TMI Blog2008 (4) TMI 500X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank under section 13 of the Act? Held that:- The right of the Bank is not automatically suspended upon filing of an Application under section 17 of the Securitisation Act and the secured creditor can proceed to auction secured asset where no stay is granted by the Tribunal. The Tribunal has power to impose the condition relating to deposit for grant of stay of auction. The Tribunal has no power to pass any interim mandatory order relating to restoration of possession or restoration of management before the finalisation of the proceedings under section 17 of the Securitisation Act, and All such grounds, which rendered the action of the Bank/Financial Institution illegal, can be raised in the proceedings under section 17 of the Securitisation Act before the Debt Recovery Tribunal. It is for the Debt Recovery Tribunal to decide in each case whether the action of the Bank/Financial Institution was in accordance with the provisions of the said Act and legally sustainable. - WP NOS. 37148 AND 37534 OF 2007 - - - Dated:- 15-4-2008 - A.P. SHAH, F.M. IBRAHIM KALIFULLA AND V. RAMASUBRAMANIAN, JJ. Rajasekaran, A.L. Somayaji, L.S. Lakshmanan, Vijay Narayanan and Mrs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ched the Debts Recovery Tribunal and in the I.A. for interim relief taken out by the petitioners the Debts Recovery Tribunal directed the petitioners to deposit a sum of Rs. 28.25 lakhs within three weeks from the date of receipt of its order and allowed the Bank to proceed with the auction, but defer further proceedings including the confirmation of sale, etc. till further orders. It was further directed by the Tribunal that the stay would stand automatically vacated if the petitioners fail to comply with the condition imposed in the order. The Bank, thereafter, conducted auction and the second respondent herein emerged as the highest bidder. Since the petitioners failed to deposit the amount as per the condition imposed by the Tribunal, the Bank proceeded with issuing confirmation letter to the purchaser and subsequently issued Sale Certificate to the purchaser. The petitioners then, preferred an Appeal to the Debts Recovery Appellate Tribunal, Chennai (In SARFAESI) No. 744 of 2007 wherein stay of further proceedings was granted on condition that the petitioners shall deposit a sum of Rs. 30 lakhs in two instalments. The Debts Recovery Appellate Tribunal ultimately vacated the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication under section 17(1) of the Securitisation Act is decided and as contemplated under section 17(4) of the Act the Debts Recovery Tribunal declares that the recourse taken by the secured creditor under section 13(4) is in accordance with the provisions of the Act, the secured creditor shall not be entitled to take further recourse to one or more measures specified under sub-section (4) of section 13 to recover the secured debt. It was submitted that the right of the secured creditor to auction the property remains in abeyance until the Tribunal declares that the recourse taken by the secured creditor under section 13(4) was in accordance with the provisions of the Securitisation Act. It was therefore argued that the Tribunal has no power to direct the borrower to deposit any amount as a condition of stay failing which the secured creditor can auction the property even before such proceedings are finalized on merit. On the other hand, on behalf of the banks it was submitted that mere filing of an Application under section 17 of the Securitisation Act should not be construed as an automatic stay as held by a Division Bench of this Court in Ramco Super Leathers Ltd. v. UCO Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions as contained under sections 13 and 17 of the Act provide adequate and efficacious mechanism to consider and decide the objections/disputes raised by a borrower against the recovery, particularly in view of bar to approach the Civil Court under section 34 of the Act? ( iii )Whether the remedy available under section 17 of the Act is illusory for the reason it is available only after the action is taken under section 13(4) of the Act and the Appeal would be entertainable only on deposit of 75 per cent of the claim raised in the notice of demand? ( iv ) ( v )****** ( vi )Whether provision for sale of the properties without intervention of the Court under section 13 of the Act is akin to the English mortgage and its effect on the scope of the bar of the jurisdiction of the Civil Court?" (p. 538) In paragraph 45, the Supreme Court stated that it could consider as to what forums or remedies were available to the borrower to ventilate their grievances. While doing so, the Supreme Court observed that there must be some meaningful consideration of the objections raised by the borrower in answer to the notice under section 13(2) before proceeding to take measures under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 any right to approach the Debts Recovery Tribunal under section 17 of the Act, at that stage. 2. As already discussed earlier, on measures having been taken under sub-section (4) of section 13 and before the date of sale/auction of the property it would be open for the borrower to file an Appeal (Petition) under section 17 of the Act before the Debts Recovery Tribunal. 3. That the Tribunal in exercise of its ancillary powers shall have jurisdiction to pass any stay/interim order subject to the condition as it may deem fit and proper to impose. 4. In view of the discussion already hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jection 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 under section 17 or the Court of District Judge under section 17A." 9. Secondly, sub-section (2) of section 17, which was held to be unconstitutional by the Supreme Court was deleted and sub-sections (2) to (6) were inserted in section 17 and original sub-section (3) was re-numbered as sub-section (7). The provisions of section 17 of the Act after the amendment read as follows : "17. Right to Appeal. (1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorized officer under this Chapter, (may make an application along with such fee, as may be prescribed) to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measures had been taken : [ Provided that different fees may be prescribed for makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Debts Recovery Tribunal may, from time to time, extend the said period for reasons to be recorded in writing, so, however, that the total period of pendency of the application with the Debts Recovery Tribunal, shall not exceed four months from the date of making of such application made under sub-section (1). (6) If the application is not disposed of by the Debts Recovery Tribunal within the period of four months as specified in sub-section (5), any party to the application may make an application, in such form as may be prescribed, to the Appellate Tribunal for directing the Debts Recovery Tribunal for expeditious disposal of the application pending before the Debts Recovery Tribunal and the Appellate Tribunal may, on such application, make an order for expeditious disposal of the pending application by the Debts Recovery Tribunal. (7) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the application in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and the rules made thereunder." Re. Question Nos. (i) (ii) 10. The first question is whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjection to the borrower. The Proviso to sub-section (3A) provides 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 under section 17 or the Court of District Judge under section 17A. In Mardia Chemical Ltd.s case ( supra ), the Supreme Court has clearly held that such right accrues only if measures are taken under sub-section (4) of section 13 of the Securitisation Act (para 48 SCC page 348). Therefore, only if one or other measure is taken by the secured creditor, a cause of action arises for any person or borrower to prefer an Application under section 17 of the Securitisation Act. 11. Under sub-section (1) of section 17 any person aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor can prefer an Appeal (Application) to the Debts Recovery Tribunal within 45 days from the date on which such measures had been taken. Under sub-section (2) of section 17, the Tribunal is bound to consider whether any of the measures referred to under sub-section (4) of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the rules made thereunder. It was submitted that the use of the word "if connotes a condition precedent and no further action can be taken unless the condition is fulfilled. We are unable to accept the submission of the learned counsel for the borrowers. The provisions of sections 13 and 17 are amended after the Mardia Chemical Ltd. s case ( supra ). The Statement of Objects and Reasons makes it manifestly clear that the amendment has been effected in view of the judgment of the Supreme Court and to discourage the borrowers to postpone the repayment of their dues and also to enable the secured creditor to speedily recover their dues, if required by enforcement of security or other measures specified in sub-section (4) of section 13 of the Act. Legislature was clearly aware of the ruling Mardia Chemical Ltd. s case ( supra ) which integrated section 17 as granting to the Tribunal a discretionary power of stay. Accepting the submission of the borrowers would mean that the Legislature intended to undo this by enacting section 17 so as to suspend the power of the banks to take appropriate measures under section 13. It is a recognized rule of interpretation of Statutes that expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal in exercise of its discretionary power shall have jurisdiction to pass any stay/interim order, subject to the condition as it may deem fit and proper to impose. Earlier, there was a controversy as to whether the Tribunal has power to grant ad interim orders under section 19(12) of the Recovery of Debts Due to Banks and Financial Institutions Act, but that had been set at rest in Industrial Credit Investment Corpn. of India Ltd. v. Grapco Industries Ltd. [1999] 21 SCL 83 (Mag.) (SC). The Tribunal is thus empowered to grant interim stay subject to such conditions as may be deemed proper including condition of deposit. We may add that even under section 69 of the Transfer of Property Act, the only remedy of the borrower, whose mortgagee has invoked section 69 of the Transfer of Property Act, is to file a Civil Suit. In such Suit, the power of the Court to grant injunction and to impose condition for the grant thereof has been recognized in Jagijivan v. Shridhar 1878 ILR 2 Bom. 252 and V. Narasimhachariar v. Egmore Benefit Society 3rd Branch Ltd. AIR 1955 Mad. 135. 16. Repelling a similar argument, a Division Bench of this Court in Ramco Super Leathers Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Act. In Mardia Chemical Ltd. s case ( supra ), the Supreme Court has held that the proceedings under section 17 are not appellate proceedings, it is an initial action, which is brought before the forum as prescribed under the Act raising grievances against the action or measures taken by one of the parties to the contract. It is a stage of initial proceedings like filing a Suit in the Civil Court. Proceedings under section 17 of the Act are in lieu of the Civil Suit which remedy is ordinarily available, but for the bar under section 34 of the Securitisation Act. Section 17(3) provides that if the Tribunal comes to the conclusion that any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor are not in accordance with the provisions of the Act and the rules made thereunder, it can declare such action as invalid and restore possession of the secured assets to the borrower or restore the management of the possession to the borrower, as the case may be. It is, thus, clear that once the possession of the secured asset is taken, there would be no occasion for the Tribunal to order redelivery of possession till final determination of the issue. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecovery of Debts Due to Banks and Financial Institutions Act, is a condition precedent to taking recourse to the Securitisation Act. In the context of this question, the Court examined the scheme of the Securitisation Act, and it was observed : "13.....The NPA Act is inspired by the provisions of the State Financial Corporations Act, 1951 ( SFC Act ), in particular sections 29 and 31 thereof. The NPA Act proceeds on the basis that the liability of the borrower to repay has crystallized; that the debt has become due and that on account of delay the account of the borrower has become sub-standard and non-performing. The object of the DRT Act as well as the NPA Act is recovery of debt by non-adjudicatory process......... 22. ....On reading section 13(2), which is the heart of the controversy in the present case, one finds that if a borrower, who is under a liability to a secured creditor, makes any default in repayment of secured debt and his account in respect of such debt is classified as non-performing asset then the secured creditor may require the borrower by notice in writing to discharge his liabilities within sixty days from the date of the notice failing which the secure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the ground that the remedy of filing Application under section 17 of the Act which is declared to be in the nature of the Suit by the Supreme Court is totally taken away by the amendment and in any event, the remedy is only an empty formality and does not protect the rights of the borrowers, mortgagors and guarantors. Repelling this contention, the Division Bench observed : "10. We are afraid that the contention is totally mis-conceived. The provisions of section 17(1) of the Act provides remedy for the borrower/guarantor/ mortgagor to challenge the action of the Bank under section 13(4) of the Act before the Debt Recovery Tribunal. The Debt Recovery Tribunal is required to decide whether the action of the Bank/Financial institutions, under section 13(4) is in accordance with the provisions of the Act and the rules framed thereunder. It is open to the borrower/guarantor/mortgagor to demonstrate before the Debt Recovery Tribunal that resort to section 13 of the Act is not permissible by law. In a given case, the claim of the Bank/Financial Institutions may be barred by limitation or there may be cases, where the adjustment of the amount paid is not reflected in the notice or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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