Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune | Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone # 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
Under the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002 (in short “SARFAESI Act”), the Bank can proceed with the recovery process
and proceed with the property mortgaged as a security without recourse to
traditional Civil Courts. Its true that the Bank may not be able to recover the
money from the debtor or it may get unreasonably delayed if they have to
approach the Civil Courts for recovery and consequential steps. Many know as to
what happens in Civil Courts and many know as to how to delay a Civil Case for
so many years. Under SARFAESI Act, 2002, the Bank itself determines the amount
of debt when there is a default and proceeds with the property mortgaged in
accordance with the provisions of the Act and the concerned regulations. The
Bank makes a demand for payment, receives the reply if any, addresses the
grievance of the debtor if required and if it is not satisfied with the reply,
then, accordingly, the Bank proceeds with auctioning the property in accordance
with law and thereby quickens the recovery process. Thus, the object of
SARFAESI Act is really laudable if the law is implemented in letter and spirit.
But, when there is a clear violation of statutory provisions or when the Bank
proceeds against a property unreasonably using the provisions of SARFAESI Act,
2002, then, there should be effective remedy available to the innocent owner of
the property. It is true that the Act itself provides a relief to the aggrieved
to file an appeal challenging the steps taken by the Bank pursuant to the
notice issued by the Bank under section 13 (2) of the SARFAESI Act, 2002,
however, many feels that the remedy is not effective despite establishing a
clear case against the Banks in many cases. It is also seen that the Debt
Recovery Tribunal constituted under the Act which deals with the grievance of
the aggrieved, passes conditional order many times while granting stay. It is
true that in some peculiar cases, a conditional order can be passed, but, it
has become routine as I have seen and heard from my colleagues at the Bar. What
can an innocent owner do when he is not provided with an effective remedy
against the Bank? He may hesitate to approach the High Court directly as many
legal practitioners advice the aggrieved to approach Tribunal as it is likely
that the High Court may not entertain a Writ Petition directly and in many
cases such Writ Petitions are disposed giving liberty to the aggrieved to
approach the Tribunal. It is really understandable and in such cases, the Debt
Recovery Tribunal should really be effective and should not invite any
criticism, but, everyone knows as to what happens in Debt Recovery Tribunals
and Appellate Tribunals. Some presiding officers of the Debt Recovery Tribunals
may adopt a different and right approach, but, every legal practitioner can
tell or guess as to what happens before the Tribunal. There may be cases where
the debtors may try to delay the recovery process by filing cases and nobody
sympathizes in those cases and those cases to be dealt with very strictly.
It can not be said that the
provisions of the special legislation to be implemented in letter and spirit
without thinking at the consequences and it can not be said that the ultimate
object of the enactment is to be taken into consideration while dealing with
the cases challenging the action initiated by the Bank under SARFAESI Act,
2002. For example, with a very laudable object, the Chapter-XVII was introduced
in Negotiable Instruments Act, 1881 making the act of dishonour of cheque an
‘offence’ though civil remedy is also available for recovery of money. Section
139 of the N.I.Act says that there would be presumption available in favour of
the Complainant that the cheque is issued for discharging a legally enforceable
debt. Despite such clear wording and special provisions dealing even with the
procedure in cheque bouncing cases, the Courts have interpreted the provisions
from time to time protecting the rights of the innocent and providing
protection to the innocent against motivated harassment using the special law.
As such, the rights of the innocent or the innocent owners or the debtors are
to be protected under SARFAESI Act, 2002 and the remedy should really be
effective and adjudication to be really logical. I have seen a wonderful
judgment of a bench of Madras High Court comprising Hon’ble Mr.Justice
F.M.Ibrahim Kalifulla & Justice N.Kirubakaran in W.P. No. 15272 of 2009. It
was a case where the High Court has taken a serious view of procedural
irregularities committed by the Bank using the provisions of SARFAESI Act and
provided an instant relief to the aggrieved.
The reference to the legal
position in the said judgment is as follows:
“The object of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 is to regulate Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest and for matters connected therewith or
incidental thereto and the Act came into force on 17-12-2002. The Act aims at
speedy recovery of defaulting loans and to reduce the mounting levels of
non-performing assets of banks and financial institutions. The Act has been
passed based on the recommendations of Narasimham Committee I and II and
Andhyarujina Committee constituted by the Central Government for the purpose of
examining banking sector reforms and to consider the need for changes in the
legal system in respect of these areas. The provisions of the would enable the
banks and financial institutions to realise long-term assets, manage problems
of liquidity and asset liability mismatches and to improve recovery by
exercising powers to take possession of securities, sell them and reduce
non-performing assets by adopting measures for recovery or reconstruction.
For getting a decree in usual
course before a Civil Court litigants including Banks have to file the suit
before a civil court. After service of notice, written statement and trial, the
suit would be decided by passing a decree. The decree would possibly be
challenged by way of appeal upto Supreme Court and it would take about 5 to 15
years to attain finality. There would be possibility of dismissal of suit on
various grounds. After the decree is passed by the competent civil court, the
same would be put to execution by filing E.P. The Execution Court after service
of notice would bring the property of the debtor/guarantor for sale through
auction. To reach this stage, lot of money, especially very long time have to
be spent. The above process is dispensed with by the Special Act "SARFAESI
ACT" which is meant only for the financial institutions. As per the Act,
the first step would be to issue notice U/s. 13(2) by the authorised officer
who is deemed to be armed with a money decree which attained finality. By the
statute the authorised officer, is clothed with powers of trial court and
execution court and the code of Civil Procedure which governs the civil
proceedings is no more necessary. To put it otherwise, by the Special Act, the
authorized officer acts like a Civil Courtclothed with powers hitherto
exercised by it.
What the Honourable Supreme Court
held in Mardia Chemicals Ltd., -Vs- Union of India reported in A.I.R. 2004
S.C.2371:(2004) 4 S.C.C.311, while upholding the validity of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 (54 of 2002) is as follows:
“The financial institutions,
namely the lenders owe a duty to act fairly and in good faith. There has to be
a fair dealing between the parties and the financing companies/institutions are
not free to ignore performance of their obligation as a party to the contract.
They cannot be free from it. Irrespective of the fact as to whatever may have
been held in decisions of some American Courts, in view of the facts and
circumstances and the terms of the contracts and other details relating to
those matters, that may or may not strictly apply, nonetheless, even in absence
of any such decisions or legislation, it is incumbent upon such financial
institutions to act fairly and in good faith complying with their part of
obligations under the contract. This is also the basic principle of concept of
lender's liability. It cannot be a one-sided affair shutting out all possible
and reasonable remedies to the other party, namely, borrowers and assume all
drastic powers for speedier recovery of NPAs. Possessing more drastic powers
calls for exercise of higher degree of good faith and fair play. The borrowers
cannot be left remediless in case they have been wronged against or subjected
to unfair treatment violating the terms and conditions of the contract. They
can always plead in defence deficiencies on the part of the banks and financial
institutions.”
The Supreme Court in Central Bank
of India vs. State of Kerala and others reported in 2009 (4) SCC 94 restated
the object of the Act as follows:
"44. Simultaneously, the
jurisdiction of the civil courts was barred and all pending matters were
transferred to the Tribunals from the date of their establishment. For some
years, the new dispensation of adjudication worked well. However, with the
passage of time, proceedings before the Debts Recovery Tribunals also started
getting bogged down due to invoking of technicalities by the borrowers. Faced
with this situation, the Government again asked the Narasimham Committee to
suggest measures for expediting recovery of debts, etc. due to banks and
financial institutions.
45. In its Second Report, the
Narasimham Committee observed that the non-performing assets of most of the
public sector banks were abnormally high and the existing mechanism for
recovery of the same was wholly insufficient. In Chapter VIII of the Report,
the Committee observed that the evaluation of legal framework has not kept pace
with the changing commercial practice and financial sector reforms and as a
result of this the economy has not been able to reap full benefits of the
reform process.
46. By way of illustration, the
Committee referred to the scheme of mortgage under the Transfer of Property Act
and suggested that the existing laws should be changed not only for
facilitating speedy recovery of the dues of banks, etc. but also for quick
resolution of disputes arising out of the action taken for recovery of such
dues.
47. The Andhyarujina Committee
constituted by the Central Government for examining banking sector reforms also
considered the need for changes in the legal system. Both the Narasimham and
Andhyarujina Committees suggested enactment of new legislation for
securitisation and empowering the banks and financial institutions to take
possession of the securities and sell them without intervention of the court.
"
5. The aforesaid Act clothes the
authorized officer of the bank with enormous powers to deal with the secured
assets to recover the outstanding amounts. Once the power is given, the Courts
have held that the same has to be exercised in the way it is to be done and not
otherwise. Here is a case where the first respondent/bank, contrary to the Act
acted in whimsical and capricious manner and brought the property of the
petitioners and sold the same to the fourth respondent in an ill-devised manner
which is unknown to law.”
In the same judgment, dealing
with the issue of availability of alternative remedy under the SARFAESI Act,
2002 before the Debt Recovery Tribunal, the High Court has laudably held as
follows:
“With regard to alternative
remedy, it is seen that there is a statutory violation by not issuing notice
under Section 13(2) and 13(4) as per the Rule 3 of the Security Interest
(Enforcement) Rules 2002. There is contravention of statute and violation of
principles of natural justice and also violation of constitutional right to
hold property as per Article 300A of the Constitution of India. It has been
held by the Honourable Supreme Court in Vimala Ben Ajith Bhai Patel -Vs-
Vatsala Ben Ashok Bhai Patel reported in 2008 (4) SCC 649 that the right to
property can be taken away only as per law and right to hold the property has
been glorified as "Human Right".
That apart, it is well settled
law that availability of an alternative remedy is not an absolute bar for
exercising the writ jurisdiction and it is only a self-imposed restraint on its
power. This has been held so in the judgment in State of Uttar Pradesh -Vs-
Mohammad Nooh reported in AIR 1958 SC 86, in Whirlpool Corporation -Vs-
Registrar of Trade Marks, Mumbai and others reported in AIR 1999 SC 22, and in
Mariamma Roy -Vs- Indian Bank and others reported in 2009 AIR SCW 654.
Therefore the plea of availability of alternate remedy miserably fails. The
petitioners cannot approach the Tribunal, as the measures taken by the Bank
were belatedly known to the petitioners and by that time the time prescribed
under the Act was over. The Judgement in Hongo India (P) Ltd relied upon by
Mr.K.M.Vijayan, in fact, justifies the contention of the petitioners. As per
the judgement, Courts cannot extend the time limit prescribed by the Statute.
As such the only remedy for the petitioners is to file a writ petition which
has been rightly done by them.
The Tribunal is not competent to
look into violation of fundamental rights and constitutional rights and this
Court being a custodian of Constitutional rights is entitled to examine the
matter. A Constitution Bench of the Honourable Supreme Court in its judgment in
State of West Bengal and others -Vs- The Committee For Protection of Democratic
Rights, West Bengal and others reported in 2010(2) Scale 467 held that Article
226 of the Constitution of India can be exercised for enforcing any legal right
conferred by a statute and it is further held that under Article 226 of the
Constitution of India, the High Court has got more wider power than the
Honourable Supreme Court. In Secretary Cannanore Muslim Educational
Association, Kanpur vs. State of Kerala reported in 2010 (5) SCALE 184, the
Apex Court held that the High Court is conferred with wide power to "
reach injustice whenever it is found". Therefore as injustice is writ
large and glaring, necessarily the judicial arm of this court has to reach
there and it cannot be prevented by plea of availability of alternative
remedy.”
In many cases, despite having a
clear case, the aggrieved may hesitate to approach the High Court under Article
226 or 227 of Constitution of India looking at the ‘principle of availability
of alternative remedy’, however, the Hon’ble High Court has deal with the issue
elaborately in the judgment under reference and I am sure that the observation
can not be overruled in my opinion.
Not only dealing with the law and
laying down a guiding principle with regard entertaining Writ Petitions in
respect of “SARFAESI Act” cases, the High Court has provided an effective
remedy to the Petitioner and the relevant portion of the judgment is as
follows:
”46. In this case the action of
the bank officials resulted in loss to bank as well as to the guarantor, as the
property ex-facie was allegedly sold for a very low price. It is common
knowledge that it is very difficult to get a ground in and around Chennai for a
price lesser than Rs.50 lakhs where as in this case a property measuring about
3168 ¾ sq. ft. in Ayanavaram was allegedly sold palpably at a very low price of
Rs.33,50,000/-. As stated above, this Court orders high level inquiry to go
into every aspect about the transaction involving bank officials, P.Md. Thahir
and the bidders. Given facts and circumstances of the case, this court is prima
facie convinced that violations were made with the connivance of Bank Officials
the Bidders and P.Md.Thahir son of Sheik Mohammed, 309 "D" Block, East
Cemetry Road, Chennai-600 021. Therefore this Court directs the respondent Bank
to entrust the matter to an investigation agency preferably CB-CID who can
investigate and proceed as per law.
47. For non-compliance of
mandatory provisions of the Act, fraud, lack of fair play, bonafides etc., the
entire proceedings initiated by respondent bank in favour of the fourth
respondent gets vitiated and is hereby set aside. In view of the same, the
fourth respondent is directed to hand over the possession of the property to
the petitioner within 15 days from the date of receipt of a copy of this order.
48. There will be an order of
exemplary cost of Rs.50,000/- (Rupees fifty Thousand only) payable by the
respondents bank 1 to 3 to the petitioners within 15 days from the date of the
receipt of a copy of this order. Consequently, connected M.P.No.1 of 2009 is
closed.”
It is true that there can be
inevitable complications in an Appeal before the Debt Recovery Tribunal and it
is so where the property belongs to Company and many proceedings were pending
against the Company. There can be liquidation in respect of the Company and in
such cases; the Official Liquidator should defend the rights of the Company
before the Tribunal. There can be a scheme pending for consideration before the
High Court in respect of a Company and these issues complicates the cases before
Debt Recovery Tribunal at times. But, in other cases, there can not be any
complications and there should effective remedy available to the aggrieved if
there is merit in the contention and I do strongly feel that the High Court is
required to entertain Writ Petitions even in respect of “SARFAESI Act” if
required and in exceptional cases.We know that there can be people to approach
the High Court with ulterior motives and such cases can easily be dealtwith.
But, there should be effective remedy to the innocent owners and the innocent
owners should not get troubled with the irregularities committed by the Bank or
committed by individuals with the involvement of Bank either directly or
indirectly.
Thus, it is difficult to deal
with the question as to whether the rights of innocent owners of property
protected are under SARFAESI Act, 2002. But, no innocent should be troubled
unnecessarily and without any relief. It is not correct to refer very
frequently that the “Right to property” is not a Fundamental Right and High
Court should not entertain Writ Petitions in respect of cases under SARFAESI
Act, 2002 though caution is to be exercised.
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune | Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone # 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
