TMI Blog2007 (12) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... ings under section 17(1) of the NPA Act. - W.P.No.3566 of 2007 - - - Dated:- 19-12-2007 - Smt. Ranjana Desai and Smt. Roshan Dalvi, JJ. Vishal Khanavkar and Kedar Dighe for the Petitioner . K.R. Bulchandani and K.K. Shroff for the Respondent . JUDGMENT Smt Ranjana Desai, J . : The petitioner is a body corporate incorporated under the provisions of the Banking Companies Act, 1949, having its head office at 10, BTM, Sarani, Kolkata, and branch offices all over India, including one at Church gate. 2. Respondent 1 is a partnership firm constituted under the provisions of the Indian Partnership Act and, the rest of the respondents are its partners. 3. The respondents have availed various loan facilities from the petitioner's various branches as per the details given in paragraph 3 of the petition. For securing the said loans, the respondents had mortgaged their two flats situate at Malbar Hill. Mumbai (for convenience, "the secured assets"). 4. It is the case of the petitioner that the loan account of the petitioner became Irregular despite the efforts of the petitioner to regularise it and, hence, the petitioner declared the account of the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rospective purchasers in respect of the secured assets and be allowed to sell the said flats at market rate to the prospective purchasers and the sale proceeds be deposited with the respondents and for that, the petitioner be ordered and directed to cooperate with the respondents. 10. The petitioner opposed the application on various grounds. The petitioner raised a preliminary contention that the application filed by the respondents was time barred taking into consideration the fact that it had been filed almost nine months after the petitioner initiated action under section 13(4) of the NPA Act by taking symbolic possession of the secured asset on 15/7/2005. By order dated 8/5/2006, the Debt Recovery Tribunal (for short, "the DRT") rejected the application. The DRT held that validity of notice under section 13(2) has not been challenged. The only submission of the respondents is that there are good purchasers for the secured assets. The DRT held that the symbolic possession was taken on 15/7/2005. The respondents should have filed the application within 45 days from 15/7/2005. The respondents have not done so. The application was, therefore, barred by limitation. The DRT dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chapter III (Enforcement of Security Interest) and the wordings in section 13, it is clear that the bank can enforce its security interest i.e. the bank can enforce its right, title and interest over the secured assets by following any of the measures provided in section 13(4). In the present case, the bank has taken recourse to section 13(4)( a ) by taking de jure possession of the secured assets. Once the security Interest is enforced by taking de jure possession under section 13(4)( a ) read with rule 8(1) all the rights and interests of the borrower including the borrower's title in the secured assets ceases to exist and the same vests in the bank. Legislature has consciously used the word 'possession' Instead of the word 'attachment' in rule 8(1) which fortifies the petitioner's submission that if notice under section 13(2) amounts to 'attachment', the action under section 13(4)( a ) read with rule 8(1) amounts to taxing possession. 15. Mr. Khanavkar further submitted that since the title, interest and all the rights Including the right to be in possession of the borrower cease to exist, the possession of the borrower over the secured assets becomes unwarranted by la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 13(4). There is no provision in the entire NPA Act which authorizes the DRT to see if any actions of the bank subsequent to its actions under section 13(4) are proper or not. The Justification for the legislature not providing for a check on the actions of sale, auction, etc. is that after taking de jure possession of the secured assets, even the title in the property vests in the bank. If the right and title of the borrower in the property ends, the borrower loses locus to challenge the action of the bank after these right and title are taken away. Even under section 19 of the NPA Act, the DRT can order the bank to pay costs, charges, etc. to the borrower in case possession of the secured assets is not taken properly by the bank. Even here the legislature has rot provided for costs, charges, etc. for actions other than for taking possession of the property, fortifying the petitioner's case that after the bank takes over the right, title and interest in the secured assets, the borrower loses locus to challenge any further action of the bank. 18. Mr. Khanavkar further submitted that the provisions of the Limitation Act, 1883 are not applicable to any local or spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor has a right to file an application before DRT under section 17(1) within 45 days of the secured creditor taking steps for symbolic possession or within 45 days of a secured creditor taking steps for actual possession of secured asset but before confirmation of sale. 20. He submitted that the manner in which measures can be "taken for possession" under section 13(4)( a ), are elucidated !n rules 8 and 9 of the said Rules which are framed under section 13 of the NPA Act. Section 17 of the NPA Act provides for an appeal/application from "any measures" under section 13(4). One of the measures that can be taken is for taking possession". Mr. Bulchandani contended that in section 13(4)( a ) the legislature has used the words "Including the right" with a purpose. The words "including the right" appearing in clause ( a ) of section 13(4) comprehend both symbolic and/or physical possession in stages as is elucidated in rules 8 and 9. The measure contemplated under section 13(4)( a ) has sub-measures Inbuilt in the same in view of rule 8(1), rule 8(3) and rule 8(5). In fact, rule 8(3) specifically talks about taking of "actual" possession while rule 8(1) only talks about possession. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of liability is always subject to the scrutiny of DRT. When the extent of liability is disputed or when non-compliances of the provisions of the NPA Act or the said Rules is alleged by the borrower, it is DRT which is the forum for the borrower to approach and this in the cause of justice, equity and fair deal to the borrower has to be at any stage before the sale of the asset. Thus, it stands to logic and rationality that the borrower has a right to approach DRT either after the symbolic possession is taken after service of possession notice under section 13(4)( a ) read with rules 8(1) and (2), or after actual possession is taken under section 13(4)( a ) read with section 14 and rules 8(3), (4) or after sale notice is received by the borrower under rule 8(8), all read with section 17(1), but before completion of sale. 23. Drawing our attention to relevant portion of the Supreme Court's judgments in Mardia Chemicals ( supra ) and Transcores case ( supra ). Mr. Bulchandani submitted that the borrower has no remedy available, not even a right to be heard on receipt of notice under section 13(2), not even a right to challenge the declaration of his account as NPA, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d period it the applicant satisfies the court that he had sufficient cause for not preferring the application within such period. The delay If any, in preferring an application after 45 days can be therefore always condoned by DRT under the provisions of Limitation Act, 1963. 28. Mr. Bulchandani relied on Mangu Ram v. Delhi Municipality AIR 1976 SC 105 and Union of India v. Popular Construction Co. AIR 2001 SC 4010 and contended that the provisions of Limitation Act, 1963 stand excluded only when there is an express bar to application of the Limitation Act, 1963 in special statute under consideration. 29. Mr. Bulchandani submitted that the judgments on which reliance is placed by the petitioner have no applicability, as in the special laws dealt with in the said cases, there was no concurrent provision as is provided in section 37 and section 17(7) of the NPA Act. As the provisions of DRT Act have been made applicable expressly to the NPA Act and in view of section 24 of the DRT Act, the Limitation Act, 1963 does apply to the NPA Act. Delay in preferring an application, therefore, can be always condoned by DRT provided cause is shown for delay to the satisfactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain offending provisions of the NPA Act make it all a one-sided affair while enforcing sale of the property or taking over the management and possession of the secured assets without offering any opportunity to the borrower. 35. In the present context, two important questions which fell before the Supreme Court for consideration in that case need to be quoted. ( i )Whether 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 wider Section 34 of the Act? ( ii )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% of the claim raised in the notice of demand? 38. It is pertinent to note that while examining whether certain provisions of the NPA Act are one-sided and heavily loaded against the borrower, the Supreme Court held that section 17(2) which provides for deposit of 75% of the amount claimed bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e N PA Act raising grievance against the action or measures taken by one of the parties to the contract. The Supreme Court further observed that it is the stage of initial proceedings like filing a suit in civil court and as a matter of fact proceedings under section 17 are in lieu of a civil sult which remedy is ordinarily available but for the bar under section 34 of the NPA Act. It may be stated here that the Amendment Act introduced suitable changes in the NPA Act in deference to the view expressed by the Supreme Court. 39. What is important to note is that while dealing with the grievance that the NPA Act is a draconian legislation and that It affords no protection to the borrower, the Supreme Court made the above observations. The Supreme Court fixed the point at which the borrower can make a grievance and clarified the scope of appeal under section 17. The Supreme Court held that the borrower s right to approach the DRT as provided under section 17 matures on any measures having been taken under sub-section 4 of section 13 of the NPA Act and 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secured creditors. The NPA Act provides for recovery of possession by non-adjudicatory process. ( iii )Section 13(2) deals with liquidation of liability. It contemplates a notice of demand and constitutes action under the NPA Act It proceeds on the basis that the borrower is already under a liability i.e. the debt has become due and the borrower s account in the bank is classified as sub-standard It acts as an attachment because section 13(13) forbids the borrower, after receipt of notice under section 13(2), from transferring the secured assets, in any manner, without written consent of the seemed creditor. ( iv )Notice under section 13(2) is a condition precedent to the invocation of section 13(4) by the secured creditor and once notice under section 13(2) is issued, the secured creditor is entitled to take any of the measures provided in section 13(4). ( v )Once any of the measures under section 13(4) are taken, the security interest is already created in favour of the secured creditor. Under rule 8 of the said Rules, the authorized officer is empowered to take possession by delivering the possession notice as per the prescribed format informing the borrower th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired to consider whether any of the measures referred to in subsection (4) of section 13 taken by the secured creditor are in accordance with the provisions of the NPA Act and the said Rules. (xix) If the DRT comes to the conclusion that the said measures are taken not in accordance with the provisions of the NPA Act and the said Rules, it may declare the recourse taken to the said measures as invalid and restore the possession of the secured assets to the borrower and may pass appropriate orders in relation thereto. (xx) The scheme of section 13(4) read with section 17(3) is that, if the borrower is dispossessed not in accordance with the provisions of the NPA Act, then the DBT is entitled to put the clack back by restoring the status quo ante. (xxi) Therefore, it cannot be said that if possession is taken before confirmation of sale, the rights of the borrower to get the dispute adjudicated upon is defeated by the authorized officer." 44. We shall deal with the points raised by the parties in the light of the observations of the Supreme Court in Mardia Chemical s case ( supra ) and Transcore s case ( supra ), the gist of which we have quoted hereinabove. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay the secured creditor, so much of the money as is sufficient to pay the secured debt" 47. We are concerned here with sub-clause ( a ) of section 13(4) where there can be two stages i.e. symbolic possession and actual possession. The question is whether 45 days limitation period will start running from the date on which symbolic possession is taken or the date on which actual possession is taken. 48. The scope of appeal/application under section 17 assumes importance. In Mardia Chemical s case ( supra ) , the Supreme Court has clarified that where the action of the secured creditor is fraudulent and his claim is so absurd that it does not require any probe whatsoever, a very limited jurisdiction of the civil court can be exercised in English mortgages as otherwise section 34 bars a civil suit. Therefore, a civil suit can be filed on the ground of fraud or if the claim of the borrower is absurd on the face of record. 49. So far as appeals under section 17 are concerned, the Supreme Court has held that they are not appellate proceedings. They are in the nature of an initial action where grievance can be made against the action taken under section 13(4) by the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving been taken in accordance with the NPA Act and the rules made thereunder can be raised under section 17(1). That is the width or the amplitude of those proceedings. Proceedings under section 17 are an original action to the above extent. 52. As stated by the Supreme Court, the right of the borrower to resort to section 17 matures on measures having been taken under section 13(4) and he can file an appeal till the sale of the secured assets. There can be no appeal after the sale. 53. In our opinion, in the light of the exposition of law made by the Supreme Court in Mardia Chemical s case ( supra ) and Transcore s case ( supra ) . it must be held that under the scheme of the NPA Act and the said Rules, taking over possession of the secured assets and sale of the secured assets are two distinct and different concepts. The borrower's right, title and interest in the secured assets is extinguished the moment measures under section 13(4) are taken such as taking over symbolic or actual possession of the secured assets. He can make a grievance that those measures were not taken in accordance with the provisions of the NPA Act. Thereafter, he has no right to appeal ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor is already created is liable to be sold and the borrower cannot frustrate the sale. Notice of sale contemplated under the said Rules is obviously to give an opportunity to the borrower to bring a buyer who can buy the secured assets at a higher price. But, in no way, he can make the sale an impossibility by raising objections. We, therefore, reject the submission of Mr. Bulchandani that under rules 8(3) and (4) and rubs 8(5) and (6), there is accrual of cause of action and the borrower can appeal at that stage. 56. Mr. Bulchandani laid stress on the observations of the Supreme Court that on measures having been taken under subsection (4) of section 13 and before the safe/auction, It would be open to the borrower to file an appeal under section 17. There can obviously he no dispute about this proposition. But, it cannot be inferred from this that, at every stage, in the process of sale, the borrower can appeal to the DRT. The borrower cannot wait till the date of auction is fixed and treat any time in between as the starting point for limitation and frustrate the sale. Besides, that will encourage indolence which the law does not approve. The law does not encourage the indol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween symbolic possession and actual possession. However, we make it clear that there is no further accrual of cause of action. The borrower's right in the secured assets having been extinguished, he has no right to object to the procedure of sale. 58. We shall now turn to the second question pertaining to application of Limitation Act, 1963. 59. Under section 5 of the Limitation Act, 1963, any appeal or any application other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908, may be admitted after the prescribed period, if the appellant or the applicant satisfied the court that he had sufficient course for not preferring the appeal or making the application within such period. Thus, section 5 provides for extension of period of limitation in certain cases. 60. Section 29(2) of the Limitation Act, 1963 states that where any special or local law prescribes for any suit, appeal or application, a period different from the period prescribed by the schedule, the provisions of section 3 of the Law of Limitation shall apply as if such period was the period prescribed by the schedule and for the purpose of determining any period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd imperative language, is not sufficient to displace the applicability of section 5. 63. In Popular Construction Company v. case ( supra ). The Supreme Court was considering whether the time limit prescribed under section 34 of the Arbitration and Conciliation Act, 1996 (for short, "the Arbitration Act") for filing application to challenge the award was absolute or not. The Supreme Court referred to its judgments in Hulum Chand s case ( supra ) and Mangu Rams case ( supra ) . The Supreme Court considered the history and scheme of the Arbitration Act and observed that its main objective was to minimize the supervisory role of courts in the arbitral process, it referred to section 5 of the Arbitration Act which states that in matters of domestic arbitrations, no judicial authority shall intervene except so provided. The Supreme Court then considered section 34 of the Arbitration Act which pertains to application for setting aside arbitral award. The Supreme Court laid stress on the proviso to section 34 which states that if the court is satisfied that the applicant was prevented by sufficient cause from making the application within the period of three months, it may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construed strictly. The Supreme Court further observed that ft is true that the Arbitration Act is intended to expedite the commercial issue, that its statement of objects and reasons state that commercial disputes should be disposed of quickly so that country's economic progress is expedited, but it nowhere states that section 14 of the Limitation Act shall be excluded. The Supreme Court observed that wherever two enactments are overlapping each other, on same area then courts should be cautious in interpreting those provisions. The extent of exclusion, however, is really a question of construction of each statute. The Supreme Court observed that since there is no prohibition provided under section 34 of the Arbitration Act, there is no reason why section 14 of the Limitation Act which will advance the cause of justice should be held inapplicable to Arbitration Act, 1960. 66. Much stress was laid by Mr. Khanavkar on the Supreme Court's judgment in Prakask Jain s case ( supra ), where the Supreme Court was considering a special status I.e. Maharashtra Rent Control Act, 1999. The question which arose before the Supreme Court was whether competent authority under the said spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Special Court. The Supreme Court observed that the prescribed period for taking steps in legal proceedings is intended to be abided by, subject to any power expressly conferred on the court to condone any delay. While coming to this conclusion, the Supreme Court observed that it is not for the courts to determine whether the period of 30 days is too short to take Into account the various misfortunes that may be faced by notified persons, who wish to file objections under section 4(2) of the said Act nor can the section be held to be directory because of such alleged Inadequacy of time. The Supreme Court quoted observations of the Privy Council in Nagindra Nath Dey v. Suresh Chandra Dey AIR 1932 PC 165 which are to the following effect: "The fixation of periods of limitation must always be to some extent arbitrary and may frequently result in hardship, But in construing such provisions equitable considerations are out of place, and the strict grammatical meaning of the words is, their Lordships think, the only safe guide", 66. The following propositions emerge from the above judgments: ( a )There is no inherent power in the court, to condone delay. ( b )Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ures had been taken." 70. So far as secured creditor is concerned, section 36 of the NPA Act states that the period of limitation as prescribed in the Limitation Act would be applicable. Section 38 reads as under: "36. Limitation.- No secured creditor shall be entitled to take all or any of the measures under subsection ( 4 ) of section 13, unless his claim in respect of the financial asset is made within the period of limitation prescribed under the Limitation Act, 1963 ( 36 of 1963 ) ." 71. Therefore, the Legislature has made two different provisions for the borrower and the secured creditor so far as period of limitation is concerned. On a proper reading of the NPA Act and the DRT Act, we are unable to come to a conclusion that this indicates that the legislature has consciously excluded III application of the Limitation Act to applications made by the borrower or the aggrieved person under section 17 of the NPA Act. 72. Section 35 of the NPA Act gives it an overriding effect. Section 37 states that application of other laws is not barred, it reads thus: "37. Application of other laws not barred.- The provisions of this Act or the rules made thereunder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aws is not barred and the NPA Act is in addition to DRT Act and not in derogation thereof. It is important to note that under section 17(7), the DRT has to dispose of the applications in accordance with the DRT Act and the rules made thereunder and section 24 of the DRT Act makes provisions of the Limitation Act applicable to tire application before the DRT. Since after considering the scheme, provisions and object of the NPA Act, the NPA Act and the DRT Act are held complementary to each other by the Supreme Court in Transcore s case ( supra ) , we hold that the provisions of section 5 of the Limitation Act are applicable to the provisions under the NPA Act. This will also lead to even treatment to the secured creditor as well as to the borrower or any aggrieved person. We may quote the observations made by the Supreme Court in Mardia Chemical s case ( supra ), while disposing of the matter. The Supreme Court observed as under: " Before we part with the case, we would like to observe that where a secured creditor has taken action under section 13 ( 4 ) of the Act in such cases, it would be open to borrowers to file appeals under section 17 of the Act within the limi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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