Bank of India, Mumbai Vs Development Credit Bank Ltd.

1. Bank of India, the petitioner herein, advanced housing loan of Rs. 15,00,000/- as well as overdraft facility of Rs. 15,00,000/- to respondents 2 and 3. A house situated at Sainikpuri (hereafter, the secured asset) was mortgaged to Secure the loan. When respondents 2 and 3 committed default in repayment, the petitioner issued two notices of demand u/s 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereafter, the SARFAESI Act or the Act), demanding a total sum of Rs. 32,65,132/-. The borrowers were called upon to clear the loan within 60 days. They did not pay. The petitioner, therefore, issued possession notice u/s 13(4) of the Act and filed Crl. M.P. No. 98 of 2008 u/s 14(1) and (2) of the Act for taking possession. The Court of the Chief Metropolitan Magistrate, Cyberabad at L.B. Nagar, appointed an advocate commissioner to take possession of the mortgaged property. The advocate commissioner could not deliver the notice as respondents 2 and 3 were not staying in the house. In the mean while, one Lalithnarayan, who claiming to have purchased the secured asset under an agreement of sale-cum-GPA, filed an application being S.A. No. 230 of 2008 u/s 17 of the Act before the Debts Recovery Tribunal, Hyderabad (DRT). The DRT also passed orders of stay on 14.08.2008 in I.A. No. 904 of 2008. The petitioner then moved an application being I.A. No. 1251 of 2009 for vacating the interim order. The same is pending. The Development Credit Bank Ltd., (DCB), the first respondent herein, statedly took possession of the secured asset pursuant to their notice u/s 13(4) of the Act. Having come to know this, the petitioner addressed a letter to DCB informing that possession was already taken under the provisions of the Act. After obtaining orders u/s 14(1), the first respondent sent a reply on 23.08.2011 informing the petitioner that they also obtained orders from the Chief Metropolitan Magistrate in Crl. M.P. No. 29 of 2009 and obtained possession through an advocate commissioner appointed by the said Court. The petitioner then realised that respondents 2 and 3 availed credit facilities from the first respondent by mortgaging the same property suppressing the prior mortgage. Therefore, the present Writ Petition is filed seeking a Writ of Mandamus declaring the action of the first respondent in taking possession of the secured asset ignoring the prior charge in favour of the petitioner as illegal and arbitrary.

2. The first respondent opposed the Writ Petition challenging the maintainability in view of the effective alternative remedy u/s 17 of the Act. The maintainability of the Writ Petition is also challenged on the ground that DCB is not ''State'' or its agency. It is further stated that the first respondent sanctioned Rs. 40,00,000/- to M/s. Ananth Gas Agency, a propriety concern of the third respondent on 20.03.2006; as there is default, action was initiated under the Act and possession was taken through advocate commissioner appointed in Crl. M.P. No. 29 of 2009 on 27.08.2009. The answering respondent also filed private complaint, which was registered as Crime No. 745 of 2011 of P.S. Kushaiguda against two persons, who forcibly occupied the secured asset. While denying petitioner''s priority right over secured asset, it is submitted that sub-section (9) of Section 13 of the Act has no application as the loan was not jointly sanctioned by the petitioner and the first respondent.

3. The counsel for Bank of India would submit that in the background facts of this case, the remedy u/s 17 is not an effective remedy and the DRT is not vested with the powers to resolve the dispute between two secured creditors. He relies o Nahar Industrial Enterprises Ltd. Vs. Hong Kong and Shanghai Banking Corporation, . Nextly, he contends that the DCB being a banking company within the meaning of Section 2(e) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (the DRT Act), the remedy is to approach the DRT by impleading the petitioner and work out the equities and that the prior mortgage in favour of the petitioner has to be honoured u/s 48 of the Transfer of Property Act, 1882.

4. The counsel for DCB would submit that even though the first respondent is notified as a banking company, not being a public authority, the writ would not lie; the writ petition is barred as the petitioner has an effective remedy under Sections 17 and 18 of the Act; Section 13(9) has no application; and in any event, the remedy of the petitioner is to seek arbitration u/s 11 of the Act.

5. The dispute in this Writ Petition is between two secured creditors, involving the interpretation of Section 13(9), which postulates that in the event of financing of financial asset Transcore Vs. Union of India (UOI) and Another, by more than one secured creditors Mardia Chemicals Ltd. Vs. Union of India (UOI) and Others Etc. Etc., or joint financing, unless such right is agreed upon by the secured creditor representing not less than 3/4th in the value of amount outstanding, no secured creditors shall be entitled to exercise rights u/s 13(4) of the Act.

6. The counsel for the petitioner and the first respondent seriously dispute the applicability or otherwise of section 13(9) of the Act to the facts of the case. The amount of debt due to the first respondent towards both the loan accounts stands at Rs. 32,65,132/-. Prima facie, on the principal adumbrated unless the petitioner and the first respondent agree upon to exercise the right u/s 13(4) of the Act it is doubtful whether either of them could have exercised the rights. It is interesting to notice that Section 13(9) of the Act does not refer to "priority of right" in favour of the earlier mortgagee. The counsel for Bank of India would rely on Section 48 of the Transfer of Property Act. It needs in-depth consideration without ignoring Section 35 of the SARFAESI Act, which gives overriding effect to the provisions of the SARFAESI Act over all the other laws. For the reason infra, we, however, are not inclined at this stage to go into this aspect.

7. Section 17 of the Act gives a right to "any person (including borrower) aggrieved by any of the measures referred to in subsection (4) of Section 13 taken by the secured creditor or his authorised officer may make an application to the DRT having jurisdiction in the matter". This has been interpreted by the Supreme Court in Transcore Vs. Union of India (UOI) and Another, as conferring the original jurisdiction to the DRT u/s 17(1) of the Act. Relevant observations are as follows.

It is true that Section 17(1) of the NPA Act states inter alia that a borrower aggrieved by action-taken u/s 13(4) may make an application along with fees, as may be prescribed to DRT having jurisdiction in the matter. It is true that the marginal note states that Section 17(1) is a right to appeal. In our view, the marginal note to Section 17(1) cannot control the text and the content of Section 17(1) which, as stated above, states that the borrower aggrieved by any of the measures in Section 13(4) may make an application to DRT. The judgment of this Court in Mardia Chemicals Ltd. Vs. Union of India (UOI) and Others Etc. Etc., states that DRT acts in an original jurisdiction u/s 17 of the NPA Act. In our opinion, as far as the levy of fee is concerned, the terminology makes no difference. In fact, the proviso to Section 17(1) indicates that different fees may be prescribed for making an application by the borrower. The reason is obvious. Certain measures taken u/s 13(4) like taking over the management of the fee vis-�-vis the secured creditor taking possession of financial assets have to bear different fees. Each measure is required to be separately charged to the borrower (the applicant) for which different fees could be prescribed. The said proviso indicates that the Tribunal u/s 17(1) exercises original jurisdiction and, therefore, as far as the fees are concerned, the terminology of original or appellate jurisdiction in the context of fees is irrelevant."

8. What is the scope of power u/s 17(1) of the Act? The submission of the counsel for Bank of India that DRT is not vested with the power to resolve the inter se dispute between two secured creditors cannot be accepted. The language of Section 17 of the Act is wide enough to provide remedy to one secured creditor against the other in the event of any violation, say for instance, the violation of Section 13(9) of the Act. In Nahar Industrial Enterprises, the Supreme Court considered the question of power of the High Court to transfer the suit pending in a civil Court within its territorial jurisdiction to DRT outside its jurisdiction. The question was answered in the negative holding that the High Court cannot transfer a suit to DRT outside its jurisdiction. This authority, in our considered opinion, has no bearing on the controversy herein. Our attention has been invited to Authorized Officer, Indian Overseas Bank and Another Vs. Ashok Saw Mill, wherein it was held that the DRT is conferred with powers u/s 17 of the Act as a check on the exercise of vast jurisdiction conferred on the banks/financial institutions. The relevant observations are as follows.

9. The intention of the legislature is, therefore, clear that while the banks and financial institutions have been vested with stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee.

10. The consequences of the authority vested in the DRT under sub-section (3) of Section 17 necessarily implies that the DRT is entitled to question the action taken by the secured creditor and the transactions entered into by virtue of Section 13(4) of the Act. The legislature by including sub-section (3) in Section 17 has gone to the extent of vesting the DRT with authority to even set aside a transaction including sale and to restore possession to the borrower in appropriate cases. Resultantly, the submissions advanced by Mr. Gopalan and Mr. Altaf Ahmed that the DRT has no jurisdiction to deal with a post-Section 13(4) situation, cannot be accepted.

11. We are unable to agree with or accept the submissions made on behalf of the appellants that the DRT had no jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated u/s 13(4)of the Act. On the other hand, the law is otherwise and it contemplates that the action taken by a secured creditor in terms of Section 13(4) is open to scrutiny and cannot only be set aside but even the status quo ante can be restored by the DRT.

12. In United Bank of India Vs. Satyawati Tondon and Others, the Supreme Court laid down that having regard to the effective and efficacious remedy under Sections 17 and 18 of the Act, the Writ Petition is barred. The relevant observations are as follows.

Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc., the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi judicial bodies for redressal of the grievance of any aggrieved person. Therefore, in all such cases, High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute.... It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection.

13. In Kanaiyalal Lalchand Sachdev and Others Vs. State of Maharashtra and Others, the Supreme Court quoted Ashok Saw Mill with approval and held that all questions of facts and law can be agitated before the DRT and the High Court would be justified in denying judicial review of decision under the Act. Therefore, we are not able to countenance the submissions of the Bank of India that remedy u/s 17 of the Act is not an effective remedy when Section 13(9) is allegedly contravened by one of the secured creditors vis-�-vis another secured creditor.

14. By a notification dated 01.06.1995 issued u/s 42(6)(a) of the Reserve Bank of India Act, 1934 (the RBI Act), the Reserve Bank of India directed inclusion of the first respondent in the second schedule to said Act thereby conferring the status of a banking company. Does it bring DCB within the jurisdiction of Article 226 of the Constitution of India? We are afraid it cannot. Merely because a company is carrying on banking business, it cannot per se become public authority nor can be considered as discharging public functions. This is well settled. A reference need to be made to Federal Bank Ltd. Vs. Sagar Thomas and Others, wherein it was held as under.

15. Merely because the Reserve Bank of India lays the banking policy in the interest of the banking system or in the interest of monetary stability or sound economic growth having due regard to the interests of the depositors etc. as provided u/s 5(c)(a) of the Banking Regulation Act does not mean that the private companies carrying on the business or commercial activity of banking, discharge any public function or public duty. These are all regulatory measures applicable to those carrying on commercial activity in banking and these companies are to act according to these provisions failing which certain consequences follow as indicated in the Act itself. As to the provision regarding acquisition of a banking company by the Government, it may be pointed out that any private property can be acquired by the Government in public interest. It is now a judicially accepted norm that private interest has to give way to the public interest. If a private property is acquired in public interest it does not mean that the party whose property is acquired is performing or discharging any function or duty of public character though it would be so far acquiring authority. In our view, a private company carrying on banking business as a scheduled bank, cannot be termed as an institution or a company carrying on any statutory or public duty. A private body or a person may be amenable to writ jurisdiction only where it may become necessary to compel such body or association to enforce any statutory obligations or such obligations of public nature casting positive obligation upon it. We don''t find such conditions are fulfilled in respect of a private company carrying on a commercial activity of banking. Merely regulatory provisions to ensure such activity carried on by private bodies work within a discipline, do not confer any such status upon the company nor put any such obligation upon it which may be enforced through issue of a writ under Article 226 of the Constitution.

16. There is no dispute that the DCB bank is a private bank. It is nobody''s case that DCB is financially, functionally administered or controlled by the Government. Therefore, it cannot be treated as a State or its agency within the meaning of Article 12 of the Constitution ( Pradeep Kumar Biswas and Others Vs. Indian Institute of Chemical Biology and Others,

17. Yet another aspect, which we may advert to, is the effect to Section 11 of the Act, which we quote here below.

11. Resolution of disputes

Where any dispute relating to securitisation or reconstruction or non-payment of any amount due including interest arises amongst any of the parties, namely, the bank or financial institution or securitisation company or reconstruction company or qualified institutional buyer, such dispute shall be settled by conciliation or arbitration as provided in the Arbitration and Conciliation Act, 1996 (26 of 1996), as if the parties to the dispute have consented in writing for determination of such dispute by conciliation or arbitration and the provisions of that Act shall apply accordingly.

18. Any dispute among the bank, or financial institution, or securitisation company or reconstruction company or qualified institutional buyer, shall have to be settled by conciliation or arbitration as provided in the Arbitration and Conciliation Act 1996. For doing so, the parties to the dispute have to consent in writing for reference to the conciliation or arbitration. u/s 17(3) of the Act, if the DRT comes to the conclusion that the action taken u/s 13(4) of the Act by the secured creditor is not in accordance with the provisions of the Act, DRT may require restoration of the management of the business to the borrower or restoration of possession of the secured asset to the borrower by declaring the recourse to any of the measures u/s 13(4) of the Act is invalid and "pass such other order as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor". Therefore, in our considered opinion, it is always open to the petitioner or the first respondent to submit consent in writing for resolution of dispute by conciliation or arbitration. This can as well be done before the DRT and a Writ Petition ordinarily may not be proper remedy.

19. In the result, for the above reasons, we decline to exercise judicial review in relation to the dispute raised herein. If so advised, it is open to the petitioner to approach the DRT by filing an application u/s 17(1) of the Act. The Writ Petition shall stand dismissed with the above observations without any order as to costs. Miscellaneous petitions shall stand dismissed.