If secured assets have been wrongfully transferred, an order for return can be passed by DRT

INTRODUCTION:

(1) The main enforcing provision is Section 13 in Chapter III of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter called “the Act”). Section 13 provides that a secured  creditor may enforce any security interest without intervention of the court or Tribunal irrespective of Section 69 or Section 69A of the Transfer of Property Act where according to  sub-section (2) of Section 13, the borrower is a defaulter in repayment of the secured debt or any installment of repayment and further the  debt standing against him has been classified as a non-performing asset by the secured creditor. Sub-section (2) of Section 13 further provides that before taking any steps in direction of realizing the dues, the secured creditor must  serve a notice in writing to the borrower  requiring him to discharge the liabilities within a period of 60 days failing which the secured creditor would be entitled to take  any of the measures  as provided in sub-section (4) of Section 13.  It may also be noted that as per sub-section (3) of Section 13 a notice given to the borrower must contain the details of the amounts payable and the secured assets against which the secured creditor proposes to proceed in the event of non-compliance with the notice given under sub-section (2) of Section 13.  Sub-section (4) of Section 13 provides for four measures which can be taken by the secured creditor in case of non-compliance with the notice served upon  the borrower.  Under clause (a) of sub-section (4) the secured creditor may take possession of the secured assets including the right to transfer the secured assets by way of lease, assignment or sale; may take over the management of the secured assets under clause (b) including right to transfer; under clause (c) of sub-section (4) a manager may be appointed to manage the secured assets which have been taken possession of by the secured creditor and may require any person who has acquired any secured assets from the borrower or from whom any money is due to the borrower to pay the same to him as it may be sufficient to pay the secured debtor as provided under Clause (d) of Section 13(4) of the Act.    Sub-section (8) of Section 13 however, provides that if all the dues of the secured creditor including all costs, charges and expenses etc. as may be incurred are tendered to the secured creditor before sale or transfer no further steps be taken in that direction.  Now coming to Section 17, it  provides for filing of an appeal to the Debts Recovery Tribunal within 45 days of  any action taken against the borrower under sub-section (4) of Section 13 of the Act.

(2) Section 17 of the Act, inter alia, reads as follows. 

“Section 17.Right to appeal (1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his 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 measure had been taken.”

The term “measures” referred to in sub-section (4) of section 13 of the Act has been interpreted to mean and include “any action taken by secured creditor, starting from issue of notice u/s 13(4) of the Act up to issuing the notice of 30 days before sale under Rule 9 of the Security Interest (Enforcement) Rules, 2002” by hon’ble High Court of Kerala and Supreme Court in various judgments as described below.

(A) In United Bank of India v. Satyawati Tondon & Ors., {2010 (8) SCC 110; Decided on 26.07.2010}, the Supreme Court has held thus in paragraph 42: 

"42. There is another reason why the impugned order should be set aside. If respondent 1 had any tangible grievance against the notice issued under Section 13(4) or action taken under Section 14, then she could have availed remedy by filing an application under Section 17(1). The expression "any person" used in Section 17(1) is of wide import. It takes within its fold, not only the borrower but also the guarantor or any other person who may be affected by the action taken under Section 13(4) or Section 14. Both, the Tribunal and the Appellate Tribunal are empowered to pass interim orders under Sections 17 and 18 and are required to decide the matters within a fixed time schedule. It is thus evident that the remedies available to an aggrieved person under the SARFAESI Act are both expeditious and effective." 

(B) Further, hon’ble High Court of Kerala in Sami Vs. Bank of India {2011 (3) KLT 554: 2011 (3) KLJ 646 : ILR 2011 (3) Ker. 624 : 2011 (3) KHC 414: Decided on 22.07.2011}  has observed and held as follows.

“7………..In view of these decisions, I have absolutely no doubt in my mind that the very action of the financial institution in approaching the Magistrate under Section 14 itself would constitute a measure under Section 13(4), which would give rise to an aggrieved person the cause of action to resort to the remedy by way of approaching the Debt Recovery Tribunal under Section 17 of the Act. That being so, the circular issued by the Debt Recovery Tribunal to the effect that unless possession is actually taken by the financial institution, no appeal would be entertained, is clearly against the provisions of the Act and the decisions of the Supreme Court.” 

(C) Still further, hon’ble Supreme Court in Kanaiyalal Lalchand Sachdev & Ors. Vs. State of Maharashtra & Ors.{(2011) 2 SCC 782; 2011 STPL(Web) 111 SC;  Decided on 07.02.2011} has held, inter alia, as follows (SCC p. 789, para 22).

“22. We are in respectful agreement with the above enunciation of law on the point. It is manifest that an action under Section 14 of the Act constitutes an action taken after the stage of Section 13(4), and therefore, the same would fall within the ambit of Section 17(1) of the Act. Thus, the Act itself contemplates an efficacious remedy for the borrower or any person affected by an action under Section 13(4) of the Act, by providing for an appeal before the DRT.”

(D) On the other hand, in Mardia Chemicals Ltd.. Vs U.O.I. & Ors. {A.I.R 2004 SC 2371; (2004) 4 SCC 311; (2004) 59 CLA 380 (SC); Date of Judgment: 08/04/2004} a three judge bench of hon’ble Supreme Court has observed and held as follows {in para 39, 49, 80(2) and 80(3)}:

“39.     Sub-section (4) provides for four measures which can be taken by the secured creditor in case of non-compliance with the notice served upon  the borrower.  Under clause (a) of sub-section (4) the secured creditor may take possession of the secured assets including the right to transfer the secured assets by way of lease, assignment or sale; may take over the management of the secured assets under clause (b) including right to transfer; under clause (c) of sub-section (4) a manager may be appointed to manage the secured assets which have been taken possession of by the secured creditor and may require any person who has acquired any secured assets from the borrower or from whom any money is due to the borrower to pay the same to him as it may be sufficient to pay the secured debtor as provided under Clause (d) of Section 13(4) of the Act.    Sub-section (8) of Section 13 however, provides that if all the dues of the secured creditor including all costs, charges and expenses etc. as may be incurred are tendered to the secured creditor before sale or transfer no further steps be taken in that direction. 

49………Whereas, it is submitted, under the Securitisation rules it is provided that before putting the property on sale the authorized officer has to obtain the valuation of immovable property, a reserved price is to be fixed and a notice of 30 days before sale is to be served on the borrower. In this connection, Rule 9, the relevant rule, of the Security Interest (Enforcement) Rules, 2002 is quoted :

"9. Time of sale, issues of sale certificate and delivery of possession, etc.- (1) No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower.

(2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorized officer and shall be subject to confirmation by the secured creditor:

(3) to (10) xxx                         xxx                   xxx"

Therefore, during this period which would be in all more than 60 days it would be open for a borrower to approach the Debt Recovery Tribunal and file a petition for any appropriate relief and if a case is so made out, he can even get a relief of  stay, in  exercise of ancillary power which vest in the Tribunal as per decisions referred and reported in 1969 (2) SCR p.65, ITO vs. Mohd.Kunhi and 1999 (6) SCC p.755, Allahabad Bank, Calcutta Vs. Radha Krishna Maity & Ors.  Again referring to Section 19 of the Act it is pointed out that in case in the end the Tribunal finds that the secured assets have been wrongfully transferred or taken possession of an order for return of such assets can be passed and the borrower in that even shall also be entitled for compensation.

80. Under the Act in consideration, we find that before taking action a notice of 60 days is required to be given and after the measures under Section 13(4) of the Act have been taken, a mechanism has been provided under Section 17 of the Act to approach the Debt Recovery Tribunal.  The above noted provisions are for the purposes of giving some reasonable protection to the borrower. Viewing the matter in the above perspective, we find what emerges from different provisions of the Act, is as follows :-

(1)…..x……….x………x………..    

(2). As already discussed earlier, on measures having been taken under sub-section (4) of Section 13 and before the date of sale/auction of the property it would be open for the borrower to file an appeal (petition) under Section 17 of the Act before the Debt Recovery Tribunal.

(3). That the Tribunal in exercise of its ancillary powers shall have jurisdiction to pass any stay/interim order subject to the condition as it may deem fit and proper to impose.” (emphasis supplied in all paras)

(E) SUMMARY: The gist of aforesaid case laws may be summarized, thus an appeal u/s 17 of Securitisation Act may be filed at any of the following stages of the measures taken by secured creditor u/s 13(4) of the Act:

 (i) Any tangible grievance against the notice issued under Section 13(4) or action taken under Section 14, then she could have availed remedy by filing an application under Section 17(1) of the Act-(SC).

(ii) The very action of the financial institution in approaching the Magistrate under Section 14 itself would constitute a measure under Section 13(4) of the Act-(Kerala HC).

(iii) An action under Section 14 of the Act constitutes an action taken after the stage of Section 13(4), and therefore, the same would fall within the ambit of Section 17(1) of the Act-(SC).

(iv) Again referring to Section 19 of the Act it is pointed out that in case in the end the Tribunal finds that the secured assets have been wrongfully transferred or taken possession of an order for return of such assets can be passed and the borrower in that even shall also be entitled for compensation-(SC, Mardia Chemicals).

(F) CONCLUSION:

(i) Appeal u/s 17 of the Act can be filed against any action taken by secured creditor, starting from issue of notice u/s 13(4) of the Act up to issuing the notice of 30 days before sale under Rule 9.

(ii) In other words, it is not essential to file an Appeal u/s 17 of the Act within 45 days immediately after receipt of notice u/s 13(4) of the Act.

(iii) The limitation of 45 days has to be kept in view with reference to the specific action of the creditor, which the borrower intends to challenge.

(iv) The last action of secured creditor, which is to be challenged by filing an Appeal u/s 17 of the Act, is the notice of 30 days before sale under Rule 9.

(v) Consequently, finally, the limitation of 45 days has to be kept in view with reference to the notice of 30 days before sale under Rule 9 issued by the creditor, which the borrower intends to challenge.

Note: the views expressed are my personal and a view point only.

Author:

Narendra Sharma, 

Consultant (Corporate Legal)

E-mail: nkdewas@yahoo.co.in