N. Kumar, J.@mdashThe Karnataka State Financial Corporation (for short "KSFC") has preferred this appeal against the order passed by the learned Single Judge who has set aside the notice issued u/s 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "Act") and all the consequential orders passed thereafter i.e. including the order passed u/s 13(4) of the Act. For the purpose of convenience the parties are referred to as they are referred to in the writ petition.
2. The KSFC gave financial facility to M/s. Sansu Garments Private Limited. The said company did not offer any immovable property as security for the loan borrowed but they offered the factory which was taken on lease and the security was only by way of hypothecation of plant and machinery acquired for the loan granted by the KSFC. However, the petitioner offered his property measuring about 35 ft. x 50 ft. with a forty year old building as the security for the due repayment of loan borrowed by the said company. He did not receive any financial benefit from the KSFC. Eventhough the company did not make prompt payment of loan on 31.3.1989 the KSFC extended to the company a debenture loan of Rs. 50 lakhs. Thereafter as the company could not carry its business and keep up its commitment the company petition came to be filed for winding up of the company in Co.P. No. 143/97. The company was unable to repay its debts. Therefore, an order dated 24.7.2000 was passed winding up the company and the Official Liquidator was appointed to take charge of the company. After taking charge the official liquidator was able to recover only Rs. 14 Lakhs due to the company. On 12.12.2001 a legal notice came to be issued to the petitioner calling upon him to pay a sum of Rs. 93.88 lakhs under the provisions of the State Financial Corporations Act. The above notice was followed by the petition u/s 31(1)(aa) of the State Financial Corporations Act. After coming into force of the Act, on 21.6.2002, they withdrew the said petition. They wanted to invoke Section 29 of the State Financial Corporations Act to recover the money. Thereafter, a notice u/s 29 of the Act was issued. Challenging the said notice the petitioner filed a writ petition before this Court in W.P. No. 25001/05 on the ground that the KSFC has no power to proceed against the property of the guarantor u/s 29 of the Act as held by a Division Bench of this Court. In fact the said Division Bench judgment has been affirmed by the Apex Court. Therefore, they filed a memo stating that they will not pursue the remedy u/s 29 of the SFC Act. The writ petition came to be disposed of after recording the said undertaking. It is thereafter, they have issued a notice under the Act on 23.9.2009 u/s 13(2) of the Act. On 21.11.2008 the respondent sent its reply contesting the claim. Thereafter after considering the objections raised the Corporation sent their reply on 3.12.2008 giving reasons for not accepting the objections raised by the petitioner. In the meanwhile the petitioner preferred the present writ petition challenging the notice u/s 13(2) of the Act as being contrary to law. However on 25.8.2009 the KSFC proceeded to pass an order u/s 13(4) of the Act deciding to take over possession of the property and deal with the property in the manner known to law. The learned Single Judge of this Court after entertaining the writ petition has set aside the notice u/s 13(2) of the Act as well as the order u/s 13(4) of the Act on the ground that once proceedings were initiated u/s 31(1)(aa) of the Act and it was withdrawn and thereafter proceedings were initiated u/s 29 of the SFC Act and it was also withdrawn, the Corporation could not have initiated proceedings under the Act as it is hit by Order II Rule 2 of CPC. He also held that the claim is barred by limitation. Therefore, no steps could have been taken to recover the debt which is barred by law of limitation. Aggrieved by the said order, the present appeal is filed.
3. The learned counsel for the appellant assailing the impugned order contended that after the judgment of the three Judges Bench in
4. Per contra, the learned Senior Counsel appearing for the petitioner submits that this is a case where the authorities have abused their power. First they initiated proceedings u/s 13(1) of the Act and they deleted the petitioner from the said proceedings on the ground that they want to initiate action u/s 29 of the Act. They initiated action u/s 29 of the Act. It was challenged. After realizing the legal position they gave up the proceedings u/s 29 of the Act. It is thereafter the proceedings are initiated under this Act. This only shows that the authorities are harassing the petitioner. Secondly, he contends that the condition precedent for issuing the notice u/s 13(2) of the Act is there should be default of payment of debt by the debtor and then there should be classification of debt as non performing asset. Unless these two conditions are fulfilled the authorities have no power to issue the notice. In the instant case the said conditions are not fulfilled. Therefore, even assuming that against the notice issued u/s 13(2) a remedy is provided under the Act, this writ petition is maintainable. Therefore, he submits that the order passed by the learned Single Judge is valid and legal and therefore, it cannot be said that the writ petition is not maintainable.
5. The Act was enacted with the fond hope of recovery of money due to the public financial Corporations expeditiously. As the experiences showed that public debt was struck in the civil Court and after passing orders for recovery of debts under the Financial Act constituting the separate Tribunal things did not improve further. Therefore, the Act was enacted. It is true that some of the provisions of the Act are oppressive in nature. Therefore, the constitutional validity of the Act was challenged. The Three Judges Bench of the Apex Court struck down those provisions which were oppressive and suggested certain amendments and also gave opportunity to the borrowers to challenge the action of the Corporation. Accordingly, the parliament amended the Act and inserted Section 13(3)(A) of the Act providing for an opportunity to contest the claim u/s 13(2) of the Act. The Apex Court in the aforesaid judgment has categorically held that when objections are filed to the notice u/s 13(2) the Corporation is duty bound to consider the objections, apply its mind and inform the borrower the reasons for over-ruling objections. Assuming that it was not done the Apex Court held in Paragraph 80 that the reasons so communicated shall only be for the purpose of information/knowledge of the borrower without giving rise to any right to approach the Debts Recovery Tribunal u/s 17 of the Act, at that stage. In other words even if reasons are not given the borrower is not given any right to approach the Court at that stage. He has to wait for an order to be passed u/s 13(4) and then in the application filed u/s 17 of the Act he could raise that ground. After the amendment the Apex Court had to consider whether the writ petition challenging the notice u/s 13(2) was maintainable. The Apex Court in the case of Digivision Electronics Limited vs. Indian Bank and another [630 Comp Cas 126] has held as under:-
When an objection is made by the borrower to the notice u/s 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, Act, 2002, the secured creditor has to apply his mind to the objection and give reasons if the objection is overruled, and such reasons have to be communicated to the borrower by the secured creditor. Thus, the borrower can raise all objections, legal and factual, which he is advised, in the reply to the notice u/s 13(2) of the 2002 Act. The amendment inserting Sub-Section (3A) in Section 13 to this effect was made by the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004, with effect from November 11, 2004, but the position was the same even before this amendment. In a sense the notice u/s 13(2) of the Act is really a show-cause notice, and ordinarily the Court does not interfere with show-cause notices. The notice u/s 13(2) of the Act really does not give rise to a cause of action because by itself the notice does not affect any right or liability of the borrower. Hence, the challenge to the notice u/s 13(2) of the Act is premature, since it is possible that the secured creditor may be satisfied with the reply of the borrower to the notice and drop the proceedings.
6. Therefore, the Apex Court in the aforesaid judgment has categorically held that no writ petition is maintainable challenging the notice u/s 13(2) of the Act, After the objections are filed as is clear from the aforesaid judgment the authorities have to consider the objections and then communicate the reasons. Then they are at liberty to proceed further in the matter and pass appropriate orders as contemplated u/s 13(4) of the Act. Once a measure is taken in terms of Section 13(4) of the Act a right is conferred on the borrower or any person aggrieved by the said order u/s 17 of the Act to approach the Tribunal. Hindrance of payment of ad valorem court fee is struck down by the Supreme Court making that remedy really efficacious remedy.
7. In the instant case it is not in dispute that the principal borrower was dissolved by an order of the Court dated 24.7.2000 and the debt was declared as non performing assest on 9.9.2008. The notice u/s 13(2) of the Act was issued to the borrower on 23.9.2008. It is relevant to mention here that the definition of word "borrower" includes guarantor or mortgager. After service of notice u/s 13(2) of the Act the petitioner gave his reply on 21.11.2008 raising the very objections which he has raised in this writ petition. On consideration of the same a reply was sent rejecting/over-ruling the said objections on 3.12.2008. Even before the said reply was received the petitioner was before this Court challenging the proceedings under 13(2) of the Act by filing a writ petition on 27.11.2008. However, subsequently an order u/s 13(4) was passed on 25.8.2009, against which an appeal lies u/s 30 of the Act. Therefore, in the light of the decision of the three Judges Bench of the Apex Court no writ petition is maintainable against the notice issued u/s 13(2) of the Act. If an order is passed u/s 13(4), the statute provides an efficacious remedy by way of an application u/s 7 of the Act. In that view of the matter, and in the facts of this case, the learned Single Judge was not justified in entertaining the writ petition and deciding the petition on merits. Therefore, the finding recorded by the learned Single Judge on merits is also liable to be set aside as that is the question which has to be decided by the Tribunal if necessary after recording the evidence. It is well settled law that question of limitation is a mixed question of law and fact. If the parties wants to lead evidence it has to be recorded and a finding has to be recorded.
8. For the aforesaid reasons, we proceed to pass the following:-
ORDER
The appeal is allowed. The impugned order is set aside. The writ petition filed is dismissed. It is made clear that it is open to the petitioner to urge all the grounds which he has urged in the writ petition and such additional grounds as may be advised in the application to be filed by him u/s 17 of the Act before the Tribunal challenging the order u/s 13(4) of the Act. In such proceedings it is open to him to challenge the validity of notice u/s 13(2) of the Act also. The Tribunal shall decide the case on merits and in accordance with law without in any way being influenced by any of the observations made by this Court or by the learned Single Judge especially on the question of limitation or delay and the case under Order 2 Rule 2 of CPC. It is ordered accordingly.
The petitioner is granted 60 days time to file the application u/s 17 of the Act from today. Till such time no precipitative action shall be taken by the Corporation and it is open to the petitioner to seek such appropriate interim orders.
