Ozg Sarfaesi / DRT Lawyer
Ozg Business Resource Center
Ahmedabad | Pune | Kolkata | Bangalore | Delhi | Mumbai
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Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
Many
argue that the provisions of SARFAESI Act, 2002 are draconian in
nature. Borrowers do often refer to their good relations with the Bank
for a considerable time and they express angst at the Bank’s action
under the provisions of the SARFAESI Act, 2002. The borrowers do often
question as to why the Bank should not consider the reputation of the
customer, understand the temporary difficulties and grant time rather
proceeding against the ‘Secured Asset’ using the provisions of the
SARFAESI Act, 2002 mechanically. The situation of the
borrowers may be sympathetic to the officials of the Bank at times, but,
they too can do nothing when an account becomes a ‘Non-performing
Asset’. The officials of the Bank are bound to act against the
‘Non-performing Assets’ in accordance with their internal guidelines and
in accordance with the provisions of the Act. The
argument that the provisions of the SARFAESI Act are draconian was
set-aside by the Constitutional Courts while giving guidelines and
clarifying the legal position from time to time.
The
problem comes to the borrowers in ascertaining the clear legal position
under the provisions of the SARFAESI Act, 2002 and it’s a very
complicated thing. Even when the borrower approaches a professional
asking for an advice, the professional may not be in a position to give
clear suggestion to the borrowers. There is an example. In
SARFAESI proceedings, the barrower and the Bank officials may
communicate with each other and at the same time, they think about
defending their respective rights in accordance with law. In many cases,
the borrowers approach a professional asking for an advice based on the
communication or the oral communication from the officials of the Bank
concerned. The Bank officials may ask the borrowers to deposit some
amount and may promise that the action under SARFAESI Act may be
deferred based on the payment. It will be very difficult for a
professional to opine on the Bank’s offer.
It
is very clear that the borrower may not be in a position to get any
relief from the Debt Recovery Tribunal under section 17 of the SARFAESI
Act, 2002 when there is no ground. Professionals may usually put some
grounds and file an appeal based on the request made by the borrower
under Section 17 of the Act, but, there is decrease in this tendency, of
late. Earlier, based on the grounds in the Appeal filed
by the borrower under section 17 and without even listening to the reply
or the version of the Bank, the Debt Recovery Tribunal used to grant an
interim-stay subject to few conditions like depositing some ‘nominal
amount’. The usual grounds of an appeal under section 17 of the Act can be as follows:
1.
The Bank has grossly erred in calculating the outstanding due and the
Bank has also not provided the statement of accounts from time to time
despite a written request.
2. The Bank has no right to proceed against the ‘Secured Asset’ as the borrower is not a ‘willful defaulter’.
3.
The Bank has not appraised the borrower while classifying the account
as ‘Non-performing Asset’. Had the Bank informed the borrower about
classification, the borrower should have taken appropriate steps.
4.
The Borrower has not received any notice under section 13 (2) of the
Act and the borrower has come to know about the Bank’s action only when
few officials of the Bank inspected the property and wanted the borrower
to vacate it.
5. The Bank has not responded to the objections raised by the borrower under Section 13 (3-A) of the Act.
6.
The Bank has promised to regularize the account upon the payment of
some substantial amount and even after the payment; the Bank has not
regularized the Account and as such the account can not be treated as
‘Non-performing Asset’.
7. The Bank has failed to proceed against the borrower and instead harassing the guarantor.
8.
The Bank is not right in not proceeding against the property of the
borrower and it is illegal to proceed against the property of the
guarantor without proceeding against the borrower.
9. There was no ‘valid mortgage’ with the Bank at all.
10.
The Bank is preparing to sell the valuable property of the
borrower/guarantor at pittance and the Bank is colluding with the
bidders.
11. The Auction process is unfair and illegal.
The
above are the few grounds and there can be many more grounds to file an
appeal under section 17 of the SARFAESI Act, 2002. No purpose will be
served by filing an appeal mechanically unless the intention of the
borrower is bonafide and unless there is arguable case against
the Bank. It can never be said that the Bank or Bank officials are
always right and the borrower is always a ‘willful defaulter’. The
borrower may be genuine in his grievance against the Bank and he may
simply want to fight for his rights against the Bank.
It
is an allegation that the Debt Recovery Tribunals do favour the Banks
and do not even listen to the borrowers even when there is a good case
for the borrowers. I would like to give one example as to why
borrowers/guarantors/public feels this way and the example is as
follows:
Facts & Proceedings:
- A person named ‘AB’ wants purchase a property from a person named ‘BC’.
- While intending to purchase the property, Mr.AB wanted to inspect the original title deeds of the property of ‘BC’ and also wanted to check encumbrance over the property.
- As the Original Deeds are available with ‘BC’ which are in order and as there is no encumbrance over the property, Mr.AB has purchased the property for a valuable considerable after paying requisite Stamp Duty and registration charges.
- The property is handed-over to Mr.AB and Mr.AB has invested considerable amount further in the property.
- While the property is in possession of Mr.AB, suddenly a Bank named ‘DE’ has affixed a notice under section 13 (4) at the property.
- Shocked at the notice, Mr.AB has approached the Bank and wanted the details as to why the notice is affixed at the property.
- The Bank has replied saying that the property is mortgaged with the Bank with due registration by Mr.AB and he has defaulted to repay loan.
- Further enquiry has revealed that the Bank is at fault while getting the property mortgaged from Mr.AB and there is no reason as to why they have not insisted for the Deposit of Title Deeds.
- As there is no option, Mr.AB has filed an appeal under Section 17 of the SARFAESI Act, 2002 alleging everything as to how he is a bonafide purchaser. He also leveled clear allegations against the Bank and their negligent attitude.
- The Appeal is dismissed by the Debt Recovery Tribunal vaguely saying that the Bank has followed the procedure correctly under the provisions of SARFAESI Act, 2002 and without noting or dealing with the allegation pertaining to mortgage and without noting that the Bank has not replied to the charges made by the Appellant.
- Mr.AB, as there is no option, has filed an Appeal with the DRAT. While the Appeal is pending, the Bank has brought the property for auction and while the proceeding is going on, the Bank has completed the Auction and says that it has confirmed the auction infavour of the ‘only bidder’ who bid the property on a particular date.
- Mr.AB is being asked now to get the details of the bidder, implead him as party to the proceedings and also asked to challenge the act of Sale afresh.
The
above case is an example as to how borrowers/guarantors and public get
troubled with this recovery system. It may be true that that the Bank is
supposed to defeat the unfair attitude of the borrower, but, there is a
law and if the borrower raises a considerable legal point, the same is
to be considered. Law is always supported by logic, and it can not be
said that the legal point or right being raised by the borrower/person
can be ignored without any reason. Against this background, of late,
even the High Courts coming heavily against the Bank and High Court is
setting-aside the proceedings of DRT or DRAT.
Complications in finding the remedy or granting the remedy:
Due
to the reasons mentioned above, it is most often difficult for the
borrowers/guarantors/public to find-out the appropriate remedy against
the Bank if there is a good ground to challenge the Bank’s action. It is
also difficult and complicated for the DRT and DRAT to grant relief to
the borrowers and the adjudicating authority shall not purely depend
upon the technicalities if it suits the Bank and can not ignore the
legal principles raised by the borrower as a ‘delay tactic’. Just
because, the Bank says a particular thing against a particular person,
the same can not be the gospel truth. It all depends upon the facts and
circumstances of the case.
Referring
to the legal background under SARFAESI Act, 2002, dealing with the
mandatory nature of Section 13 (3-A) and emphasizing as to the
complications while granting relief as we can assume, the Madras High Court in W.P.No.6710 of 2011 reported in CDJ 2011 MHC 4916, is observed as follows:
“9.
On classification of the debt as Non-Performing Asset, notice under
Section 13(2) is issued giving sixty days time to the borrower for
repayment of the debt or in instalment thereof. The notice under Section
13(2) is not appealable under Section 17 of the Act, as that section
provides an appeal only against the measures taken under Section 13(4)
of the Act. In the event the borrower fails to discharge in full his
liabilities within sixty days from the date of notice, the secured
creditor is entitled to issue possession notice under Section 13(4) of
the Act. Again it has been settled that the possession under Section
13(4) may be physical or symbolic and the secured creditor would be
entitled to bring the secured asset for sale. The secured creditor can
also file an application under Section 14 before the Chief Metropolitan
Magistrate/District Magistrate to assist the secured creditor in taking
possession of the secured asset. Considering the application filed under
Section 14, the Chief Metropolitan Magistrate/District Magistrate, as
the case may be, discharges only ministerial function, as there is no
adjudication process involved, and in that context, even no notice to
the respondent in the petition is necessary.
10.
Keeping the above law in mind, the rights of the secured creditor
vis-a-vis the borrower should be considered. As the Act is intended to
enable the secured creditor for speedy recovery of the debt from the
borrower, the provisions are made very stringent bypassing the normal
rule of relegating the parties to Civil Court
for recovery of the debt. While such stringent provisions are intended,
some minimum safeguards are also made available to the borrower to
ensure fairness on the part of the secured creditor while taking
measures for recovery of the debt. In this regard, three provisions can
be referred to, namely,
(i)
an opportunity to make representation or to raise objection in terms of
sub-section (3-A) to the notice under sub-section (2) of Section 13;
(ii)
the secured creditor could settle between the parties in writing the
terms for sale in the event the secured creditor chooses to sell the
immovable property by private treaty as envisaged under Rule 8(5)(d) of
the Rules.
(iii)
The Authorised Officer shall obtain the consent of the borrower and the
secured creditor if he fails to obtain a price other than the reserve
price and intends to effect the sale at a lower price.
11.
In the above background, the question raised in the writ petition must
be considered. In MardiaChemicals Ltd., and others v. Union of India and
others, (2004) 4 SCC 311, wherein the Supreme Court, in paragraphs 45
to 47, has held as follows:
"45.
In the background we have indicated above, we may consider as to what
forums or remedies are available to the borrower to ventilate his
grievance. The purpose of serving a notice upon the borrower under
sub-section (2) of Section 13 of the Act is, that a reply may be
submitted by the borrower explaining the reasons as to why measures may
or may not be taken under sub-section (4) of Section 13 in case of
non-compliance of notice within 60 days. The creditor must apply its
mind to the objections raised in reply to such notice and an internal
mechanism must be particularly evolved to consider such objections
raised in the reply to the notice. There may be some meaningful
consideration of the objections raised rather than to ritually reject
them and proceed to take drastic measures under sub-section (4) of
Section 13 of the Act. Once such a duty is envisaged on the part of the
creditor it would only be conducive to the principles of fairness on the
part of the banks and financial institutions in dealing with their
borrowers to apprise them of the reason for not accepting the objections
or points raised in reply to the notice served upon them before
proceeding to take measures under sub-section (4) of Section 13. Such
reasons, overruling the objections of the borrower, must also be
communicated to the borrower by the secured creditor. It will only be in
fulfillment of a requirement of reasonableness and fairness in the
dealings of institutional financing which is so important from the point
of view of the economy of the country and would serve the purpose in
the growth of a healthy economy. It would certainly provide guidance to
the secured debtors in general in conducting the affairs in a manner
that they may not be found defaulting and being made liable for the
unsavoury steps contained under sub-section (4) of Section 13. At the
same time, more importantly we must make it clear unequivocally that
communication of the reasons not accepting the objections taken by the
secured borrower may not be taken to give an occasion to resort to such
proceedings which are not permissible under the provisions of the Act.
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 under Section 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 Debt Recovery Tribunal as provided under Section
17 of the Act matures on any measure having been taken under sub-section
(4) of Section 13 of the Act.
46.
We are holding that it is necessary to communicate the reasons for not
accepting the objections raised by the borrower in reply to notice under
Section 13(2) of the Act more particularly for the reason that normally
in the event of non-compliance with notice, the party giving notice
approaches the court to seek redressal but in the present case, in view
of Section 13 (1) of the Act the creditor is empowered to enforce the
security himself without intervention of the Court. Therefore, it goes
with logic and reason that he may be checked to communicate the reason
for not accepting the objections, if raised and before he takes the
measures like taking over possession of the secured assets etc.
47.
This will also be in keeping with the concept of right to know and
lender's liability of fairness to keep the borrower informed
particularly the developments immediately before taking measures under
sub-section (4) of Section 13 of the Act. It will also cater the cause
of transparency and not secrecy and shall be conducive in building an
atmosphere of confidence and healthy commercial practice. Such a duty,
in the circumstances of the case and the provisions is inherent under
Section 13(2) of the Act."
12.
The very same question again came up for consideration before the
Supreme Court in Transcorev. Union of India and another, (2008) 1 SCC
125, wherein the Supreme Court has held as follows:
"24.
Section 13(3) inter alia states that the notice under Section 13(2)
shall give details of the amount payable by the borrower as also the
details of the secured assets intended to be enforced by the bank/FI. In
the event of non-payment of secured debts by the borrower, notice under
Section 13(2) is given as a notice of demand. It is very similar to
notice of demand under Section 156 of the Income Tax Act, 1961.After
classification of an account as NPA, a last opportunity is given to the
borrower of sixty days to repay the debt. Section 13(3-A) inserted by
amending Act 30 of 2004 after the judgment of this Court in Mardia
Chemicals (supra), whereby the borrower is permitted to make
representation/ objection to the secured creditor against classification
of his account as NPA. He can also object to the amount due if so
advised. Under Section 13(3-A), if the bank/FI comes to the conclusion
that such objection is not acceptable, it shall communicate within one
week the reasons for non-acceptance of the representation/objection. 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 the DRT under Section 17. The scheme of sub-sections (2),
(3) and (3-A) of Section 13 of NPA Act shows that the notice under
Section 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 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 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 NPA Act by the bank/FI. Once the two
conditions under Section 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 under Section 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."
13. Most recently in KanaiyalalLalchand Sachdev v. State of Maharashtra,
(2011) 2 SCC 782,the Supreme Court once again indicated the scope of
Section 13(3-A) of the SARFAESI Act in the following words :-
"16.
Section 13(3-A) of the Act was inserted by Act 30 of 2004 after the
decision of this Court in Mardia Chemicals and provides for a last
opportunity for the borrower to make a representation to the secured
creditor against the classification of his account as a non-performing
asset. The secured creditor is required to consider the representation
of the borrowers, and if the secured creditor comes to the conclusion
that the representation is not tenable or acceptable, then he must
communicate, within one week of the receipt of the communication by the
borrower, the reasons for rejecting the same."
14.
In Mardia Chemicals Ltd., two substantial contentions were raised on
behalf of the borrowers before the Supreme Court, the first being the
absence of an adjudicatory mechanism available to the borrowers and the
second relates to the denial of an opportunity to state their case
before issuance of a notice under Section 13(2) of SARFAESI Act.
(a)
The first contention was opposed by the Union of India on the ground
that the transaction in question was essentially one in the contractual
field involving two contracting parties and as such, there was no
question of compliance with the principles of natural justice. The said
contention was negatived by the Supreme Court. The Supreme Court said :-
"69.
On behalf of the respondents time and again stress has been given on
the contention that in a contractual matter between the two private
parties they are supposed to act in terms of the contract and no
question of compliance with the principles of natural justice arises nor
the question of judicial review of such actions needs to be provided
for. However, at the very outset, it may be pointed that the contract
between the parties as in the present cases, is no more as private as
sought to be asserted on behalf of the respondents. If that was so, in
that event parties would be at liberty to seek redressal of their
grievances on account of breach of contract or otherwise taking recourse
to the normal process of law as available, by approaching the ordinary
civil courts. But we find that a contract which has been entered into
between the two private parties, in some respects has been superseded by
the statutory provisions or it may be said that such contracts are now
governed by the statutory provisions relating to recovery of debts and
bar of jurisdiction of the civil court to entertain any dispute in
respect of such matters. Hence, it cannot be pleaded that the
petitioners cannot complain of the conduct of the banking companies and
financial institutions for whatever goes on between the two is
absolutely a matter of contract between private parties, therefore, no
adjudication may be necessary.
(b)
The second contention pertaining to the violation of the principles of
natural justice was answered by the Supreme Court thus :-
"77.
It is also true that till the stage of making of the demand and notice
under Section 13(2) of the Act, no hearing can be claimed for by the
borrower. But looking to the stringent nature of measures to be taken
without intervention of court with a bar to approach the court or any
other forum at that stage, it becomes only reasonable that the secured
creditor must bear in mind the say of the borrower before such a process
of recovery is initiated so as to demonstrate that the reply of the
borrower to the notice under Section 13(2) of the Act has been
considered applying mind to it. The reasons, howsoever brief they may
be, for not accepting the objections, if raised in the reply, must be
communicated to the borrower. True, presumption is in favour of validity
of an enactment and a legislation may not be declared unconstitutional
lightly more so, in the matters relating to fiscal and economic policies
resorted to in the public interest, but while resorting to such
legislation it would be necessary to see that the persons aggrieved get a
fair deal at the hands of those who have been vested with the powers to
enforce drastic steps to make recovery. (emphasis supplied).
15.
The judgments of the Supreme Court in Transcoreand Kanaiyalal Lalchand
Sachdevalso proceed on the basis that Section 13(3-A) was in the nature
of an opportunity to the borrowers to submit their case and the secured
creditor was expected to consider the objection and it should result in a
reply before initiating further proceedings under Section 13(4) of the
Act.
16.
The provisions of the Code as it stood originally do not contain a
provision to give opportunity to the borrower to make any representation
or raise any objections before the secured creditor to take measures
under Section 13(4) of the Act. As per the then existing provisions,
Section 13(2) was followed by action under Section 13(4) in case the
borrower failed to discharge his liabilities in full within the period
prescribed under sub section (2) of Section 13.
17.
SARFAESI Act was challenged in Mardia Chemicals Ltd., primarily on the
ground that Banks and Financial Institutions have been vested with
arbitrary powers without any guidelines for their exercise and also
without providing any appropriate and adequate mechanism to decide the
disputes relating to the correctness of the demand, its validity and the
actual amount sought to be recovered from the borrowers. The basic
contention in Mardia Chemicals Ltd., was that the offending provisions
as contained under the Act, are such that, it all has been made a
one-sided affair while enforcing drastic measures of sale of the
property or taking over the management or the possession of the secured
assets without affording any opportunity to the borrower. The challenge
made to the SARFAESI Act was considered by the Supreme Court in the said
background. The Supreme Court found that the borrowers were not given
any opportunity before taking the extreme step of taking possession or
management as provided under Section 13(4) of the Act. The Supreme Court
also found that the purpose of serving a notice under Section 13(2) was
to enable the borrower to submit a reply, explaining the reasons as to
why measures may or may not be taken under sub section (4) of Section
13. The Supreme Court wanted an internal mechanism at the Bank level to
consider the objections filed by the borrowers and to submit a reply to
the borrowers with reference to such objections before taking the
drastic measures under Section 13(4) of the Act.
18. The decision of the Supreme Court in MardiaChemicals Ltd. was made on 8th April,
2004. It was only to give effect to the observation made by the Supreme
Court in the said judgment, the SARFAESI Act was amended and Section
13(3-A) was inserted by way of Act 30/2004 with effect from 11th November, 2004.
19.
The statement of objects and reasons appended to the Amendment Act
30/2004 shows that it was virtually to give effect to the valuable
suggestions given by the Supreme Court in MardiaChemicals Ltd., the Act
was amended. In fact, realizing the importance of the issue, originally,
an ordinance was promulgated on 14th November, 2004 as the Parliament was not in session and subsequently, it was replaced by Act 30/2004.
20.
The Supreme Court in Mardia Chemicals Ltd., very clearly stated that
before proceeding to take measures under Section 13(4) of the Act, the
borrower should be apprised of the reasons for not accepting their
objections or points raised in their reply to the notice served upon
them under Section 13(2) of the Act. The observation made by the Supreme
Court with respect to the reply has to be considered in the light of
the challenge made by the borrower against taking drastic measures under
Section 13(4) without an opportunity to submit their version.
Therefore, the Supreme Court very categorically stated that before
proceeding to take measures, the reply notice must be served. Parliament
by prescribing a short period of seven days to give a reply, wanted the
Banks to Act swiftly so as to enable them to take further proceedings
under Section 13(4) of the Act.
21.
In Mardia Chemicals Ltd., the Supreme Court also stated that reasons
given by the Banks for not accepting the objections raised by the
borrower would not be a ground to challenge the proceedings. The said
observation was also taken note of by the Parliament and accordingly, a
proviso was appended to sub- section (3-A) of Section 13, whereby it was
made clear that the reasons 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 of the Act.
22.
The learned senior counsel for the petitioners contended that the very
fact that the Parliament denied the right to the borrowers to challenge
the reasons stated in the communication sent by the Bank by way of reply
to the objections submitted to the notice under Section 13(2) shows
that no right would accrue to the borrower in case reply is not given as
prescribed under Section 13(3-A).
23.
The Parliament wanted the Banks and Financial Institutions to recover
the dues after giving a reasonable opportunity to the borrowers. It was
only with that purpose, proviso was added to sub-section (3-A) of
Section 13, barring legal action, to challenge the reasons given in the
reply notice sent by the Banks. The Parliament has prescribed a period
of one week to the Banks and Financial Institutions to send a reply to
the objection filed by the borrowers pursuant to Section 13(2) of the
Act. The fact that the Act is silent about the consequences of not
sending a reply would not show that the direction is not mandatory. The
requirement of sending a reply to the notice within a period of one week
has to be considered in the light of the proviso to sub-section (3-A)
of Section 13 of the Act. It is only against the reasons which are found
in the reply notice, no action is possible. The absence of any
provision in the Act indicating the consequences for not sending a reply
cannot be taken as a ground to contend that the requirement to send a
reply is not mandatory in nature and it is rather optional.
24.
The SARFAESI Act being made with the sole intention of speedy recovery
of the debts to the Banks and Financial Institutions contains only very
few provisions giving a right to the borrowers to submit their version
and have it considered by the Bank. Section 13(3-A) is one such
provision which mandates consideration of their objections. The other
two provisions are Rule 8(8) and the second proviso to Rule 9(2) of the
SARFAESI Rules. The requirement as provided under Section 13(3-A) cannot
be treated as an empty formality. The borrowers must be in a position
to know the reasons which made the Bank to reject their objections on
proposals. The question of compliance of the requirement as indicated in
the notice under Section 13(2) would arise only in case the Bank
intimates the borrower about the disposal of his objection made to the
notice issued by the Bank. Section 13(3-A) if considered in the light
and in the factual background of the judgment in Mardia Chemicals Ltd.,
would lead to no other conclusion than the requirement of sending a
reply within a period of one week is mandatory in nature.
25.
The Supreme Court in Transcore case held that issuance of notice under
Section 13(2), consideration of objections and intimating the decision
on such objections to the borrower under Section 13(3-A) and taking
possession under Section 13(4) all constitute action taken by the Banks
and Financial Institutions for the purpose of the SARFAESI Act.
26.
Section 17 provides that any person [including a borrower] aggrieved by
any of the measures referred to in sub-section (4) of Section 13, taken
by the secured creditor can approach the Debts Recovery Tribunal within
forty five days from the date on which such measures had been taken.
Section 17(2) mandates that the Recovery Officer should consider as to
whether any of the measures referred to in sub-section (4) of section 13
taken by the secured creditor for enforcement of the security are in
accordance with the provisions of the Act and the rules made thereunder.
27.
The Supreme Court in Transcore, while considering the jurisdiction of
the Debts Recovery Tribunal, observed that the scheme of Section 13(4)
read with Section 17(3) shows that if the borrower is dispossessed not
in accordance with the provisions of the Act, then Debts Recovery
Tribunal is entitled to put the clock back by restoring the status quo
ante. Since the measures taken under Section 13(4) would include the
action commencing from issuance of notice under Section 13(2) and reply
under Section 13(3-A), it is well within the jurisdiction of the Debts
Recovery Tribunal to consider as to whether there was compliance of the
condition enumerated under Section 13(3-A) of the Act. In short, the
consideration of the correctness and legality of the measures taken by
the Bank under Section 13(4) would include all the proceedings
commencing from section 13 (2) and therefore, necessarily, the Tribunal
has to consider the compliance of section 13(3-A) also.
28.
The observation of the Supreme Court in Transcore, after extracting
Section 13(2) and 13(3-A), is that once two conditions under Section
13(2) are fulfilled, the next step for the Banks and Financial
Institutions 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, also
supports the view that sending a reply to the borrower under Section
13(3-A) is a mandatory condition to be fulfilled by the Bank before
taking possession under Section 13(4) of the Act.
29.
A similar question came up for consideration before a Division Bench of
the Karnataka High Court in Mrs.SunandaKumari v. Standard Chartered
Bank represented by its Authorised Officer, 2006 (4) KCCR 2216, wherein
the Division Bench observed as follows:
"It
is not disputed that even though the petitioners had submitted Annexure
'C' reply to Annexure 'B' notice issued under sub-section (2) of
Section 13, the respondent bank had not sent any communication to the
petitioners as required under sub-section (3A) of Seciton 13. Annexure
'D' application was filed before the Chief Metropolitan Magistrate only
on 27.1.2005 i.e,, after sub-section (3A) was inserted in Section 13.
Sub-section (3A) casts a duty on the secured creditor to consider the
representation made or objection raised by the borrower and if the
secured creditor comes to the conclusion that such representation or
objection is not acceptable or tenable, he is bound to communicate to
the borrower the reasons for non-acceptance within one week of receipt
of the representation or objection. Thus, sub-section (3A) confers on
the borrower a right to know the reasons for the non-acceptance of his
representation or objection by the secured creditor. Hence the secured
creditor is statutorily bound to consider the borrower's representation
or objection and if the representation or objection is not tenable or
acceptable, he is bound to communicate the reasons for such
non-acceptance. If the borrower does not receive any communication from
the secured creditor conveying the reasons for non-acceptance of the
objection, he is entitled to presume that the secured creditor has found
the representation acceptable and the objection tenable. Since the
respondent-bank failed to discharge its statutory obligations under
sub-section (3A) of Section 13 of the Act, the action initiated by the
respondent under sub-section (4) of Section 13 and Section 14 is illegal
and irregular...."
30. A learned Judge of the Gujarat High Court in Tensile Steel Ltd., and another v. Punjab and Sind Bank and Others, AIR 2007 Gujarat 126(1), has observed as follows:
"21.....It
is not denied that the said reply had been received by the Bank.
However, the Bank did not consider and decide the same. Sub-section
(3-A) of Section 13 of the Act of 2002 enjoins the Bank to consider and
decide such reply/objection and to communicate the decision thereof.
Unless and until the said exercise is completed, the Bank is not
authorised to proceed further and take any of the measures under
sub-section (4) of the said Section 13. In the present case, it is
indisputable that the Bank, without complying the mandatory requirement
under sub-section (3-A) of the said Section 13, proceeded further under
sub-section (4) of the said Section 13, took the assistance of the
District Magistrate under Section 14 of the Act of 2002; and took over
the possession of the secured assets. The action of the Bank is
certainly contrary to the statutory mandate. The same requires to be
quashed and set aside on that ground alone."
31.
The aforesaid judgment has been quoted with approval by a Division
Bench of the Orissa High Court in KrushnaChandra Sahoo v. Bank of India
and others, AIR 2009 Orissa 35 and the Division Bench observed as
follows:
"7.
A conjoined reading of both the provisions referred to hereinabove
makes it clear that it is obligatory on the part of the authority first
to consider and dispose of the objection by a speaking and reasoned
order and communicate the order to the person aggrieved i.e, the
borrower/guarantor. It is a condition precedent for issuance of notice
under Section 13(4) of the Act. The authority cannot ignore the
statutory provisions treating them merely to be a decoration piece in
the statutes rather they require strict adherence for the simple reason
that the financial institutions have been conferred with certain
privileges for making expeditious recovery from the borrowers by-passing
the onerous and lengthy procedure of civil suits."
32.
Mr.A.L.Somayaji, learned senior counsel for the third respondent would
rely upon a Division Bench judgment of this Court in V.Nobelkumarv. The
Authorised Officer, Standard Chartered Bank and others, 2011 (1) CTC 513
to contend that this Court has already held that the reply to the
representation/objection made by the borrower under Section 13(3-A) and
Rule 3-A(c) to the notice under Section 13(2) is mandatory. Though the
said observation is also to the same view we are taking in this writ
petition, we may add that the said observation was made in the context
of considering the power of the Chief Metropolitan Magistrate/District
Magistrate to pass orders under Section 14 only and not on any detailed
discussions on the issue.
33.
For all the above reasons, we hold that the right conferred on the
borrower to make a representation is a valuable right and in the event
the borrower either chooses to make his representation or raises
objection, in the event the secured creditor comes to the conclusion
that such representation/objection is not acceptable or tenable, the
secured creditor shall communicate the reasons for such non-acceptance
of the representation/objection to the borrower within seven days of the
receipt of such representation/objection. Hence, the requirement to
reply is mandatory.”
