Dated: 15.04.2008
Coram:
The Honourable Mr.A.P.SHAH, CHIEF JUSTICE,
The Honourable Mr.Justice F.M.IBRAHIM KALIFULLA
and
The Honourable Mr.Justice V.RAMASUBRAMANIAN
-------------
W.P.Nos. 37148 & 37534 of 2007
&
connected miscellaneous petitions
---------
W.P.No. 37148 of 2007
1. M/s.Lakshmi Shankar Mills (P) Ltd.,
Aranmanai Siruvayal,
Kallai 630 305.
2. V.Lakshminarayanan
3. V.L.Velayutham
4. L.Shankarnarayanan . Petitioners
vs.
1. The Authorised Officer/Chief Manager,
Indian Bank,
No.101, East Avanimoola Street,
Madurai Main Road,
Madurai 695 001.
2. Macrotech Engineers,
No.123, Venkatalakshmi Nagar,
Trichy Road,
Singanallur,
Coimbatore.
3. The Registrar,
Debt Recovery Appellate Tribunal,
Chennai 8. Respondents
W.P.No. 37534 of 2007
Canara Bank,
R.S.Puram Branch,
Represented by Chief Manager/
Authorised Officer Th.N.Viswanathan,
100, D.B.Road,
Coimbatore 641 002. Petitioner
Vs.
1. The Debt Recovery Appellate Tribunal,
4th Floor, Indian Bank Circle Office,
55, Ethiraj Salai,
Chennai 600 008.
2. The Debt Recovery Tribunal,
No.1670, Cauvery Complex,
Trichy Road, Ramanathapuram,
Coimbatore - 641 045.
3. BAPL Industries Ltd.,
having Registered Office at
Bhuradia Chambers,
Old No.123/1, New No.14 Bharathi Park Road,
No.2, Coimbatore 641 043.
Rep. by its Chairman R.G.Bhuradia. Respondents
Petitions filed under Article 226 of the Constitution of India praying for the issue of a Writ of Certiorari for the reasons stated therein.
For Petitioners
in W.P.No.37148/2007 :::: Mr.Rajasekaran
For Respondent1 in
W.P.No.37148/2007 :::: Mr.Jayesh B.Dolia
For Respondent 2 in
W.P.No. 37148/2007 :::: Mr.T.R.Rajagopalan,
Senior Counsel for
Ms.Ananda Gomathy
For Respondent :::: Mr.V.T.Gopalan,
(M.P.No.3 of 2008) Asst.Solicitor General for
Mr.F.B.Benjamin George
For Respondent ::: Mr.G.Masilanmani,
(M.P.No.1 of 2008) Senior Counsel for
Mr.F.B.Benjamin George
For Respondent ::: Mr.K.N.Bhat,
(M.P.No.2 of 2008) Senior Counsel for Mr.F.B.Benjamin George
For Petitioner in
W.P.No. 37534/2007 :::: Mr.A.L.Somayaji,
Senior Counsel for
Mr.L.S.Lakshmanan
For Respondent 3 in
W.P.No. 37534/2007 ::: Mr.T.V.Ramanujun,
Senior Counsel for
Mr.K.Sivakumar
For Union of India ::: Mr.V.T.Gopalan,
Addl.Solicitor General
Assisted by
Mr.P.Wilson, ASG
For Intervenors ::: Mr.M.S.Krishnan,
(on behalf of Banks & Mr.S.Sethuraman,
Borrowers) Mr.Srinath Sridevan
For Petitioner in
W.P.No.1418/08 ::: Mr.Vijay Narayanan,
Senior Counsel for
Mrs.Narmada Sampath
For Respondents 2&3
in W.P.No.1418/2008 ::: Mr.Jayesh B.Dolia
O R D E R
THE HON BLE CHIEF JUSTICE
Interpretation of the amended provisions of Sections 13 and 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, hereinafter for brevity s sake referred to as the Securitisation Act , is involved in this reference made to the larger Bench. By a common order passed in W.P.Nos. 37148 & 37534 of 2007, the Division Bench has referred the following questions which fall for our determination:-
(i)Whether even where no stay is prayed for by the Borrower, during pendency of the proceedings under Section 17 before the Debt Recovery Tribunal, the Secured Creditor can proceed to auction the secured asset even before a declaration envisaged under Section 17(4) of the SARFAESI Act as made by the Debt Recovery Tribunal?
(ii)Whether for granting any stay of auction, the Debt Recovery Tribunal can impose any condition relating to deposit?
(iii)Whether, even before finalisation of the proceedings under Section 17 of the SARFAESI Act, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal has any incidental or ancillary power to pass any interim order relating to restoration of possession or restoration of management, subject to imposition of any reasonable condition as deemed fit and proper?
(iv)What is the scope of enquiry under Section 17 of the SARFAESI Act and whether the merits of the contentions raised by the borrower can be decided while dealing with the question relating to validity of the action taken by the Bank under Section 13 of the Act?
2. Since the reference arises in the above two writ petitions, we may briefly refer to the relevant facts of the writ petitions.
3. W.P.No. 37148 of 2007
The petitioners availed open cash credit facility and working capital turnover limit on various occasions since 1991 from the first respondent-Indian Bank. The Bank issued a demand notice under Section 13(2) of the Securitisation Act and took possession of the mortgaged properties. Aggrieved by the action of the Bank, the petitioners approached the Debts Recovery Tribunal and in the I.A. for interim relief taken out by the petitioners the Debts Recovery Tribunal directed the petitioners to deposit a sum of Rs.28.25 lakhs within three weeks from the date of receipt of its order and allowed the Bank to proceed with the auction, but defer further proceedings including the confirmation of sale, etc till further orders.
It was further directed by the Tribunal that the stay would stand automatically vacated if the petitioners fail to comply with the condition imposed in the order.
The Bank, thereafter, conducted auction and the second respondent herein emerged as the highest bidder.
Since the petitioners failed to deposit the amount as per the condition imposed by the Tribunal, the Bank proceeded with issuing confirmation letter to the purchaser and subsequently issued sale certificate to the purchaser.
The petitioners then, preferred an appeal to the Debts Recovery Appellate Tribunal, Chennai (In SARFAESI) No. 744 of 2007 wherein stay of further proceedings was granted on condition that the petitioners shall deposit a sum of Rs.30 lakhs in two instalments.
The Debts Recovery Appellate Tribunal ultimately vacated the interim relief by order dated 28th November, 2007. Aggrieved by the order of the Debts Recovery Appellate Tribunal, the present petition has been filed.
4. W.P.No. 37534 of 2007
This petition is preferred by the Canara Bank The petitioner Bank on behalf of the third respondent issued a Deferred Payment Guarantee (DPG) in favour of a foreign Bank namely, Raiffeisen Zentral Bank, Oesterrich, Vienna, Austria to finance for the installation of a spinning mill. The DPG was for 19,000,000/- Austrian Shillings, which is equivalent to Rs.6,04,13,421/- in Indian currency as on 28.1.1998.
The value of the guaranteed amount less commission was credited to the account of the third respondent by the said Austrian Bank. The third respondent executed a counter indemnity in favour of the petitioner undertaking to reimburse the outstanding debt if ultimately the DPG is crystallized and devolved as a liability on the petitioner. The third respondent also mortgaged its immovable property at Nallatipalayam Village, Pollachi Taluk by deposit of title deeds.
At this stage, we do not deem it necessary to narrate the further facts in detail, suffice it to say that the third respondent failed to pay the instalments to the foreign Bank and consequently, the petitioner Bank initiated proceedings under the Securitisation Act. The Bank also filed O.A.No.92 of 2005 for recovery of its dues and the same is pending before the Debt Recovery Tribunal, Coimbatore.
Meanwhile, the third respondent approached the Debt Recovery Tribunal, Coimbatore in I.A.No.538 of 2005 wherein the Tribunal stayed all further proceedings in pursuance to the possession notice issued under Section 13(4) of the Securitisation Act and directed the company to deposit a sum of Rs.2,60,00,000/- with the petitioner bank.
The company filed appeal before the Debt Recovery Appellate Tribunal, which came to be allowed and the amount ordered to be paid was reduced to Rs.2 crores from Rs.2.60 crores and it was further directed that the counter claim said to have been made by the third respondent in the OA may also be taken up along with the SARFAESI appeal, heard and disposed of simultaneously.
The petitioner Bank is mainly aggrieved by the reduction of the deposit amount from Rs.2.60 crores to Rs.2 crores.
5. Before the Division Bench it was submitted by the learned counsel appearing for the borrowers that till the application under Section 17(1) of the Securitisation Act is decided and as contemplated under Section 17(4) of the Act the Debts Recovery Tribunal declares that the recourse taken by the secured creditor under Section 13(4) is in accordance with the provisions of the Act, the secured creditor shall not be entitled to take further recourse to one or more measures specified under sub-section (4) of Section 13 to recover the secured debt.
It was submitted that the right of the secured creditor to auction the property remains in abeyance until the Tribunal declares that the recourse taken by the secured creditor under Section 13(4) was in accordance with the provisions of the Securitisation Act. It was therefore argued that the Tribunal has no power to direct the borrower to deposit any amount as a condition of stay failing which the secured creditor can auction the property even before such proceedings are finalized on merit. On the other hand, on behalf of the banks it was submitted that mere filing of an application under Section 17 of the Securitisation Act should not be construed as an automatic stay as held by a Division Bench of this Court in M/s.Ramco Super Leathers Ltd. and 4 Others Vs. UCO Bank and Another, (2007) 5 MLJ 986.
It was submitted that there is no occasion for the Tribunal to order redelivery of the possession before the final determination of the issue. A contention was also raised by the learned counsel for the banks that the decision of the Division Bench in Mission Leather Ltd. Vs. Canara Bank, Chennai,( 2007) 4 MLJ 245, wherein it is observed that it is open to the borrower to raise all questions, may not be correct in view of the decision of the Supreme Court in Transcore Vs. Union of India and Another, (2006) 5 CTC 753.
The Division Bench felt that the questions raised by the counsel for the parties are of seminal importance and similar questions are being raised time and again and therefore the matter is required to be decided by a larger Bench so that the legal position can be authoritatively laid down for future guidance of the courts including the tribunals.
6. We have heard Mr.T.R.Rajagopalan, Mr.T.V.Ramanujun, learned senior counsel and Mr.Rajasekaran, learned counsel appearing for the borrowers; Mr.A.L.Somayaji, learned senior counsel, Mr.Jayesh Dolia, learned counsel appearing for the respective banks; Mr.V.T.Gopalan, learned Additional Solicitor General appearing for the Union of India; Mr.G.Masilamani, Advocate General, Mr.K.N.Bhat, learned senior counsel, Mr.S.Sethuraman and Mr. Srinath Sridevan, learned counsel appearing for the intervenors on behalf of the banks and Mr.Vijay Narayanan learned senior counsel and Mr.M.S.Krishnan, learned counsel appearing for the intervenors-borrowers. Mr.M.S.Krishnan, Mr.Rajasekaran and Mr.Srinath Sridevan, also filed their written submissions.
7. In Mardia Chemicals Ltd. Vs. Union of India, (2004) 4 SCC 311 the validity of the Securitisation Act and, in particular, the vires of Sections 13,15, 17 and 34 thereof had been challenged. It was contended that the Securitisation Act vested arbitrary powers in the banks, without any guidelines for the exercise thereof and also without providing any appropriate and adequate mechanism to decide the disputes relating to the correctness of the demand, its validity and the actual amount of dues sought to be recovered from the borrowers. In paragraph 33 of the judgment, the Supreme Court formulated inter alia, the following questions which fell for determination:- (i) ..
(ii) Whether provisions as contained under Sections 13 and 17 of the Act provide adequate and efficacious mechanism to consider and decide the objections/disputes raised by a borrower against the recovery, particularly in view of bar to approach the civil court under Section 34 of the Act?
(iii) Whether the remedy available under Section 17 of the Act is illusory for the reason it is available only after the action is taken under Section 13(4) of the Act and the appeal would be entertainable only on deposit of 75% of the claim raised in the notice of demand? (iv) ..
(v)
(vi) Whether provision for sale of the properties without intervention of the court under Section 13 of the Act is akin to the English mortgage and its effect on the scope of the bar of the jurisdiction of the civil court?
In paragraph 45, the Supreme Court stated that it would consider as to what forums or remedies were available to the borrower to ventilate their grievances. While doing so, the Supreme Court observed that there must be some meaningful consideration of the objections raised by the borrower in answer to the notice under Section 13(2) before proceeding to take measures under Section 13(4). The Supreme Court observed that it would be necessary for the banks to apprise the borrower the reasons for not accepting the objections or points raised in the reply to the notice under Section 13(2) and communicate the same to the borrower.
The Supreme Court then proceeded to hold as under:-
The next safeguard available to a secured borrower within the framework of the Act is to approach the Debts Recovery Tribunal under Section 17 of the Act. Such a right accrues only after measures are taken under sub-section (4) of Section 13 of the Act.
However, to a very limited extent jurisdiction of the civil court can also be invoked, where for example, the action of the secured creditor is alleged to be fraudulent or his claim may be so absurd and untenable which may not require any probe whatsoever or to say precisely to the extent the scope is permissible to bring an action in the civil court in the case of English mortgages.
The challenge was upheld in respect of sub-section (2) of Section 17 which require a deposit of 75% of the amount of the demand notice before an appeal could be entertained by the Tribunal.
The Supreme Court thereafter summarized the judgment as under:-
79. Some submissions have been made pointing out that in certain circumstances it would not be clear as to in what manner the provisions of the Act would be workable. We feel the objections pointed out are not such which render the statute invalid or unconstitutional. Such problems about working of any particular provision of the Act in any particular factual situation, may be considered as and when they may arise. We, therefore, do not think it necessary to go into those questions.
80. Under the Act in consideration, we find that before taking action a notice of 60 days is required to be given and after the measures under Section 13(4) of the Act have been taken, a mechanism has been provided under Section 17 of the Act to approach the Debts Recovery Tribunal. The above noted provisions are for the purpose of giving some reasonable protection to the borrower. Viewing the matter in the above perspective, we find what emerges from different provisions of the Act, is as follows:
1. Under sub-section (2) of Section 13 it is incumbent upon the secured creditor to serve 60 days notice before proceeding to take any of the measures as provided under sub-section (4) of Section 13 of the Act. After service of notice, if the borrower raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections, howsoever brief they may be, must be communicated to the borrower. In connection with this conclusion we have already held a discussion in the earlier part of the judgment. The reasons so communicated shall only be for the purposes of the information/knowledge of the borrower without giving rise to any right to approach the Debts Recovery Tribunal under Section 17 of the Act, at that stage.
2. As already discussed earlier, on measures having been taken under sub-section (4) of Section 13 and before the date of sale/auction of the property it would be open for the borrower to file an appeal (petition) under Section 17 of the Act before the Debts Recovery Tribunal.
3. That the Tribunal in exercise of its ancillary powers shall have jurisdiction to pass any stay/interim order subject to the condition as it may deem fit and proper to impose.
4. In view of the discussion already held in this behalf, we find that the requirement of deposit of 75% of the amount claimed before entertaining an appeal (petition) under Section 17 of the Act is an oppressive, onerous and arbitrary condition against all the canons of reasonableness. Such a condition is invalid and it is liable to be struck down.
5. As discussed earlier in this judgment, we find that it will be open to maintain a civil suit in civil court, within the narrow scope and on the limited grounds on which they are permissible, in the matters relating to an English mortgage enforceable without intervention of the court.
81. In view of the discussion held in the judgment and the findings and directions contained in the preceding paragraphs, we hold that the borrowers would get a reasonably fair deal and opportunity to get the matter adjudicated upon before the Debts Recovery Tribunal.
The effect of some of the provisions may be a bit harsh for some of the borrowers but on that ground the impugned provisions of the Act cannot be said to be unconstitutional in view of the fact that the object of the Act is to achieve speedier recovery of the dues declared as NPAs and better availability of capital liquidity and resources to help in growth of the economy of the country and welfare of the people in general which would subserve the public interest.
82. We, therefore, subject to what is provided in para 80 above, uphold the validity of the Act and its provisions except that of sub-section (2) of Section 17 of the Act, which is declared ultra vires Article 14 of the Constitution of India.
8. It is important to note two amendments to the Securitisation Act after the judgment of the Supreme Court in Mardia Chemicals Case. These amendments were pursuant to and in consonance with the judgment in Mardia Chemicals and the observations therein. Firstly, in Section 13 of the Act, the following was added after sub-section (3), as sub-section (3-A):- (3-A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower: Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under Section 17 or the Court of District Judge under Section 17-A.
9. Secondly, sub-section (2) of Section 17, which was held to be unconstitutional by the Supreme Court was deleted and sub-sections (2) to (6) were inserted in Section 17 and original sub-section (3) was re-numbered as sub-section (7). The provisions of Section 17 of the Act after the amendment read as follows:- 17.Right to appeal (1) 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: [Provided that different fees may be prescribed for making the application by the borrower and the person other than the borrower.]
[Explanation For the removal of doubts, it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person (including borrower) to make an application to the Debts Recovery Tribunal under this sub-section] (2) The debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder. (3) If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub-section (4) of section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made thereunder, and require restoration of the management of the business to the borrower or restoration of possession of the secured assets to the borrower, it may by order, declare the recourse to any one or more measures referred to in sub-section (4) of section 13 taken by the creditors assets as invalid and restore the possession of the secured assets to the borrower or restore the management of the business to the borrower, as the case may be, and pass such order as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under sub-section (4) of Section 13. (4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under sub-section (4) of section 13, is in accordance with the provisions of this Act and the rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under sub-section (4) of section 13 to recover his secured debt. (5) Any application made under sub-section (1) shall be dealt with by the Debts Recovery Tribunal as expeditiously as possible and disposed of within sixty days from the date of such application:
Provided that the Debts Recovery Tribunal may, from time to time, extend the said period for reasons to be recorded in writing, so, however, that the total period of pendency of the application with the Debts Recovery Tribunal, shall not exceed four months from the date of making of such application made under sub-section (1). (6) If the application is not disposed of by the Debts Recovery Tribunal within the period of four months as specified in sub-section (5), any party to the application may make an application, in such form as may be prescribed, to the Appellate Tribunal for directing the Debts Recovery Tribunal for expeditious disposal of the application pending before the Debts Recovery Tribunal and the Appellate Tribunal may, on such application, make an order for expeditious disposal of the pending application by the Debts Recovery Tribunal. (7) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the application in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and the rules made thereunder.
Re.Question Nos. (i) & (ii)
10. The first question is whether the right of the bank to take proceedings under Section 13(4) shall remain suspended on filing an application under Section 17. The second question concerns the jurisdiction of the Debt Recovery Tribunal to impose a condition of deposit for grant of stay of auction. Section 13(4) of the Securitisation Act is pivotal to the whole controversy. It provides that a secured creditor may enforce any security interest without intervention of the court or tribunal irrespective of Section 69 or Section 69-A of the Transfer of Property Act where according to sub-section (2) of Section 13 the borrower is a defaulter in repayment of the secured debt or any instalment of repayment and further the debt standing against him has been classified as a non-performing asset by the secured creditor. Sub-section (2) of Section 13 further provides that before taking any steps in the direction of realizing the dues, the secured creditor must serve a notice in writing to the borrower requiring him to discharge the liabilities within a period of 60 days failing which the secured creditor would be entitled to take any of the measures as provided in sub-section (4) of Section 13. Sub-section (4) of Section 13 provides for four measures which can be taken by the secured creditor in case of non-compliance with the notice served upon the borrower namely, (a) to take possession of the secured assets including the right to transfer the secured assets by way of lease, assignment or sale; (b) to take over the management of the secured assets including the right to transfer; (c) to appoint a manager to manage the secured assets which have been taken possession of by the secured creditor; and (d) to require any person who had acquired any secured assets from the borrower or from whom any money is due to the borrower to pay the same as it may be sufficient to pay the secured debt. Sub-section 3-A, which has been inserted by the amendment, provides that if on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower. The proviso to sub-section 3-A provides that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under Section 17 or the Court of District Judge under Section 17-A. In Mardia Chemical s case, the Supreme Court has clearly held that such right accrues only if measures are taken under sub-section (4) of Section 13 of the Securitisation Act (para.48 SCC page 348). Therefore, only if one or other measure is taken by the secured creditor, a cause of action arises for any person or borrower to prefer an application under Section 17 of the Securitisation Act.
11. Under sub-section (1) of Section 17 any person aggrieved by any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor can prefer an appeal (application) to the Debts Recovery Tribunal within 45 days from the date on which such measures had been taken. Under sub-section (2) of Section 17, the Tribunal is bound to consider whether any of the measures referred to under sub-section (4) of Section 13 taken by the secured creditors are in accordance with the provisions of the Act. Under sub-section (3) of Section 17, after examining the facts and circumstances of the case, and evidence produced by the parties, if the Tribunal comes to the conclusion that any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor are not in accordance with the provisions of the Act and the rules, and require restoration of the management of the business or restoration of possession of the secured assets to the borrower, it may declare such action as invalid and restore possession of the secured assets to the borrower or restore the management of the business to the borrower, as the case may be. As a necessary corollary, sub-section (4) of Section 17 provides that if the Tribunal declares that the recourse taken by the secured creditor under sub-section (4) of Section 13 was in accordance with the provisions of the Act and the rules made thereunder, then, notwithstanding anything contained in the Act or any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under sub-section (4) of Section 13 to recover his secured debt.
12. On a plain reading of Section 17, it is seen that the Tribunal has wide powers to restore possession in favour of the borrower, if such action taken under sub-section (4) of Section 13 is declared invalid. Even where the property is sold or dealt with, pending hearing of the application under Section 17, the Tribunal is not rendered powerless to restore possession in favour of the borrower, if such action taken under sub-section (4) of Section 13 is declared invalid. In such an eventuality, sub-section (3) of Section 17 gives ample powers to the Tribunal to direct restoration of the possession or restoration of management, as the case may be or to pass such other order, as it may consider proper and necessary in relation to any of the recourse taken by the secured creditor under sub-section (4) of Section 13.
13. Learned counsel for the borrowers however argued that the use of the expressions if and then would only mean that the bank can take one or more measures laid down under Section 13(4) only if the Tribunal declares that the action taken already is in accordance with the provisions of the Securitisation Act and the rules made thereunder. It was submitted that the use of the word if connotes a condition precedent and no further action can be taken unless the condition is fulfilled. We are unable to accept the submission of the learned counsel for the borrowers. The provisions of Sections 13 and 17 are amended after the Marida Chemicals case. The Statement of Objects and Reasons makes it manifestly clear that the amendment has been effected in view of the judgment of the Supreme Court and to discourage the borrowers to postpone the repayment of their dues and also to enable the secured creditor to speedily recover their dues, if required by enforcement of security or other measures specified in sub-section (4) of Section 13 of the Act. Legislature was clearly aware of the ruling in Marida Chemicals case which interpreted Section 17 as granting to the Tribunal a discretionary power of stay. Accepting the submission of the borrowers would mean that the Legislature intended to undo this by enacting Section 17 so as to suspend the power of the banks to take appropriate measures under Section 13. It is a recognized rule of interpretation of Statutes that expressions used therein should ordinarily be understood in a sense in which they harmonized with the object of the statute and which effectuate the object of the legislature (See New India Sugar Mills Ltd. Vs. Commissioner of Sales Tax, AIR 1963 SC 1207). The provisions of Section 17 must therefore receive such construction at the hands of the Court as would advance the object and at any event not thwart it. In other words, the principle of purposive interpretation should be applied while construing the said provision. The Securitisation Act is enacted to provide a speedy and summary remedy for recovery of thousands of crores which were due to the banks and financial institutions and accepting the interpretation suggested by the counsel for the borrowers would defeat the very object of the Act.
14. The matter can be viewed from another angle. It is well known that when the Legislature wants to grant a statutory stay, it would expressly say so. For example, Section 36 of the Arbitration and Conciliation Act, 1996 pursuant to which an award can be enforced only after the expiry of the period for making an application under Section 34 or, if such an application is made, till it is refused by the Court. Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 is another example of statutory stay. There is nothing in Section 17 of the Securitisation Act which would indicate that the Legislature intended that there would be automatic stay of proceedings under Section 13(4) on filing an application under Section 17.
15. As regards the second question, there is no specific provision made under Section 17 of the Securitisation Act or under any other provisions of the said Act empowering the Tribunal to pass any interim order. But under sub-section (12) of Section 19 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993, the Tribunal has been empowered to pass various interim orders. If sub-section (7) of Section 17 of the Securitisation Act is read along with sub-section (12) of Section 19 of the Recovery of Debts due to Banks and Financial Institutions Act, it would be clear that the Tribunal also has jurisdiction to pass interim orders under Section 17 of the Securitisation Act in appropriate cases. In Marida Chemicals case, in clause (iv) of paragraph 80 of the judgment, the Supreme Court has categorically held that the Tribunal in exercise of its discretionary power shall have jurisdiction to pass any stay/interim order, subject to the condition as it may deem fit and proper to impose. Earlier, there was a controversy as to whether the Tribunal has power to grant ad-interim orders under Section 19(12) of the Recovery of Debts due to Banks and Financial Institutions Act, but that had been set at rest in I.C.I.C.I Ltd., v. Grapco Industries Ltd., AIR 1999 SC 1975. The Tribunal is thus empowered to grant interim stay subject to such conditions as may be deemed proper including condition of deposit. We may add that even under Section 69 of the Transfer of Property Act, the only remedy of the borrower, whose mortgagee has invoked Section 69 of the Transfer of Property Act, is to file a civil suit. In such suit, the power of the Court to grant injunction and to impose condition for the grant thereof has been recognized in Jagijivan v. Shridhar, 1878 ILR 2 Bom. 252 and Narasimchariar v. E.B.S. 3rd Branch, AIR 1955 Madras 135.
16. Repelling a similar argument, a Division Bench of this Court in Ramco Super Leathers Ltd. Vs. UCO Bank, (supra) has also held that there is no automatic stay or prohibition on the secured creditor to take recourse to one or more measures under sub-section (4) to Section 13 of the Securitisation Act to recover its secured debts, till an interim order is passed by the Tribunal. The following observations of the Bench are pertinent: - The finding of the Supreme Court at clause (4) of paragraph-80 aforesaid, is the answer to the question raised by the writ petitioner, wherein the Supreme Court held that the Tribunal, in exercise of its ancillary power, shall have jurisdiction to pass any stay/interim order, subject to the condition as it may deem fit and proper to impose. The corollary is that, there is no automatic stay or prohibition on the secured creditor to take recourse to one or more measures under sub-section (4) to Section 13 of the SARFAESI Act to recover its secured debts, till an interim order is passed by the Tribunal. From the aforesaid Section 17, it will be evident that any person, including borrower, could file an appeal (application) under Section 17 at any stage, including the stage when management of business is taken or possession of secured assets of the borrower, including right to transfer is taken over by the secured creditor. In such a case, the Tribunal has power to restore possession in favour of the borrower, if such action taken under sub-section (4) to Section 13 is declared invalid. Merely because a secured creditor has taken possession of secured asset, or issued notice inviting application for sale of secured asset, or issued a sale certificate in favour of one or other auction purchaser, will not render the Tribunal powerless to restore possession in favour of the borrower, if such action taken under sub-section (4) to Section 13 is found not in accordance with the Acts and the Rules framed thereunder, and is declared invalid.
17. We accordingly hold that there will be no automatic stay on filing of an application under Section 17 of the Securitisation Act, and the Tribunal while granting stay of auction can impose a condition relating to deposit. Re. Question (iii)
18. This question concerns the jurisdiction of the Debt Recovery Tribunal to pass any interim mandatory order relating to restoration of possession or restoration of management, pending the proceedings under Section 17 of the Securitisation Act. In Marida Chemicals case, the Supreme Court has held that the proceedings under Section 17 are not appellate proceedings, it is an initial action, which is brought before the forum as prescribed under the Act raising grievances against the action or measures taken by one of the parties to the contract. It is a stage of initial proceedings like filing a suit in the civil court. Proceedings under Section 17 of the Act are in lieu of the civil suit which remedy is ordinarily available, but for the bar under Section 34 of the Securitisation Act. Section 17(3) provides that if the Tribunal comes to the conclusion that any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor are not in accordance with the provisions of the Act and the rules made thereunder, it can declare such action as invalid and restore possession of the secured assets to the borrower or restore the management of the possession to the borrower, as the case may be. It is, thus, clear that once the possession of the secured asset is taken, there would be no occasion for the Tribunal to order redelivery of possession till final determination of the issue. In other words, it is only when the Tribunal comes to the conclusion that any of the measures, referred to in Section 13(4), taken by the secured creditor are not in accordance with the provisions of the Act and the rules made thereunder, then only the Tribunal can restore possession of such secured assets to the borrower. By virtue of sub-section (7) of Section 17 of the Securitisation Act read with Section 19(12) of the Recovery of Debts Due to Banks and Financial Institutions Act the Tribunal undoubtedly possess ancillary power to pass interim orders subject to the conditions as it may deem fit and proper to impose, but it does not in any way override the special provisions contained in Section 17(3) of the Securitisation Act. The statutory scheme of the Securitisation Act is such that the borrower could take recourse to application under Section 17 only if one or other measure is taken by the secured creditor, and the Tribunal can restore the status quo ante only if it comes to the conclusion that any of the measure taken by the secured creditor is not in accordance with the provisions of the Act. The scheme cannot be by-passed by issuing a mandatory order for redelivery of the possession before conclusion of the proceedings under Section 17. We may mention that we are supported in our view by an unreported decision of the Division Bench of this Court in the case of Authorised Officer, Indian Bank vs. The Debt Recovery Appellate Tribunal and 3 others (Writ Petition No.46413 of 2006 decided on 07.12.2006) and a decision of the Karnataka High Court in Syndicate Bank Vs. Basalingappa, AIR 2007 Karnataka 125.
Re.Question (iv)
19. This concerns the scope of the enquiry under Section 17 of the Securitisation Act and the question referred to us is whether the merits of the contentions raised by the borrower can be decided while dealing with the question relating to the validity of the action taken by the bank under Section 13(4) of the Securitisation Act. It was argued before the Division Bench that the decision in Ramco Super Leathers Ltd., v. UCO Bank (supra) may not be correct in view of the judgment of the Supreme Court in Transcore v. Union of India and another, (supra). In Transcore, the main question, which fell for consideration of the Supreme Court, was whether the withdrawal of an O.A in terms of the first proviso to Section 19(1) of the Recovery of Debts due to Banks and Financial Institutions Act, is a condition precedent to taking recourse to the Securitisation Act. In the context of this question, the Court examined the scheme of the Securitisation Act, and it was observed; - 13. .. The NPA Act is inspired by the provisions of the State Financial Corporations Act, 1951 ( SFC Act ), in particular Sections 29 and 31 thereof. The NPA Act proceeds on the basis that the liability of the borrower to repay has crystallized; that the debt has become due and that on account of delay the account of the borrower has become sub-standard and non-performing. The object of the DRT Act as well as the NPA Act is recovery of debt by non-adjudicatory process .
22. . On reading Section 13(2), which is the heart of the controversy in the present case, one finds that if a borrower, who is under a liability to a secured creditor, makes any default in repayment of secured debt and his account in respect of such debt is classified as non-performing asset then the secured creditor may require the borrower by notice in writing to discharge his liabilities within sixty days from the date of the notice failing which the secured creditor shall be entitled to exercise all or any of the rights given in Section 13(4). Reading Section 13(2) it is clear that the said sub-section proceeds on the basis that the borrower is already under a liability and further that, his account in the books of the bank or FI is classified as sub-standard, doubtful or loss. The NPA Act comes into force only when both these conditions are satisfied. Section 13(2) proceeds on the basis that the debt has become due. It proceeds on the basis that the account of the borrower in the books of bank/FI, which is an asset of the bank/FI, has become non-performing. Therefore, there is no scope of any dispute regarding the liability. There is a difference between accrual of liability, determination of liability and liquidation of liability
23. .The point to be noted is that the scheme of the NPA
Act does not deal with the disputes between the secured creditors and the borrower. On the contrary, the NPA Act deals with the rights of the secured creditors inter se. The reason is that the NPA Act proceeds on the basis that the liability of the borrower has crystallized and that his account is classified as non-performing asset in the hands of the bank/FI .. 24 However, under Section 17(2), the DRT is required to consider whether any of the measures referred to in Section 13(4) taken by the secured creditor for enforcement of security are in accordance with the provisions of the NPA Act and the Rules made thereunder. If the DRT, after examining the facts and circumstances of the case and the evidence produced by the parties, comes to the conclusion that any of the measures taken under Section 13(4) are not in accordance with the NPA Act, it shall direct the secured creditor to restore the possession/management to the borrower (vide Section 17(3) of NPA Act). On the other hand, after the DRT declares that the recourse taken by the secured creditor under Section 13(4) is in accordance with the provisions of the NPA Act then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to any one or more of the measures specified under Section 13(4) to recover his secured debt.
20. In Mison Leathers Ltd., v. Canara Bank, Chennai, (2007) 3 LW 500 the constitutional validity of the amended Section 17 was challenged on the ground that the remedy of filing application under Section 17 of the Act which is declared to be in the nature of the suit by the Supreme Court is totally taken away by the amendment and in any event, the remedy is only an empty formality and does not protect the rights of the borrowers, mortgagors and guarantors. Repelling this contention, the Division Bench observed: - 10. We are afraid that the contention is totally mis-conceived. The provisions of Section 17(1) of the Act provides remedy for the borrower/guarantor/mortgagor to challenge the action of the Bank under Section 13(4) of the Act before the Debt Recovery Tribunal. The Debt Recovery Tribunal is required to decide whether the action of the Bank/Financial institutions, under Section 13(4) is in accordance with the provisions of the Act and the rules framed thereunder. It is open to the borrower/guarantor /mortgagor to demonstrate before the Debt Recovery Tribunal that resort to Section 13 of the Act is not permissible by law. In a given case, the claim of the Bank/Financial Institutions may be barred by limitation or there may be cases, where the adjustment of the amount paid is not reflected in the notice or the calculation of interest may not be in accordance with the contract between the parties. Needless to say that all such grounds, which render the action of the Bank/Financial Institutions illegal can be raised in the proceedings under Section 17 of the Act before the Debt Recovery Tribunal.
11. Learned Additional Solicitor General and the learned counsel appearing for banks and financial institutions fairly stated that all the objections which can be legally raised in the reply to the notice under Section 13(2) of the Act can also be raised in the proceedings under Section 17(1) of the Act. It would be for the Debt Recovery Tribunal to decide in each case whether the action of the bank is in accordance with the provisions of the Act and is legally sustainable.
21. As can be seen from the Statement of Objects and Reasons of the Securitisation Act, the main purpose of the Securitisation Act, and in particular Section 13 thereof, is to enable and empower the secured creditors to take possession of their securities and to deal with them without the intervention of the Court. Therefore, in an application under Section 17, the Tribunal is concerned only with the validity of the acts of the secured creditor in taking possession of the securities and dealing with the same under Section 13. In our opinion, the Division Bench has rightly held that all such grounds, which would render the action of the bank/financial institution illegal, can be raised before the Tribunal in the proceedings under Section 17. It is for the Tribunal to decide in each case whether the action of the bank was in accordance with the provisions of the Act and legally sustainable. However, we hasten to add that while considering the question of validity of the action of the bank, it is not necessary for the Tribunal to adjudicate the exact amount due to the secured creditors. In other words, the purpose of an application under Section 17 is not the determination of the quantum of claim per se as the Tribunal is concerned with the issue of the validity of the measures taken by the banks/financial institutions under Section 13(4). In our opinion, the judgment of the Division Bench in Mison Leathers Ltd., lays down the law correctly and does not require any reconsideration.
22. In the light of the foregoing discussion, we summarise our findings as follows: -
(i)The right of the bank is not automatically suspended upon filing of an application under Section 17 of the Securitisation Act and the secured creditor can proceed to auction secured asset where no stay is granted by the Tribunal. (ii)The Tribunal has power to impose the condition relating to deposit for grant of stay of auction.
(iii)The Tribunal has no power to pass any interim mandatory order relating to restoration of possession or restoration of management before the finalisation of the proceedings under Section 17 of the Securitisation Act, and (iv)All such grounds, which rendered the action of the bank/financial institution illegal, can be raised in the proceedings under Section 17 of the Securitisation Act before the Debt Recovery Tribunal.
It is for the Debt Recovery Tribunal to decide in each case whether the action of the bank/financial institution was in accordance with the provisions of the said Act and legally sustainable.
23. The reference is answered accordingly. Registry is directed to place the petitions before the appropriate Court dealing with the matter.
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