Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - the Act override all other provisions of the law which are inconsistent therewith, therefore, will prevail over the provisions of all other Statutes and so as the Arbitration and Conciliation Act, 1996 to the extent of inconsistencies.
Thus, the proceedings initiated by the appellant under Section 14 of the Act cannot be said to be illegal on account of a Receiver appointed in proceedings under Section 9 of the Arbitration and Conciliation Act. - Reliance is placed upon; (2018) 3 SCC 85, (Authorized Officer, State Bank of Travancore and another vs. Mathew K.C.); (2009) 4 SCC 94 (Central Bank of India vs. State of Kerala and others); (2004) 4 SCC 311 (Mardia Chemicals Ltd. and others etc. etc. vs. Union of India and others, etc. etc.); and a Division Bench decision of this Court in M.P. No.2271/2018 (M/s Crest Steel and Power Private Limited and others vs. Punjab National Bank & others) decided on 10.05.2018.
Section 14 of the Act contemplates disclosure on nine different points and where all nine points have been mentioned specifically in the affidavit filed, precondition mentioned in Section 14 of the Act is satisfied. Thus, nondisclosure of order passed by the Bombay High Court in proceedings under Section 9 of the Arbitration and Conciliation Act, 1996 was found to be not mandatory or even to have caused any prejudice to the petitioner.
The Act does not contemplate symbolic or actual possession - Reliance is placed upon Supreme Court judgments reported as (2008) 1 SCC 125 (Transcore vs. Union of India and Another) as approved in (2009) 4 SCC 94 (Central Bank of India vs. State of Kerala and others).
In terms of Section 14 of the Act, the District Magistrate is duty bound to hand over physical possession to the secured creditor.
The proceedings under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 are not the proceedings to adjudicate the rights of the parties. Therefore, no notice is contemplated to be served upon debtor, as such proceedings are taken only after serving notice under Section 13 of the Act. - Followed - Judgment of the Supreme Court reported as (2013) 9 SCC 620 (Standard Chartered Bank, etc. vs. V. Noble Kumar and others, etc) and Bombay High Court decision rendered in Trade Well vs. Indian Bank, (2007 Cri LJ 2544 (Bom.). Paras : 11 to 28
The High Court
Of Madhya Pradesh: Jabalpur
(DIVISION BENCH)
CORAM: Hon’ble Mr. Justice Hemant Gupta, Chief Justice Hon’ble Mr. Justice Vijay Kumar Shukla, Judge
(Passed on this 13th day of July, 2018)
Writ Appeal No. 784 of 2018
Aditya Birla Finance Limited v. Carnet Elias Fernandes
Vemalayam ..… RESPONDENTS and
others
Appearance: Shri H.C. Kohli and
Shri Sanjeev Singh, Advocates for the Appellant. Shri
Naman Nagrath, Senior Advocate with Shri Vishal Bhatnagar, Advocate for the
respondent Nos. 1 and 2. Shri
Amit Seth, Government Advocate for the respondent Nos.3 to 5/State
O R D E R
Per
: Hemant Gupta, Chief Justice:
The challenge in the present writ appeal is to an order passed by the learned
Single Bench on 11.04.2018 in Writ Petition No.8077/2017 (Shri Carnet Elias
Fernandes Vemalayam and another vs. District Magistrate and others) whereby an
order passed by the District Magistrate, Bhopal on 28.04.2017 under Section 14
of the Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (for short “the Act”) has been set aside.
2. The sole reason for setting aside the order of the District
Magistrate is that the Bombay High Court in Arbitration Petition No.1118/2015
(Aditya Birla Finance Limited vs. Mr. Carnet Elias Fernandes and another) has
passed an order on 04.09.2015 to hand over the physical possession of the
property to the Receiver in proceedings initiated by the appellant under
Section 9 of the Arbitration and Conciliation Act, 1996 (for short “the
Arbitration Act”). It was found that since symbolic possession of the property
is with the Receiver, therefore, an order passed by the District Magistrate
cannot override the order dated 04.09.2015 passed by the Bombay High Court. The
relevant extract from the order dated 11.04.2018 (Annexure A-1) passed by the
learned Single Bench, reads, thus:
“19. So far as ground No.3 and 4 regarding
physical possession of the properties is concerned, the Bombay High Court while
passing the interim order has directed to hand over the physical possession of
the properties to the receiver. Thus, as per the interim order passed by the
Bombay High Court, symbolic possession of the properties has been given to the
receiver and, thus, as the symbolic possession of the properties is with the
receiver, the order passed by respondent No.3 ceased to have any effect and
cannot override the order dated 04/09/2015 passed by the Bombay High Court. The
order passed by the Bombay High Court is certainly having a binding effect and
cannot override and ceased by taking shelter of any other law, be it SARFAESI
Act. Respondent No.3 has concealed the fact about the order passed by the
Bombay High Court on 04/09/2015 and that the properties as of now are not with
the petitioners and it is with the receiver of the Bombay High Court. As these
facts were not brought to the notice of respondent No.1, therefore, the said
order deserves to be quashed.”
3.
Though the learned Single Bench has held that there is no alternative remedy
against an order passed by the District Magistrate under Section 14 of the Act,
but, a Division Bench of this Court in W.P.
No.19028/2017 (Sunil Garg vs. Bank of Baroda and
others) decided on
16.04.2018 has held that remedy of an aggrieved person against an order passed
by the District Magistrate is before the Debts Recovery Tribunal under Section
17 of the Act. Therefore, such finding of the learned Single Bench cannot be
sustained.
4. Since the learned Single Bench has held that an order passed
by the District Magistrate overrides the order of the Bombay High Court,
whether such reasoning is legal and proper, needs to be examined.
5. The parties have entered into an agreement on 28.09.2012
whereby the appellant sanctioned loan of Rs.18.00 Crore to the writ petitioners
(respondent Nos.1 and 2 herein). The stand of the writ-petitioners is that they
faced an acute financial stress on account of an order of the Hon’ble Supreme
Court cancelling the coal blocks and the Reserve Bank of India advised the
Banks to curtail their exposures on power sector based industries. Thereafter,
the writ-petitioners availed a housing loan from the appellant and that the
appellant demanded the entire housing loan on 08.01.2015. The stand of the
writ-petitioners is that though the agreement contemplated resolution of
dispute at Bhopal but the appellant initiated arbitration proceedings in Mumbai
by unilaterally altering the arbitration clause. The sole Arbitrator was
appointed. The appointment of which was disputed by the writ-petitioners.
However, the Arbitrator announced the Award on 05.10.2016 holding the
writ-petitioners jointly and severally liable to pay to the appellant a sum of
Rs.23,65,07,643/- together with interest thereon @ 12.5% per annum from
01.04.2015 till the date of payment/realization of the amount by the
appellant/claimant from the writ-petitioners. The writ-petitioners have filed a
petition (Annexure P-6 to the writ petition) under Section 34 of the Arbitration
Act, which is pending adjudication before the High Court of Bombay. It is also
pleaded by the writ petitioners that a writ petition being W.P. No.11671/2015
(Carnet Elias Fernandes and another vs. Superintendent of Police, Bhopal and
others) has been filed before this Court seeking direction for registration of
an FIR, which is pending.
6. The appellant filed an application under Section 9 of the
Arbitration Act before the Bombay High Court bearing Arbitration Petition
No.1118/2015 (supra), on which, vide order passed on 04.09.2015, Court
Receiver, High Court, Bombay was appointed as a Receiver in respect of the
property of the respondents described in Ex.‘U’ of the said petition with a
direction to appoint the respondents or any person found in possession of the
said properties as an agent of the Court Receiver on usual terms and conditions
including payment of royalty and on furnishing security. It was made clear that
if the respondents (writ-petitioners herein) or such third party do not accept
the agency of the Court Receiver on the usual terms and conditions within two
weeks from the date of such offer, the Court Receiver shall have power to take
physical possession of the said property. It may be mentioned that against an
order dated 04.09.2015 passed in proceedings under Section 9 of the Arbitration
Act, an appeal was preferred by the writ-petitioners being Appeal (L) No.725 of
2015 (M/s Carnet Elias Fernandes and Another vs. Aditya Birla Finance Limited),
wherein, a Division Bench of the Bombay High Court passed an interim order on
18.11.2015, directing the Court Receiver to take symbolic possession and that
the writ-petitioners shall be appointed as the agent of the Court Receiver without
payment of royalty and security deposit for the time being. Therefore, the
writ-petitioners continued to be in actual physical possession though the Court
Receiver was appointed.
7. The appellant initiated proceedings under the Act by serving
a notice under Section 13(2) of the Act on 12.09.2016. It may be stated that
the appellant was conferred rights as that of secured creditor under the Act on
05.08.2016 when a notification was issued by the Ministry of Finance. The
writ-petitioners filed reply/objections to such notice issued under the Act.
Thereafter, the appellant issued a notice under Section 13(4) of the Act. The
writ-petitioners filed an application under Section 17 of the Act before the
Debts Recovery Tribunal, Jabalpur being S.A. No.28/2017 (Shri Carmet Elias
Fernandes and another vs. Aditya Birla Finance Limited) against the said action
initiated by the appellant. The said proceedings are pending. It is,
thereafter, the appellant initiated the proceedings under Section 14 of the
Act. The District Magistrate without issuing any notice and giving any
opportunity of hearing passed the impugned order on 28.04.2017. It is the said
order, which has been set aside by the learned Single Bench.
8. Learned counsel for the appellant argued that the Act is a
special Act providing speedier process of recovery of the secured assets and in
terms of Section 35 of the Act, the provisions of such Act will have priority
over the provisions of all other laws including the Arbitration Act, which is
an Act for adjudication of the disputes. Since the Act has been given an
overriding effect over any other laws in force, therefore, the proceedings
under Section 14 of the Act cannot be said to be in conflict with the
proceedings under the Arbitration Act. It is contended that the proceedings
under the Act and the Arbitration Act can continue independently but the
proceedings under the Act will have preference over the proceedings under the
Arbitration Act. In this context, reliance has been placed upon a judgment of
the Supreme Court reported as (2017)
16 SCC 741 (M.D. Frozen Foods Exports Private Limited and others vs. Hero
Fincorp Limited) and a
Division Bench decision of this Court reported as 2018 SCC OnLine MP 325 (Authorized
Officer and Chief Manager vs. Prafulla Kumar Maheshwari) rendered in Writ Appeal No.17/2018
decided on 01.05.2018.
9. On the other hand, the argument of Shri Naman Nagrath,
learned senior counsel appearing for the writ-petitioners is that the District
Magistrate cannot be conferred with the power to nullify an order passed by the
Bombay High Court appointing a Receiver and handing notional possession of the
property to the Receiver. The reliance has also been placed upon another
decision of the Supreme Court reported as (2000) 1 SCC 742 (Usha Harshadkumar Dalal vs. ORG
Systems and others)
wherein, it was held that when a Court Receiver is appointed in respect of any
property, it is said to be in custodia legis and the Court holds the property for the benefit of the true
owner. The Court Receiver acts on behalf of the Court. The Court Receiver will
have no power to deal with such property without the leave of the Court. The
relevant extract of the said decision reads as under:-
“13. Some of the basic and admitted facts
of the case before us are that under the leave and licence agreement dated
7-9-1970, the premises in question was given to Suhrid Geigy Trading Ltd. for a
period of five years. This
licence was never renewed. During the subsistence of this leave and licence
agreement, the Bombay Rent Act came to be amended and such of the licensees who
were in possession pursuant to a valid licence on 1-2-1973 shall be deemed to
have become the tenant of the landlord in respect of the premises or any part
thereof in its possession (Section 15-A inserted by Maharashtra Act 17 of
1973). When the Receiver took the symbolic possession Suhrid Geigy Trading
Limited was in occupation and by virtue of Section 15-A of the Bombay Rent Act
such a licensee shall be deemed to be a tenant. The first respondent came in
possession in 1979 pursuant to the amalgamation scheme approved by the Gujarat
High Court on 24-12-1987. In
view of these admitted facts the question is as to whether induction of the first
respondent in the premises without leave of the Court and/or without any
intimation to the Court Receiver will be valid or otherwise. It is a
wellsettled principle that when a Court Receiver is appointed in respect of any
property it is said to be in custodia legis and the court holds the property for
the benefit of the true owner. The Court Receiver acts on behalf of the court. Even
the Court Receiver will have no power to deal with such property without the
leave of the court. It is the duty of the Court Receiver to maintain the status
quo and also to protect the property from being put to waste or allow it to
diminish its value. The Court Receiver cannot encumber the property in any
manner without the leave of the court.............”
10. It is further argued that in an
application filed before the District Magistrate, the appellant has not
disclosed about the order passed by the Bombay High Court appointing a Receiver
nor has it filed an affidavit as required under Section 14 of the Act. The
affidavit filed, is a short affidavit, which states that the averments made in
the application under Section 14 of the Act are true and correct, but, in terms
of the provisions of Section 14, the affidavit itself has to contain nine-point
information, as delineated in Section 14 of the Act. It is also argued that the
writ-petitioners were not granted any opportunity of hearing before an order
was passed by the District Magistrate. Therefore,
the order passed by the District Magistrate violates the principles of natural
justice.
11. In
view of the aforesaid arguments advanced by the learned counsel for the
parties, the first question which emerges for consideration is as to what is
the relation between the Act and the Arbitration Act. Section 14 of the Act empowers
the Chief Metropolitan Magistrate or District Magistrate to assist secured
creditor in taking possession of secured assets while Section 35 of the Act
gives overriding effect to the Act. The relevant provisions of the Act are reproduced
as under:
"14.
Chief Metropolitan Magistrate or District Magistrate to assist secured creditor
in taking possession of secured asset.--(1)
Where the possession of any secured assets is required to be taken by the
secured creditor or if any of the secured asset is required to be sold or
transferred by the secured creditor under the provisions of this Act, the
secured creditor may, for the purpose of taking possession or control of any
such secured asset, request, in writing, the Chief Metropolitan Magistrate or
the District Magistrate within whose jurisdiction any such secured asset or
other documents relating thereto may be situated or found, to take possession thereof,
and the Chief Metropolitan Magistrate or, as the case may be, the District
Magistrate shall, on such request being made to him-- (a) take possession of
such asset and documents relating thereto; and (b) forward such assets and
documents to the secured creditor.
Provided
that any application by the secured creditor shall be accompanied by an
affidavit duly affirmed by the authorised officer of the secured creditor,
declaring that—
(i) the aggregate amount of financial assistance granted and
the total claim of the Bank as on the date of filing the application;
(ii) the
borrower has created security interest over various properties and that the
Bank or Financial Institution is holding a valid and subsisting security
interest over such properties and the claim of the Bank or Financial
Institution is within the limitation period;
(iii) the borrower has created
security interest over various properties giving the details of properties
referred to in sub-clause (ii) above;
(iv) the borrower has committed default
in repayment of the financial assistance granted aggregating the specified
amount;
(v) consequent upon such default in repayment of the financial assistance
the account of the borrower has been classified as a non-performing asset;
(vi)
affirming that the period of sixty days notice as required by the provisions of
sub-section (2) of section 13, demanding payment of the defaulted financial
assistance has been served on the borrower;
(vii) the objection or
representation in reply to the notice received from the borrower has been
considered by the secured creditor and reasons for non-acceptance of such
objection or representation had been communicated to the borrower;
(viii) the
borrower has not made any repayment of the financial assistance in spite of the
above notice and the Authorised Officer is, therefore, entitled to take
possession of the secured assets under the provisions of sub-section (4) of
section 13 read with section 14 of the principal Act;
(ix) that the provisions
of this Act and the rules made thereunder had been complied with: Provided
further that on receipt of the affidavit from the Authorised Officer, the
District Magistrate or the Chief Metropolitan Magistrate, as the case may be,
shall after satisfying the contents of the affidavit pass suitable orders for
the purpose of taking possession of the secured assets within a period of
thirty days from the date of application: Provided also that if no order is
passed by the Chief Metropolitan Magistrate or District Magistrate within the
said period of thirty days for reasons beyond his control, he may, after
recording reasons in writing for the same, pass the order within such further
period but not exceeding in aggregate sixty days.
Provided
also that the requirement of filing affidavit stated in the first proviso shall
not apply to proceeding pending before any District Magistrate or the Chief
Metropolitan Magistrate, as the case may be, on the date of commencement of
this Act.
(1A)
The District Magistrate or the Chief Metropolitan Magistrate may authorise any
officer subordinate to him,— (i) to take possession of such assets and
documents relating thereto; and (ii) to forward such assets and documents to
the secured creditor.
(2)
For the purpose of securing compliance with the provisions of subsection (1),
the Chief Metropolitan Magistrate or the District Magistrate may take or cause
to be taken such steps and use, or cause to be used, such force, as may, in his
opinion, be necessary.
(3)
No act of the Chief Metropolitan Magistrate or the District Magistrate any
officer authorised by the Chief Metropolitan Magistrate or District Magistrate
done in pursuance of this section shall be called in question in any court or
before any authority.
***
*** ***
35. The provisions of this Act to override other laws.--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.”
12. The
object of enactment of the Act is that our existing legal framework relating to
commercial transactions has not kept pace with the changing commercial
practices and financial sector reforms. This has resulted into slow pace of
recovery of defaulting loan and mounting level of non-performing assets (NPA)
of Banks and Financial Institutions. Such Act was amended by the Central Act
No.31 of 2016 known as the Insolvency and Bankruptcy Code, 2016 relating to
reorganization and insolvency resolution of corporate persons, partnership
firms and individuals in a time bound manner for maximization of value of
assets of such persons, to promote entrepreneurship, availability of credit and
balance the interests of all the stakeholders including alteration in the order
of priority of payment of Government dues etc.
13. The Supreme Court in its decision on the subject reported as
(2004) 4 SCC 311 (Mardia Chemicals
Ltd. and others etc. etc. vs. Union of India and others, etc.) held as under:-
"67. ….....
Therefore, it is clear that it has always been held to be lawful, whenever it
was necessary in the public interest to legislate irrespective of the fact that
it may affect some individuals enjoying certain rights. In the present we find
that the unrealized dues of banking companies and financial institutions
utilizing public money for advances were mounting and it was considered
imperative in view of recommendations of experts committees to have such law
which may provide speedier remedy before any major fiscal set back occurs and
for improvement of general financial flow of money necessary for the economy of
the country the impugned Act was enacted. Undoubtedly
such a legislation would be in the public interest and the individual interest
shall be subservient to it. Even if a few borrowers are affected here and
there, that would not impinge upon the validity of the Act which otherwise
serves the larger interest."
14.
A three Judge Bench of the Supreme Court in a judgment reported as (2009) 4 SCC 94 (Central Bank of
India vs. State of Kerala and others),
held that the enactment of the Act can be treated as one of the most radical
legislative measures taken by the Government for ensuring that dues of secured
creditors including banks, financial institutions are recovered from the
defaulting borrowers without any obstruction. For the first time, the secured
creditors have been empowered to take measures for recovery of their dues
without the intervention of the courts or tribunals. The extract read as
under:-
“92. An analysis of the abovenoted
provisions makes it clear that the primary object of the DRT Act was to
facilitate creation of special machinery for speedy recovery of the dues of
banks and financial institutions. This is the reason why the DRT Act not only
provides for establishment of the Tribunals and the Appellate Tribunals with
the jurisdiction, powers and authority to make summary adjudication of
applications made by banks or financial institutions and specifies the modes of
recovery of the amount determined by the Tribunal or the Appellate Tribunal but
also bars the jurisdiction of all courts except the Supreme Court and the High
Courts in relation to the matters specified in Section 17. The Tribunals and
the Appellate Tribunals have also been freed from the shackles of procedure
contained in the Code of Civil Procedure. To put it differently, the DRT Act
has not only brought into existence special procedural mechanism for speedy
recovery of the dues of banks and financial institutions, but also made provision
for ensuring that defaulting borrowers are not able to invoke the jurisdiction
of civil courts for frustrating the proceedings initiated by the banks and
financial institutions.
93.
The enactment of the Securitisation Act
can be treated as one of the most radical legislative measures taken by the
Government for ensuring that dues of secured creditors including banks,
financial institutions are recovered from the defaulting borrowers without any
obstruction. For the first time, the secured creditors have been empowered to
take measures for recovery of their dues without the intervention of the courts
or tribunals.
94.
The Securitisation Act has also brought
into existence a new dispensation for registration and regulation of securitisation
companies or reconstruction companies, facilitating securitisation of financial
assets of banks and financial institutions, easy transferability of financial
assets by the securitisation company or reconstruction company to acquire financial
assets of banks and financial institutions by issue of debentures or bonds or
any other security in the nature of debenture, empowering the securitisation companies
or reconstruction companies to raise funds by issue of security receipts to
qualified institutional buyers, facilitating reconstruction of financial assets
acquired by exercising power of enforcement of securities or change of
management, declaration of any securitisation company or reconstruction company
as a public financial institution for the purpose of Section 4-A of the
Companies Act, defining “security interest” as any type of security including
mortgage and charge on immovable properties given for due payment of any
financial assistance given by any bank or financial institution, classification
of borrowers’ account as non-performing asset and above all empowering banks
and financial institutions to take possession of securities given for financial
assistance and sale or lease the same or take over management.
***
*** ***
108. The DRT Act and Securitisation Act were
enacted by Parliament in the backdrop of recommendations made by the expert
committees appointed by the Central Government for examining the causes for
enormous delay in the recovery of dues of banks and financial institutions
which were adversely affecting fiscal reforms.
***
*** ***
116. The non
obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of
the Securitisation Act give overriding effect to the provisions of those Acts
only if there is anything inconsistent contained in any other law or instrument
having effect by virtue of any other law. In other words, if there is no
provision in the other enactments which are inconsistent with the DRT Act or
Securitisation Act, the provisions contained in those Acts cannot override
other legislations............
***
*** ***
128. If the provisions of the DRT Act and
Securitisation Act are interpreted keeping in view the background and context
in which these legislations were enacted and the purpose sought to be achieved
by their enactment, it becomes clear that the two legislations, are intended to
create a new dispensation for expeditious recovery of dues of banks, financial
institutions and secured creditors and adjudication of the grievance made by
any aggrieved person qua the procedure adopted by the banks, financial institutions
and other secured creditors, but the provisions contained therein cannot be
read as creating first charge in favour of banks, etc."
15. In another recent judgment reported
as (2018) 3 SCC 85, (Authorized Officer,
State Bank of Travancore and another vs. Mathew K.C.), the Supreme Court inter-alia held that the loan advanced does not
become the property of the person taking the loan, but retains its character of
public money given in a fiduciary capacity as entrustment by the public. Timely
repayment also ensures liquidity to facilitate loan to another in need, by
circulation of the money and cannot be permitted to be blocked by frivolous
litigation by those who can afford the luxury of the same. The extract from the
Judgment reads as under:-
"8. The Statement of Objects and Reasons
of the SARFAESI Act states that the banking and financial sector in the country
was felt not to have a level playing field in comparison to other participants
in the financial markets in the world. The financial institutions in India did
not have the power to take possession of securities and sell them. The existing
legal framework relating to commercial transactions had not kept pace with
changing commercial practices and financial sector reforms resulting in tardy
recovery of defaulting loans and mounting non-performing assets of banks and
financial institutions. The Narasimhan Committee I and II as also the
Andhyarujina Committee constituted by the Central Government Act had suggested enactment
of new legislation for securitisation and empowering banks and financial
institutions to take possession of securities and sell them without court
intervention which would enable them to realise long term assets, manage
problems of liquidity, asset liability mismatches and improve recovery. The
proceedings under the Recovery of Debts due to Banks and Financial Institutions
Act, 1993, (hereinafter referred to as ‘the DRT Act’) with passage of time, had
become synonymous with those before regular courts affecting expeditious
adjudication. All these aspects have not been kept in mind and considered
before passing the impugned order.
***
*** ***
15. It is the solemn duty of the Court to
apply the correct law without waiting for an objection to be raised by a party,
especially when the law stands well settled. Any departure, if permissible, has
to be for reasons discussed, of the case falling under a defined exception,
duly discussed after noticing the relevant law. In financial matters grant of
ex-parte interim orders can have a deleterious effect and it is not sufficient
to say that the aggrieved has the remedy to move for vacating the interim
order. Loans by financial institutions are granted from public money generated
at the taxpayer’s expense. Such loan does not become the property of the person
taking the loan, but retains its character of public money given in a fiduciary
capacity as entrustment by the public. Timely repayment also ensures liquidity
to facilitate loan to another in need, by circulation of the money and cannot
be permitted to be blocked by frivolous litigation by those who can afford the luxury
of the same. The caution required, as expressed in United Bank of India vs.
Satyawati Tandon, (2010) 8
SCC 110, has also not been kept in mind before passing the impugned interim
order. (SCC pp. 123-124, para 46)
“46. It must be remembered that stay of an
action initiated by the State and/or its agencies/instrumentalities for
recovery of taxes, cess, fees, etc. seriously impedes execution of projects of
public importance and disables them from discharging their constitutional and
legal obligations towards the citizens. In cases relating to recovery of the
dues of banks, financial institutions and secured creditors, stay granted by
the High Court would have serious adverse impact on the financial health of
such bodies/institutions, which (sic will) ultimately prove detrimental to the
economy of the nation. Therefore, the High Court should be extremely careful
and circumspect in exercising its discretion to grant stay in such matters. Of
course, if the petitioner is able to show that its case falls within any of the
exceptions carved out in Baburam Prakash Chandra Maheshwari v. Antarim Zila
Parishad, AIR 1969 SC 556; Whirlpool Corpn. v. Registrar of Trade Marks, (1998)
8 SCC 1; and, Harbanslal Sahnia v. Indian Oil Corpn. Ltd, (2003) 2 SCC 107, and
some other judgments, then the High Court may, after considering all the
relevant parameters and public interest, pass an appropriate interim order.”
16. A Division Bench of this Court in a
decision rendered in Misc.
Petition No.2271/2018 (M/s Crest Steel and Power Private Limited and others vs. Punjab
National Bank & others)
decided on 10.05.2018, while examining the provisions of the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993 relied upon the judgment of
the Supreme Court rendered in Central
Bank of India (supra) to
return a finding that primary object of the said Act is to facilitate creation of
special machinery for speedy recovery of the dues of the Banks and Financial
Institutions. The Tribunals and the Appellate Tribunals have also been freed
from the shackles of procedure contained in the Code of Civil Procedure. The
relevant extract from the said Division Bench decision, reads, thus:
“8.
The Act was enacted for establishment
of Tribunal and Appellate Tribunals for expeditious adjudication and recovery
of Debts due to Banks and Financial Institutions in the year 1993, consequent
to the report of the Committee on the Financial System headed by Shri M.
Narasimham. The three Judge Bench of the Hon’ble Supreme Court in a Judgment
reported as Central
Bank of India v. State of Kerala, (2009) 4 SCC 94, found that the primary object of the
Act is to facilitate creation of special machinery for speedy recovery of the
dues of Banks and Financial Institutions. The Act not only provides for
establishment of the Tribunals and the Appellate Tribunals with the
jurisdiction, powers and authority to make summary adjudication of applications
made by banks or financial institutions and specifies the modes of recovery of
the amount determined by the Tribunal or the Appellate Tribunal. The Tribunals
and the Appellate Tribunals have also been freed from the shackles of procedure
contained in the Code of Civil Procedure. Thus
the Act has not only brought into existence special procedural mechanism for
speedy recovery of the dues of Banks and Financial Institutions, but also made
provision for ensuring that defaulting borrowers are not able to invoke the
jurisdiction of civil courts for frustrating the proceedings initiated by the
Banks and Financial Institutions.”
17.
Thus, the provisions of the Act override all other provisions of the law which
are inconsistent therewith. Therefore, the provisions of the Act will prevail
over the provisions of all other Statutes and so as the Arbitration Act to the
extent of inconsistencies.
18. The judgment in Usha
Harshadkumar Dalal (supra) is a
judgment where the Court Receiver was appointed in exercise of power conferred
under Order XL Rule 1 and 3 of the Code of Civil Procedure. There is no dispute
that the Receiver is custodia
legis and the Court holds
the property for the benefit of the true owner. In the context of the present
proceedings, the Bank as a secured creditor has a preferential right over any
other creditor. In fact, the Court Receiver was appointed and symbolic possession
was given to the writ petitioners in proceedings under Section 9 of the
Arbitration Act. The Receiver was appointed to protect the property in terms of
Section 9 of the Arbitration Act. But such proceedings will not create any
encumbrance on the rights of secured creditor to enforce its rights against the
secured assets as such right is being exercised in terms of later and special
statute giving overriding effect to the Act. The Court Receiver appointed under
Section 9 of the Arbitration Act will not have preference over the later and
special Act which also gives overriding effect to such Act. Therefore, when the
District Magistrate passes an order under Section 14 of the Act, it is not
interfering with an order passed by the High Court under Section 9 of the
Arbitration Act. The District Magistrate is exercising power conferred upon him
by a special Central Statute. It is the jurisdictional Court which has passed
an order under the Arbitration Act. The District Magistrate is conferred with
the power to secure possession in favour of a secured creditor in a summary
manner. The District Magistrate is deriving its power not by the authority of
its office but by an authority of the Central Statute, which has given
overriding effect over all other laws including the Arbitration Act. The
question of rank of the officers will not be relevant as the District Magistrate
is not in the hierarchy of the officers under the Arbitration Act. Both statutes
operate in different field with the Act having overriding effect. Therefore,
such judgment is of no help to the argument raised by the learned counsel for
the writ-petitioners.
19. Learned counsel for the appellant relies upon an order
passed by a Division Bench of the Bombay High Court on 06.10.2016 in Appeal (L) No.162/2016 (Pratap G.
Somaiya and others vs. Rajesh Thakker and others), wherein, the Receiver appointed by a
Civil Court in Hyderabad sought execution of the award announced by the
Arbitrator. In proceedings under the Act, the Court Receiver declined to hand
over possession. The Bank sought intervention of the Court and after
considering the argument raised, the Court held as under:-
"41.
Dr. Sathe, the learned Senior Counsel for the Appellant submitted that without
proper adjudication of the debts, possession should not be handed over to the
Bank. This submission is required to be stated to be rejected. It is a well
settled position in law that proceedings under the SARFAESI Act are non-adjudicatory
in nature and this is settled by a long line of decisions of the Apex Court and
this Court. The Apex Court in Mardia Chemicals (supra) has considered various
provisions of the Act and thereafter upheld the constitutional validity of the
said Act. Division Bench of this Court in M/s Trade Well, a Proprietorship
Firm, Mumbai and Anr. vs. Indian Bank and Anr (2007 Cri.L.J.2544) has also in
terms held that the proceedings under the said Act are non-adjudicatory in
nature. The Apex Court in Transcore vs. Union
of India and Anr. (AIR 2007 SC 712) has also at great length discussed this
issue and made observations on the scope and nature of the proceedings which
are initiated and the measures which are to be taken by the Bank under Section
13(4) of the said Act. The Apex Court as well as this Court have noted that
though initially RDDB Act was passed in 1993, it was noticed that debts due to
Financial Institutions and Banks could not be recovered and therefore the
SARFAESI Act was passed in 2001 which came into force in 2002 and therefore
Banks were permitted to take measures under Section 13(4). The said contention
is therefore without any substance."
20.
Therefore, we find that the proceedings initiated by the appellant under Section
14 of the Act cannot be said to be illegal on account of a Receiver appointed
in proceedings under Section 9 of the Arbitration Act.
21. We also do not find any merit in the argument that the
appellant has not filed detailed affidavit, as required in terms of Section 14
of the Act. Section 14 of the Act contemplates the disclosure on nine different
points. Such disclosure has been made in an application under Section 14 of the
Act (Annexure P-12 to the writ petition). Such an application is accompanied
with an affidavit of Shri Rohit Wadhwa, Regional Collection Manager, Aditya
Birla Finance Ltd. to the effect that the total amount due to the appellant is
Rs.28,63,11,181/- and that the property described therein is mortgaged in
favour of the appellant and that notice under Section 13 has been issued and
that reply to the notice received, has been considered and that the appellant
is intending to take over possession in terms of Section 13(4) of the Act. It
is also asserted that the appellant has complied with the provisions of the Act
and the Rules made thereunder. Such affidavit, which is available at page 368
(I to K) of the paper-book shows that all nine points have been mentioned
specifically in the affidavit. Therefore, it cannot be said that the appellant
has not specified the precondition mentioned in Section 14 of the Act.
22. In respect of an argument that the appellant has not
disclosed an order passed by the Bombay High Court in proceedings under Section
9 of the Arbitration Act, suffice it to state that such fact is not
contemplated to be disclosed in the proceedings under Section 14 of the Act.
The disclosure on affidavit is in respect of nine points as mentioned in
Section 14 of the Act. The petitioners have not suffered any prejudice on
account of non-disclosure of such fact as such disclosure was not mandatory on
an application under Section 14 of the Act.
23. The Act does not contemplate symbolic or actual possession,
which has been so held by the Supreme Court in a judgment reported as (2008) 1 SCC 125 (Transcore vs.
Union of India and Another).
The relevant extract of the judgment reads as under:-
"73. The word possession is a relative
concept. It is not an absolute concept. The
dichotomy between symbolic and physical possession does not find place in the
Act. As stated above, there is a conceptual distinction between securities by
which the creditor obtains ownership of or interest in the property concerned
(mortgages) and securities where the creditor obtains neither an interest in
nor possession of the property but the property is appropriated to the
satisfaction of the debt (charges). Basically, the NPA Act deals with the
former type of securities under which the secured creditor, namely, the bank/FI
obtains interest in the property concerned. It is for this reason that the NPA
Act ousts the intervention of the courts/ tribunals.
74. Keeping the above conceptual aspect in
mind, we find that Section 13(4) of the NPA Act proceeds on the basis that the
borrower, who is under a liability, has failed to discharge his liability
within the period prescribed under Section 13(2), which enables the secured
creditor to take recourse to one of the measures, namely, taking possession of
the secured assets including the right to transfer by way of lease, assignment
or sale for realizing the secured assets. Section 13(4-A) refers to the word
"possession" simpliciter. There is no dichotomy in sub-section (4-A)
as pleaded on behalf of the borrowers. Under Rule 8 of the 2002 Rules, the
authorised officer is empowered to take possession by delivering the possession
notice prepared as nearly as possible in Appendix IV to the 2002 Rules.
................Therefore, the scheme of Section 13(4) read with Section 17(3) shows
that if the borrower is dispossessed, not in accordance with the provisions of
the Act, then the DRT is entitled to put the clock back by restoring the status quo ante. Therefore, it cannot be said that if
possession is taken before confirmation of sale, the rights of the borrower to
get the dispute adjudicated upon is defeated by the authorised officer taking
possession. As stated above, the NPA Act provides for recovery of possession by
non-adjudicatory process, therefore, to say that the rights of the borrower
would be defeated without adjudication would be erroneous. Rule 8, undoubtedly,
refers to sale of immovable secured asset. However, Rule 8(4) indicates that
where possession is taken by the authorised officer before issuance of sale certificate
under Rule 9, the authorised officer shall take steps for preservation and
protection of secured assets till they are sold or otherwise disposed of. Under
Section 13(8), if the dues of the secured creditor together with all costs,
charges and expenses incurred by him are tendered to the creditor before the
date fixed for sale or transfer, the asset shall not be sold or transferred.
The costs, charges and expenses referred to in Section 13(8) will include
costs, charges and expenses which the authorised officer incurs for preserving
and protecting the secured assets till they are sold or disposed of in terms of
Rule 8(4). Thus, Rule 8 deals with the stage anterior to the issuance of sale
certificate and delivery of possession under Rule 9. Till the time of issuance
of sale certificate, the authorised officer is like a court receiver under
Order XL Rule 1 CPC. The court receiver can take symbolic possession and in
appropriate cases where the court receiver finds that a third party interest is
likely to be created overnight, he can take actual possession even prior to the
decree. The authorized officer under Rule 8 has greater powers than even a
court receiver as security interest in the property is already created in
favour of the banks/FIs.
......................."
(emphasis supplied)
24. Such judgment
has been followed by a three Judge Bench judgment in Central Bank of India's case
(supra) wherein it was held
as under:- "151. The Court in Transcore case (Transcore v.
Union of India, (2008) 1 SCC 125 then considered the three provisos inserted in
Section 19(1) of the DRT Act by amending Act 30 of 2004 and held that
withdrawal of the OA pending before the Tribunal under the DRT Act is not a
condition precedent for taking recourse to the Securitisation Act."
25. This Court in WP No. 19028 of 2017
( Sunil Garg Vs. Bank of Baroda) decided on 16.4.2018 held that there is
no distinction between symbolic and physical possession either under Section
13(4) or under Section 14 of the Act or for that matter in any other provisions
of the Act. The
Court held as under:-
“06.
Sub-section (4) of Section 13 of the Act authorizes the secured creditor to
take possession of the secured assets including that the secured creditor has a
right to transfer by way of lease, assignment or sale for realising the secured
debts. Still further, the District Magistrate or the Chief Metropolitan Magistrate
or any Officer authorised by him is competent to take possession of any secured
asset. There is no distinction between symbolic and physical possession either
under Section 13(4) or under Section 14 of the Act or for that matter in any
other provisions of the Act or the Rules made thereunder.”
26. The argument of Shri Nagrath,
learned senior counsel for the respondent Nos.1 and 2 that since the District
Magistrate has not dealt with the fact of the order passed by the Bombay High
Court appointing Receiver, therefore, matter should be remitted back to the
District Magistrate, is based upon a judgment of Madras High Court reported as II (2016) BC 567 (DB) (Mad.)
(Telesat Media Matrix Pvt. Ltd. vs. Chief Metropolitan Magistrate and others) rendered in Writ Petition No.17840 of
2015 and M.P. Nos. 1 and 2 of 2015 decided on 21.07.2015.
27. We do not find any merit in the said argument as well. The
issue raised was a question of fact as to whether the petitioner is in
possession of the property in question on the basis of lease agreement. The
said judgment refers to the Supreme Court judgment reported as (2014) 6 SCC 1
(Harshad Govardhan Sondagar vs. International Assets Reconstruction Company
Limited and others) to hold that such question is required to be decided while
considering an application under Section 14 of the Act. But, present is not a
case where any such question is required to be decided. The property in
question is mortgaged in favour of the appellant; therefore, it is a secured
asset. In respect of secured assets, the District Magistrate is duty bound to
hand over physical possession to the secured creditor in terms of Section 14 of
the Act. Therefore, such judgment provides no assistance to the argument raised.
28. Coming to the argument that opportunity of hearing was not
granted to the writ-petitioners and that the order passed by the District
Magistrate violates the principles of natural justice is again not tenable. The
Bombay High Court in a judgment reported as 2007 Cri LJ 2544 (Bom.) (Trade Well vs. Indian Bank) has held that the District Magistrate
is not required to give notice either to the borrower or to the third party. He
is only to verify from the Bank whether notice under Section 13(2) of the Act
has been issued or not. The said judgment has been quoted with approval by the
Supreme Court in a judgment reported as (2013)
9 SCC 620 (Standard Chartered Bank, etc. vs. V. Noble Kumar and others, etc), wherein it was held as under:-
“22. However, the Bombay High Court in Trade Well v. Indian Bank [2007 Cri.L.J.
2544 (Bom.)] opined;
"2 ...CMM/DM acting under Section 14 of the NPA 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 NPA Act is given or not and whether the
secured assets fall within his jurisdiction. There is no adjudication of any kind at this 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 NPA 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." (emphasis
supplied) The said judgment was followed by the Madras High Court in Indian Overseas Bank v. Sree
Aravindh Steels Ltd. [AIR 2009 Mad. 10]. Subsequently,
Parliament inserted a proviso to section 14(1) and also subsection (1-A) by Act
1 of 2013.
***
*** ***
25. The satisfaction of the Magistrate
contemplated under the second proviso to section 14(1) necessarily requires the
Magistrate to examine the factual correctness of the assertions made in such an
affidavit but not the legal niceties of the transaction. It is only after
recording of his satisfaction the Magistrate can pass appropriate orders
regarding taking of possession of the secured asset.”
29. Thus, the proceedings under Section
14 of the Act are not proceedings to adjudicate the rights of the parties.
Therefore, no notice is contemplated to be served upon the debtor, as such
proceedings are taken only after serving notice under Section 13 of the Act.
30. In view of the aforesaid, we find that the order of the
learned Single Bench allowing the writ petition cannot be sustained in law. The
same is set aside and the order of the District Magistrate is restored. The
present appeal stands allowed.