Case Title:
Kanaiyalal Lalchand Sachdev & Ors vs State of Maharashtra &Ors
Date of Order:
07/02/2011
Judge(s):
Justice D K Jain and Justice H L Dattu
Parties:
Appellant:KanaiyalalLalchand Sachdev and Others
Respondent: State of Maharashtra and Others
Subject
Remedies under writ petitioncannot be availed in presence of alternative remedies.
IMPORTANT PROVISIONS
I) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
1. Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
13. Enforcement of security interest.-
(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882 ), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act.
(2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any installment thereof, and his account in respect of such debt is classified by the secured creditor as on- performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4).
(3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.
(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-
(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment, or sale for realizing the secured asset;
(b) take over the management of the secured assets of the borrower including the right to transfer by way of lease, assignment, or sale and realize the secured asset;
(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;
(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.
2. Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of the secured asset.—
(1) Where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured assets is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured asset, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the Chief Metropolitan Magistrate or, as the case may be, the District Magistrate shall, on such request being made to him—
(a) take possession of such asset and documents relating thereto; and
(b) forward such assets and documents to the secured creditor.
(2) For the purpose of securing compliance with the provisions of sub-section (1), the Chief Metropolitan Magistrate of the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary.
(3) No act of the Chief Metropolitan Magistrate or the District Magistrate done in pursuance of this section shall be called in question in any court or before any authority.
3. Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
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, 1[may make an application along with such fee, as may be prescribed] to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measures had been taken:—(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, 1[may make an application along with such fee, as may be prescribed] to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measures had been taken\:" 2[Provided that different fees may be prescribed for making the application by the borrower and the person other than the borrower.] 3[Explanation.—For the removal of doubts it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person (including borrower) to make an application to the Debts Recovery Tribunal under sub‑section (1) of section 17.]3[Explanation.—For the removal of doubts it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person (including borrower) to make an application to the Debts Recovery Tribunal under sub‑section (1) of section 17.]" 4[(2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub‑section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder.
II) The Security Interest (Enforcement) Rules, 2002
1. Rule 4 of The Security Interest (Enforcement) Rules, 2002
4. Procedure after issue of notice.—If the amount mentioned in the demand notice is not paid within the time specified therein, the authorised officer shall proceed to realise the amount by adopting any one or more of the measures specified in sub-section (4) of section 13 of the Ordinance for taking possession of movable property, namely:—
(1) Where the possession of the secured assets to be taken by the secured creditor are movable property in possession of the borrower, the authorised officer shall take possession of such movable property in the presence of two witnesses after a Panchnama drawn and signed by the witnesses as nearly as possible in Appendix I to these rules.
(2) After taking possession under sub-rule (1) above, the authorised officer shall make or cause to be made an inventory of the property as nearly as possible in the form given in Appendix II to these rules and deliver or cause to be delivered, a copy of such inventory to the borrower or to any person entitled to receive on behalf of borrower.
(3) The authorised officer shall keep the property taken possession under sub-rule (1) either in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as an owner of ordinary prudence would, under the similar circumstances, take of such property: Provided that if such property is subject to speedy or natural decay, or the expense of keeping such property in custody is likely to exceed its value, the authorised officer may sell it at once.
(4) The authorised officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of.
(5) In case any secured asset is—
(a) a debt not secured by negotiable instrument; or
(b) a share in a body corporate;
(c) other movable property not in the possession of the borrower except the property deposited in or in the custody of any court or any like authority, the authorised officer shall obtain possession or recover the debt by service of notice as under:
(i) in the case of a debt, prohibiting the borrower from recovering the debt or any interest thereon and the debtor from making payment thereof and directing the debtor to make such payment to the authorised officer; or
(ii) in the case of the shares in a body corporate, directing the borrower to transfer the same to the secured creditor and also the body corporate from not transferring such shares in favour of any person other than the secured creditor. A copy of the notice so sent may be endorsed to the concerned body corporate’s Registrar to the issue or share transfer agents, if any;
(iii) in the case of other movable property (except as aforesaid), calling upon the borrowers and the person in possession to hand over the same to the authorised officer, and the authorized officer shall take custody of such movable property in the same manner as provided in sub-rules (1) to (3) above;
(iv) movable secured assets other than those covered in this rule shall be taken possession of by the authorized officer by taking possession of the documents evidencing title to such secured assets.
2. Rule 8 of the Security Interest (Enforcement) Rules, 2002
8. Sale by any method other than public auction or public tender, shall be on such terms as may be settled between the parties in writing.
Brief Facts
State Bank of India advanced out a loan for INR 4,50,000 on 6 February, 2006 to the appellant on the equitable mortgage after the deposition of title deeds of property Mr. Lalchand Sachedo took over as the personal guarantor for the loan granted. On 18 November 2006, the respondents issued a notice under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Second) Ordinance, 2002 when there was a lack in repayment of the loan. In February 2007, one of the appellant’s secured propertieswas removed from their possession by the respondents following which the appellants filed a writ petition before the Hon’ble High Court of Bombay. The appellants argued that the notice issued by the respondents was illegal and no action shall arise from that and that the respondents should have approached the Chief Metropolitan Magistrate under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
The respondent offered to withdraw his notice issued in November, 2006 without prejudicial to any of the arguments advanced by them and also agreed to return possession of the property to the appellant subject to a condition. The condition was that the appellants should undertake to not alienate, encumber, dispose or create third-party interest for 6 months.
The High Court dismissed the writ petition on 7 March, 2007 accepting the statement made by the respondent. Subsequently, the respondents sent out notice under Section 13 (2) of the Act in April and the reply from appellants to the notice received in May was not accepted. The non-acceptance was conveyed through mail substantiating the reasons. The respondents issued a public notice in newspapers to inform the appellants of the notice under the aforementioned section.
Later the respondents filed praying for possession of the secured assets before the chief metropolitan magistrate under section 14. The magistrate allowed the application in February 2009 and directed the Assistant Registrar, Mr.P.A Tendolkar, Kurla Centre of courts for taking over possession of the mortgaged property with prior issuance of notice.
The assistant registrar in order dates 27 February 2009 ordered the appellants to hand over the mortgaged properties to the respondents within 15 days from receipt of the notice. He also referred to the Magistrates order dated 3 February 2009.
Aggrieved, the appellants filed a writ petition in the High Court but was however dismissed in an order dated 28 April 2009 on the ground that there exists availability of an alternate remedy under Section 17 of the Act. However, the respondents were to maintain the status quo for a period of 10 weeks from the date of order until the appellants could seek Section 17 of the act under the Debts Recovery Tribunal. In April 2009, a criminal application was filed by the appellants to extend the status quo period but the High Court rejected the claim.
Arguments advanced by Appellants
Ms. Kranti Anand appearing for the appellants criticized the orders passed and assailed that the notice issued by the Assistant Registrar was vague. The appellants had received the copy of the order of the Magistrate only when the proceedings were ongoing at the High Court and they argued that the notice issued by the Assistant Registrar was tainted with non-compliance with Rule 8 of the Security Interest (Enforcement) Rules, 2002. They contended that the High Court also had erred in identifying the equation of Section 14 with Section 13(4)(a) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002,and hence the order has to be set aside.
Arguments advanced by the Respondent
Mr. Buddy A Ranganadhan appearing for the respondent bank argued in favor of the judgment passed citing the precedent of Transcore Vs Union of India. It was further contended that since the appellants have sought remedy from DRT, they are estopped from approaching the High Court. Mr. Sushil Karanjakar appearing for the State of Maharashtra contended that Rule 8 of the Rules does not apply in the case involving the sale of secured assets but Rule 4 does. The decision delivered by the High Court in Mardia Chemicals Ltd Vs UOI was cited as reliance.
Judgment
The bench was of the opinion that the appeals were misconceived. Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, states about the enforcement of security interest provided that notwithstanding anything under Section 69 or 69 A of the Transfer of Property Act, 1882 if any security interest is created towards the secured creditor, it shall be enforced. This shall not be subject to the court’s intervention. Section 13 (2) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 deals with when a debtor makes any default in repayment to the secured creditor, then the debt shall be deemed as a non-performing asset. This means that the secured creditor would require the debtor to discharge his liabilities within 60days from the date of written notice otherwise the creditor shall avail all rights conferred to him under Section 13(4). Sections 13(3) and 13(2) deal with notice, and the amount to be repaid along with details of secured assets intended to be enforced by the bank respectively.
In the Mardia case, Section 13(3-A) of the Act was inserted by Act 30 of 2004 which provides the last opportunity forthe debtor to make representation to the secured creditor against the non-performing asset. The secured creditor is to consider the same and if the representation is unacceptable for him, then he must reason out the rejection and communicate within 1 week. Section 14 of the said act deals with applications filed by a secured creditor before the Chief Metropolitan Magistrate or District Magistrate within whose jurisdiction lies the secured assets and documents. Therefore a secured creditor shall enforce rightsvestedunder Section 13(4) and then recourse to Section 14.
The 2002 Rules, enacted under Section 38 (1) and Section 38 (2) (b) read with Section 13(4), 13 (10), and 13 (12) of the Act,state rules for enforcing security interests. Rule 4 provides forthe possession of movable assets and Rule 8 deals with the possession of immovable assets. Rule 4 as contended by respondents has no application.
In the case of Authorized Officer, Indian Overseas Bank and Another Vs Ashok Saw Mills the issue was regarding the DRT jurisdiction over post-Section 13 (4) events and whether Section 17 is confined to the stage under Section 13(4). Examining the provisions of Sections 13 and 17 of Chapter III, the court refused to accept the submission made by appellants stating DRT has jurisdiction in dealing with the secured creditor concerning Section 13(4) of the act. However, the law states that actions by the secured creditor under Section 13(4) are subject to scrutiny and cannot be debt aside or the status quo can’t be restored by DRT. The High Court had taken this case into account. It was further stated that action under Section 14 can take place after Section 13(4) and hence Section 17(1) would also come into play. Hence the Act itself has provided a remedy for the debtor or anyone affected by Section 13(4) by enabling appeal before DRT.
The high court has rightfully dismissed the petition on grounds of the availability of an efficacious remedy under Section 17. The remedies under Articles 226 and 227 of the Indian Constitution shall not be sought in presence of an alternative remedy for writ petitions. Thus under the present case, the facts in the issue includenon-receipt of notice under Section 13(2), failure to communicate the order of the Chief Judicial Magistrate, etc. Section 17 for efficacious statutory remedy of appeal can be availed which was ultimately sought by the appellants.
CONCLUSION
The High Court was justified in rejecting the prayers to be considered under Sections 226 and 227 of the Indian Constitution. The appealswere dismissed for being devoid of merit as a result and quantifying the cost of Rs. 20,000 was ordered.
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