TMI Blog2011 (9) TMI 1150X X X X Extracts X X X X X X X X Extracts X X X X ..... of Appeal before it under Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short the SARFAESI Act ). Petitioner No. 1 is a Company registered under the provisions of the Companies Act. Petitioner Nos. 2, 3 and 5 have been the Directors of the Company from time-to-time petitioner No. 5 is alleged to have signed personal guarantee along with petitioner Nos. 2, 3 and 4. Petitioner Nos. 2, 4 and 5 are said to have mortgaged their immovable properties in favour of respondent State Bank of India which provided financial assistance to petitioner No. 1 for establishing an automatic rice milling plant. The respondent Bank initiated recovery proceedings against the petitioner under the provisions of the SARFAESI Act vide demand notice dated 5th May, 2009. On receiving the demand notice the petitioners submitted a detailed representation on 8th July, 2009 to the Bank which was decided vide order dated 16th July, 2009 and demand was modified. On 17th July, 2009, the petitioners submitted another representation which was decided by the Bank vide order dated 21st August, 2009. The Bank then took the possession of the mort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his argument the learned Counsel relied upon a decision of the Bombay High Court in UCO Bank v. Kanji Manji Kothari, 2008 (4) Mh LJ 424 and also a decision dated 9th February, 2009 of the Madras High Court in Punnu Swami v. The Debts Recovery Tribunal, 2009 (3) B.J. 401. In these decisions both Bombay High Court and Madras High Court have taken a view that Section 5 of the Limitation Act applies to the proceedings under Section 17 of the SARFAESI Act. The learned respective Counsel for the Bank and auction purchaser on the other hand have supported the order passed by the Appellate Tribunal by relying upon the decision of Supreme Court in Fairgrowth Investments Limited v. Custodian, IV (2004) CLT 156 (SC) = VI (2004) SLT 376 = (2004) 11 SCC 472. 5. It is to be noted that the Appellate Tribunal in its decisions rendered in Misuki Exports Put. Ltd. v. State Bank of India (supra), while holding that it has no power to condone the delay, has relied upon the decisions of the Supreme Court in Hukumdev Narain Yadav v. Lalit Narain Mishra, AIR 1974 SC 480 and Fairgrowth Investments Limited (supra). 6. Section 13 of the SARFAESI Act contains detailed mechanism for enforcem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any of the measures under Sub-section (4) of Section 13 unless his claim in respect of the financial asset is made within the period of limitation prescribed in the Limitation Act. Section 37 states that the provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force. 8. Section 18 of the SARFAESI Act, with which I am mainly concerned, reads as under: 18. Appeal to Appellate Tribunal --(1) Any person aggrieved, by any order made by the Debts Recovery Tribunal under Section 17, may prefer an Appeal along with such fee, as may be prescribed to an Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal: Provided that different fees may be prescribed for filing an Appeal by the borrower or by the person other than the borrower: Provided further that no Appeal shall be entertained u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . According to the Supreme Court the general rule, as far as special law and local Acts are concerned, is that the specified provisions, including Section 5 of the Limitation Act, will apply provided the special or local Act provides a period of limitation different from that prescribed under the Limitation Act and that the special/local Act does not expressly exclude the application of the Limitation Act. 11. The Supreme Court in Hukumdev (supra) has held that the expression expressly exclude also includes exclusion by necessary implication and even in a case where the special law does not exclude the provisions of Section 4 to Section 24 of the Limitation Act by an express reference, it would nonetheless be open to the Court to examine whether and to what extent nature of those provisions are excluded or the nature of the subject-matter and scheme of the special law exclude their operation. 12. Section 18(2) of the SARFAESI Act provides that the appellate Tribunal shall, as far as may be, dispose of the Appeal in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (in short, the RDDBFI Act ) and Rules made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Banks and Financial Institutions and this was adversely affecting the economy of country. A committee was, therefore, constituted to suggest measure for expediting the recovery of debts due to Banks and Financial Institutions. The committee in its report made various suggestions for bringing about radical changes in the existing adjudicatory mechanism for facilitating speedy recovery of the dues of Banks and also for quick resolution of disputes arising out of the action taken for recovery of such dues. The Government of India accepted the suggestions and that led to enactment of the SARFAESI Act in the year 2002 by which for the first time the secured creditors have been empowered to take steps for recovery of their dues, without intervention of the Court or Tribunals [see United Bank of India v. Satyawati Tondon, (2010) BC 495 (SC) = VI (2010) SLT 52 = AIR 2010 SC 3413]. 15. When I compare Section 18 of the SARFAESI Act with Section 20 of the RDDBFI Act, I find that in Section 18 not only the period of limitation for filing an Appeal has been reduced to 30 days from 45 days as provided in Section 20 but the power of the Appellate Tribunal to condone delay has also b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als and revisions, specific provisions are made so as to give benefit of Section 5 of the Limitation Act and such provision is not made to an application to be made under a particular section of that statute, it obviously and necessarily follows that the Legislature consciously excluded the application of Section 5 of the Limitation Act. This view was also followed by the Supreme Court in Fair-growth Investments Limited (supra). 17. Having regard to the object of the SARFAESI Act that it intends ensure speedy recovery of dues of Banks and also for quick resolution of dispute arising out of the action taken for recovery of such dues, I have no hesitation in holding that the Legislature has consciously excluded the applicability of the provisions of Section 4 to Section 24 of the Limitation Act insofar as they relate to Section 18 of the SARFAESI Act. The decisions of UCO Bank v. Kanji Manji Kothari and Punnu Swami v. The Debts Recovery Tribunal of Bombay and Madras High Courts, relied upon by the learned Counsel for petitioner are with regard to the applicability of Section 5 of the Limitation Act only to Section 17 of the SARFAESI Act and not Section 18. In both these decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said subsection provided for deposit of seventy-five percent of the amount before entertaining an Appeal by the Debts Recovery Tribunal (DRT) under Section 17. It was further observed that in case where secured creditor has taken action under Sub-section (4) of Section 13 of the Act of 2002, it would be open to borrowers to file Appeals under Section 17 of the Act within the limitation as prescribed therefor. It was further observed that the borrower after service of notice under Sub-section (2) of Section 13 of the Act raised an objection or placed facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for non-accepting the objections, however, brief they may be, must be communicated to the borrowers. The reasons so communicated shall only be for the purpose 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. 26. To ensure effective implementation of the judgment in Mardia Chemicals (supra), and also to discourage the borrowers to postpone the repayment of their dues and also enable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n asset over which B can exercise his rights. B may be entitled to this security either by law or by operation of common law principles or under the transaction (contract). In addition, B may acquire a personal right of action against the third party. Security over the asset (property) may be obtained by mortgage, charge, pledge, lien, etc. Security in the form of right of action against a third party is know as guarantee. Broadly, there are three types of security over the asset. One is where the creditor obtains interest in the asset concerned (mortgage). Second is securities in which the rights of the creditor depends on possession of the asset (pledge/lien). The third is charge where the creditor neither obtains ownership nor possession of the asset but the asset is appropriated to the satisfaction of the debt or obligation in question (charge). The dichotomy, which is of importance, is that more than one obligation could arise on the same transaction, namely, to repay the debt or to discharge some other obligation. 63. Therefore, when Section 13(4) talks about taking possession of the secured assets or management of the business of the borrower, it is because a right is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 20 of the Act of 1993 to condone the delay in filing an Appeal against the order of the Debts Recovery Tribunal, could be read with the jurisdiction of appellate Tribunal under Section 18 of the Act of 2002. As the provisions contained under Sections 35, 36 and 37 have their own field of operation and have no bearing upon the provisions contained under Section 18 of the Act of 2002. 28. Act of 1993 was enacted with an object to provide for the establishment of Tribunals and Appellate Tribunals for expeditous adjudication and recovery of debts due to banks and financial institutions. The adjudicatory aspect was because the Tribunal substituted the regular Civil Court (Courts of Original Jurisdiction). Sub-section (1) of Section 17 of the Act of 1993 stipulates that: (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 authorised 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State Financial Corporations Act, 1951 (SFC Act), in particular Sections 29 and 31 thereof. The SARFAESI Act, 2002 proceeds on the basis that the liability of the borrower to repay has crystallised; that the debt had become due and that on account of delay the account of the borrower has become sub-standard and non-performing. The object of the RDDBFI Act as well as the SARFAESI Act, 2002 is recovery of debt by non-adjudicatory process. These two enactments provide for cumulative remedies to the secured creditors. By removing all fetters on the rights of the secured creditor, he is given a right to choose one or more of the cumulative remedies. The object behind Section 13 of the SARFAESI Act, 2002 and Section 17 read with Section 19 of the RDDBFI Act is the same, namely, recovery of debt. Conceptually, there is no inherent or implied inconsistency between the two remedies. Therefore, as stated above, the Object behind the enactment of the SARFAESI Act, 2002 is to accelerate the process of recovery of debt and to remove deficiencies/obstacles in the way of realisation of debt under the RDDBFI Act by the enactment of the SARFAESI Act, 2002. 66. We have already analysed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest in the security, whether full or part underlying such debt or receivables; or (v) any beneficial interest in property, whether movable or immovable, or in such debt, receivables, whether such interest is existing, future accruing, conditional or contingent; or (vi) any financial assistance. 33. Security interest under Section 2 (1)(zf) means security interest means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in Section 31. 34. Chapter III deals with the provisions regarding the manner of enforcement of security interest. Sub-section (4) of Section 13 empowers the secured creditor (Section 2(1)(zd) to take recourse to one or more of the measures to recover secured debt (Section 2(1)(ze) , in case, borrower, which includes the guarantor as per Section 2(1)(fl), fails to discharge his liability in full within the period specified in Sub-section (2) of Section 13. It is against the measures provided under Sub-section (4) of Section 13 an Appeal is provided under Section 17. Under Section 17 the Tribunal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Transport Authority is a separate authority on which the duties referred to in Clause (b) have been imposed by other provisions in Chapter IV, and since the State Transport Authority is required to act save as otherwise provided by or under the Act', it would be disentitled to take over the functions under Sub-clause (b). Such an interpretation would obviously lead to grave incongruity. Sub-clause (b), as we have already seen, provides for the exercise of the powers of the Regional Transport Authority by the State Transport Authority in certain contingencies. If the expression 'save as otherwise provided by or under the Act' is construed in a manner to negative the functions permitted to be performed under Sub-clause (b), the very object with which Sub-clause (b) has been enacted will be frustrated. We, have, therefore, to construe the expression, 'save as otherwise provided by or under the Act' in a harmonious manner so that Sub-clause (b) is not reduced to a nullity. In our opinion the expression 'save as otherwise provided by or under the Act' would in the context mean, 'save as otherwise expressly barred by or under the Act'. If there is pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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