Icici Bank vs Shanti Devi Sharma and Others

Supreme Court of India

Icici Bank vs Shanti Devi Sharma & Others on 15 May, 2008

Author: D Bhandari

Bench: D Bhandari, T Chatterjee

REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPEALLTE JURISDICTION

CRIMINAL APPEAL NO. OF 2008. [Arising out of SLP (Crl.) No. 4935 of 2006] ICICI Bank .. Appellant Versus

Shanti Devi Sharma & Others .. Respondents JUDGMENT

Dalveer Bhandari, J.

1. Leave granted.

2. This appeal is directed against the order dated 13th July, 2006 passed by the High Court of Delhi in Writ Petition (Criminal) No. 576 of 2006 and order dated 11th August, 2006 1

passed in Crl. M. A. Nos. 8093-94/2006 in W.P. (Crl.) No. 576 of 2006.

3. The question that arises in this case in narrow compass: Should part of the impugned judgment be expunged so that it may not adversely influence on an ongoing criminal investigation? The respondent filed a criminal writ petition number 576 of 2006 with the Delhi High Court. Vide this writ petition, the respondents sought a writ of mandamus that would direct the Commissioner of Police to take action against the appellant bank. Respondent no.1 alleged that her son committed suicide as a result of the manner in which the bank's recovery agents had repossessed her son's motorcycle. In the first information report (F.I.R.) dated 29.11.2005, the respondent alleged that on 16th October, 2005 at about 1.00 p.m., two recovery agents (referred to as "goons") forcibly entered her son's bedroom and started harassing and humiliating him for the loan payments that were overdue on his two wheeler and on his personal loan.

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4. According to respondent no. 1, they repossessed the vehicle taken in the presence of his friends who ridiculed him for having lost the motorcycle. It is further mentioned in the FIR that the deceased had used his motorcycle to get vegetables for his small restaurant. It is also alleged that the deceased had to carry the vegetables on his back in the absence of his motorcycle. Upon finding the deceased carrying vegetables on his back, members of the neighborhood allegedly made snide comments. The deceased finally broke down before his wife and allegedly stated that he had never faced such a humiliation and disgrace in his entire life. On that very day, while his wife was washing clothes, the deceased went inside the small inner room and hung himself to death. We reiterate that this version of the events is found in the FIR and is thus an allegation at this time.

5. To ascertain the veracity of these assertions, the High Court ordered the Police to file reports as to the status of the investigation against the bank. The High Court later reviewed the 3

two status reports that were filed by the Police. It found them unsatisfactory and accordingly, the High Court directed the Investigating Officer to:

"conclude the investigation into the matter as expeditiously as possible and take necessary action against those who may be found guilty of abetting the deceased to commit suicide."

In addition, the High Court stated that: "Para 1: "... the vehicle for which the loan was taken was repossessed by the musclemen employed by ICICI Bank.

Para 3: "...the proximate cause of death of the deceased that led him to commit suicide was on account of humiliation caused by the Bank people from where loan was taken by him."

Para 4: "The modus-operandi employed by the banks like ICICI for realization of their loan amount and for recovering the possession of the vehicle against which loans are given is extra legal and by no stretch of imagination they can be permitted to employ musclemen and goons for recovery of their dues even from a defaulting party."

6. The appellant bank claimed that it was aggrieved by the observations made by the High Court in paragraphs 1, 3 & 4 of 4

the impugned order. The bank asked the High Court to clarify or delete paras 1, 3 and 4. It did so by way of an application for impleadment as well as an application for clarification/deletion/modification under section 482 (saving of inherent power of High Court) of the Criminal Code of Procedure, 1973. According to the appellant bank, the observations made by the High Court were unjustified and unnecessary for deciding the case.

7. In an order dated 11.8.2006, the High Court declined to expunge the impugned observations because it had made them "... consciously and there are no reasons to expunge the same." Nevertheless, the High Court clarified the matter by stating as under:

"However, it is clarified that any observation made against ICICI Bank in the order passed by this Court on 13.07.2006 shall not influence or affect the proceedings, if any, taken against the said bank or its employees."

8. Given that the investigation had not been completed, the High Court could have prefaced its observations by stating that 5

the facts were alleged. It did, however, note that "... perusal of the complaint would reveal that the proximate cause of death ... was on account of humiliation caused by the Bank people ... ." Reference to the "complaint" implies that its contents contain allegations, not facts. Moreover, the investigation was ongoing. Thus, it should have been understood that the High Court was referring to alleged facts. That said, the court could have been more careful to note that the facts that it discussed were alleged. Recognizing as much, the court clarified that its observations were not to influence or affect the proceedings.

9. We reiterate the same. They will have no bearing on the ongoing investigation. Given this clarification, we do not feel that the appellant bank has been substantially aggrieved. Nor do we believe that expunging the impugned observations would have much of an effect. Under either scenario, having the observations expunged or having them clarified, no one can rely on the observations.

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10. As mentioned, the investigation is ongoing. Neither the High Court's order nor the observations made herein are to influence the investigation, save the time period in which it must be completed. Nevertheless, it is appropriate to remind financial institutions that they are bound by law. The recovery of loans or seizure of vehicles can only be done through legal means.

11. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI") and the Security Interest (Enforcement) Rules, 2002 ("SIER") framed thereunder provide some of the procedures by which security interests may be recovered. In addition to SARFAESI and SIER, the Reserve Bank of India ("RBI") has promulgated Guidelines on the subject. The RBI Guidelines on Fair Practices Code for Lenders dated 5.5.2003 provides at (v)(c) that: "In the matter of recovery of loans, the lenders should not resort to undue harassment viz. persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans, etc." 7

12. A more comprehensive version of these Guidelines was recently released on April 24, 2008. The Guidelines expressly reference the 5.5.2003 Guidelines at (i)(x) with regard to the methods by which recovery agents collect on security interests. In addition, the April 24, 2008 Guidelines further referred paragraph 6 of the "Code of Bank's Commitment to Customers" (BCSBI Code) pertaining to collection of dues. The BCSBI Code at para 6 inter alia provides: "All the members of the staff or any person authorized to represent our bank in collection or/and security repossession would follow the guidelines set out below:

1. You would be contacted ordinarily at the place of your choice and in the absence of any specified place at the place of your residence and if unavailable at your residence, at the place of business/occupation.

2. Identity and authority to represent would be made known to you at the first instance.

3. Your privacy would be respected.

4. Interaction with you would be in a civil manner.

5. Normally our representatives will contact you between 0700 hours and 1900 hrs, unless the special circumstances of your business or occupation require otherwise.

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6. Your requests to avoid calls at a particular time or at a particular place would be honored as far as possible.

7. Time and number of calls and contents of conversation would be documented.

8. All assistance would be given to resolve disputes or differences regarding dues in a mutually acceptable and in an orderly manner.

9. During visits to your place for dues collection, decency and decorum would be maintained.

10. Inappropriate occasions such as bereavement in the family or such other calamitous occasions would be avoided for making calls/visits to collect dues.

As noted above, this Code as well as others has been incorporated into the April 24, 2008 Guidelines: "(ix) A reference is invited to (a) Circular DBOD.Leg.No.BC.104/ 09.07.007 /2002-03 dated May 5, 2003 regarding Guidelines on Fair Practices Code for Lenders (b) Circular DBOD.No.BP. 40/ 21.04.158/ 2006-07 dated November 3, 2006 regarding outsourcing of financial services and (c) Master Circular DBOD.FSD.BC.17/ 24.01.011/2007- 08 dated July 2, 2007 on Credit Card Operations. Further, a reference is also invited to paragraph 6 of the 'Code of Bank's Commitment to Customers' (BCSBI Code) pertaining to collection of dues. Banks are advised to strictly adhere to the guidelines / code 9

mentioned above during the loan recovery process." [emphasis supplied].

13. RBI has expressed its concern about the number of litigations filed against the banks in the recent past for engaging recovery agents who have purportedly violated the law. In the letter accompanying its April 24th, 2008 Guidelines on Engagement of Recovery Agents, RBI stated: "In view of the rise in the number of disputes and litigations against banks for engaging recovery agents in the recent past, it is felt that the adverse publicity would result in serious reputational risk for the banking sector as a whole." RBI has taken this issue seriously, as evidenced by the penalty that banks could face if they fail to comply with the Guidelines. The relevant portion of the Guidelines formulated by RBI is set out as under: "3. Banks, as principals, are responsible for the actions of their agents. Hence, they should ensure that their agents engaged for recovery of their dues should strictly adhere to the above guidelines and instructions, including the BCSBI Code, while engaged in the process of recovery of dues.

4. Complaints received by Reserve Bank 10

regarding violation of the above guidelines and adoption of abusive practices followed by banks' recovery agents would be viewed seriously. Reserve Bank may consider imposing a ban on a bank from engaging recovery agents in a particular area, either jurisdictional or functional, for a limited period. In case of persistent breach of above guidelines, Reserve Bank may consider extending the period of ban or the area of ban. Similar supervisory action could be attracted when the High Courts or the Supreme Court pass strictures or impose penalties against any bank or its Directors/ Officers/ agents with regard to policy, practice and procedure related to the recovery process.

5. It is expected that banks would, in the normal course ensure that their employees or agents also adhere to the above guidelines during the loan recovery process."

14. We deem it appropriate to remind the banks and other financial institutions that we live in a civilized country and are governed by the rule of law.

15. Looking to the gravity of the above allegations, we expect that the matter will be investigated as expeditiously as possible and, in any event, it must be concluded within a period of three months and, thereafter, the concerned Deputy Commissioner of Police is directed to submit the report of the investigation in the 11

High Court.

16. In the facts and circumstances of this case we direct the appellant to pay costs of this litigation to the respondents which is quantified as Rs.25000/-. The costs be paid within three weeks. We direct that the matter be listed before the High Court after the report of the Deputy Commissioner of Police is filed.

17. This appeal is accordingly disposed of. ...............................J.

(Tarun Chatterjee)

...............................J.

(Dalveer Bhandari)

New Delhi;

May 15, 2008

Norms for PSBs’ takeover of loan accounts tightened

BL :Mumbai:8 july 2012

Concerned that the loans they acquire from other banks could turn out to be lemons, the Finance Ministry has issued guidelines to public sector banks.

This move is to prevent unethical/unjustified takeover of loans. The ministry has come up with the guidelines as the Central Vigilance Commission (CVC) has noticed that sometimes existing loan accounts which are already showing signs of sickness with one bank are taken over by another bank.

Such loan accounts, predictably, turn non-performing within a short-time in the bank that has taken over the account.

GUIDELINES

As per the guidelines, banks must put in place a board-approved policy for taking over loan accounts from another bank. Banks, normally, can take over only those loans whose credit ratings are above the level approved by the board.

Concessions — lower interest rates on loans and charges for non-fund-based facilities — to taken over loan accounts can be extended only in extremely deserving cases with specific reasons recorded in writing.

DUE DILIGENCE

In all cases of take over of loan accounts, the ministry emphasised that due diligence, including visiting the prospective customer’s premises/factory, should be undertaken.

“A bank just cannot afford to depend on the credit report of another bank from whom it is taking over a loan account. It is possible that the report has been whitewashed to hide problems in the account,” said a senior public sector bank official.

Where a borrower seeks additional exposure from the bank that has taken over his loan account, the ministry said the guidelines of joint lending should be strictly applied.

All borrowers with individual credit limit of Rs 150 crore and above are covered under a joint lending arrangement, whereby banks have a holistic view of all banking relationships of a borrower so that frauds can be minimised.

INFLUENCE OF OFFICIALS

A public sector bank should not take over a loan account from another bank where any of its Executive Director or Chairman and Managing Director had worked earlier.

If such cases need to be taken over, the proposal should be put up to the board with specific reasons justifying the need for taking over the accounts.

The CVC has observed that some accounts shift from one bank to another as senior functionaries are elevated to the ranks of EDs and CMDs.

In this regard, the Commission has pointed out that sometimes even influence from senior officials, including directors on the board of banks, leads to the field-level staff as well as those working in credit departments of regional office/zonal office/head office coming under pressure.

In view of the ministry guidelines, public sector banks are expected to be more circumspect in taking over loan accounts from other banks.

The guidelines come at a time when the RBI’s ‘Financial Stability Report’ has expressed concern on banks’ loan quality.

The Report said an increase in slippage ratios, rise in the quantum of restructured assets and a high rate of growth in non-performing assets (NPAs) relative to credit growth implies that the concerns on asset quality of banks remain elevated

Personal guarantee must before loan restructuring: RBI panel

PTI Jul 20, 2012, 05.41PM IST

MUMBAI: A Reserve Bank panel has recommended banks should seek personal guarantee from promoters and adopt a 'carrot-and-stick policy' while restructuring loans of corporates.

"As stipulating personal guarantee will ensure promoters' skin in the game or commitment to the restructuring package, obtaining the personal guarantee of promoters be made a mandatory requirement in all cases of restructuring," the panel said in its report, on which it has invited comments of stake holders by August 21.

The RBI had in January set up the panel to review the existing prudential guidelines on restructuring of advances by banks and financial institutions and suggest modifications taking into account the best international practices and accounting standards.

The panel, which is headed by RBI Executive Director B Mahapatra, said corporate guarantee should not be considered as a substitute for the promoters' personal guarantee.

In cases where the restructuring package could not be implemented due to promoters' non-adherence to terms and conditions, the banks should exercise exit option at the earliest with a view to minimise the losses, the report said.

"The terms and conditions of restructuring should inherently contain the principle of 'carrot and stick', ie while restructuring being an incentive for viable accounts, it should also have disincentives for non-adherence to the terms of restructuring and under-performance," it said.

The panel further said that conversion of debt into preference shares should be done only as a last resort. Also, conversion of debt into equity/preference shares should be restricted to a cap (say 10 per cent of the restructured debt).

Conversion of debt into equity, it further said, should be done only in the case of listed companies.

The banks, according to the report, should disclose all recast loans on books, and from hereon keep a 5 per cent provision for new standard loans recast, as against the existing norm of 2 per cent.

These provisions, it added, could be implemented over a period of two years.

In view of the ongoing economic problems, the ratings agency Crisil expects bad loans to rise to 3.2 per cent of the total by March, 2013.

Banks usually refer bad loans, which are provided under a consortium arrangement, for corporate debt restructuring ( CDR).

Crisil expects loan restructuring in India to rise to $ 37.5 billion, or 3.5 per cent of total loans by March, 2013

Ministry sets up panel to ensure banks recover bad loans

KRamkumar:BL:23 july 2012

Mandated to follow-up all cases of loss assets

MUMBAI, JULY 22: 

The Finance Ministry has set up a committee to ensure that public sector banks (PSBs) go the whole hog in recovering bad loans. This move comes at a time when the chips are down on the loan growth front in the banking sector. The two-member committee has been mandated to follow-up all cases of loss assets with each public sector bank (PSB). It has also been tasked with the responsibility to follow-up all cases filed with debt recovery tribunals (DRTs). The idea behind constituting the committee is to bring focus on liquid assets locked up in the form of loss assets and in cases filed with DRTs. This could also be seen as a move to make up for a possible decline in income from loans and advances due to slowdown in the economy. Bankers say recoveries directly get added to the bottomline and could help banks sustain profitability at last year’s level.

LOSS ASSET AND DRT

A loss asset is an asset (or a loan) which is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value. Banks make 100 per cent provisioning for such assets. DRTs have been established by the Government across the country under an Act of Parliament for expeditious adjudication and recovery of debts due to banks and financial institutions. They can apply to the Tribunal for recovery of debts of Rs 10 lakh or more.

COMMITTEE MANDATE

The committee members appointed by the Ministry are, Mr P.L. Gairola, former Chairman & Managing Director, Dena Bank, and Mr Anil Girorta, former Executive Director, Andhra Bank.

The committee will have a meeting with the executive director and general manager of each bank once a month wherein the status of each case will be reviewed.

It will prescribe the milestones to be achieved before the next meeting.

Initially, the committee will take up monitoring of loss assets and DRT cases of banks located in the National Capital Region (NCR) – Punjab National Bank, Oriental Bank of Commerce and Punjab & Sind Bank.

Members of the committee will visit the headquarters of various PSBs once in a quarter and in between they would review through video conference each month from the zonal office of the bank located in NCR. Come August, the committee members will be required to make the first visit to all banks and to put the monitoring system for recoveries in place.

RECOVERY TRACK RECORD

There are 26 PSBs in India – 21 nationalised and 5 associate banks of State Bank of India. According to the RBI data, as on March-end 2011, loss assets of PSBs aggregated Rs 6,463 crore (Rs 5,750 crore as on March-end 2010).

In FY2010-11, the number of cases referred to DRTs were at 12,872 (6,019 in FY2009-10) aggregating Rs 14,092 crore (Rs 9,797 crore). Recoveries in FY2010-11 aggregated Rs 3,930 crore (Rs 3,133 crore).

Priya vs The Authorised Officer ,IOB

Madras High Court

on 3 January, 2012

DATED: 03.01.2012
CORAM
THE HONOURABLE MR.JUSTICE P.JYOTHIMANI
and
THE HONOURABLE MR. JUSTICE M. DURAISWAMY
W.P.No.15961 of 2011 &
M.P.No.2 of 2011
Priya .. Petitioner
VS.

1.The Authorised Officer
Indian Overseas Bank
Erode Main Branch
12/1, Apt Road, Erode  3.
2. C.Shanmugam ... Respondents
Writ petition filed for the issuance of a writ of Certiorarified Mandamus, calling for the records culminated to the notice dated 29.06.2011 on the file of the 1st Respondent and quash the same as being arbitrary and violative of Principles of Natural Justice and Article 21 Constitution of India and consequently direct the first respondent to return the movable property belonging to the Petitioner.
For Petitioner : Mr.K.Kumaresh Babu
for Mr.K.Surendar
For Respondents : Ms.Ananda Gomathy Sivakumar  for R-1
Mr.V.T.Narendran -for R-2
ORDER
(order of the Court was made by P.JYOTHIMANI, J)
The writ petition is filed challenging the notice dated 29.06.2011 issued to the petitioner by the first respondent/Bank for sale of the movables listed therein, by invoking the powers under the Securitisation and Reconstruction of financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'SARFAESI Act'). Admittedly, the movable goods are belonging to the petitioner, who is a tenant in the property, belonging to the second respondent.

2. It is also not in dispute that the above said movables mentioned in the impugned notification are not the subject matter of security for the borrowal from the bank and the petitioner has not stood as a guarantor in respect of the amount stated to have been borrowed from the bank by one Samsen Papli, from whom the second respondent has purchased the property for repayment under the SARFAESI Act.
3. The petitioner, after giving notice under section 13(4) of the Act has approached the Chief Judicial Magistrate, Erode under section 14 of the Act and there are certain orders passed by the Chief Judicial Magistrate for possession. Since the petitioner/tenant has locked the premises by keeping the movables inside the house, there was further direction given by the Chief Judicial Magistrate appointing an Advocate Commissioner to brake open and take possession of the movables. Based on the said order passed by the Chief Judicial Magistrate, Erode, the house resided by the petitioner was brake opened and the goods were taken to the custody of the first respondent/Bank. It is, at that stage, invoking the powers under SARFAESI Act, the first respondent/Bank has issued the impugned notification brining the movables for sale. The present writ petition is filed challenging the said notification.
4. The impugned challenges is on the ground that when the movables, which are the subject matter of the impugned notification, are not the subject matter of security for the payment of loan obtained from the first respondent by the second respondent and when the petitioner has never stood as a guarantor for the payment of the amount availed by Samsen Papli from the first respondent/Bank, there is absolutely no jurisdiction on the part of the bank to invoke the SARFAESI Act against the petitioner. It is seen that notice under section 13(2) was not given to the petitioner but it was given to the second respondent. When the movable properties, which are the subject matter stated in the impugned notification does not belong to the second respondent, there is no question of bringing such movables for sale. The very act of the first respondent/Bank in approaching the Chief Judicial Magistrate, Erode under section 14 of the Act to take the movables belonging to the petitioner is alienation to the principles enunciated under the SARFAESI Act.
5. The first respondent/Bank in the counter affidavit has specifically admitted that they are not proceeding to sell the movable properties under the provisions of the SARFAESI Act and they are prepared to withdraw the notification unconditionally. Further, in the counter affidavit, the first respondent/Bank has chosen to state very strangely that the bank is willing to handover the movables back to the petitioner provided the charges incurred by the bank being paid to them. The relevant portion is extracted below:-
"10. I have been advised not to proceed with the sale of the movables under the provision of SARFAESI Act and I hereby withdraw the said notice unconditionally, but however I am willing to handover the movables back to the petitioner provided the charges incurred by us towards the safe keeping of the said articles are paid to the bank."
6. It is also seen in the counter affidavit that the following charges are claimed by the first respondent/Bank against the petitioner as a matter of reimbursement, which are as follows: (i) Charges towards Security Guard : Rs.1,09,200/-
(ii)Paper Publication Charges : Rs. 2,050/-
(iii) Paper Publication chargs : Rs. 6,050/-
(iv) Building rent (Rs.3000 x 6 months) : Rs. 18,000/-
(v) Insurance Premium amount : Rs. 803/-
(vii) Legal charges and lawyer fees : Rs. 2,500/- -----------------
Total : Rs.1,38,803/-
-----------------
7. The learned counsel for the first respondent/Bank would vehemently contend that eventhough the movable goods never stood as a security for the repayment of the loan borrowed by Samsen Papli, from whom the second respondent has purchased the property, the petitioner being the tenant under the second respondent, having come to know about the steps taken by the Bank under section 14 of the Act, has chosen to lock the premises unlawfully and that has only made the Bank to approach the Chief Judicial Magistrate for brake open and it was only a matter of necessity and therefore, when possession was taken, it was only preserved and for preserving the goods, the expenses were incurred. According to the learned counsel for the first respondent/Bank, the charges claimed above has to be reimbursed to the first respondent/Bank.

8. Even though the contention of the learned counsel for the first respondent/Bank is attractive and she has taken strenuous steps to pursue this court to accept her plea, we are unable to accept the same for the simple reason that the goods which are taken by the first respondent/Bank are not the subject matter of the security. In such circumstances, in all fairness, the first respondent/Bank should not have taken any steps under the SARFAESI Act to take the goods belonging to the petitioner, who is a third party. The petitioner is neither a guarantor for the repayment of the loan stated to have been received by the said Samsen Papli, from the first respondent/Bank nor the movable goods belonging to the petitioner were given as a security for repayment. In such circumstances, taking possession through court of law does not mean that the SARFAESI Act enables the first respondent/Bank to take possession lawfully. Therefore, the question of indemnifying the Bank for having kept the same on behalf of the petitioner does not arise.
9. According to us, the first respondent/Bank has no right to recover even if the amount stated to have been spent sought to be indemnified as per sections 13(7) and 13(10) of the SARFAESI Act which reads as follows: "Section 13(7) : Where any action has been taken against a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests. Section 13(10) : Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the balance amount from the borrower."
10. It is not the case of the petitioner that the petitioner voluntarily given possession of these goods to the bank so as to enable the bank to keep it and the bank has taken steps without even giving notice to the petitioner, who is not liable to pay any amount in respect of the borrowal made by the said Samsen Papli,. In view of the above, we are unable to accept the contention raised by the first respondent/Bank.
11. Accordingly, the writ petition stands allowed and the impugned notification dated 29.6.2011 stands set aside. As per the undertaking given by the first respondent/Bank in their counter affidavit paragraph No.10 (extracted above), the first respondent/bank shall handover all the goods to the petitioner immediately, in any event, within a period of two weeks from the date of receipt of a copy of this order. No costs. Consequently, connected miscellaneous petition is closed.
rj
To
The Authorised Officer
Indian Overseas Bank
Erode Main Branch
12/1, Apt Road
Erode 3

Parsn Medicinal plant (P) ltd and anr V/S Indian Bank

R.A(S.A):38/2011

This Appeal impugns order dated 26.2.2009 passed by the Ld. Presiding Officer, DRT-II, Chennai in Review Application 1/2008 in SA No.23/2006. 

2.         The case of the Appellants may be stated as follows:

One M/s. Sujatha Films had approached the 1^stRespondent Bank for credit facilities for its business and was sanctioned a Medium Term Loan for Rs.1.5 crores and the said M/s. Sujatha Films availed the loan after executing the necessary loan documents.

  The repayment of the loan was guaranteed by Late Shri Venketeswaran, his wife Ms. Sujatha Venkateswaran, and by both the Appellants who are companies registered under the Indian Companies Act, 1956. Parsn Medicinal Plants Pvt. Ltd came to be renamed as Parsn Holiday Resorts Ltd and Coconut Groves Pvt. Ltd was also renamed as Coconut Holiday Resorts Ltd. 

The said two companies had mortgaged their lands measuring 72.06 acres to the Bank and thus the said 72.06 acres had become the secured assets in this case. 

 M/s. Sujatha Films defaulted in the repayment of the loan availed by it and therefore the 1^stRespondent Bank filed an Original Application in OA No.552/2007 in DRT-I, Chennai for the recovery of its dues being Rs.7,95,67,088/- together with the interest @20.75% with quarterly rests against the Appellants and 3 Others and the said OA was transferred to DRT-III, Chennai and renumbered as OA No.89/2007 and the same is pending. Pending disposal of the OA the 1^st Respondent Bank being the secured creditor initiated proceedings under the provisions of the SARFAESI Act against the Appellants and issued the Sec. 13(2) Notice on 30.6.2004 and the Appellants replied to the said Notice on 13.9.2004.

  Thereafter the 1^st Respondent Bank took possession of the property under Sec. 13(4) of the SARFAESI Act and issued the possession Notice to the Appellants on 4.12.2004 and published the same in the Newspapers on 5.12.2004. 

 The Notice of intended sale dated 23.9.2005 was sent to the Appellants and the said Notice was also published in the Newspapers on 2.10.2005.  The Appellants filed IA No.640/2004 in OA No.2018/2001 in DRT-II, Chennai contending therein that the proceedings under the SARFAESI Act are not maintainable when the OA filed under the RDDB&FI Act is pending and the said IA was dismissed by the Ld. Presiding Officer, DRT-II, Chennai on 10.1.2006. 

 The sale of the secured asset as per the sale Notice dated 2.10.2005 did not take place for want of bidders.  A fresh Notice for sale was published on 22.1.2006 and this sale also did not take place.  Later the Appellants filed W.P.No.5694 and 5695 of 2006 in the Hon’ble High Court of Madras challenging the simultaneous action of the Bank and the said Writ Petitions were dismissed on 1.3.2006. 

 The Appellants filed two special leave petitions in SLP No.5177 and 5179 of 2006 in the Hon’ble Supreme Court of India and they were also dismissed on 31.3.2006.  Thereafter, the Appellants filed SA No.23 of 2006 in DRT-II, Chennai under Sec. 17 of SARFAESI Act and when the SA was reserved for orders the Appellants filed IA No.374 and 375 of 2006 to raise additional grounds based on the revenue records received by them which indicated that the secured assets are agricultural properties and that they are exempt from the operation of the provisions of SARFAESI Act under Sec. 31(i) of the said Act. 

 The Ld. Presiding Officer, DRT-II, Chennai dismissed SA No.23 of 2006 and also dismissed IA Nos.374 and 375 of 2006 on 13.12.2006.  The Appellants aggrieved by the order of dismissal made in SA No.23 of 2006 filed an Appeal in IN(SA) 505/2006 before this Tribunal and this Tribunal directed the Appellants to deposit Rs.6.5 cores in three instalments and posted the matter to 1.3.2007 and when the matter was called on 1.3.2007 the appeal was dismissed for default. The conditional order for making the pre-deposit was not complied with by the Appellants.  

The Appellants filed a petition in RMA 5/2007 for restoring the dismissed Appeal and the said restoration petition was also dismissed by this Tribunal on 24.5.2007. Subsequently the Appellants filed CRP No.2583 of 2007 and the Hon’ble High Court of Madras by its order dated 7.9.2007 set aside the Order of this Tribunal dated 24.5.2007 made in RMA No.5 of 2007 and directed this Tribunal to restore the Appeal with the liberty to the Appellants to withdraw the Appeal.  

The Appeal before this Tribunal was restored and the Appellants withdrew the same and subsequently the Appellants filed a Review Application in RA No.1 of 2008 in SA No.23/2006 in DRT-II, Chennai and the said Review Application was dismissed by the Tribunal below leading to the filing of this Appeal before this Tribunal.

3.         The Ld. Senior Counsel appearing on behalf of the Appellants drew the attention of this Tribunal to the conclusion of the Ld. Presiding Officer in Point 6(i) of the impugned order and stated that the Ld. Presiding Officer having arrived at a decision that the final order in the SA had indeed been passed without considering the pendency of the IA Nos.374/2006 and 375/2006 ought to have allowed the Review Application and ought to have also posted the SA for hearing afresh. He added that the Ld. Presiding Officer without doing so has proceeded to decide the issue as to whether the secured assets are agricultural lands or not and concluded that they are not agricultural lands on the ground that the Appellants have not adduced any evidence in this regard when in fact the Appellants were never afforded any opportunity to lead in evidence in support of their case.

4.         The Ld. Senior Counsel for the Appellants submitted that the Ld. Presiding Officer having accepted that there is an error apparent on the face of the record ought to have reopened the proceedings and allowed the parties to lead in evidence and added that the Ld. Presiding Officer had erred in dismissing the Review on the question of delay especially when he had categorically found that there is an error apparent on the face of record. 

 The Ld. Senior Counsel stated if the RA was to be dismissed on the ground of limitation it should have been decided as a preliminary issue. The Ld. Senior Counsel stated that the Ld. Presiding Officer has wrongly held that the Review Petition is barred by limitation and added that the period from 13.12.2006 i.e. the date of the final order in SA 13 of 2006 till 14.1.2008 i.e. the date of filing of RA 1 of 2008 was spent bonafide prosecuting the case before other forums and the time spent would stand excluded as per Section 14 of the Limitation Act. 

 The Ld. Senior Counsel submitted that pursuant to the orders passed by the Hon’ble High Court of Madras and the Hon’ble Supreme Court of India and the liberty granted by this Tribunal to withdraw the appeal filed by the Appellants the RA has been filed within 30 days and thus well within time.

  The Ld. Sr. Counsel stated that the finding of the Ld. Presiding Officer that there was no application for the condonation of delay has also no merits in view of Section 14 of the Limitation Act.  The Ld. Counsel added that the Ld. Presiding Officer had accepted the explanation given by the Ld. Counsel on Record to the objections raised by the registry of the tribunal below with respect to delay and passed directions to number the RA.  The Ld. Counsel relied upon the following decisions in support of the Appellants case: 

1.Raizda Sanwal Das Vs. Kanhya Lal (1966) 11 DLT 421

2. Nand Singh Vs. Estate Officer and Another AIR 1993Delhi 38

3. Rattan Singh Vs. Estate Officer and Anr 1992(23) DRJ 419

4. Universal Builders & Contractors Vs. Shiela Singh Uppal and others      

   (CR.Petition No.321/2004dt.17.10.08, Hon’ble High Court of Delhi)

and added that the courts have time and again held that a written application for condonation of delay is not essential and in a fit case, it is open to the court to condone the delay even without a written application. The Ld. Senior Counsel stated that the Ld. Presiding Officer having come to the conclusion that the contentions of the Appellants in so far as the issue relating to Section 31(i) of the Act needs a review and that the entire order is to be reviewed could never have proceeded to hold that the Review Application is time barred. 

5.         The Ld. Senior Counsel stated that the withdrawal of the appeal filed against the final order in the SA was only pursuant to the order of the Hon’ble High Court of Madras dated 7.9.2007 and only with an intention to pursue an alternate remedy of a review. The Ld. Senior Counsel stated that it is a well settled position of law that once a final order is passed all interim orders merge into the said final order and the interim orders do not have any independent  existence and in support of this contention relied upon the judgment of the Hon’ble Supreme Court of India dated 19.7.2010 in “Kunhayammed & Others Vs. State of Kerala and Anr.

6.         The Ld. Senior Counsel for the Appellants stated that the Ld. Presiding Officer has held in the impugned order that the secured assets are being used for horticulture and not for agricultural purposes. The Ld. Senior Counsel stated that the courts have consistently held that agriculture subsumes horticulture and other similar activities and relied upon the following citations in support of his contentions:

(i)                  K.P. Muhammed Basheer Vs. The Deputy General Manager and Kannur District Co-op Bank Limited

(W.A. No.155 of 2010 dt. 11.2.2010 Hon’ble High Court of Kerala).

(ii)                Commissioner of Income TaxWest Bengal,Calcutta Vs. Raja Benoy Kumar Sahas Roy (AIR 1957 SC 768).

(iii)               Muruges Chetti Vs. Chinnathambi Goundan and Ors. (1901) ILR 24 Mad 421.

(iv)              S.P. Watel and Others Vs. State of U.P.(1973) 2 SCC 238.

(v)                Officer in charge (Court of Wards) Paigah Vs. The Commissioner of Wealth Tax, A.P. Hyderabad AIR 1969 A.P. 345.

7.         The Ld. Senior Counsel submitted that Ld Presiding Officer having accepted that the secured assets are used for “horticulture” could not have held that the secured assets are not agricultural lands. 

8.         The Ld. Senior Counsel for the Appellants submitted that the Ld. Presiding Officer having accepted that there was an error apparent on the face of the record ought to have reopened the proceedings and allowed the parties to lead in evidence.    The Ld. Senior Counsel stated that the finding of the Ld. Presiding Officer that “The word “Resorts” indicates a place for entertaining public on holidays. Therefore the secured assets cannot be viewed as agricultural lands” is unfounded and added that whatever the names of the companies are they can in no way alter the nature and character of the lands and prayed that this appeal be allowed.

9.         The Ld. Senior Counsel for the respondent Bank stated that in order to maintain the review application the Appellants should establish the error apparent on the face of record and that in the present case there is no error apparent on the face of the record in as much as the Tribunal below by order dated 13.12.2006 in SA No.23/2006 dismissed IA Nos. 374/2006 and 375/2006 as they were devoid of merits.  The Ld. Senior Counsel added that though the order dated 26.2.2009 made in RA No.1/2008 it is observed that there is an error apparent on the face of the record in dismissing IA Nos. 374 and 375/2006 without passing a speaking order in the SA, the said observation could not be challenged in an appeal by the Bank as the Review Application itself had ultimately been dismissed with costs.  The Ld. Senior Counsel stated that in an appeal filed against the said order it is always open to the Bank to question the validity of the said observation made by the Ld. Presiding Officer of the Tribunal below.

10.       The Ld. Senior Counsel for the respondent Bank stated that as per Section 17(7) of the SARFAESI Act the Debts Recovery Tribunal shall dispose of the appeal in accordance with RDDB & FI Act and as per Section 5A (2) of the Debt Recovery Tribunal (Procedure) Rules, 1993 the Review Application should be filed within 60 days from the date of the order.  

The Ld. Senior Counsel stated that it has been admitted by the Appellant in paragraph IV of RA No.1/2008 that the Appellants received the copy of the order passed in SA 24/2006 on 18.12.2006 and the Review Application has been filed on 14.1.2008 and that after deducting a period of 60 days provided for filing the Review there is a delay of 332 days in filing the RA.  The Ld. Senior Counsel also stated that in paragraph IV of the RA it has been stated that there is a delay of 68 days in filing the RA and for which a separate petition is filed and admittedly no such application has been filed by the Appellants.

 The Ld. Senior Counsel stated that since the Review Application was filed after the delay of 332 days as stated above and no application to the condone the said delay was filed by the Appellants the RA was barred by limitation. The Ld. Senior Counsel stated that as per Section 3 of the Limitation Act the court is bound to dismiss the application which is filed after the period of limitation, even though the limitation was not set up as a defence.

 The Ld. Senior Counsel stated that the Appellants had relied upon the endorsement made by the Ld. Presiding Officer and stated that the said contention is without any merits and added that the Ld. Presiding Officer has only ordered the  numbering of the petition and has not condoned the delay that had occurred in filing the RA. The Ld. Senior Counsel stated that the delay in filing an application can be condoned only after ordering notice in the petition filed for the condonation of delay and as no such application has been filed in this case the question of condoning the delay does not at all arise and the Ld. Presiding Officer has rightly dismissed the RA.  

The Ld. Senior Counsel relied upon the judgment of the Hon’ble Supreme Court of India in “Office of the Chief Post Master General Vs. Living Media India Ltd., 2012(2) CTC 240 and stated that in the absence of a plausible and acceptable explanation there is no need to accept the usual explanation and condone the delay and in fact the Appellants ought to have explained each day’s delay more accurately.  The Ld. Senior Counsel stated that in the absence of a proper explanation for the delay of 332 days the review application is liable to be dismissed.   

11.       The Ld. Senior Counsel for the Respondent Bank stated that as per Section 18(2) of the SARFAESI Act this Tribunal shall dispose of the appeal in accordance with RDDB & FI Act and as per Section 22(2) of the RDDB & FI Act the appellate tribunal shall have for the purposes of discharging its functions the same powers as vested in a civil court under the provisions CPC.  The Ld. Senior Counsel stated that in the present case the Ld. Presiding Officer has dismissed the Review Application and therefore as per Order 47 Rule 7 of CPC no appeal is maintainable against the order rejecting the review application and hence the present appeal is not at all maintainable and that it is liable to be dismissed in limini.

12.       The Ld. Senior Counsel for the respondent Bank stated that the contention of the Appellants that the secured assets are agricultural lands and are exempted under the provisions of the SARFAESI Act is based on the ‘Adangal’ extract and as per the adangal extract, in 10.430 hectares of land (i.e., 25.77 acres of land) in Survey No.185/2A belonging to Coconut Groves Holiday Resorts Limited there are only 7 (seven) coconut trees and the land was not classified as “Thope” in the village records. The Ld. Senior Counsel stated that as per the said record there is only one coconut tree available in each 3.57 acres of land and the same will not convert the land to a “Thope” and hence the secured assets are not agricultural lands.

13.       The Ld. Senior Counsel for the respondent Bank stated that the documents produced by the Ld. Counsel for the Appellants to prove that the secured assets are agricultural lands cannot be accepted in evidence as they were not produced before the Tribunal below  and that as per Section 22(2)(b) & (c) of the RDDB & FI Act the CPC would be applicable for production of documents and receiving evidence in affidavits and further that as per Order 41 Rule 27(aa) of CPC the party seeking to produce additional evidence should establish that notwithstanding the exercise of due diligence, such evidence was not within his knowledge or could not, after the exercise of due diligence, be produced by him at the time when the order appealed against was passed.

 The Ld. Senior Counsel stated that in the present case the Appellants herein did not satisfy this condition and not even a petition was filed with the documents and therefore the additional documents produced by the Appellants presently should not be looked into and added that the Appellants can rely only upon the Adangal extract filed in RA 1 of 2008.  The Ld. Senior Counsel in conclusion reiterated his contention that the appeal warrants only a dismissal and prayed that this appeal be dismissed. 

14.       Ld. Counsel appearing on behalf of the 2^nd Respondent stated that no case has been made out by the Appellants and that they cannot take the advantage of the fact that the money has been realized by the Bank and thus avoid making the pre deposit in this case and also assail the actions of the Authorized Officer and seek an allowing of the appeal.  Ld. Counsel stated that the Appellants have not established that the secured assets are agricultural lands and the untested evidence tendered by them cannot be accepted by any Court of Law.  The Ld. Counsel for the 2^ndRespondent relied upon the following cases in support of his case:

a)      R.N. Gosai  Vs Yashpal Dhir   (1992) 4 SCC 683

b)      Kalpesh P.C. Surana Vs  Indian Bank   2010(3) CTC 287

15.       Heard the Ld. Counsel.

16.       The Ld. Presiding Officer has framed the following points for consideration in the Review Application:

(i)                  Whether the Review Petition is maintainable?

(ii)                Whether the secured assets are agricultural lands and are exempted under Section 31(i) of the Act from enforcement of security interest as provided under Chapter III of the Act?

(iii)               Whether the claim of the Bank is barred by limitation?

(iv)              Whether the Review Petition is filed within limitation?

17.       In answer to point No.(i) the Ld. Presiding Officer has come to the conclusion that there is an error apparent on the face of the record in dismissing IA Nos.374 and 375 of 2006 without passing a speaking order even in the SA and he has proceeded to answer the point raised in IA No.375 of 2006 and has discussed in detail about the said IA in answer to point (ii).  A perusal of the findings of the Ld. Presiding Officer on this point clearly reveals that he has come to the conclusion that the final order in the SA has to be reviewed and when such a conclusion has been arrived at the Ld. Presiding Officer ought to have set aside the final order passed in the SA and ought to have afforded the Review Petitioners to put forth their case in the IA Nos.374 and 375 of 2006 which in this case has not been done. 

18.       In answer to point No.(iii) the Ld. Presiding Officer has stated that the proceedings taken up by the Authorized Officer is well within time.  A reading of the averments made in the SA does not depict any challenge on the question of limitation and therefore the conclusions arrived at in this point are clearly out of the scope of the review.

19.       In answer to point No.(iv) it is seen that the Presiding Officer has issued orders for numbering the Review Application based on the endorsement made by the Ld. Counsel for the Petitioner and after taking up the Review Application for hearing has proceeded to answer this point against the Review Petitioners to the effect that the Review Application is time barred.

20.       Therefore from the fact that the Ld. Presiding Officer has come to the conclusion that the matter has to be reviewed, from the fact that the Presiding Officer has come to the conclusion that no speaking orders have been passed in IA Nos.374 and 375 of 2006,  from the fact that the Ld. Presiding Officer has decided that the land is used for horticultural purposes, from the fact that the Ld. Presiding Officer has come to the conclusion that the word agriculture does not include horticulture, from the fact that the Petitioners have to be afforded an opportunity to put forth their case in the said IA Nos.374 and 375 of 2006, from the fact that the Ld. Presiding Officer cannot dismiss the Review Petition when in fact he has allowed the Review Petition while answering Point No(i) this Tribunal is driven to conclude that the order passed in the Review Petition is liable to be set aside and the matter remitted back to the Tribunal below for a fresh consideration.   

21.       Accordingly the order of the Ld. Presiding Officer dated 26.2.2009 in RA 1/2008 on the file of DRT-II, Chennai is hereby set aside.  The Ld. Presiding Officer, DRT-II, Chennai is directed to take up RA 1/2008 afresh and dispose of the same in accordance with law. The Ld. Presiding Officer is further directed to afford an opportunity to both sides to put forth their case and dispose of the RA 1/2008 as expeditiously as possible.

22.       This appeal is disposed of accordingly.

This order was delivered by THE HON'BLE CHAIRPERSON OF DRAT ,Chennai  ON 20/07/2012

Indian banks and NPAs - III: Debt recovery through DRT

Money life:A Banker :14 july 2012


A staggering Rs2 lakh crore stuck in the Debt Recovery Tribunals reveals the failure of this well-intentioned legislation. The is the third part of a four-part series





Let us now examine the fate of one other well-intentioned legislation, “Recovery of Debts Due to Banks & Financial Institutions Act, 1993” (RDDB&FI Act). This Act has its origin in the recommendations made by Narasimham Committee I, 1992 but it was also influenced by the foreign exchange crisis and the Harshad Mehta securities scam.


The Act covered all debts owed to banks and FIs (financial institutions) in excess of Rs10 lakh and with it, the jurisdiction of civil courts on such debts ceased. The civil courts were asked to hand over the cases to Debt Recovery Tribunals (DRTs); the Act also provided for Debt Recovery Appellate Tribunals (DRATs).


These tribunals are under the ministry of finance of the central government which would appoint presiding officers, registrars, recovery officers, etc. Initially the presiding officers were either of the rank of district judge or qualified to be one but later legal officers from the ministries and banks were also considered fit to be appointed as presiding officers. Quite a few of the presiding officers and other staff were posted on deputation basis from their permanent jobs. As of a recent date, there were 33 DRTs and five DRATs across the country.


As per the Act, DRTs are required to endeavour to decide on the cases filed by banks within180 days and if the verdict is appealed in DRAT, within another six months.  


Experience of the banks in DRTs shows that the deadline of 180 days is but rarely observed. The borrowers or their lawyers could get adjournments fairly easily, a practice they were adept at in civil courts. Perhaps at no time all the courts had presiding officers or the requisite number of recovery officers; posts remained vacant for months.


Recovery certificates to be issued after the verdict or interim orders, just got accumulated for want of signing authorities, forget about actual recovery. Those who came on deputation did not have the requisite level of commitment.


Quite a few of the presiding officers who were from the ministries having had no prior experience seemed incapable of the job or issued ambiguous orders or just agreed to adjourn hearing which was the easier option. Add to these the banks faced another problem: the banks cannot proceed with DRT cases where the borrower's case is already within the purview of BIFR/AAIFR.


Obtention of BIFR consent to proceed in DRT needed a marathon effort. Furthermore occasionally DRAT or a high court issues a stay order against DRT proceedings. The only party to suffer in this legal melee is the banks—indeed the country.


The number of cases pending in various DRTs, as per a report in Mint (dated 28 March 2012), is 63,669, i.e. an average of 1,930 cases per DRT. In a DO letter sent in October 2011 addressed to all PSU banks, the ministry of finance indicated the total claims of banks and financial institutions pending in DRT cases is a staggering amount of Rs2 lakh crore. No further comments are needed on the efficacy of this Act and its creature DRT.


The Narasimham Committee II 1998, called for special statute powers to banks to take possession of assets charged to them without the intervention of the courts and to sell them to Asset Reconstruction Companies (ARCs) which might be set up by the lenders or by others with full powers to dispose of the assets over a period of time. Such powers are already with state financial corporations.

The matter was examined in depth by the TR Andhyarujina (former solicitor general of India) Committee in 2000 based on which an Act called “Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002” (SARFAESI Act) was passed by Parliament. Some of the provisions of this were amended to meet the objections raised by the Supreme Court in response to some cases challenging the Act even as it upheld its constitutional validity. We will examine what happened to that Act in the next part.


(A Banker is the pseudonym for a very senior banker who retired at the highest level in the profession.)