of the actions mentioned therein. Section 14 and in fact so also Rule 8(1) and (2) only deal with the question of taking possession of the secured asset in pursuance of Section 13(4), by reason of which these provisions are only incidental or subsidiary and thereby they are subject to Section 13(4).
In Kanaiyalal Lalchand Sachdev v. State of Maharashtra (2011) 2 SCC 782, the Supreme Court considered this aspect. It is held by the Supreme Court that if any request is made under Section 14 of the Act, the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, is obliged to take possession of such asset or document and forward the same to the secured creditor. Therefore, it follows that a secured creditor may, in order to enforce his rights under Section 13(4), in particular Section 13(4)(a), may take recourse to Section 14 of the Act. In the following decisions similar view was taken.
In Trade Well v. Indian Bank AIR 2007 Bom. 656 the Bombay High Court considered the question of issuing notice to the borrower or any person who may be in the possession of a secured asset for the purpose of giving opportunity to him of being heard while taking action under Section 14. The Bombay High Court imposed ten (10) conditions in that behalf, whereas the conditions 1 to 4 read; (1) The Bank or financial institution shall, before making an application under Section 14 of the Act, verify and confirm that notice under Section 13(2) of the Act is given and that the secured asset falls within the jurisdiction of CMM/DM before whom application under Section 14 is made. The bank and financial institution shall also consider before approaching CMM/DM for an order under Section 14 of the Act, whether Section 31 of the Act excludes the application of Sections 13 and 14 thereof to the case on hand (2) CMM/DM acting under Section 14 of the Act is not required to give notice either to the borrower or to the third party (3) He has to only verify from the bank or financial institution whether notice under Section 13(2) of the Act is given or not and whether the secured assets fall within his jurisdiction, whereas there is no adjudication of any kind at that stage. (4) It is only if the above conditions are not fulfilled that the CMM/DM can refuse to pass an order under Section 14 of the Act by recording that the above conditions are not fulfilled. If these two conditions are fulfilled, he cannot refuse to pass an order under Section 14.
In Muhammed Ashraf v. Union of India AIR 2009 Kerala 14 the High Court of Kerala had an occasion to examine as to whether the CMM/DM is vested with the power and jurisdiction to deal with application under Section 14. The High Court considering various aspects held “But, even as an executing or administering authority, before taking action, he must himself be satisfied that notice under Section 13(2) was issued and the property to be proceeded is the secured property. Even though there is no scope of adjudication or trial of a dispute under Section 14, the Chief Metropolitan Magistrate or District Magistrate is not like an Amin of the court executing a court order. The fact that authority is entrusted with a senior functionary shows that Magistrate must satisfy himself that petition is maintainable. Arbitrary and high handed action at the instance of secured creditor also has to be avoided as taking possession of the property may some times affect substantial rights which may not always be curable by subsequent restoration of possession. If the application is in order, the Magistrate has no option except to allow the application to take possession of the property.”
In an unreported judgment in M/s Siddhi Vinayaka Hotels (P) Ltd., v. Union of India, decided on 17.2.2006 (W.P.Nos.26663 and 27553 of 2005), which was considered in Ashok Sharda v. Small Industries Development Bank of India 2007 (5) ALT 494, this Court while examining the ambit of Sections 13(4) and 14 held; “A conjoint reading of Section 13(4) and 14 makes it clear that the source of power to take possession of the secured assets of the borrower can be traced in Section 13(4) and not under Section 14, which has been enacted as an aid for execution of the decision taken by the secured creditors to take possession of the secured assets or documents. To put it differently the substantive provision entitling the secured creditor to take possession of the secured assets is contained in Section 13(4) and Section 14 merely contains a provision to facilitate taking over of possession without any impediment”.
The principles laid down reiterate that under Section 14 of the Act, the Magistrate is only rendering assistance to the secured creditor in taking possession of the secured asset as provided under Section 13(4). After issuing 13(2) notice, subject to the non compliance of it, within sixty (60) days therefrom, the secured creditor can approach the Magistrate for taking possession of the property, in respect of which no notice need be issued to the borrower. The same principles laid down are applicable to Rule 8(1) which is also subject to Section 13(4) with regards to taking possession of the secured assets. Consequently, the plea that no steps were initiated under Section 13(4), by reason of which, the action taken under Section 14 is not valid is dismissed.
Then it is to be considered as to what rights are vested with the secured creditor and by what means necessary action taken by the secured creditor can be questioned.Emphatically by virtue of Section 5 of the Act, the moment the secured assets were created, all the rights of the petitioner over the secured assets stood vested with the respondent Bank. As laid down in Transcore v. Union of India (2 supra),by the Supreme Courtthere is a conceptual distinction between the securities by which the creditor obtains ownership of or interest in the property concerned and the securities where the creditor obtains neither any interest in nor possession of the property, but the properties appropriated to the satisfaction of the debt (charges) and basically the Act deals with the former type of securities under which the secured creditor, namely the bank/financial institution obtains interest in the property concerned. It is for this reason that the Act ousts the intervention of the courts/tribunals.In the same decision, the Supreme Court also held; “Basically, the NPA Act is enacted to enforce the interest in the financial assets which belongs to the bank/FI by virtue of the contract between the parties or by operation of common law principles or by law. The very object of Section 13 of the NPA Act is recovery by non-adjudicatory process. A secured asset under the NPA Act is an asset in which interest is created by the borrower in favour of the bank/FI and on that basis alone the NPA Act seeks to enforce the security interest by non-adjudicatory process. Essentially, the NPA Act deals with the rights of the secured creditor. The NPA Act proceeds on the basis that the debtor has failed not only to repay the debt, but he has also failed to maintain the level of margin and to maintain value of the security at a level is the other obligation of the debtor. It is this other obligation which invites applicability of the NPA Act. It is for this reason, that Sections 13(1) and 13(2) of the NPA Act proceed on the basis that security interest in the bank/FI needs to be enforced expeditiously without the intervention of the court/tribunal; that liability of the borrower has accrued and on account of default in repayment, the account of the borrower in the books of the bank has become non-performing. For the above reasons, the NPA Act states that the enforcement could take place by non-adjudicatory process and that the said Act removes all fetters under the above circumstances on the rights of the secured creditor.”With regards to the availability of alternative remedy, what is to be very much emphasized is that under the explanation to Section 17(1) it has been clarified that the communication of reasons to the borrower in terms of Section 13(3A) shall not constitute a ground for filing application under Section 17(1). It is also to be very much emphasized that Section 17(1) enjoins that any person (including borrower) aggrieved by any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor or his authorized officer under this Chapter, may make an application along with such fee, as may be prescribed to the Debts Recovery Tribunal having jurisdiction in the matter within forty five days from the date on which such measures had been taken. This clearly excludes in clear terms or without any ambiguity that no appeal is provided against any steps taken under Section 13(2) also apart from Section 13(3A).In Kanaiyalal Lalchand Sachdev v. State of Maharashtra (3 supra) the Supreme Court also held with reference to relevant circumstances that the disputed questions of facts, namely non-receipt of notice under Section 13(2) and non-communication of orders under Section 14 were to be resolved by availing alternative and efficacious remedy provided under Section 17(1) of the Act. In United Bank of India v. Satyawati Tondon(2010) 8 SCC 110 : AIR 2010 SC 3413with reference to grievance against notice issued under Section 13(4) or action taken under Section 14, the Supreme Court held that the aggrieved party concerned therein could have availed the alternative remedy by filing an application under Section 17(1). It is also held by the Supreme Court that the expression “any person” used in Section 17(1) is of wide import and it would take within its fold not only the borrower but also the guarantor or any other person who may be affected by the action taken under Section 13(4) or Section 14. It is also held by the Supreme Court that the High Court will not ordinarily entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that rule applies with greater rigor in matters involving recovery of taxes, cess and other types of public money and the dues of banks and other financial institutions. In Authorised Officer, Indian Overseas Bank v. Ashok Saw Mill (2009) 8 SCC 366, it is held by the Supreme Court with reference to relevant circumstances that the consequences of the authority vested in the DRT under sub-section (3) of Section 17 necessarily implies that the DRT is entitled to question the action taken by the secured creditor and the transactions entered into by virtue of Section 13(4) of the Act. The legislature by including sub-section (3) in Section 17 has gone to the extent of vesting the DRT with authority to even set aside a transaction including sale and to restore possession to the borrower in appropriate cases. Resultantly, the submissions advanced by Mr.Gopalan and Mr Altaf Ahmed that the DRT has no jurisdiction to deal with a post-Section 13(4) situation, cannot be accepted. It is also held by the Supreme Court that they are unable to agree with or accept the submissions made on behalf of the appellants that the DRT has no jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated under Section 13(4) of the Act. On the other hand, the law is otherwise and it contemplates that the action taken by a secured creditor in terms of Section 13(4) is open to scrutiny and cannot only be set aside but even the status quo ante can be restored by the DRT.
Therefore, eventually the questions raised by the petitioners with regards to the plea under Section 13(3A) and also Section 14 are not tenable.
In the result, the writ petitions are dismissed accordingly, giving liberty to the petitioners to pursue their remedies before the Debts Recovery Tribunal, as per law.