@JUDGMENTTAG-ORDER
Satish K. Agnihotri, J.@mdashBy this petition, the Petitioner seeks to challenge the legality and validity of the notice dated 21-3-2009 (Annexure P/5) issued by the Respondent bank under the provisions of Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "the Act, 2002"). Further to quash the proceedings initiated by the Respondent No. 2 i.e. District Magistrate, Raipur.
2. The indisputable facts, in nutshell, as projected by the Petitioner, are that the Petitioner is carrying on the business in the name and style of M/s. Shyam Rice & Parboiling Unit at Nevra District, Raipur. According to the Petitioner, the Petitioner applied for various loans and credit facilities from the Respondent bank. After completing the necessary formalities, the Respondent bank granted the loan benefit to the Petitioner. However, on account of restriction imposed by the Krishi Upaj Mandi Samiti, Nevra on 28-2-2009 (Annexure P/1) from carrying the business of rice mill and parboiling, the Petitioner committed certain defaults in making the payment of loan to the Respondent bank. The said fact has been brought by the Petitioner to the notice of the Respondent bank. In spite of said information, the Respondent bank compelled the Petitioner to make payment of loan amount. Even the legal notice dated 3-2-2009 (Annexure P/3) has been sent by the Respondent bank and asked the Petitioner to make entire amount of loan along with interest accrued thereon within a period of 15 days. After receipt of the said notice the Petitioner submitted its reply dated 20-2-2009 (Annexure P/4) mentioning all the difficulties faced by it and requested not to initiate any action under the provisions of the Act, 2002.
3. Thereafter, the Respondent bank issued the notice dated 21-3-2009 (Annexure P/5) u/s 13(2) of the Act, 2002. The Petitioner submitted its reply to the impugned notice on 5-5-2009 (Annexure P/6) and sent the same through speed post which has been returned with a remark that (sic) as is evident from Annexure P/7. Thereafter, the Respondent No. 2 invoking the provisions of Section 14 of the Act, 2002 issued a notice dated 28-7-2009 (Annexure P/8) calling upon the Petitioner to appear before him on 24-8-2009 at 3.00 p.m. failing which ex parte action would be initiated against the Petitioner. The said action of the Respondent authorities is illegal, arbitrary and against the provisions of law. Thus, this petition.
4. Shri Sharma learned Counsel appearing for the Petitioner would submit that the action of the Respondent bank, initiated under the provisions of the Act, 2002 for recovery of loan is illegal and arbitrary. The bank authorities ought to have received the reply sent by the Petitioner to the notice u/s 13(2) of the Act, 2002 and they cannot refuse to accept the same from the postal authorities. Shri Sharma would further submit that without deciding the objection raised by the Petitioner, the authorities cannot proceed further. The impugned action of the Respondent authorities is against the provisions of Articles 14, 19 & 21 of the Constitution of India. Thus, the impugned notice dated 21-3-2009 (Annexure P/5) may be quashed and the Respondent may be re-strained from taking any coercive steps against the Petitioner.
5. Ms. Fouzia Mirza, learned Counsel for the Respondent bank, would submit that the Petitioner without availing the alternative efficacious remedy available under the provisions of Section 17 of the Act, 2002, has approached this Court. Ms. Mirza would further submit that the Petitioner has neglected in timely payment of the contractual liability and has committed a breach of terms and condition of loan agreement. In view of the guidelines issued by the Reserve Bank of India, the Respondent bank called upon the Petitioner to clear the entire dues within a period of 15 days from the date of receipt of notice failing which they would exercise their right as provided under the provisions of Sub-section (4) of Section 13 of the Act 2002. The Respondent bank has rightly approached the District Magistrate for taking possession of the secured assets. Ms. Mirza would next submit that since there is hierarchy of appeals u/s 17 of the Act, 2002, the petition filed under Article 226 may not be maintainable before this Court. Thus, the Petitioner is not entitled to any relief and the petition deserves to be dismissed.
6. I have heard learned Counsel appearing for the parties perused the pleadings and the documents appended thereto.
7. Indisputably, the Petitioner obtained a loan to the tune of Rs. 2,23,50,000/- on security of immovable properties under his ownership, his spouse and ownership of Mr. Girdhan Agrawal and Mr. Sitaram Agrawal as guarantors. The Petitioner failed in regular payment of the installments. Thus, a notice was issued to the Petitioner u/s 13(2) of the Act, 2002 on March 21st 2009 (Annexure P-5) calling upon M/s. Shyam Rice and Parboiling Unit I and II, Camp Tida, Post Nevra, District Raipur, the Petitioner Mr. Girdhan Agrawal and Mr. Sitaram Agrawal as guarantors, to discharge their liabilities.
8. According to the Petitioner, Petitioner submitted reply on 5-5-2009 (Annexure P-6), which was refused on 1-7-2009 as is evident from Annexure P-7 and Annexure P-8. Thereafter, the Respondent No. 1/Bank moved an application to the District Magistrate, Raipur, for taking over possession of the secured assets. The District Magistrate/Respondent No. 2, issued a notice to the Petitioner to remain present along with all the documents on 24-8-2009 before the District Magistrate, Raipur (Annexure P-8). The Petitioner, without responding to the notice issued by the District Magistrate u/s 14 of the Act, 2002, preferred to file this petition seeking quashing of notice u/s 13(2) and further proceedings pending before the Respondent No. 2 the District Magistrate, Raipur.
9. The contention of the Petitioner is that the Respondent Bank could not have taken recourse to provisions of Section 14 without deciding the representation reply of the Petitioner to notice u/s 13(2) of the Act, 2002, as the same is mandatory under provisions of Section 13(3A) of the Act, 2002. Under proviso to Section 13(3A) of the Act, 2002 the Petitioner could not have preferred an appeal/application to the Debts Recovery Tribunal u/s 17 of the Act or the Court of District Judge under the provisions of Section 17A of the Act, 2002.
10. In the case on hand, since the reasons were not communicated within one week of receipt of such representation the entire proceedings initiated u/s 13(2) as well as u/s 14 is illegal, unauthorized, thus, the same may be quashed. It is a well settled principle of law that recovery proceeding u/s 13 of the Act, 2002 does not involve an adjudication process. The secured asset is an asset in which interest is created by the borrower in favour of the Bank/Financial Institution. On that basis alone the Act, 2002 seeks to enforce the security interest expeditiously without intervention of the Court/Tribunal. Thus, no adjudication is involved in enforcing the secured interest by taking over possession of the secured assets.
11. In order to appreciate the points raised for consideration by this Court it is necessary to quote the provisions of Sections 13(1), 13(2), 13(3A) and 13(4) of the Act, 2002.
13. Enforcement of security interest -
(1) Notwithstanding anything contained in Section 69 or Section 69A of the Transfer of Property Act, 1882 (4 of 1882) any security interest created in favor of any secured creditor may be enforced, without the intervention of the court or tribunal by such creditor in accordance with the provisions of this Act.
(2) Where any borrower who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instilment thereof and his account in respect of such debt is classified by the secured creditor as non-performing asset, borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under Sub-section (4).
(3) The notice referred to in Sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower;
(3A) If, on receipt of the notice under Sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower:
Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal u/s 17 or the Court of District Judge u/s 17A.
(4) In case the borrower fails to discharge his liability in full within the period specified in Sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:
(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset;
(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset:
Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:
Provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security or the debt.
(c) appoint any person thereafter referred to as the management to manage the secured assets the possession of which has been taken over by the secured creditor ;
(d) require at any time by notice in writng any person who was acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.
12. The Supreme Court in Mardia Chemical Ltd. v. Union of India (2004) 2 SCC 311has observed as under:
45... But communication of reasons not to accept the objections of the borrower, would certainly be for the purpose of his knowledge which would be a step forward towards his right to know as to why his objections have not been accepted by the secured creditor who intends to resort to harsh steps of taking over the management/business of viz. secured assets without intervention of the Court. Such a person in respect of whom steps u/s 13(4) of the Act are likely to be taken cannot be denied the right to know the reason of non-acceptance and of his objections. It is true as per the provisions under the Act, he may not be entitled to challenge the reasons communicated or the likely action of the secured creditor at that point of time unless his right to approach the Debts Recovery Tribunal as provided u/s 17 of the Act matures on any measure having been taken under Sub-section (4) of Section 13 of the Act.
80. Under the Act in consideration, we find that before taking action a notice of 60 days is required to be given and after the measures u/s 13(4) of the Act have been taken, a mechanism has been provided u/s 17 of the Act to approach the Debts Recovery Tribunal. The above noted provisions are for the purpose of giving some reasonable protection to the borrower. Viewing the matter in the above perspective, we find what emerges from different provisions of the Act, is as follows:
1. Under Sub-section (2) of Section 13 it is incumbent upon the secured creditor to serve 60 days'' notice before proceeding to take any of the measures as provided under Sub-section (4) of Section 13 of the Act. After service of notice, if the borrower raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections, howsoever brief they may be, must be communicated to the borrower in connection with this conclusion we have already held a discussion in the earlier part of the judgment. The reasons so communicated shall only be for the purposes of the information/knowledge of the borrower without giving rise to the right to approach the Debts Recovery Tribunal u/s 17 of the Act, at that stage.
13. The Supreme Court in
24...A proviso is added to Section 13(3-A) which states that the reasons so communicated shall not confer any right upon the borrower to file an application to DRT u/s 17. The scheme of Sub-sections (2), (3) and (3-A) of Section 13 of the NPA Act shows that the notice u/s 13(2) is not merely a show-cause notice, it is a notice of demand. That notice of demand is based on the footing that the debtor is under a liability and that his account in respect of such liability has become sub-standard, doubtful or a loss. The identification of debt and the classification of the account as NPA is done in accordance with the guidelines issued by RBI. Such notice of demand, therefore, constitutes an action taken under the provisions of the NPA Act and such notice of demand cannot be compared to a show-cause notice. In fact, because it is a notice of demand which constitutes an action, Section 13(3-A) provides for an opportunity to the borrower to make representation to the secured creditor. Section 13(2) is a condition precedent to the invocation of Section 13(4) of the NPA Act by the bank/FI. Once, the two conditions u/s 13(2) are fulfilled the next step which the bank or FI is entitled to take is either to take possession of the secured assets of the borrower or to take over management of the business of the borrower or to appoint any manager to manage the secured assets or require any person, who has acquired any of the secured assets from the borrower, to pay the secured creditor towards liquidation of the secured debt.
25. Reading the scheme of Section 13(2) with Section 13(4), it is clear that the notice u/s 13(2) is not a mere show-cause notice and it constitutes an action taken by the bank/FI for the purposes of the NPA Act.
33. Section 17 of NPA Act confers right to appeal. It inter alia states that any person including borrower, aggrieved by exercise of rights by the secured creditor u/s 13(4) may make an application to DRT as an appellate authority within forty-five days from the date on which action u/s 13(4) is taken. That application should be accompanied by payment of fees prescribed by the 2002 Rules made under the NPA Act. A proviso is added to Section 17(1) by amending Act 30 of 2004. It states that different fees may be prescribed for making the application by the borrower and the person other than the borrower. By way of abundant caution an explanation is added to Section 17(1) saying that the communication of the reasons to the borrower by the secured creditor rejecting his representation shall not constitute a ground for appeal to DRT. However, u/s 17(2) the DRT is required to consider whether any of the measures referred to in Section 13(4) taken by the secured creditor for enforcement of security are in accordance with the provisions of the NPA Act and the Rules made hereunder. If DRT, after examining the facts and circumstances of the case and the evidence produced by the parties comes to the conclusion that any of the measures taken u/s 13(4) are not in accordance with the NPA Act, it shall direct the secured creditor to restore the possession/management to the borrower (vide Section 17(3) of NPA Act). On the other hand, after DRT declares that the recourse taken by the secured creditor u/s 13(4) is in accordance with the provisions of the NPA Act then notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to any one or more of the measures specified u/s 13(4) to recover his secured debt.
66. We have already analysed the scheme, of both the Acts. Basically the NPA Act is enacted to enforce the interest in the financial assets which belongs to the bank/FI by virtue of the contract between the parties or by operation of common law principles or by law. The very object of Section 13 of the NPA Act is recovery by non-adjudicatory process. A secured asset under the NPA Act is an asset in which interest is created by the borrower in favour of the bank/FI and on that basis alone the NPA Act seeks to enforce the security interest by non-adjudicatory process. Essentially, the NPA Act deals with the rights of the secured creditor. The NPA Act proceeds on the basis that the debtor has failed not only to repay the debt, but he has also failed to maintain the level of margin and to maintain value of the security at a level is the other obligation of the debtor. It is this other obligation which invites applicability of the NPA Act. It is for this reason, that Sections 13(1) and 13(2) of the NPA Act proceeds on the basis that security interest in the bank/FI, needs to be enforced expeditiously without the intervention of the court/tribunal, that liability of the borrower has accrued and on account of default in repayment the account of the borrower in the books of the bank has become non-performing. For the above reasons the NPA Act states that the enforcement could take place by non-adjudicatory process and that the said Act removes all fetters under the above circumstances on the rights of the secured creditor.
14. Subsequent to judgment in Mardia Chemical Ltd. (supra) handed down by the Supreme Court, Sub-section (3A) of Section 13 of the Act 2002 was inserted by Act 30 of 2004 w.e.f. 11-11-2004. Provisions of Section 13(3A) came into consideration before the Supreme Court in
15. The Supreme Court considered the provisions of Sub-section (3A) of Section 13 of the Act 2002 and held that a notice u/s 13(2) is not merely a show-cause notice, but a notice of demand. Section 13(3A) of the Act, 2002 provides for an opportunity to the borrower to make representation to the secured creditor. Section 13(2) of the Act, 2002 is a condition precedent to the invocation of Section 13(4) of the NPA Act by the Bank/Financial Institution.
16. However, in the instant case the reply dated 5-5-2009 was submitted by the Petitioner, pursuant to the notice dated 21-3-2009 issued u/s 13(2) of the Act 2002 receipt of the same was refused by the Bank. Thus there was no occasion to consider the reply of the Petitioner. Indisputably the reply to the notice u/s 13(2) of the Act 2002 was filed by the Petitioner within a period of 60 days, which was not received by the Respondent Bank.
17. Thus, provisions of Sub-section (3A) of Section 13 of the Act 2002, is a mandatory statutory provision, which was not complied with before taking recourse to provisions of Section 14 of the Act, 2002. It is indisputable that no order under the provisions of Section 13(4) of the Act, 2002 has been passed till date.
18. Section 13(3A) of the Act, 2002 provides for a specific procedure, which cannot be permitted to be contravened. It is a trite law that if a statute requires to do a process in a particular way, the same must be done in that way only.
19. In this regard I am in respectful agreement with the view taken by the Division Bench of the Orissa High Court in
20. For the reasons stated hereinabove, the notice dated 21-3-2009 and the proceedings initiated by the Respondent No. 2 i.e. District Magistrate, Raipur, are quashed.
21. The Respondent Bank is directed to decide the aforesaid objection, if any, filed by the Petitioner within a period of ten days and pass speaking and reasoned order and communicate the same to the Petitioner. Thereafter, it would be open to the Respondent Bank to proceed further, in accordance with law.
22. In the result, the writ petition is allowed to the above extent. No order as to costs.
