Saturday, May 18, 2013

SC judgement :C.N.Paramsivan & Anr vs Sunrise Plaza Tr.Partner & Ors.





Supreme Court of India

C.N.Paramsivan & Anr vs Sunrise Plaza Tr.Partner & Ors.
 on 9 January, 2013
Author: ……..………….……….…..…J.
Bench: T.S. Thakur, Gyan Sudha Misra
, , , ,
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 154 OF 2013
(Arising out of S.L.P. (C) No.21765 of 2010)

C.N. Paramsivan & Anr. …Appellants
Versus
Sunrise Plaza TR.
Partner & Ors. …Respondents

J U D G M E N T
T.S. THAKUR, J.

1. Leave granted.

2. This appeal by special leave arises out of an order passed by the High Court of Judicature at Madras whereby writ petition No.14594 of 2007 filed by the appellants has been dismissed and orders passed by the Debt Recovery Appellate Tribunal in M.A. No.90 of 2006 upheld, no matter on a ground other than the one on which that found favour with the Appellate Tribunal.

3. Facts leading to the filing of the writ petition have been set out at considerable length in the orders passed by the Appellate Tribunal and that passed by the High Court. We do not, therefore, consider it necessary to recapitulate the entire history over again except to the extent the same is necessary for the disposal of the present appeal. The long drawn legal battle that has raged over the past two decades or so has its genesis in a loan which respondent Indian Bank advanced to M/s. Sunrise Plaza, a partnership concern comprising respondent-S. Kalyanasundaram and his wife - Mrs. Vasantha Kalyanasundaram. The loan was advanced on the basis of an equitable mortgage of the properties owned by the partners of the firm by deposit of title deeds relevant thereto. The borrower having defaulted in the repayment of the loan amount, the respondent-bank filed O.A. No.238 of 1998 re-numbered as O.A. No.1098 of 2001 before the Debt Recovery Tribunal at Chennai. Failure of the respondents to appear and contest the claim made against them culminated in the passing of an ex-parte decree in favour of the bank on 20th September, 1999. An application for setting aside of the said decree was then made by the borrower defendants which was dismissed by the Tribunal for default. An application for recall of the said order too failed and was dismissed by the Tribunal.

4. Proceedings for execution of the Recovery Certificate issued in favour of the bank were in the meantime initiated and the property mortgaged with the bank brought to sale in a public auction on 7th March, 2003 in which the appellants emerged as the successful bidders. The respondents then filed I.A. No.146 of 2003 for setting aside of the auction sale, while I.A. No.150 of 2003 filed by them prayed for an order of refusal of confirmation of the sale. The Debt Recovery Tribunal passed a conditional order in the said application deferring the confirmation of sale subject to the judgment-debtor depositing a sum of Rs.10,00,000/- with the decree holder bank on or before 25th April, 2003. I.A. No.146 of 2003 for setting aside the sale was, however, dismissed by the Tribunal on 15th April, 2003, as not maintainable. A prayer made by the respondents - judgment-debtors for extension of time to make the deposit of the amount directed by the Tribunal having been rejected, the recovery officer proceeded further and issued a sale certificate in favour of the appellants on 28th May, 2003. The judgment-debtors -respondent Nos.1 to 3 then filed an appeal challenging the orders passed by the Debt Recovery Tribunal in which the Appellate Tribunal directed them to pay the requisite court fee.

5. Aggrieved by the order of the Appellate Tribunal, the judgment- debtors filed Writ Petition No.28235 of 2003 in which the High Court by an order dated 14th October, 2003 set aside the ex-parte decree on payment of costs. That order when challenged by the decree holder bank in a Special Leave Petition before this Court was affirmed and the SLP dismissed in July 2004. Undeterred by the dismissal of the Special Leave Petition, the bank filed a Review Application before the High Court for review of its order dated 14th October, 2003 setting aside the ex-parte decree. Even the appellants herein filed a review petition against the said order which applications were dismissed by the High Court with liberty to the auction purchaser-appellants herein to represent their case before the Debt Recovery Tribunal in the O.A. pending before it.

6. The appellants-auction purchasers at that stage filed I.A. No.20 of 2005 before the Debt Recovery Tribunal at Chennai seeking delivery of possession of the property purchased by them. That application was allowed by the Tribunal with a direction to the Recovery Officer to put the auction purchasers in possession of the property in question. The defendants- respondents herein challenged that order before the Appellate Tribunal at Chennai on several grounds in M.A. No.90 of 2006. The Appellate Tribunal allowed the said appeal and set aside the order passed by the Debt Recovery Tribunal with a direction to the Debt Recovery Tribunal to take up I.A. No.20 of 2005 along with O.A. No.1098 of 2001 and dispose of the same in accordance with law.

7. The appellants questioned the correctness of the above order in Writ Petition No.29356 of 2006 which was allowed by a Division Bench of the High Court by Order dated 29th November, 2006, setting aside the order passed by the Appellate Tribunal and remitting the matter back to the Debt Recovery Appellate Tribunal to decide the issue whether or not the rights of a bona fide purchaser get curtailed if the ex-parte decree on the basis whereof the auction sale was conducted is eventually set aside. The Debt Recovery Appellate Tribunal examined the matter afresh and held that the appellants- auction purchasers were not bona fide purchasers of the property as they were aware of the pending legal proceedings between the bank and the borrower. The Tribunal accordingly set aside the sale with a direction to the defendants-respondents 1 to 3 to deposit the entire amount claimed in original application.

8. Aggrieved by the orders passed by the Appellate Tribunal, the appellants filed Writ Petition No.14594 of 2007 before the High Court which writ petition has been dismissed by the High Court as already mentioned above. The High Court approached the issues from a slightly different angle; for instead of going into the question whether the appellants were bona fide auction purchasers, it examined the validity of the auction itself and came to the conclusion that the auction conducted by the Recovery Officer was illegal and void because of non-compliance with the provisions of Rule 57 in the Second Schedule of the Income Tax Act, 1961 which were in view of the provisions of Section 29 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to a ‘RDDB Act’ for short) applicable to recovery of debt dues under the latter mentioned Act. The present appeal assails the correctness of the above order passed by the High Court.

9. Appearing for the appellants Mr. L. Nageshwar Rao, learned senior counsel, made a threefold submission in support of his case. Firstly he contended that the remand order passed by the High Court in the earlier round was limited to the Appellate Tribunal finding out whether the rights of a bona fide purchaser stood curtailed in view of the setting aside of the ex-parte decree on which the auction had been conducted. While the Tribunal had answered that question, the High Court had failed to do so in the writ petition filed by the appellants. The High Court had digressed from the subject and added a new dimension which had not been noticed or pressed in the earlier round.

10. Secondly he contended that even if the High Court could examine a ground other than the one on which a remand had been ordered, it failed to appreciate that the provisions of the Income Tax Rules set out in the Second Schedule of the Income Tax Act were applicable only “as far as possible and with necessary modification”. This was, according to Mr. Rao, evident from a plain reading of Section 29 of the RDDB Act. The use of the expressions “as far as possible” and “with necessary modifications”, argued the learned counsel, gave sufficient play at the joints to the Recovery Officer to apply the said rules in the manner considered most appropriate by him, having regard to the facts and circumstances of a given case. The High Court had, argued Mr. Rao, fallen in an error in ignoring the expressions appearing in Section 29 and proceeding with the matter as if Rule 57 of the said rules was mandatory and applicable with full force. It was also contended by the learned counsel that if Rules 57 and 58 of the Income Tax Rules were held applicable in the form in which they appear in the Second Schedule, the requirement of Rule 61 of the said Rules could not be ignored and had to be mandatorily followed. Inasmuch as the Interlocutory Application filed by the judgment-debtor for setting aside the sale had been dismissed by the Tribunal and inasmuch as there was no challenge to the said dismissal order at any stage, the High Court ought to have held that the condition precedent for setting aside the sale namely filing of a proper application was not satisfied thereby rendering the sale in favour of the appellants immune from any challenge or interference.

11. It was thirdly argued by learned counsel for the appellants that the appellants were bona fide purchasers, hence protected against any interference with the sale in their favour, no matter the decree on the basis whereof the sale had been effected had itself been set aside by High Court. Reliance in support was placed by Mr. Rao upon the decisions of this Court in Janak Raj v. Gurdial Singh (1967) 2 SCR 77; Janatha Textiles and Ors. v. Tax Recovery Officer and Anr. (2008) 12 SCC 582; (1994) 2 SCC 364, Padanathil Ruqmini Amma Vs. P.K. Abdulla (1996) 7 SCC 668. It was further contended that a contrary view was no doubt expressed by a Two- Judge Bench of this Court in Chinnammal and Ors. v. P. Arumugham and Anr. (1990) 1 SCC 513 but the conflict between the two lines of the decisions referred to above deserved to be resolved by a reference to a larger Bench.

12. Mr. Rakesh Dwivedi, learned senior counsel appearing for the respondents, per contra argued that the scope of the proceeding before the High Court in the second round was not in any way limited by the earlier remand order and the High Court could have and has indeed examined the question of validity of the auction sale. He urged that the provisions of the Income Tax Rules in the Second Schedule of the Act were applicable in the form in which the said rules were found in the statute book as no modification or amendment of the said rules had been made either by any legislative enactment or by way of Rules under the RDDB Act. He contended that the words “as far as possible” were incapable of conveying that the Recovery Officer could at his discretion play with the rules without any limitations on his power or discretion and without any guidelines under the Act or the Rules. He submitted that decision of this Court in Chinnammal and Ors. v. P. Arumugham and Anr. (1990) 1 SCC 513 was not in conflict with the view taken in the decisions relied upon by Mr. Rao inasmuch as the said decisions had not examined the issue as to what would constitute a bona fide purchaser to be entitled to protection in law. We propose to deal with the contentions raised by Mr. Rao ad seriatim.

13. The remand ordered by the High Court in Writ Petition No.29356/2006 was an open remand which allowed the parties to urge their respective contentions not only in regard to the rights of a bona fide purchaser, but any other contention available to them on facts and in law. This is evident from the operative portion of the order passed by the High Court which was as under:

“In the above circumstances, as agreed by learned counsel appearing for the parties, the impugned order dated 13.7.2006 passed by the Debt Recovery Appellate Tribunal in M.A. No.90 of 2006 is set aside and the case is remitted to the Debt Recovery Appellate Tribunal, Chennai, to determine the aforesaid issues and any other issue as has been raised by one or other party in M.A. No.90 of 2006, preferably within two months from the date of receipt or production of a copy of this order.”

14. The language employed in the remand order apart, the High Court had not examined or determined the question whether Rule 57 of the Income Tax Rules was mandatory and if so whether there was any breach of that provision or the effect thereof. There was no discussion leave alone any finality to the determination of that aspect, so as to prevent anyone of the parties from urging their submissions on those questions. We have in that view no hesitation in rejecting the first limb of Mr. Rao’s argument that the High Court could not have gone into any other question apart the rights of a bona fide purchaser in the proceedings arising after the remand order.

15. That brings us to the question whether Section 29 of the RDDB Act do not apply the Income Tax Rules in the Second Schedule of the Income Tax Act to the recovery proceedings under RDDB Act with full force and that the expression ‘as far as possible’ appearing in Section 29 vests the Recovery Officer with discretion to apply the said Rules depending upon the fact situation of each case. Section 29 of the RDDB Act 29 is as under:
29. Application of certain provisions of Income-tax Act.—The provisions of the Second and Third Schedules to the Income-tax Act, 1961 and the Income-tax (Certificate Proceedings) Rules, 1962, as in force from time to time shall, as far as possible, apply with necessary modifications as if the said provisions and the rules referred to the amount of debt due under this Act instead of to the Income-tax:

Provided that any reference under the said provisions and the rules to the “assessee” shall be construed as a reference to the defendant under this Act.

16. A bare reading of the above leaves no manner of doubt that the rules under Income Tax Act were applicable only “as far as possible” and with the modification as if the said provisions and the rules referred to the amount of debt due under the RDDB Act instead of the Income Tax Act. The question is whether the said two expressions render the provisions of Rule 57 directory no matter the same is couched in a language that is manifestly mandatory in nature.

17. Legislation by incorporation is a device to which legislatures often take resort for the sake of convenience. The phenomenon is widely prevalent and has been the subject matter of judicial pronouncements by Courts in this country as much as Courts abroad. Justice G.P. Singh in his celebrated work on Principles of Statutory Interpretation has explained the concept in the following words:

“Incorporation of an earlier Act into a later Act is a legislative device adopted for the sake of convenience in order to avoid verbatim reproduction of the provisions of the earlier Act into the later. When an earlier Act or certain of its provisions are incorporated by reference into a later Act, the provisions so incorporated become part and parcel of the later Act as if they had been ‘bodily transposed into it. The effect of incorporation is admirably stated by LORD ESHER, M.R.: ‘If a subsequent Act brings into itself by reference some of the clauses of a former Act, the legal effect of that, as has often been held, is to write those sections into the new Act as if they had been actually written in it with the pen, or printed in it.
Even though only particular sections of an earlier Act are incorporated into later, in construing the incorporated sections it may be at times necessary and permissible to refer to other parts of the earlier statute which are not incorporated. As was stated by LORD BLACKBURN: “When a single section of an Act of Parliament is introduced into another Act, I think it must be read in the sense it bore in the original Act from which it was taken, and that consequently it is perfectly legitimate to refer to all the rest of that Act in order to ascertain what the section meant, though those other sections are not incorporated in the new Act.”

18. In Ram Kirpal Bhagat and Ors. v. State of Bihar (1969) 3 SCC 471 this Court examined the effect of bringing into an Act the provisions of an earlier Act and held that the legislation by incorporation of the provisions of an earlier Act into a subsequent Act is that the provisions so incorporated are treated to have been incorporated in the subsequent legislation for the first time. This Court observed:

“The effect of bringing into an Act the provisions of an earlier Act is to introduce the incorporated Sections of the earlier Act into the subsequent Act as if those provisions have been enacted in it for the first time. The nature of such a piece of legislation was explained by Lord Esher M. R. in Re Wood’s Estate [1881] 31 Ch. D.607 that “if some clauses of a former Act were brought into the subsequent Act the legal effect was to write those Sections into the new Act just as if they had been written in it with the pen”.

19. To the same effect is the decision of this Court in Mahindra and Mahindra Ltd. v. Union of India and Anr. (1979) 2 SCC 529 where this Court held that once the incorporation is made, the provisions incorporated become an integral part of the statute in which it is transposed and thereafter there is no need to refer to the statute from which the incorporation is made and any subsequent amendment made in it has no effect on the incorporating statute. The following passage is in this regard apposite:

“The effect of incorporation is as if the provisions were written out in the incorporating statute and were a part of it. Legislation by incorporation is a common legislative device employed by the legislature, where the legislature for convenience of drafting incorporates provisions from an existing statue by reference to that statute instead of setting out for itself at length the provisions which it desires to adopt. Once the incorporation is made, the provision incorporated becomes an integral part of the statute in which it is transposed and thereafter there is no need to refer to the statute from which the incorporation is made and any subsequent amendment made in it has no effect on the incorporating statute.”
20. We may also refer to the decisions of this Court in Onkarlal Nandlal v. Rajasthan and Anr.(1985) 4 SCC 404, Mary Roy and Ors. v. State of Kerala and Ors. (1986) 2 SCC 209, Nagpur Improvement Trust v. Vasantrao and Ors. and Jaswantibai and Ors. (2002) 7 SCC 657, and M/s Surana Steels Pvt. Ltd. v. The Deputy Commissioner of Income Tax and Ors. (1999) 4 SCC 306, which have reiterated the above proposition of law.

21. Applying the above principles to the case at hand Section 29 of the RDDB Act incorporates the provisions of the Rules found in the Second Schedule to the Income Tax Act for purposes of realisation of the dues by the Recovery Officer under the RDDB Act. The expressions “as far as possible” and “with necessary modifications” appearing in Section 29 have been used to take care of situations where certain provisions under the Income Tax Rules may have no application on account of the scheme under the RDDB Act being different from that of the Income Tax Act or the Rules framed thereunder. The provisions of the Rules, it is manifest, from a careful reading of Section 29 are attracted only in so far as the same deal with recovery of debts under the Act with the modification that the ‘amount of debt’ referred to in the Rules is deemed to be one under the RDDB Act. That modification was intended to make the position explicit and to avoid any confusion in the application of the Income Tax Rules to the recovery of debts under the RDDB Act, which confusion could arise from a literal application of the Rules to recoveries under the said Act. Proviso to Section 29 further makes it clear that any reference “to the assessee” under the provisions of the Income Tax Act and the Rules shall be construed as a reference to the defendant under the RDDB Act. It is noteworthy that the Income Tax Rules make provisions that do not strictly deal with recovery of debts under the Act. Such of the rules cannot possibly apply to recovery of debts under the RDDB Act. For instance Rules 86 and 87 under the Income Tax Act do not have any application to the provisions of the RDDB Act, while Rules 57 and 58 of the said Rules in the Second Schedule deal with the process of recovery of the amount due and present no difficulty in enforcing them for recoveries under the RDDB Act. Suffice it to say that the use of the words “as far as possible” in Section 29 of RDDB Act simply indicate that the provisions of the Income Tax Rules are applicable except such of them as do not have any role to play in the matter of recovery of debts recoverable under the RDDB Act. The argument that the use of the words “as far as possible” in Section 29 is meant to give discretion to the Recovery Officer to apply the said Rules or not to apply the same in specific fact situations has not impressed us and is accordingly rejected.

22. In Osmania University v. V.S. Muthurangam and Ors. (1997) 10 SCC 741, the question that fell for consideration was whether the age of superannuation of the non-teaching staff at Osmania University should be raised to 60 years when the same had been raised to 60 years for the University's teaching staff. Since Section 38(1) of the Osmania University Act, 1959 stated that the conditions of service for all salaried staff of the University shall be uniform “as far as possible”, the decision in the case turned on the meaning to be given to that phrase. It was argued by the Solicitor General on behalf of the University that the use of this phrase in Section 38(1) indicated that the provision could be departed from in certain situations. This Court ruled otherwise and held as follows :

“8...Mr. Solicitor General is justified in his contention that Section 38(1) of the Act recognizes flexibility and the expression 'as far as possible' inheres in it an inbuilt flexibility...But if uniform conditions of service for teaching and non teaching staff of the University is not otherwise impracticable, the University is under an obligation to maintain such uniformity because of the mandate of Section 38(1) of the Act. In the instant case, we do not find that it is not at all practicable for the University to maintain the parity in the age of superannuation of both teaching and non teaching staff.”

(emphasis supplied)

23. It follows that while the phrase “as far as possible”, may be indicative of a certain inbuilt flexibility, the scope of that flexibility extends only to what is “not at all practicable”. In order to show that Rules 57 and 58 of the Second Schedule of the Income Tax Act may be departed from under the RDDB Act, it would have to be proved that the application of these Rules is “not at all practicable” in the context of RDDB Act.

24. The interchangeable use of the words “possible” and “practicable” was previously established by a three-judge Bench of this Court in N.K. Chauhan and Ors. v. State of Gujarat and Ors., (1977) 1 SCC 308, where this Court observed that in simple Anglo-Saxon Practicable, feasible, possible, performable, are more or less interchangeable. Webster defines the term ‘practicable’ thus :
“1. That can be put into practice; feasible. 2. That can be used for an intended purpose; usable.”
25. Black's Law Dictionary similarly defines ‘practicable’ as follows :
“(Of a thing) reasonably capable of being accomplished; feasible.”

26. It is, therefore, reasonable to hold that the phrase “as far as possible” used in Section 29 of the RDDB Act can at best mean that the Income Tax Rules may not apply where it is not at all possible to apply them having regard to the scheme and the context of the legislation.

27. There is nothing in the provisions of Section 29 of RDDB Act or the scheme of the rules under the Income Tax Act to suggest that a discretion wider than what is explained above was meant to be conferred upon the Recovery Officer under Section 29 of the RDDB Act or Rule 57 of the Income Tax Rules which reads as under:

“57. (1) On every sale of immovable property, the person declared to be the purchaser shall pay, immediately after such declaration, a deposit of twenty-five per cent on the amount of his purchase money, to the officer conducting the sale; and, in default of such deposit, the property shall forthwith be resold.

(2) The full amount of purchase money payable shall be paid by the purchaser to the Tax Recovery Officer on or before the fifteenth day from the date of the sale of the property.”
28. It is clear from a plain reading of the above that the provision is mandatory in character. The use of the word “shall” is both textually and contextually indicative of the making of the deposit of the amount being a mandatory requirement. The provisions of Rules 57 and 58 of the Income Tax Rules, have their equivalent in Order XXI Rules 84, 85 & 86 of the C.P.C. which are pari materia in language, sweep and effect and have been held to be mandatory by this Court in Manilal Mohanlal Shah and Ors. v. Sardar Sayed Ahmed Sayed Mahmed and Anr. (AIR 1954 SC 349) in the following words:
“8. The provision regarding the deposit of 25 per cent. by the purchaser other than the decree-holder is mandatory as the language of the rule suggests. The full amount of the purchase-money must be paid within fifteen days from the date of the sale but the decree- holder is entitled to the advantage of a set-off. The provision for payment is, however, mandatory... (Rule 85). If the payment is not made within the period of fifteen days, the Court has the discretion to forfeit the deposit, and there the discretion ends but the obligation of the Court to re-sell the property is imperative. A further consequence of non-payment is that the defaulting purchaser forfeits all claim to the property (Rule 86)...
9...These provisions leave no doubt that unless the deposit and the payment are made as required by the mandatory provisions of the rules, there is no sale in the eye of law in favour of the defaulting purchaser and no right to own and possess the property accrues to him.
xx xx xx xx
11. Having examined the language of the relevant rules and the judicial decisions bearing upon the subject we are of opinion that the provisions of the rules requiring the deposit of 25 per cent. of the purchase-money immediately on the person being declared as a purchaser and the payment of the balance within 15 days of the sale are mandatory and upon non-compliance with these provisions there is no sale at all. The rules do not contemplate that there can be any sale in favour of a purchaser without depositing 25 per cent. of the purchase-money in the first instance and the balance within 15 days. When there is no sale within the contemplation of these rules, there can be no question of material irregularity in the conduct of the sale. Non-payment of the price on the part of the defaulting purchaser renders the sale proceedings as a complete nullity. The very fact that the Court is bound to resell the property in the event of a default shows that the previous proceedings for sale are completely wiped out as if they do not exist in the eye of law. We hold, therefore, that in the circumstances of the present case there was no sale and the purchasers acquired no rights at all.”

29. Relying in Manilal Mohanlal’s case (supra) Rules 84, 85 and 86 of Order XXI were also held to be mandatory in Sardara Singh (Dead) by Lrs. and Anr. v. Sardara Singh (Dead) and Ors. (1990) 4 SCC 90.

30. Similarly in Balram, son of Bhasa Ram v. Ilam Singh and Ors. (1996) 5 SCC 705 this Court reiterated the legal position in the following words:
“7...it was clearly held [in Manilal Mohanlal] that Rule 85 being mandatory, its non-compliance renders the sale proceedings a complete nullity requiring the executing court to proceed under Rule 86 and property has to be resold unless the judgment-debtor satisfies the decree by making the payment before the resale. The argument that the executing court has inherent power to extend time on the ground of its own mistake was also expressly rejected...”
31. We may also refer to the decisions of this Court in Rao Mahmood Ahmed Khan v. Sh. Ranbir Singh and Ors. (1995) 4 SCC 275, Gangabai Gopaldas Mohata v. Fulchand and Ors. (1997) 10 SCC 387, Himadri Coke & Petro Ltd. v. Soneko Developers (P) Ltd. And Ors. (2005) 12 SCC 364 and Shilpa Shares and Securities and Ors. v. The National Co-operative Bank Ltd. and Ors. (2007) 12 SCC 165, wherein the same position has been taken.
32. In the light of the above we see no reason to hold that Rules 57 and 58 of the Income Tax Rules are anything but mandatory in nature, so that a breach of the requirements under those Rules will render the auction non- est in the eyes of law.

33. That leaves us with the third and the only other submission made by Mr. Rao touching the rights of bonafide purchaser and whether there is any conflict between the decisions of this Court on the subject to call for a reference to a larger bench. There is, in our opinion, no doubt that there is an apparent conflict between the decisions upon which reliance was placed by learned counsel for the parties. But having regard to the view that we have taken on the question of the validity of this auction itself, we do not consider it necessary to make a reference to a larger bench to resolve the conflict. The cleavage in the judicial opinion is for the present case only of academic importance, hence need not be addressed by us or by a larger bench for the present.

34. In the result, this appeal fails and is hereby dismissed but in the circumstances without any order as to costs.

……..………….……….…..…J.
(T.S. Thakur)
…………………………..…..…J.
(Gyan Sudha Misra)
New Delhi
January 9, 2013

Friday, May 17, 2013

NPA agony: PSU banks continue to face loan restructuring requests





ET Bureau | May 16, 2013, 09.07AM 

KOLKATA/MUMBAI: Banks may continue to face tough times for yet another quarter as borrowers, facing business downswing, queue up with loan restructuring requests. 

Bank of Baroda (BoB) and Union Bank of India, two big lenders, expect to restructure loans worth Rs 4,800 crore in the first quarter alone as distressed borrowers approach them for debt recast. Another public sector bank, Bank of India, said it may have to restructure loans worth around Rs 500 crore. 

While BoB chairman SS Mundra indicated that its restructured loan book stood at Rs 22,617 crore for the year ended March 2013, Union Bank of India's CMD Debabrata Sarkar echoed similar fears, maintaining that the stress may continue for a while. Both these banks have restructured Rs 4,200 crore between them in the fourth quarter. BoB has reported a 32% fall in net profit while Union Bank of IndiaBSE 5.39 % saw a modest 2% rise on account of higher provision to cover bad loans. 

"We have restructured loans of Rs 1,400 crore in the fourth quarter and expect to restructure Rs 2,200 crore in the first quarter of this fiscal year. But improving asset quality is now the priority for the bank," Sarkar added. 


UBI, which had hit the headlines last month with its aggressive recovery drive, has reported an 80% drop in Q4 net profit at Rs 31 crore on account of bad loans and thinning margin. "The next quarter will be a tight-rope walk for us," the bank's CMD Archana Bhargava said. "Our effort will be to bring down NPAs. We will give it a try. Let's see what happens," she said. 

However, Bank of India chief VR Iyer appeared a little more optimistic. "We expect profits to improve and stress to reduce in the coming quarter. A lot will also depend on the operating environment," she added. 

The bank's net NPAs rose 62% to Rs 5,947 crore. The aggregate restructured loans stood at Rs 17,641 crore and the incremental restructured loan in Q4 was Rs 2,159 crore. 

PNB's net fell 21% to Rs 1,131 crore due to higher provisioning. Its gross NPA ratio has deteriorated to 4.27% from 2.9% a year ago. Net NPAs worsened to 2.4% from 1.5%.


Gilani opposes implementation of proposed SARFAESI Act in IHK





Srinagar May 16 (KMS)Kashmir Media Service:2013
 In occupied Kashmir, the veteran Hurriyet leader, Syed Ali Gilani has said that the proposal for implementation of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities (SARFAESI) Act in Kashmir will prove detrimental to the Kashmiris’ interests.Syed Ali Gilani in a statement issued in Srinagar said that the proposed Act to be implemented through an ordinance was a deliberate attempt to dilute special status to Kashmir “It is aimed at providing one more unconstitutional entry for those outsiders who intend to occupy the estates through illegal means,” he added.
.
He said that the ordinance would pave way for the authorities to seize the properties of bank defaulters. “And the properties and assets seized so far will go into the hands of outsiders through the proposed auction. Though the Article 370 guarantees the special status for the territory and the article lays that no property or land shall go to the people residing outside it through sale deed and auction but the proposal of RBI will pave way for the transfer of property and land,” the veteran Hurriyet leader maintained.
He feared if the SARFAESI Act is implemented in occupied Kashmir, it would have disastrous impact over the political status of the territory.
Gilani castigated the pro-India political parties for supporting the proposed ordinance. “They (pro-India parties) have always played role against the wishes of Kashmiri people for their vested interests. The ruling National Conference for the lust of power have bargained the special status of Kashmir. NC though claiming to be the champion for so-called autonomy and projecting itself as saviour and mentor for Article 370 has always deceived the Kashmiri people,” he deplored.




Srinagar, May 15 (KMS):Kashmir Media Service:2013
 In occupied Kashmir, experts and academicians have expressed strong resentment over puppet Chief Minister Omar Abdullah’s assertion about bringing an ordinance aimed at diluting the Article 370 which accords a special status to Jammu and Kashmir.The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002, allows banks and financial institutions of India to own and auction properties—both residential and commercial—when borrowers fail to repay their loans. However, the Act is not applicable to Jammu and Kashmir as non-state subjects cannot own property in the territory because of the Article 370.
Former Chairman of Jammu and Kashmir Bank and a leading economist, Haseeb Drabu, in an article said that the SARFAEASI Act would jeopardize the special status of Kashmir.
Last week, Revenue Bank of India Governor, D Subbarao, during his visit to Kashmir said that Omar Abdullah had assured him that the authorities would enact SARFAESI Act in the Assembly or extend it through an ordinance shortly.
Shakeel Qalandar, former president of Federation Chamber of Industries Kashmir expressed surprise over the assurance of Omar Abdullah to the RBI Governor, saying “it is a severe attempt to dilute the Article 370, but any attempt to do that would be opposed.”
“You are giving an authority to a non-state subject for holding the rights of property within the territory. In case of any defaults, banks can take over the property or they can sell it out to any other person not necessarily a state subject,” said Qalandar. “It will only give powers to outsiders to buy and sell property here, so it should be unacceptable to anybody in the Jammu and Kashmir.”
Prof Mohi-ud-Din Sangmi, HoD Business and Financial Studies at University of Kashmir said that RBI’s claim that “it cannot force banks to improve the CD Ratio in the state does not hold much water. RBI can take number of measures, which will compel banks to increase the lending.
“Politically they failed to dilute Article 370, now they have taken economic root to grab Kashmir land,” a Kashmir university student wrote on Twitter.

Geelani opposes proposed SARFAESI Act in JK

‘IT IS AIMED TO DILUTE ARTICLE 370’



 Greater Kashmir :Srinagar May 15: 2013

Chairman of Hurriyat Conference (G) Syed Ali Shah Geelani on Wednesday said the proposal for implementation of SARFAESI Act in Jammu and Kashmir will prove detrimental to interests of people of the state.
 “The proposed Act to be implemented through an ordinance is a deliberate attempt to dilute special status to J&K. It is aimed to provide one more unconstitutional entry for those outsiders who intend to occupy the estates through illegal means,” Geelani said in a statement.
 Elaborating Geelani said this ordinance would pave way for the authorities to seize the properties of bank defaulters.  “And the properties and assets so seized will go into the hands of outsiders through the proposed auction. Though the Article 370 guaranties the special status for state and the article lays that no property or land shall go to the people residing outside state through sale deed and auction but the said proposal of RBI will pave way for the transfer of property and land,” Geelani said.
 “If the SARFAESI Act is implemented in the state, it would have disastrous impact over the political status of State,” he added. 
 Geelani castigated the mainstream political parties for favoring the proposed ordinance. “They (local mainstream parties) have always for their vested interests played against the wishes of people. The ruling National Conference for the lust of power have bargained the special status of state.
 NC though claiming to be the champion for so-called Autonomy and projecting itself as saviour and mentor for Article 370 has always deceived the people of state,” he said.
 “They (NC leadership) handed over thousands of kanals of land to Indian forces and enacted infamous Land Grants Bill. We will oppose the proposed SARFAESI Act. We won’t play as mute spectator and we feel our duty to warn the rulers about the effects and miseries it will bring to people of J &K,” Geelani added while castigating the Chief Minister Omar Abdullah for his assurance to RBI Governor to bring an ordinance to make SARFAESI Act applicable in J &K.
 Pertinently, the SARFAESI or the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Act, 2002 was enacted to regulate securitization and reconstruction of financial assets and enforcement of security interest created in respect of Financial Assets to enable realization of such assets.
 The SARFAESI Act provides for the manner for enforcement of security interests by a secured creditor without the intervention of a court or tribunal. If any borrower fails to discharge his liability in repayment of any secured debt within 60 days of notice from the date of notice by the secured creditor, the secured creditor is conferred with powers under the SARFAESI Act to take possession of the secured assets of the borrower, including transfer by way of lease, assignment or sale, for realizing the secured assets.



Tuesday, May 14, 2013

The spectacular fall of Vijay Mallya and Captain Gopinat


The spectacular fall of Vijay Mallya and Captain Gopinath

first postCuckoo Paul: May 14, 2013


India’s biggest lender, the State Bank of India is in a unique position this month. It is pulling the plug on two amazing entrepreneurs. Both extremely passionate businessmen who launched startups that aimed for the sky. Sadly, both failed rather spectacularly and the bank and other lenders and suppliers are trying to pick up the pieces.
Capt Gopinath and Vijay Mallya may seem like chalk and cheese. The first is probably India’s most vocal champion of the aam janata, much before Arvind Kejriwal came on the scene. The second is synonym for good times…or was.
Theirs are stories of entrepreneurial capitalism as they spotted opportunity way before anyone else did and strove to create wealth for themselves as well as others.
More recently, though, the stories have also been about their struggle to keep their businesses afloat.
SBI’s auction of real estate and other assets pledged by Capt Gopi for Deccan Cargo and Express Logistics (DCEL) is slated for the end of this month. The bank is trying to recover Rs 211 crore, classified as a non-performing asset. This will probably be from sale of real estate pledged to the bank. Over the seven years, after he sold Air Deccan, Capt Gopi has launched and failed at a string of aviation-related ventures. Never one to give up, he was very close to starting Air Deccan Version 2, with a bunch of foreign investors early this year. The plan was to be announced once his non-compete clause with Kingfisher ended in February. But this never materialised. The investors developed cold feet after the surprise launch of the much stronger AirAsia-Tata LCC. It was tough to keep lenders at bay and everything began unravelling rather fast thereafter.
AFP
Capt Gopi has launched and failed at a string of aviation-related ventures.AFP
















Many of the problems with Capt Gopi’s recent businesses Deccan 360, Deccan Shuttles (Gujarat) and Deccan Charters were a result of the entrepreneur’s management style-much of it was evident in the way his airline was run.
Though, SBI’s losses are entirely on another level with Vijay Mallya and Kingfisher Airlines. The public sector lender leads a consortium of 17 banks that have an outstanding loan of about Rs 7,000 crore. About Rs 1,000 crore of this has been recovered and the bank is now moving to liquidate Mallya’s personal guarantees.
There are obviously lessons to be  learnt from the rather well-documented failure of the two entrepreneurs. Their career trajectories are intertwined in a rather tragic-comic way after Capt Gopi sold his airline to Mallya. Both have no love lost for each other. Capt Gopi says of Mallya that “he killed my airline and I think then he killed his own.”
Closer scrutiny shows many amazing parallels in their management styles. Here are the simplest ones that we’ve pieced together from our conversations with the two entrepreneurs over the past decade and this week (with the benefit of hindsight) with senior managers and investors who worked with them.
#Problems of Micro-management
Everyone who worked with Capt Gopi agrees he is a visionary-he was able to spot the potential for LCCs, at a time when everyone else was saying it just couldn’t be done in India. But arguably, his biggest failure was that the inability to take a step back once the airline was up and running. He had his finger in almost every part of the airline operation. From dealing with the regulators and politicians in Delhi to the airport managers in Hubli and Kolhapur he did it all. This was so when he operated just two aircraft, and also when he had 22. One senior manager remembers how Capt Gopi kept it up, even after he had sold the airline to Kingfisher. He was still on the board, with a small residual stake and it was embarrassing how he still tried to run the airline, he says. Mallya had already signalled that he intended to jettison the low cost model. But Capt Gopi would continue urging colleagues to do what he said. One person remembers being asked to do a massive cheap ticket sale to draw in more passengers.
Being unable to delegate is an even more severe problem with Vijay Mallya. He was hugely involved with Kingfisher, and this may have been the biggest contributor to the downfall. Stories about him personally selecting the crew and their uniform are by now urban legends of the Indian airline industry.
But line managers say there was much more. Even when there were people hired to do a job, he would get very closely involved. Monitoring ontime performance daily did not simply mean that reason for delays on every single Kingfisher flight were sent to his Blackberry, but he would call up from all around the world, to check on the reasons and make changes in schedules/timings. The problems were compounded because Mallya also had UB’s liquor businesses to run. His time was at a premium, and most of it was devoted to ’personally’ looking after details of the airline.
#Mucked up operations
Three years into Air Deccan’s journey, the airline was in an operational mess. It had acquired a bad reputation for cancellations, lost bags and very poor ontime performance. Thousands had bought into Capt Gopi’s dream of ’Everyone can fly’, but were upset by the poor delivery. Complaints piled up and violence at the check-in counters was not uncommon. In 2005, he tried fixing this by bringing in a brand-new team of expats, mostly from Europe, headed by Warwick Brady as chief operating officer. For a time Brady and his team were able to patch up the system, but this didn’t last. Resentment built up between the expats and the local (Indian) employees. The problems were never sorted and by the time they left, the brand had lost its sheen.
At Deccan 360, which was in the express logistics business, the problems were more severe. The airline was unable to sign up the big-ticket anchor customers that were so critical to provide cargo that would fill the planes. This was despite hiring a team with strong logistics and aviation background. The venture folded up by 2011.
At Kingfisher, the problems were, if anything, larger. Even before breaking even on domestic flights, Mallya had quickly started international operations-using rights from Air Deccan. He launched flights from three Indian cities to London. He ordered planes worth billions of dollars, and began drawing plans towards long-haul flights to cities in Africa, Asia, Europe and North America. As it turned out, this was too much too soon. As the global financial crisis deepened, corporate traffic tanked and there were simply not enough people flying. The long-distance flights with a
handful of passengers on the international routes guzzled fuel and money! At one time the London flights amounted to a quarter of the total losses. Even when the going got tougher, pride dictated Mallya’s business decisions. He wouldn’t cut the London flights until March 2012, by which time losses had eroded the net worth completely.
#Poor organization structure/ processes
In both cases, people at various levels reported directly to the entrepreneur. Air Deccan never had a CEO, and the COO (chief operating officer) was the top executive. But the power was always with the founder. One former COO, says he was nothing but a dummy.
At Kingfisher, the confusion was even more widespread. There airline never had a real CEO, until Sanjay Agarwal was appointed in 2011, by which time the airline was already in a downward spiral. It has had COOs at various points, but with little power. “Irrespective of their designations, dozens of people in the organisation reported directly to Mallya,” says one vice-president, who is still with the airline. The boss had direct equations with some people and their power in the company came from their proximity to him, he says. Many senior employees, including the CFO, admin head and legal head, were never on Kingfisher payroll. They came from UB and remained that way. There were active fights for turf, as the mini-CEOs fought with each other.
Mallya’s legendary ‘management after sunset’ style did not help either. “It was crazy how so many decisions were taken at midnight,” says a sales head who quit last year. The sad part was that we’d be waiting for him from 3 pm, doing nothing, he says.
#Slow response to external changes
Capt Gopinath’s latest venture, Deccan Shuttles-aimed at linking smaller cities in Gujarat with charter services-almost didn’t take off. The
government changed its rules, disallowing wet-lease (leasing with crew) of aircraft. This was done even while Capt Gopi’s planes (and crew) were on the way from Europe, and stranded in Muscat. The service which finally started with a nine-seater Cessna Caravan could never breakeven. It wound up this month.
Mallya’s dream for Kingfisher and his aviation business was King-size. He was in talks to buy a light jet manufacturer in the US and had personally begun negotiating slots and space for Kingfisher lounges in airports around the world. He dreamt one day of being able to fill up his A380s with passengers from India. The financial meltdown changed all that. At first people simply cut down their travel, when they started they chose LCCs. Mallya was unable to respond in time.
As Tolstoy said, `Happy families are all alike; every unhappy family is unhappy in its own way.’ The parallels we’ve listed out, between the way the two Bangalore entrepreneurs did their business, are certainly not the only reasons why they failed. There are scores of others, and not all of them can be documented here. The airline business is complex anywhere in the world and even more so in India. It burns cash fast, is highly regulated and produces a commodity that is worth nothing if not sold in time. Making a success of it is no small beer.
 Cuckoo Paul writes for Forbes India

Monday, May 13, 2013

Kingfisher loan recovery positive for Indian banks: Moody’s

The development reflects the progress banks are making in recovering loan from non-performing borrowers, which is essential to trim losses. Photo: Mint
The development reflects the progress banks are making in recovering loan
 from non-performing borrowers, which is essential to trim losses. Photo: Mint

 Bloomberg :Live Mint : Mon, May 13 2013. 09 08 AM IST

17 lenders recovering Rs.1,000 crore from sale of Kingfisher shares kept with them as collateral is credit positive


Seventeen lenders recovering as much as Rs.1,000 crore from sale ofKingfisher Airlines Ltd shares kept with them as collateral is credit positive, Moody’s says in e-mail statement.
The development reflects the progress banks are making in recovering loan from non-performing borrowers, which is essential to trim losses, Moody’s e-mail statement said.
Lenders recovered the amount in over 45 days. The “swift” timing points to efficient legal process and reduces risk of costly procedure, the statement added.