Rajasthan High Court
Case BriefsHigh Courts

   

Rajasthan High Court: In a case where the secured creditors like Unit Trust of India (‘UTI') and a workman have preferred their petitions way back in the year 2000 and 2014 respectively, and are awaiting result of the winding up, Pushpendra Bhati, J. held that they cannot be allowed to suffer merely because some subsequent proceedings in the DRT would consume all the assets of the company and give away the auction proceeds to Kotak Mahindra Bank which is a late entrant to the dispute.

Factual Background

A company named Derby Textiles Limited (‘respondent company') was incorporated on 22-05-1980 as a Public Limited Company, limited by shares. It requested the UTI (petitioner in Company Petition 07 of 2000) to subscribe for Secured Redeemable Non-Convertible Debentures (‘SRNCD') of the face value of Rs.4.00 crores, which was thereby agreed and disbursed. On deviation from payments agreed recall notices were issued for payment of outstanding debt along with interest.

Company Petition 07/ 2000

A winding up petition was preferred under Sections 433, 434 and 439, Companies Act, 1956, seeking winding up of the company and appointment of an official liquidator regarding all the assets and properties of the respondent-Company, since the respondent-Company was unable to pay the outstanding debt amount. As the proceedings were pending, the respondent-Company meanwhile made an application that it has been registered as sick company with Board of Industrial and Financial Reconstruction. The company kept dilly-dallying on some or the other issues thereafter in the Court and the matter kept on getting adjourned, even when the Court cautioned the parties that no further adjournments would be given.

Application No.2 of 15 in Company Petition No.9 of 2014

The Company petition was filed for liquidation proceedings to begin and while such adjudication was going on, an application was filed by a workman, i.e. Application No. 2 of 2015 in company petition No. 9 of 2014, contending, as the auction proceedings had already taken place, and unless an official liquidator is appointed to secure the debts of the petitioner, the petitioner's rights shall be permanently prejudiced being a prioritized creditor.

As no one appeared for the respondent company an interim order was passed by the Court on 28-03-2022, “Despite service, none appears for the respondent-Company. In the interest of justice, further proceedings in case No.144/2004 before the Debt Recovery Tribunal, Jaipur shall remain stayed.”

Challenging the aforesaid order, an SLP was filed before Supreme Court which upheld the stay order. Consequently, vide another application Kotak Mahindra Bank Limited was impleaded as party respondent. Thus, application No.01 of 2022 (in company petition No.7 of 2000) was filed on behalf of Kotak Mahindra Bank Limited seeking vacation of the interim order dated 28-03-2022 and one another application No. 4 of 2022 (in company petition No.9 of 2014) was filed by Mr. Anil Vyas, Advocate (on behalf of the auction purchaser- M/s. Noble Art & Craft House, Jodhpur) seeking modification of the aforementioned interim order dated 28-03-2022.

It was contended by Kotak Mahindra Bank Limited as well as the auction purchaser, that their proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (‘RDDB Act') is on a stronger footing, and that, leave of the Company Court is not necessary under Sections 537 or 446 of the Companies Act, 1956 is a settled proposition and there cannot be any second thought in the mind of the Court.

The Court noted that the jurisdiction of the Tribunal and the Recovery Officer, in terms of the RDDB Act, is exclusive, in respect of the debts payable to Banks and Financial Institutions, and the Company Court cannot use its powers under Section 442 read with Section 537 or under Section 446 of the Companies Act, 1956, against the Tribunal/recovery officer, and thus, Sections 442, 446 and 537 cannot be applied against the Tribunal, is a settled proposition.

The Court further observed that merely because the company was not cooperating and the adjudication of the matter took a long time, the company petitioner cannot be rendered remediless by this Court on account of the complete assets being disbursed by the DRT in a separate proceeding under the RDDB Act. Thus, in the present case, one of the secured creditors UTI and workman have preferred their petitions way back in the year 2000 and 2014 respectively, and are awaiting result of the winding up and the protection of their respective interests, and thus, they cannot be allowed to suffer merely because some subsequent proceedings in the DRT would consume all the assets of the company and give away the auction proceeds to the Kotak Mahindra Bank Limited and the auction purchaser, who are subsequent entrants in the dispute.

Placing heavy reliance on Bank of Nova Scotia v. RPG Transmission Limited, 2004 SCC OnLine Del 1048, the Court did not allow application No.1 of 2022 in company petition No.7 of 2000 filed on behalf of the Kotak Mahindra Bank Limited seeking vacation of the interim order dated 28-03-2022 and application No. 4 of 2022 in company petition No.9 of 2014 filed on behalf of the auction purchaser seeking modification of the said interim order.

[The Specified Undertaking Of the UTI v. Derby Textiles Limited, SB Company Petition 7 of 2000, decided on 27-07-2022]


Advocates who appeared in this case :

Mr. Manoj Bhandari Sr. Advocate assisted by Mr. Aniket Tater. Mr. Siddarth Tatiya and Mr. Shailendra Gwala, Advocates, for the Petitioner(s);

Mr. Sanjay Jhanwar Sr. Advocate assisted by Mr. Rajat Sharma & Mr. Pranav Bafna. Mr. Sanjay Nahar Mr. Anil Vyas Mr. Sanjeet Purohit with Mr. Surendra Thanvi Mr. Naman Mohnot Mr. Pushkar Taimini, Advocates, for the Respondent(s).


*Arunima Bose, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Bombay High Court: Expressing that the right to travel abroad has been spelt out from the expression “personal liberty” in Article 21 of the Constitution, A.S. Chandurkar and Amit Borkar, JJ., observed that, the provisions under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, do not impliedly confer such powers on the Debt Recovery Tribunal to restrain a person from travelling abroad.

Issue


The instant petition raised an important question with regard to the interpretation of Article 21 of the Constitution of India as to whether the expression “personal liberty” occurring in the said Article includes the right to travel abroad?

Whether refusal to grant permission to travel abroad results in the infringement of Article 21 of the Constitution of India? 

Background 


The petitioner had challenged the order passed by the Debt Recovery Tribunal refusing to grant permission to travel abroad for a limited time to attend the marriage of the petitioner’s sister-in-law.

Analysis, Law and Decision


Article 21 of the Constitution of India

“21. No person shall be deprived of his life or personal liberty except according to procedure established by law.”

While stating that it is a well settled that the expression “personal liberty” includes right of a citizen to travel abroad and return to the home country without any impediment, direct or indirect. The expression “personal liberty” has not been used in the restricted sense of freedom from arrest and detention but had been used in a much wider sense.

The above-said right emanates from the freedom of a person and the right to travel abroad and return to the country without impediment, direct or indirect, is contained in the expression “personal liberty” occurring in Article 21 of the Constitution.

“…Law in this Article means the law enacted by a competent Legislature.”

 Further, the Bench added that, the mandate of Article 21 is that the deprivation of “personal liberty” has to be “according to procedure established by law.”

Elaborating further, the High Court observed that,

The right to travel abroad is right distinct and separate from the right of freedom of movement in a foreign country.

The right to travel abroad of a citizen of India was considered in the Supreme Court in Maneka Gandhi v. Union of India, (1978) 1 SCC 248.

Additionally, the Court referred to Sub-Section 12, 13(A), 17 and 18 of Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and stated that the Tribunal is not conferred with specific power to restrain a person from leaving the country.

In Court’s opinion, Section 22 confers the procedural right to regulate proceedings before it.

“In the absence of a specific provision conferred on the Debt Recovery Tribunal by statute, the Debt Recovery Tribunal has no power to restrain a citizen from travelling abroad, particularly when the said right has been recognised as a facet of Article 21 of the Constitution of India.”

High Court added that the rights of respondent 1 will sufficiently protect the rights of respondent 1 to recover the amount of dues from the petitioner.

While concluding the matter, the Bench held that the order refusing permission to travel abroad has been made in contravention of the provisions of Article 21 of the Constitution and is violative of the right guaranteed to the petitioner under Article 21.

Further, the State had not made any law or provision in the said Act seeking to deprive or regulate the right of a person to travel abroad.

Hence, the order was set aside.

“…the purpose of depriving or regulating the right of a person to travel abroad, it is necessary to have a procedure established by law enacted by a competent Legislature in the said act or by way of independent legislation which is absent herein.”

In view of the above, the Debt Recovery Tribunal had no power to restrain a person from travelling abroad in the absence of specific powers to that effect. [Anurag v. Bank of India, 2022 SCC OnLine Bom 1160, decided on 7-6-2022]


Advocates before the Court:

Mr Akshay Naik a/w Mr D.V. Chauhan and Mr C.J. Dhruv, Advocates for Petitioner.

Mr A. T. Purohit, Advocate for Respondent No.1.

Mr D. Gupta, Advocate for Respondent No.2(Official Liquidator).

Op EdsOP. ED.

Background

The Indian insolvency regime had very fragmented, time-consuming, and archaic personal insolvency laws. Two major laws on personal insolvency before the enactment of the Insolvency and Bankruptcy Code, 20161 (IBC or Code) were: (i) The Presidency-Towns Insolvency Act, 19092 dealing with insolvency cases in Presidency Towns (Bombay, Madras, Calcutta), and (ii) the Provincial Insolvency Act, 19203 which was applicable elsewhere. Due to persistent and continuing issues with the provisions of this Act, the need for a more structured and updated insolvency framework was felt. Acting upon it, the enactment of IBC in 2016 came into the picture. The provisions dealing with personal insolvency are provided under Part III of the Code. The Code comprehends three categories of individuals under Part III i.e.

(i) personal guarantors to corporate debtors;

(ii) individuals with partnership firms or sole proprietorships; and

(iii) other individuals.

However, the Code notified the insolvency resolution process in respect of companies initially and up until recently, the insolvency resolution process of the personal guarantors came into the existence on the recommendations of the Report of Reconstituted Working Group on Individual Insolvency (RWG).4

Further, the RWG suggested that the phase implementation of Part III is essential as the market dynamics, stakeholders, transactions, and nature of the proceedings may not adjust under a single umbrella procedure. Thus following the suggestion, the piecemeal approach was preferred and the rules and regulations thereof for the insolvency resolution process of personal guarantors were brought into existence.

Understanding personal guarantor to corporate debtor insolvency process

Before moving on to the jurisdictional dilemma on the personal guarantor to corporate debtor, the understanding of the concept of personal guarantor as envisaged under the Code is imperative. Personal guarantor as defined under Section 5(22)5 of the Code states that a personal guarantor is an individual who is the surety in a contract of guarantee to a corporate debtor. To put it simply, any person who promises to pay a borrower’s debt in the event that the borrower defaults in respect of their obligation. Under the mechanism of the Code, the personal guarantors provide guarantees for the loan or any other type of facility availed by the corporate debtor from the principal borrower. Consequently, when a corporate debtor defaults on the payment of such facilities, the liability of the personal guarantor comes into existence.

Parallel proceedings against the personal guarantor — A distinct category

The rationale of parallel proceeding against the personal guarantors has its genesis in the fundamental principle of co-extensive liability of the surety (personal guarantor) against the creditor or principal borrower.6 As far as the applicability of this principle under the Insolvency and Bankruptcy Code, 2016 is concerned, the Supreme Court in Lalit Kumar Jain v. Union of India7 held that the approval of a resolution plan for the resolution of corporate debtor does not ipso facto discharge a personal guarantor (of a corporate debtor) of her/his liabilities under the contract of guarantee.

The scheme of the Code for the designated adjudicating authority to adjudicate matters is clear and unambiguous. For the insolvency processes under Part II of the Code which deals with the insolvency resolution and liquidation process for the corporate persons, the adjudicating authority shall be the National Company Law Tribunal8 (NCLT). Whereas, the insolvency resolution and bankruptcy process for individual and partnerships firms which includes personal guarantors will have Debts Recovery Tribunal (DRT)9 as their designated adjudicating authority.

Therefore, on a bare perusal of the statutory provisions, the distinction is discrete without any ambiguity. However, with the introduction of the Insolvency and Bankruptcy Code (Second Amendment) Act, 201810 the conflict and overlapping of the jurisdiction in the case of personal guarantor arose.

Personal guarantor by nature is classified as individual insolvency and hence is a subject- matter of Part III of the Code. However, in this amendment, a distinct category was created for personal guarantors which does not align with the scheme of the Code and their insolvency resolution plan shall be dealt with under Part II of the Code. The constitutionality of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 201911 (the 2019 Rules) were challenged which enabled this provision was challenged in Lalit Kumar Jain v. Union of India12. The Supreme Court upheld the 2019 Rules and thus a distinct category for personal guarantor is now firmly established.

The jurisdictional anomaly on personal guarantor’s process

Therefore, the said Amendment and the Rules inter alia enabled the provisions of Section 6013 of the Code which envisaged four situations under which the exclusive jurisdiction in personal guarantor applications rests with the NCLT—

  1. The adjudicating authority in relation to insolvency and resolution for personal guarantors shall be NCLT having territorial jurisdiction.
  2. Instances where the corporate insolvency resolution process (CIRP) against the corporate debtor is pending.
  3. In an instance where the CIRP is in the process against the corporate debtor, the application against the personal guarantor shall be transferred before such NCLT.
  4. The powers provided to DRT in matters of the personal guarantor shall be vested with NCLT.

Here, we have a situation where an application against the corporate debtor is either initiated, pending, or in the process (admitted) in such a case the application for initiation of insolvency resolution process against the personal guarantor shall be the NCLT.

On a harmonious construction of Sections 9414, 9515 and Section 60 of the Code, it can be construed that special provisions have been provided to vest NCLT with the jurisdiction in personal guarantors to corporate debtors’ cases. The intent of these provisions of the Code is manifested to allow for the creditor to initiate and maintain proceedings against both the corporate debtor and the guarantor simultaneously and before the same forum.

However, different NCLTs have taken a different view on this aspect. For instance, the NCLT, New Delhi in PNB Housing Finance Ltd. v. Mohit Arora16 discussed the scope of the amendment enabling Section 60 of the Code. The NCLT stated that whenever Section 60 is attracted, the provision of Section 179(1)17 IBC, 2016 shall not be applicable and the jurisdiction shall vest with NCLT.

Further, the Tribunal held that in a situation where application(s) in relation to the corporate debtor for initiation of CIRP is pending before NCLT then, initiation of CIRP of the corporate debtor is not a prerequisite for maintainability of an application under Section 95  IBC filed for initiating insolvency resolution process against the personal guarantor of that corporate debtor before the NCLT.

The NCLT in PNB Housing Finance Ltd. v. Goldy Gupta18 held that the commencement of CIRP against the corporate debtor is not a condition precedent for maintaining an application under Section 95 of the Code filed for initiating insolvency resolution process against the personal guarantor of the corporate debtor before the NCLT.

This rationale was not taken by the NCLT, Mumbai in Insta Capital (P) Ltd. v. Ketan Vinod Kumar Shah19 where the issue for consideration is whether a financial creditor can initiate CIRP against the personal guarantor in the absence of any resolution process/liquidation process against the corporate debtor.  The Tribunal held an application for insolvency for a resolution against the personal guarantor is not maintainable unless that CIRP or liquidation application is ongoing against the corporate debtor. It is further observed that filing of applications seeking resolution of personal guarantors without the corporate debtor undergoing CIRP, would tantamount to the vesting of jurisdiction on two courses, one is NCLT and another is the Debts Recovery Tribunal.

The NCLTs have a diverse opinion on the initiation of the insolvency resolution process against the personal guarantor during the initiation or pendency of CIRP application against the corporate debtor. Such a situation has not been resolved as the NCLAT (Appellate Tribunal) has not yet dealt with this anomaly.

Concurrent jurisdiction with Debts Recovery Tribunals

As pointed, the Debts Recovery Tribunals are the designed adjudicating authority in proceedings related to insolvency matters of individuals and firms, which also includes personal guarantors and having territorial jurisdiction over the place where the individual debtor actually and voluntarily resides or carries on business or personally works for gain20. It can be stated that the original jurisdiction for personal guarantors rests with the DRTs.

However, a peculiar situation which Section 60 of the Code does not comprehend is that where an application for initiation of CIRP against the corporate debtor is neither initiated, pending nor admitted in such cases who shall have the jurisdiction. This situation further builds up to the existing dilemma.

Following the strict interpretation of the provisions of the Code, in such situations, the DRTs are best suited to entertain the application. The reason being, they have the original jurisdiction to deal with personal guarantors under the Code. Further, the Amendment of 2018 and Rules thereof are the enabling provisions that created a special case for Section 60 provision. However, the amendment and rules are silent on the deprivation of jurisdiction with the DRTs.

In addition to that the RWG stated that “In cases where there a corporate insolvency process is not pending against the corporate debtor, the jurisdiction in respect of insolvency and bankruptcy of personal guarantor is Debts Recovery Tribunal.”21

DRT taking up the jurisdiction in personal guarantors insolvency proceedings

The Debts Recovery Tribunal, Chennai in KEB Hana Bank v. Rohit Nath22 has taken a step further and entertained an application under Section 95 of the Code wherein the CIRP against the corporate debtor is already initiated. The Tribunal in reply to the contention of the respondent on non-applicability of the application on grounds of lack of jurisdiction stated:

 “in our view that this contention is unfounded as Section 60 deals with proceedings initiated against the corporate debtor whereas having a separate forum is clothed with the power to adjudicate. The present proceedings are against the guarantor to the corporate debtor alone. As far as the proceedings before this Tribunal is concerned under Section 60 IBC have no application.”

Conclusion

On a concurrent reading of the provisions under Sections 60 and 95 of the Code, even NCLT has concurrent jurisdiction. Therefore, the provisions here clearly outlined the anomaly where two different forums have assumed jurisdiction for overlapping matters. Unfortunately, the concrete answer and resolution to this problem are not yet provided as the higher courts or tribunals have not yet entertained this anomaly. The assumptive rationale behind that could be that both NCLT and DRT have assumed jurisdiction as per their interpretations and hence they have been filed on an appeal.

Although, it is clear from the provisions, amendments, and the Supreme Court ruling in Lalit Kumar case23 that DRT has original jurisdiction along with a special situation where CIRP is not even initiated against the corporate debtor or principal borrower. Whereas NCLT is vested with jurisdiction through an enabling Amendment. Such a jurisdiction can be termed as “exceptional jurisdiction” to streamline the CIRP process against the personal guarantor and the corporate debtors.

IBC is still in its nascent stages and its jurisprudence is evolving throughout. The anomaly highlighted in this article shall sooner be knocking on the doors of the higher courts for interpretation. Hence, a ruling with the Appellate Tribunal and ultimately the Supreme Court will settle this jurisdictional challenge.


Graduate Insolvency Programme, Indian Institute of Corporate Affairs (2021-2023); LLM in Corporate and Financial Law and Policy, Jindal Global Law School, Sonipat; BA LLB, Hidayatullah National Law University, Raipur. Author can be reached at shivamsinghal020@gmail.com.

1 Insolvency and Bankruptcy Code, 2016.

2 Presidency-Towns Insolvency Act, 1909.

3 Provincial Insolvency Act, 1920.

4 Report of the Working Group on Individual Insolvency (Regarding strategy and approach for implementation of the provisions of the Insolvency and Bankruptcy Code, 2016 to deal with the insolvency of guarantors to corporate debtors and individuals having business).

5 Insolvency and Bankruptcy Code, 2016, S. 5(22).

6 Contract Act, 1872, S. 128.

7 (2021) 9 SCC 321 : 2021 SCC OnLine SC 396.

8 Insolvency and Bankruptcy Code, 2016, S. 5(1).

9 Insolvency and Bankruptcy Code, 2016, S. 79(1).

10 Insolvency and Bankruptcy Code (Second Amendment) Act, 2018.

11 Insolvency and Bankruptcy  (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019.

12 (2021) 9 SCC 321 : 2021 SCC OnLine SC 396.

13 Insolvency and Bankruptcy Code, 2016, S. 60.

14 Insolvency and Bankruptcy Code, 2016, S. 90.

15 Insolvency and Bankruptcy Code, 2016, S. 95.

16 2021 SCC OnLine NCLT 488.

17 Insolvency and Bankruptcy Code, 2016, S. 179(1).

18 2021 SCC OnLine NCLT 487.

19 2021 SCC OnLine NCLT 486.

20 Insolvency and Bankruptcy Code, 2016, S. 179(2).

21 Report of the Working Group on Individual Insolvency (Regarding strategy and approach for implementation of the provisions of the Insolvency & Bankruptcy Code, 2016 to deal with the insolvency of Guarantors to Corporate Debtors and Individuals having business).

22 2020 SCC OnLine DRT 1.

23 (2021) 9 SCC 321 : 2021 SCC OnLine SC 396.

Appointments & TransfersNews

The Appointments Committee of the Cabinet has approved the appointment of Presiding Officers Debts Recovery Tribunals (DRTs).

In a total number of 18 appointments have been made, which are as follows:

Sl. No.

DRT

Name of Officer

1 DRT, Jabalpur Ram Niwas Patel, Retd. District Judge (MP Judicial Service)
2 DRT, Hyderabad-1 Gummadi Gopichand, Retd. District Judge (Andhra Pradesh Judicial Service
3 DRT, Chennai-1 A.S. Jayachandra, Retd. District Judge (Delhi Higher Judicial Service)
4 DRT, Chandigarh-1 Anand Sagar Narang, Retd. District Judge (HCS-Judicial Branch)
5 DRT, Delhi-1 Basant Kumar Goswami, Retd. District Judge (Superior Judicial Service, Jharkhand)
6 DRT, Chandigarh-2 Man Mohan Dhonchak, Retd, District Judge (Judicial Department, Punjab and Haryana High Court)
7 DRT, Delhi-2 Rajesh Malhotra, District Judge (Haryana Superior Judicial Service)
8 DRT, Cuttack Jitendra Prasad Singh, Retd. District Judge (Bihar Judicial Service)
9 DRT, Guwahati Shiv Sharan Dubey, Retd. Principal and District Sessions Judge (Jharkhand Judicial Service)
10 DRT, Siliguri Rakesh Pati Tewari, Retd. District Judge (Bihar Judicial Service)
11 DRT, Ernakulam-1 Su. Wilyahm, Retd. District Judge (Tamil Nadu State Judicial Service)
12 DRT, Ahemdabad-1 Padam Singh Thakur, Retd. District Judge (HP Higher Judicial Service)
13 DRT-Hyderabad-2 Dr Baldev Singh, Registrar (Vigilance) High Court of Himachal Pradesh
14 DRT-Mumbai-3 Arun Kumar Singal, District Judge (Haryana Judicial Service)
15 DRT, Bengaluru-1 Imtiaz Ali, District & Sessions Judge (Assam Judicial Service)
16 DRT, Madurai Kuldip Kumar Kareer, Retd. District Judge (Punjab Superior Judicial Service)
17 DRT, Vishakhapatnam Krishna Gopal Dwivedi, Retd. District Judge (Bihar Judicial Service)
18 DRT, Ernakulam-2 Sovan Kumar Dash, Retd. District Judge (Odisha Judicial Service)

Government of India

[Notification dt. 20-2-2022]

Case BriefsSupreme Court

Supreme Court: The Division Bench of S. Abdul Nazeer and Krishna Murari, JJ., addressed a pertinent issue of whether the rent act would come to the aid of a “tenant in sufferance”.

Instant appeals were directed against the Orders passed by the Chief Metropolitan Magistrate, Esplanade, Mumbai rejecting the application filed by the appellant for restraining HDFC Bank, the first respondent from taking possession of the property in the appellant’s possession.

Financial Facility of Rs 5,50,00,000 was granted by HDFC Bank Limited to respondents 2 and 3 (the borrowers). Borrowers had mortgaged a property (Secured Asset) in favour of the Bank with an intention to secure the said credit facility.

Later, the Borrowers accounts were declared at non-performing assets, the Bank issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 to the Borrowers.

Appellant submitted that he is the tenant of the Secured Asset and has been paying rent regularly to his landlord since inception of his tenancy.

Appellant approached the Magistrate seeking protection of his possession of the Secured Asset as the Magistrate was ceased with the petition under Section 14 of SARFAESI Act filed by the respondent 1 – Bank. Though the magistrate had dismissed the registered tenancy placed on record by the appellant.

Analysis, Law and Decision

Bench noted that the appellant’s case was that he is a tenant of the Secured Asset and has paid the rent in advance.

However, in the detailed representation sent in response to the notice issued under Section 13(2) of the SARFAESI Act, the Borrowers did not claim that any tenant was staying at the Secured Asset.

The appellant provided a rent receipt claiming tenancy after the date of creation of mortgage.

Procedural mechanism for taking possession of the Secured Asset was provided under Section 14 of the SARFAESI Act.

Section 17 of the SARFAESI Act provides for the right of appeal to any person including the borrower to approach Debt Recovery Tribunal (DRT). Section 17 has been amended by Act No. 44 of 2016 providing for challenging the measures to recover secured debts. Under the Amendment, possession can be restored to the borrower or such other aggrieved person.

 In the Supreme Court decision of Harshad Govardhan Sondagar v. International Asset Reconstruction Co. Ltd., (2014) 6 SCC 1, it was held that the right of appeal is available to the tenant claiming under the borrower.

In Kanaiyalal Lalchand Sachdev v. State of Maharashtra, (2011) 2 SCC 782, this Court has held that DRT can not only set aside the action of the secured creditor but even restore the status quo ante.

Court stated that in view of the appeal being in pendency from 2016, this Court proposes to examine the case on merits without directing the appellant to avail the alternative remedy.

A Three­ Judge Bench of this Court in Bajarang Shyamsunder Agarwal v. Central Bank of India, (2019) 9 SCC 94, after considering almost all decisions of this Court, in relation to the right of a tenant in possession of the secured asset, has held that if a valid tenancy under law is in existence even prior to the creation of the mortgage, such tenant’s possession cannot be disturbed by the secured creditor by taking possession of the property. If a tenancy under law comes into existence after the creation of a mortgage but prior to issuance of a notice under Section 13(2) of the SARFAESI Act, it has to satisfy the conditions of Section 65­A of the Transfer of Property Act, 1882. If a tenant claims that he is entitled to possession of a Secured Asset for a term of more than a year, it has to be supported by the execution of a registered instrument. In the said decision of this Court, it was clarified that in the absence of a registered instrument, if the tenant only relies upon an unregistered instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for more than the period prescribed under the provisions of the Transfer of Property Act.

While noting the above discussion, Bench held that,

“…Rent Act would not come to the aid of a “tenant­-in-­sufferance” vis­à­vis SARFAESI Act due to the operation of Section 13(2) read with Section 13(13) of the SARFAESI Act.”

In the present matter, there was doubt as to the bona fide of the tenant, as there was no good or sufficient evidence to establish the tenancy of the appellant.

The pleading of tenancy was not supported by any registered document, and adding to this, the appellant himself stated that he was a “tenant-in-sufferance”, therefore, he is not entitled to any protection of the Rent Act.

Another point expressed by the Court, was that even if the tenancy had been claimed to be renewed in terms of Section 13(13) of the SARFAESI Act, the Borrower would be required to seek the consent of the secured creditor for transfer of the Secured Asset by way of sale, lease or otherwise, after issuance of the notice under Section 13(2) of the SARFAESI Act and, admittedly, no such consent has been sought by the Borrower.

In view of the above, appeal were dismissed. [Hemraj Ratnakar Salian v. HDFC Bank Limited, 2021 SCC OnLine SC 611, decided on 17-08-2021]

Case BriefsHigh Courts

Bombay High Court: The Division Bench of Sunil B. Shukre and Anil S. Kilor, JJ., held that mandate of Section 34 leaves a party aggrieved by the action of the Bank taken under Section 13 of the SARFAESI Act with only one forum to raise its grievance before it. This would further underline the need for any Debts Recovery Tribunal to be careful in denying urgent hearings to the parties.

Petitioner was aggrieved by the notice issued under Section 32 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), whereby two mortgaged properties creating a security interest in favour of respondent 1/Bank towards repayment of a loan granted to petitioner 2/company were put on auction sale.

Petitioners had filed an application under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal, Nagpur questioning the said sale notice.

As per the sale notice, the petitioner had to pay the outstanding dues amounting to Rs 5,87, 10,380.23 together with applicable interest and costs within15 days, failing which the notice informed that the respondent 1/bank would be constrained to sell the secured assets for realization of the dues.

Further, it was noted that the petitioners did not question the said notice for its validity immediately after its receipt and almost about 25 days thereafter, chose to knock at the doors of Debts Recovery Tribunal.

Petitioner’s request for an urgent hearing was also declined by the DRT.

Right of Hearing

Contention of the petitioners was that the petitioners were being denied the right of hearing by the Debts Recovery Tribunal, the only forum available for redressal of grievances arising from the measures taken under Section 12 of the SARFAESI Act which affected the fundamental rights of the petitioners.

There is a difference between refusal to hear a matter on a particular date and refusal to hear the matter at all. 

In the present matter, DRT had not said that it would not hear the application and thus the request for grant of urgent hearing had not been altogether rejected by the DRT, Nagpur. Also, the rejection came from the Registrar of the DRT and not from the Presiding Officer of DRT.

High Court in view of the above facts and circumstances, stated that the Registrar of the Debts Recovery Tribunal, instead of taking a decision himself, ought to have placed the request for urgent hearing before the Presiding Officer of the Debts Recovery Tribunal and allowed the Presiding Officer to take appropriate decision in the matter.

Adding to the above, Bench noted that If the said auction sale was to go ahead and finalization of the sale of the properties in the auction had indeed taken place, it would have resulted into adversely affecting the rights of the petitioners even without hearing the petitioners and the further consequence would have been another grievance of violation of principles of natural justice.

High Court referred to the Supreme Court decision in Mardia Chemicals Ltd. Etc. v. Union of India, (2004) 4 SCC 311, wherein it was held that the central theme of the provisions made in the SARFAESI Act is of fairness and transparency in the procedure adopted while taking such drastic measures as taking over of the possession of the secured assets and they being sold in realization of the dues payable to the banks, without any intervention of any judicial authority.

Section 34 of the SARFAESI Act raises an embargo upon the power of the Civil Court to grant injunction in respect of any action. Taken or to be taken in pursuance of the powers conferred by under this Act or under the Recovery of Debts and Bankruptcy Act, 1993.

Opportunity of Hearing

 Court expressed that the opportunity of hearing is an integral part of our constitutional philosophy and it is well embedded in Articles 14 and 21 of the Constitution of India.

Since the Registrar of the Debts Recovery Tribunal failed to perform his duty in the matter, therefore, the order passed by him denying the hearing would have to be held as illegal.

While partly allowing the petition, Court directed the Debts Recovery Tribunal to hold an urgent hearing. [Aruna DTS Moorthy v. UCO Bank, 2021 SCC OnLine Bom 1537, decided on 30-7-2021]


Advocates before the Court:

S.S.Sanyal, Advocate for the petitioners.

Sau. Supriya Puntambekar, Advocate for respondent 1. Shri C. Deopujari, Advocate h/f Aurangabadkar, ASGI for respondent 2.

Kerala High Court
Case BriefsHigh Courts

Kerala High Court: A.M. Badar, J., while dismissing the present petition, reiterated the observations of the Supreme Court in the words, “In cases relating to recovery of the dues of banks, financial institutions and secured creditors, stay granted by the High Court would have a serious adverse impact on the financial health of such bodies/institutions, which (sic will) ultimately prove detrimental to the economy of the nation. Therefore, the High Court should be extremely careful and circumspect in exercising its discretion to grant stay in such matters.”

 Background

The petitioner who happens to be the Managing Director of one Heera Construction Company; a corporate debtor, is challenging orders namely, P3, P4 and P4(a) and is seeking further direction against the respondent 1 to keep in abeyance all further proceedings pursuant to Ext P3, P4 and P4(a) till the disposal of CP(IB) 4447/2018. It is to be noted that Ext P3 is a notice of sale under Rule 8(6) of Security Interest (Enforcement) Rules, 2002, Ext P4 is a further notice under the said Rules for sale of secured assets and Ext P4 (a) is e-auction sale notice issued in terms of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

 Observations

On the contention that parallel proceedings under SARFAESI is impermissible

“… argument advanced by the learned counsel for the petitioner that because of pendency of proceedings before the NCLT, parallel proceedings under the SARFAESI Act are not maintainable, needs to be rejected. Even otherwise Section 7 of the Insolvency and Bankruptcy Code has application against the corporate debtor. It cannot be said that there is bar for proceedings against the guarantor under the SARFAESI Act because of pendency of corporate insolvency resolution process against the corporate debtor.”

 On interference of Court under Article 226 if an alternative statutory remedy is available

Court placed reliance on the case of, Authorized Officer, State Bank of Travancore v. Mathew K.C., 2018 (1) KLT 784; “…the discretionary jurisdiction under Article 226 is not absolute but has to be exercised judiciously in the given facts of a case and in accordance with law. The normal rule is that a writ petition under Article 226 of the Constitution ought not to be entertained if alternate statutory remedies are available, except in cases falling within the well defined exceptions…”

Further reference was made to the alternate remedy available under DRT Act through, Punjab National Bank v. O.C. Krishnan, (2001) 6 SCC 569; “The Act has been enacted with a view to provide a special procedure for recovery of debts due to the banks and the financial institutions. There is a hierarchy of appeal provided in the Act, namely, filing of an appeal under Section 20 and this fast-track procedure cannot be allowed to be derailed either by taking recourse to proceedings under Articles 226 and 227 of the Constitution or by filing a civil suit, which is expressly barred. Even though a provision under an Act cannot expressly oust the jurisdiction of the court under Articles 226 and 227 of the Constitution, nevertheless, when there is an alternative remedy available, judicial prudence demands that the Court refrains from exercising its jurisdiction under the said constitutional provisions”

 Decision

Dismissing the present petition, the Court said, “Loans by financial institutions are granted from public money generated at the tax payers expense. Such loan does not become the property of the person taking the loan, but retains its character of public money given in a fiduciary capacity as entrustment by the public. Timely repayment also ensures liquidity to facilitate loan to another in need, by circulation of the money and cannot be permitted to be blocked by frivolous litigation by those who can afford the luxury of the same.”[Dr Abdul Rasheed v. IFCI Limited, 2020 SCC OnLine Ker 8293, decided on 03-12-2020]


Sakshi Shuka, Editorial Assistant has put this story together

Kerala High Court
Case BriefsHigh Courts

Kerala High Court: A.M. Badar, J., while addressing the instant matter held that, demand notices under Section 13(2) of the SARFAESI Act can be challenged before the Debt Recovery Tribunal (DRT).

The instant petition was filed by four Cashew Processing Units.

Petitioners were impugning demand notices issued under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) to petitioners 1 to 3 directing them to repay to the secured creditor the outstanding amount of loan within the prescribed statutory period.

Petitioners Counsel argued that as Cashew Processing Units in the State were in crisis and at the verge of closure, respondent 2–State of Kerala constituted a Cashew Revival Committee.

Further, a Revival Scheme for Cashew Processing Industries came to be formulated as per the decision taken by the Government of Kerala as well as the State Level Bankers Committee. Cashew Processing Units prima facie found liable for revival were referred to concerned Banks for taking up the restructuring process.

Respondent 1-Bank failed to check stock statements, balance sheets etc. and started taking steps under SARFAESI Act by issuing notices under Section 13(2) of the said Act.

Analysis and Decision

Bench stated that a Committee was constituted by the State for assessing the viability of Cashew Processing Unit facing crisis.

It was noted that though the cases of two of the petitioners were recommended for additional finance, the duly sworn statement of respondent 1 — bank made it clear that petitioners 1 to 3 failed to produce documents necessary for viability study.

Court noted that the instant writ petition has been filed to stop SARFAESI proceedings by virtually challenging demand notices issued under Section 13(2) thereof.

Supreme Court in the decision of Authorised Officer, State Bank of Travancore v. Mathew K.C., 2018 (1) KLT 784,  held that:

“5. …….The discretionary jurisdiction under Article 226 is not absolute but has to be exercised judiciously in the given facts of a case and in accordance with law. The normal rule is that a writ petition under Article 226 of the Constitution ought not to be entertained if alternate statutory remedies are available, except in cases falling within the well-defined exceptions as observed in CIT v. Chhabil Dass Agarwal, (2014) 1 SCC 603.

In Union Bank of India v. Panchanan Subudhi, (2010) 15 SCC 552, further proceedings under Section 13(4) were stayed in the writ jurisdiction subject to deposit of Rs. 10,00,000/- leading this Court to observe as follows :

“7. In our view, the approach adopted by the High Court was clearly erroneous. When the respondent failed to abide by the terms of one-time settlement, there was no justification for the High Court to entertain the writ petition and that too by ignoring the fact that a statutory alternative remedy was available to the respondent under Section 17 of the Act.”

Concluding the decision, Court held that the petitioners have the most efficacious remedy of challenging demand notices under Section 13(2) of the SARFAESI Act before the Debt Recovery Tribunal.

Adding to the above, Court stated that, it is not case of petitioners that the Bank has not acted in accordance with the provisions of the SARFAESI Act or in defiance of the fundamental principles of judicial procedure.

Bench held that no case for breach of principles of natural justice is made out in the present case.

In view of the above, the petition was dismissed. [Sunitha Roy v. Canara Bank,  2020 SCC OnLine Ker 5120, decided on 13-11-2020]

Op EdsOP. ED.

When we study the origins and functioning of the Indian credit recovery infrastructure, it can be seen that originally the only remedy was suits under the provisions of CPC[1] which was long and cumbersome. Here, the process had two parts i.e. debt adjudication which end in a judgment/decree followed by execution proceedings under Order 21 CPC for recovery of decreed amount. Later, with the enactment of the RDBFI Act, 1993[2], DRTs[3] were established as exclusive forums for speedy adjudication and recovery of debts due to Banks and Financial Institutions (FIs). As per the RDBFI Act, DRTs had the power to issue a Recovery Certificate certifying the amount payable by the debtor after debt adjudication in a summary procedure. This amount was thereafter recovered by the Recovery Officer attached to DRT as per the procedure of recovery of tax under Schedule II of the Income Tax Act, 1961. So, the design was to speed up the recovery once the debt adjudication by DRTs. Although, the RDDBFI Act gave 180 days for disposal of recovery applications, cases have been pending for many years due to prolonged hearings. Almost 70,000 cases involving more than Rupees 5 lakh crore were pending in DRTs as of April 2016[4]. Majority of the delay is at the debt adjudication stage with long drawn processes and adjournments in DRTs. It was for overcoming this hurdle and to further speed up recovery that the SARFAESI Act[5] was enacted. This Act give the Banks and FIs the power to recover their debts classified as non-performing assets by various modes including taking possession and sale of the security, without approaching any Court or Tribunal. Interestingly, the SARFEASI Act dispenses the requirement of debt adjudication and the debt amount stated by the creditor in their demand notice issued under Section 13(2) is conferred sanctity to trigger recovery actions under the Act. When we read through the provisions of the aforesaid Acts and the procedure laid down by them for recovery, it is clear that one of the major causes for delay in securing recovery was the time taken for ascertaining the debt amount payable[6].

Most of the litigation in money recovery laws are in the nature of disputes on the amount claimed for recovery by the creditors. This kind of litigation and resultant delay in recovery can be avoided if there is a mechanism for collection, collation, authentication and dissemination of information regarding debts/defaults by independent third parties that are reliable as evidence of debt/default.

The law-makers of the country seem to have appreciated this point while enacting the Insolvency and Bankruptcy Code, 2016 (IBC) which in its Chapter V under Part IV talks about ‘Information Utilities’ (IUs) which is a first of its kind in the world. In this regard, it is significant to note the following statements in the Report of the Bankruptcy Law Reforms Committee[7]:

“Under the present arrangements, considerable time can be lost before all parties obtain this information. Disputes about these facts can take up years to resolve in court. Hence, the Committee envisions a competitive industry of information utilities who hold an array of information about all firms at all times. When the IRP commences, within less than a day, undisputed and complete information would become available to all persons involved in the IRP and thus address this source of delay.”

This article attempts to understand the concept and working of IUs as contemplated under the IBC regime and its utilities in securing the objectives of IBC.

What is ‘Information Utility’?

IUs are entities that would act as data repositories of financial information which would receive, authenticate, maintain and deliver financial information pertaining to a debtor with a view to facilitate the insolvency resolution process in a time-bound manner. IU maintains an information network which would store financial data like borrowings, default and security interests among others of debtors for providing such information to businesses, financial institutions, adjudicating authorities, insolvency professionals and other stakeholders.

As per Section 3(21) of IBC, ‘Information Utility’ is defined as a person registered with the IBBI[8] under Section 210. Furthermore, as per Section 209 of IBC, a person shall be eligible to carry on business as IU only if a certificate of registration is obtained from the IBBI. As per Section 210 of IBC, a certificate of registration shall be issued to an entity to function as IU if all the technical formalities are completed as prescribed by the IBBI.

Historical perspective of ‘Information Utilities’

The setting up of IUs was preceded by a regime of Credit Information Companies (CICs) and Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) that provided credit-related information services including details of security interests.

In his Budget speech made in  Parliament on 28th February 1994, the then Finance Minister of India announced that Reserve Bank of India (RBI) would put in place arrangements for circulating names of defaulting borrowers among the Banks and FIs. The purpose of the same was to alert them and to put them on guard against the borrowers who have defaulted in their dues to other lending institutions. Pursuant to the above announcement, a Working Group was set up under the Chairmanship of Mr N.H. Siddiqui (Chief General Manager, RBI) which submitted its Report in 1999 recommending the establishment of CICs[9]. Accordingly, Credit Information Bureau (India) Ltd. (CIBIL) was incorporated in August 2000. Later, pursuant to the enactment of the Credit Information Companies (Regulation) Act, 2005[10], three other CICs have also been set up in India[11]. Further, in 2013, RBI constituted another Committee under the Chairmanship of Mr Aditya Puri (Managing Director, HDFC Bank) to examine the reporting formats used by CICs and other related issues. This Committees’ report led to the standardisation of data formats for reporting corporate, consumer and MFI[12] data by all credit institutions and streamlining the process of data submission by credit institutions to CICs[13]. In 2015, all credit institutions were directed by RBI to become members of all the CICs and submit current and historical data about specified borrower to them and to update it regularly.

Later, in the year 2011 the then Finance Minister declared in his budget speech about creation of a central registry of equitable mortgages. Pursuant to the same, the Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) was established to maintain and operate a registration system for the purpose of registration of transactions of securitisation, asset reconstruction of financial assets and creation of security interest over property, as contemplated under the SARFAESI Act. CERSAI is providing a platform for filing registrations by the Banks and FIs with an option for other lenders and the public to search its database.

The idea to establish IUs appears to be an outcome of the research and efforts to set up a hybrid model unique to India by incorporating the best features of CICs, CERSAI and other similar agencies across the world that are engaged in financial information services.

How an ‘Information Utility’ can be created under IBC?

As per Section 196 of IBC, IBBI is entrusted with the power to grant, renew, withdraw, suspend or cancel registration to IUs. This provision further empowers IBBI to make regulations for registration and matters connected therewith. In exercise of the said power, IBBI has notified the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017[14] (“the IU Regulations”) which provide detailed regulations for registration and working of IUs.

As per Regulation 3 of the IU Regulations, registration can be applied by any public company having a minimum net worth of fifty crore rupees and; (a) whose sole object is to provide core services and other services under the IU Regulations, and discharge such functions as may be necessary for providing these services; (b) its shareholding and governance is in accordance with Chapter III of the IU Regulations; (c) its bye-laws are in accordance with Chapter IV of the IU Regulations; (d) its promoters, directors, key managerial personnel, and persons  holding more than 5%, directly or indirectly, of its paid-up equity share capital or its total voting power, are fit and proper persons[15].

A person eligible for registration as aforesaid may make an application to IBBI in Form A of the Schedule to the IU Regulations, along with a non-refundable application fee of five lakh rupees. After due enquiry as contemplated under the IU Regulations, IBBI shall issue a Certificate of Registration in Form B of the Schedule within sixty days of receipt of the application excluding the time taken for removal of difficulties and for obtaining additional documents, if any. Such certificate of registration is valid for a period of five years from the date of issue and it may be renewed by filing an application for renewal at least six months before the expiry of its registration along with the renewal fees of five lakh rupees. IUs are also required to pay annual fee of fifty lakh rupees to IBBI, within fifteen days from commencement of the financial year. However, no annual fee shall be payable in the financial year in which an IU is granted registration or renewal[16].

The shareholding pattern and governance of IUs should be in compliance to the requirements under Chapter III of the IU Regulations. Furthermore, all changes in the shareholding and voting power of IUs are to be reported to the IBBI. As per Regulation 8 of the IU Regulations, no person shall at any time, directly or indirectly, either by itself or together with persons acting in concert, acquire or hold more than 10% of the paid-up equity share capital or total voting power of an IU. However, there are certain exemptions to the said restriction as follows:

  • None of the restrictions on shareholding are applicable to the holding of shares or voting power by the Central Government or a State Government[17].
  • A government company, stock exchange, depository, bank, insurance company and public financial institution either by themselves or together in concert, acquire or hold up to 25% of the paid-up equity share capital or total voting power of an IU[18].
  • Holding up to 51% of paid-up equity share capital or total voting power of an IU by a person directly or indirectly, either by itself or together with persons acting in concert, is allowed up to 3 years from the date of its registration[19], if the IU is registered before 30th September, 2018.
  • Indian companies (i) which are listed on a recognised stock exchange in India, or (ii) where no individual, directly or indirectly, either by himself or together with persons acting in concert, holds more than 10% of the paid-up equity share capital, may hold up to 100% of the paid-up equity share capital or total voting power of an information utility up to three years from the date of its registration[20], if such IU is registered before 30th September, 2018.

Importance and Utility of Information Utilities

The Bankruptcy Law Reforms Committee (BLRC) led by Mr T. K. Viswanathan which designed the IBC, visualised four pillars of supporting institutional infrastructure to make the processes under IBC to work efficiently. They are:  (1) a private industry of IUs, (2) a private industry of Insolvency Professionals (IPs) with oversight by private insolvency professional agencies (IPAs), (3) adjudication infrastructure at the National Company Law Tribunal (NCLT) and DRT, and (4) a regulator i.e.  IBBI[21]. As noted rightly by the BLRC, IU is a very significant institution for the successful operation of the processes under IBC.

IBC was enacted with a view to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximisation of the value of assets of such persons[22]. Section 12 of IBC thus mandates that the Corporate Insolvency Resolution Process (CIRP) of a corporate debtor (CD) must conclude within 330 days[23] from the insolvency commencement date which includes (a) normal CIRP period of 180 days, (b) one-time extension, if any, up to 90 days of such CIRP period granted by the adjudicating authority, and (c) the time taken in legal proceedings in relation to the CIRP of the corporate debtor. This ambitious time-limit prescribed for concluding CIRP appears to be based on an assumption that information relevant for the process will be easily accessible to the parties involved viz. creditors, adjudicating authorities, insolvency resolution professionals, etc. This assumption appears to be based on the confidence of the framers of the law in the idea of IUs envisaged under IBC. As the timelines specified by IBC are strict, they can be met only if the IUs stand ready to provide all relevant information quickly.

The relevant financial information in this stage includes the details of the default, disputes on the same, other financial information of debtors such as records of its debt, liabilities at the time of solvency, assets over which the security interest is created by debtor, timely records of its default and its financial statements of preceding years. Furthermore, it is quintessential for the adjudicating authority to ascertain the existence of default as claimed by the applicant and such existence would decide the fate of the application for CIRP.

As per the scheme of IBC, once CIRP gets initiated against any  corporate debtor, the management of its affairs vest in the Interim Resolution Professional (IRP) and thereupon all the powers of its Board of Directors stands suspended and the same is exercised by the IRP. During such phase, there is every possibility for the Resolution Professionals to face non-cooperation from the management and the suspended Board of the  corporate debtor in disseminating relevant financial information. In these circumstances, an independent and reliable third party which is a repository of validated information regarding debt/default that is capable of providing the same quickly can add significant value to the process.

IBBI has now strengthened the role of IUs by allowing it to access the data of MCA-21[24] database and CERSAI portals to speed up the process of debtor default authentication[25]. By ensuring access of MCA-21 and CERSAI portal data to an IU, IBBI is also providing the mechanism for quick and reliable data for all the stake-holders in the processes under IBC. It may also be noted that RBI has directed all the Scheduled Commercial Banks (Including RRBs), small finance banks, local area banks, non-banking financial companies and all the co-operative banks of the country to put in place appropriate systems and procedures for submission of financial information to IUs[26].

Functions of ‘Information Utility’ as contemplated under the IBC

As per Section 213 of IBC, IUs shall provide services which include core services to any person, if such person complies with the terms and conditions of the IU Regulations. Furthermore, as per Section 3(9) of IBC, “core  services” means – (a) accepting electronic submission of financial information; (b) safe and accurate recording of financial information; (c) authenticating and verifying financial information submitted by person; and (d) providing access to information stored with IUs to persons as may be specified.

As per Section 3(13) of IBC, “financial information”, in relation to a person, means one or more of the following categories of information, namely:  (a) records of the debt of the person; (b) records of liabilities when the person is solvent; (c) records of assets of person over which security interest has been created; (d) records, if any, of instances of default by the person against any debt; (e) records of the balance sheet and cash-flow statements of the person; and (f) such other information as may be specified.

Section 214 of the IBC elaborate the functions to be performed by IUs for the purpose of providing core services. The major obligations of IUs as per Section 214 can be summarised as follows:

  • Acceptance of financial information in electronic form from persons who are under obligation to submit the same under IBC and also from other persons who intend to submit the same. This acceptance is to be in such form and manner as specified under the IU Regulations.
  • Authentication of the financial information so received by all the parties concerned.
  • Storage of the financial information received as aforesaid in a universally accessible format after the same is duly authentication by all the parties concerned.
  • Providing the financial information stored by it as aforesaid to any person who intend to access such information in such manner as may be specified by the IU Regulations.
  • Publication of such statistical information as may be specified by the IU Regulations.

While performing aforesaid obligations, IUs are required to meet such minimum service quality standards as may be specified by IBBI and they are also required to ensure systems to facilitate inter-operatability with other IUs[27]. As per Section 215 of IBC, while it is mandatory for the financial creditors[28] to submit financial information and information relating to assets in relation to which any security interest has been created; submission of information is optional for the operational creditors[29]. Insolvency professionals also may submit reports, registers and minutes in respect of any insolvency resolution, liquidation or bankruptcy proceedings to an IU for storage[30].

Significance of Information Utility in the operation of processes under IBC

As per the scheme of IBC, a CIRP can be triggered by the corporate debtor itself or by the financial or operational creditors of such corporate debtor[31]. Application for CIRP by a financial creditor is governed by Section 7 of the IBC read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016[32].  The application is to be filed as per Form 1 of the said Rules along with the record of the default recorded with the IU or such other record or evidence of default as may be specified. As per Part V of the said Form 1, record of default with IU is listed among the documents acceptable as evidence of default. Upon submission of application, NCLT is required to ascertain the existence of default from the records of an IU or on the basis of other evidence furnished by the financial creditor. It is significant to note that this activity is to be completed by NCLT within fourteen days of the receipt of application. This timeline can be met only if such ascertainment can be done from the records of an IU. Furthermore, upon initiation of CIRP when public announcement is made by the IRP calling for claims, financial creditors may submit their claims along with sufficient proof of such claims. In this regard, it may be noted that the records available with an IU is accepted as a proof of existence of debt due[33].

Whereas, application for CIRP by operational creditors is governed by Section 9 of the IBC read with Rules 5 & 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. On the occurrence of a default, operational creditors are required to deliver either a demand notice of the unpaid debt to the debtor as per Form 3 of the said Rules or a copy of an invoice attached with a notice in Form 4. On receipt of notice, the debtor may, within 10 days, bring to the notice of the creditor about any pre-existing dispute on such debt and get out of the clutches of IBC. On expiry of 10 days from the said notice, if the payment is not done by the defaulter, the operational creditor can file application for CIRP in Form 5 of the aforesaid Rules. As per the aforesaid Forms 3 and 5, record of default with IU is listed as one of the documents to prove the debt. Furthermore, upon initiation of CIRP when the public announcement is made by the IRP calling for claims, operational creditors may submit their claims along with records available with IU which are acceptable as proof for the debt.

Similarly, in an application for CIRP by corporate applicants and in the claims submitted by the other categories of claimants/creditors including workmen, records with IU is accepted as proof of such debt/default. Furthermore, as per IBC and the Rules, the records with IUs can be accessed and relied by the adjudicating authority as evidence for the default/debt in their proceedings. Hence, IUs play a very significant role in enabling timely completion of the processes under IBC.

Operating Procedure of ‘Information Utility’ under IBC

IBC provides little guidance on how IUs are to function, leaving the details to subordinate regulation. Section 240 of IBC empowers the IBBI to make regulations by notification with regard to the registration of IUs, their functioning and on matters connected thereto. The IU Regulations were notified in exercise of this power in order to prescribe the details on how IUs shall operate to meet their objectives as contemplated under IBC.

As per the IU Regulations, a person shall register itself with an IU for submitting information to; or for accessing information stored with any of the IUs. Upon such registration, IU shall verify the identity of the applicant and assign him with a unique identifier and intimate the same to him. A person registered once with an IU shall not register itself with any IU again. A registered user may submit information to any IU and not only to the IU with which he is registered. Different parties to the same transaction may use different IUs to submit, or access information in respect of the same transaction and a user may access information stored with an IU through any IU[34].

A user can submit information of debts or defaults to the IU[35] and on receipt of the same, IU is to assign a unique identifier to the information and intimate the same to the user along with an acknowledgement. In the case of information of default, IU is to expeditiously undertake the process of authentication and verification of the information of default. For this purpose, IU is to deliver the information of default to the debtor seeking confirmation of the same within the specified time. If the debtor fails to respond, IU is to send three reminders giving 3 days’ time in each case for the debtor to respond. If the debtor do not respond even after three reminders as aforesaid, the information is deemed to be authenticated[36]. In case if the debtor confirms the information of default, the information is treated as authenticated and green colour is assigned to the status. If the debtor disputes the information of default the information is treated as disputed and red colour is assigned to the status. Whereas, in cases where the debtor does not respond even after three reminders, the information is‘Deemed to be authenticated’ and yellow colour is assigned to the status. After recording the status of information of default, IU is to communicate the status of authentication in physical or electronic form of the relevant colour, as aforesaid, to the registered users who are- (a) creditors of the debtor who has defaulted; (b) parties and sureties, if any, to the debt in respect of which the information of default has been received[37].

IUs are required to store the information received by it in their facilities located in India and they shall allow the following persons to access the information stored with it- (a) the user which has submitted the information; (b) all the parties to the debt and the host bank[38], if any, if the information is regarding record of debts or assets or instances of default by a person against any debt; (c) the corporate person and its auditor, if the information is of liabilities of a person during solvency or balance sheet and cash-flow statements of the person; (d) the insolvency professional; (e) the adjudicating authority; (f) the IBBI; (g) any person authorised to access the information under any other law; and (h) any other person who the persons referred to in (a), (b) or (c) have consented to share the information.

Provisions to ensure protection of the data with Information Utilities

As per the provisions of IBC, data entrusted with the IUs by the users are to be held as a custodian and hence they shall not have ownership over the data available with them. As such, it is one of the most important duties of the IUs to ensure safety of the data and its protection from unauthorised interferences and data theft. To ensure safety of the data, the IU Regulations prescribe the following to be complied by the IUs:

  • Establish adequate procedures and facilities to ensure that its records are protected against loss or destruction and adopt secure systems for information flows.
  • Storage of all information in a facility located in India shall be governed by the laws of India.
  • Not to outsource the provision of core services to a third-party service provider.
  • Not to use the information stored with it for any purpose other than providing services under these Regulations, without the prior approval of the Board.
  • Not to seek data/details of users except as required for the provision of services under IBC[39].
  • Adequate arrangements, including insurance is to be made for indemnifying the users for losses that may be caused to them by any wrongful act, negligence or default of the IU, its employees or any other person whose services are used for the services[40].
  • Appoint external auditor having relevant qualifications to audit its information technology framework, interface and data processing systems every year. The auditor’s report along with the comments of the Governing Board of IU is to be submitted to the IBBI within one month from the receipt of the same[41].
  • Establish an appropriate risk management framework in line with the Technical Standards[42].
  • Declare a Preservation Policy providing for the form, manner and duration of preservation of information stored with it; and details of the transactions of the IU with each user in respect of the information stored with it[43].
  • Inspection by the IBBI with such periodicity as may be considered necessary[44]. Disciplinary actions can be taken by IBBI including imposition of penalty under Section 220(3) of IBC.

Evidentiary Value of Information with Information Utilities

Authenticated information stored by IUs with regard to a debt or its default amounts to admission of such debt and default thereto by and between the parties to such debt or default. In the light of this fact, evidentiary value of information with IUs can be appreciated by referring to certain provisions of the Evidence Act, 1872. As per Section 65-B of the Evidence Act, information contained in any electronic record shall be deemed to be a document and shall be admissible in the court of law. Furthermore, Section 31 of the Evidence Act state that admissions are not conclusive proof of the matters admitted, but they may operate as estoppels under the provisions hereinafter contained.  In the context of information with IUs, Section 115 of the Evidence Act is significant, which state as follows:  “When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative, to deny the truth of that thing.”

When we examine the provisions of IBC with regard to IUs as explained in the preceding paragraphs of this article, it can be noted that the adjudicating authorities are given the option to accept records with IUs as proof/evidence of debts and defaults. This is on the basis of estoppel which would operate against the parties as per the aforesaid provisions of the Evidence Act. In Swiss Ribbons Pvt. Ltd. v. Union of India[45], constitutional validity of the various provisions of IBC was considered by the Supreme Court of India. One of the arguments in the matter was that IBC provides for private information utilities not only to collect financial data, but also to check whether a default has occurred or not. It was also argued that certification of debt/default by IUs is in the nature of a preliminary decree issued without any hearing and without any process of adjudication. On this ground along with others, the constitutional validity of IBC was challenged in this matter. However, the  Supreme Court of India upheld the constitutional validity of IBC and on the basis of statements made by the then Attorney General of India, declared at para 57 of the judgment that the record of default with IU is only a prima facie evidence of default, which is rebuttable by the  corporate debtor. So, the records with IUs are not conclusive proof and they are only a prima facie evidence of default, which is rebuttable by the corporate debtor.

Conclusion

It can be concluded that creation of IU is definitely a step towards ensuring an information-rich environment for the working of IBC. IUs certainly provide an infrastructure which ensure relevant financial information of debtors easily accessible at anytime from anywhere. This infrastructure undoubtedly empower the creditors and lenders to make informed choices and also provide essential financial information enabling time-bound insolvency resolution process. While, the purpose of setting up the above regime of IUs was to reduce information asymmetry; IUs not only reduce information asymmetry, but it is also enable the processes of IBC to meet the strict timelines prescribed. It can also be seen that the IUs are significant as they provide for improved credit risk assessment and improve the recovery processes. Though there is no doubt about the significance of the IUs; it may take a while before they become relevant as expected. As the first step, IBBI has registered National E-Governance Services Limited (a Union Government company) as the first IU of the country on September 25, 2017. Being sanguine about the developments thus far, we can expect that the data available with the IUs will grow in terms of quantity and quality over a period of time making them an important pillar in the overall resolution process.


* BA LLB (Hons.), LLM, currently working as Manager-Legal with Hindustan Petroleum Corporation Limited at Zonal Administrative Office, Chennai.

[1] Civil Procedure Code, 1908 (Act  5 of 1908).

[2] Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (Act  51 of 1993).

[3] Debts Recovery Tribunal.

[4]Indu Bhan, “Long Due – Banks can now confiscate security in case of a loan default”, Financial Express, August 19, 2016, available at https://www.financialexpress.com/opinion/long-due/351486/, last visited on 15.05.2020.

[5]Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Act  54 of 2002).

[6] Prasanth V. Regy and Shubho Roy, “Understanding Judicial Delays in Debt Tribunals”, Paper No. 195 in the Working Paper Series of National Institute of Public Finance and Policy at New Delhi, May 2, 2017, available at https://www.nipfp.org.in/media/medialibrary/2017/05/WP_2017_195.pdf, last visited on 15.05.2020.

[7] Government of India, “Report of the Bankruptcy Law Reforms Committee” (Ministry of Finance, November 2015).

[8] Insolvency and Bankruptcy Board of India established under Section 188 of the Insolvency and Bankruptcy Code, 2016 (Act 31 of 2016).

[9]Reserve Bank of India, “Report of the Working Group to explore the possibilities of setting up a Credit Information Bureau in India” (Department of Banking Operations and Development, October 1999)

[10] Credit Information Companies (Regulation) Act, 2005 

[11] Equifax Credit Information Services Private Limited, Experian Credit Information Company of India Private Limited and CRIF High Mark Credit Information Services Private Limited have been granted Certificate of Registration by RBI.

[12]Monetary Financial Institutions.

[13]Reserve Bank of India, “Report of the Committee to Recommend Data Format for Furnishing of Credit Information to Credit Information Companies”, (Department of Banking Operations and Development, January 2014)

[14] Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017

[15]As per Explanation to Regn. 3 of Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, a person is considered as fit and proper, if he (a) is having integrity, reputation, character and financial solvency (b) has never been convicted by a Court for an offence or sentenced to imprisonment for a period less than 6 months, and (c) has not suffered any restraint order issued by financial sector regulator or adjudicating authority.

[16] IBBI (Information Utilities) Regulations, 2017, Regns. 5 and 6.

[17]Id, Regn.  8(3).

[18]Id,  proviso to Regn. 8(1)

[19]Id, Regn. 8(2)(a).

[20]Id,  Regn. 8(2)(b).

[21]Supra Note 7.

[22]Government of India, “Report of the Working Group on Information Utilities” (Ministry of Corporate Affairs, January 2017).

[23] This cap of 330 days was brought by the Insolvency and Bankruptcy Code (Amendment) Act, 2019 (w.e.f. 16-8-2019).

[24]MCA-21 is an e-Governance initiative of Ministry of Company Affairs (MCA), Government of India that enables an easy and secure access of the MCA services to the corporate entities, professionals and citizens of India. It is designed to fully automate all processes related to the enforcement and compliance of the legal requirements under the Companies Act, 1956, the New Companies Act, 2013 and the Limited Liability Partnership Act, 2008. Its database will contain the master data and the charges registered on companies and LLP.

[25]Insolvency and Bankruptcy Board of India, Circular No. IBBI/IU/025/2019 dated 07-09-2019.

[26] Notification No: DBR.No.Leg.BC.98/09.08.019/2017-18 dated December 19, 2017 issued by Reserve Bank of India, available at https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11189&Mode=0, last accessed on 16.05.2020.

[27] Insolvency and Bankruptcy Code, 2016 (31 of 2016), Ss. 214(d) and (h).

[28] As per Section 5(7) of IBC, “financial creditor” means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred. Eg. – Banks and financial lenders.

[29] As per Section 5(20) of IBC, “operational creditor” means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred. Eg. – Suppliers and vendors.

[30]Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Regn. 38.

[31] Insolvency and Bankruptcy Code, 2016 (31 of 2016), S.6.

[32] Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016

[33]Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, Regn. 8(2)(a)

[34]Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Chapter V (Regns.17 to 27).

[35]Id, Form C of the Schedule.

[36]Deemed authentication was inserted by Notification No. IBBI/2019-20/GN/REG046 dated 25/07/ 2019. Prior to this, there was no option for deemed authentication when debtor do not respond to notice for authentication.

[37] Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Regn. 21.

[38] Host bank means the financial institution hosting the repayment account.

[39] Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Regn. 30.

[40]Id, Regn. 31.

[41]Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Regn 34.

[42]Id,  Regn. 33.

[43]Id, Regn. 35.

[44]Id,  Regn.37.

[45] 2019 SCC OnLine SC 73.

Case BriefsHigh Courts

Bombay High Court: A Single Judge Bench comprising of A.S. Chandurkar, J. allowed a civil revision application filed by the tenant — Dena Bank, against the order of the trial court whereby its application under Order 7 Rule 11(d) CPC for rejection of the plaint filed by the landlord for its eviction was dismissed.

The Bank filed the abovesaid application stating that in the light of provisions of Section 17(4-A) read with Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Act, 2002 (SARFAESI), the civil court had no jurisdiction in the suit. However, the application was rejected. Aggrieved thus, the Bank approached the High Court.

The High Court noted that according to Section 17(4-A), any person who is aggrieved by any of the measures referred to in Section 13(4) of  SARFAESI being taken by a secured creditor can approach Debts Recovery Tribunal and can raise a grievance. A person claiming tenancy or leasehold is also entitled to make such application under Section 17. As per Section 34, a civil court has no jurisdiction to entertain any suit or proceeding with regard to any matter which the DRT is empowered to adjudicate under SARFAESI. The High Court, on the basis of the above, held that the trial court rejected the application of the Bank without having regard to Section 17(4-A) and therefore committed a jurisdictional error. Hence, the order impugned was quashed and set aside. The application filed by the Bank under Order 7 Rule 11(d) was allowed. However, it was open to the landlord to take such other steps as permitted under law. The civil revision was accordingly allowed. [Dena Bank v. Pravin Vithalrao Dorkhande,2018 SCC OnLine Bom 2800, decided on 26-09-2018]

Case BriefsSupreme Court

Supreme Court: The Bench of A.K. Sikri and Ashok Bhushan, JJ. allowed a writ petition filed by Presiding Officers of the Debt Recovery Tribunal seeking benefit of the amended Section 6 of the Recovery of Debts and Bankruptcy Act, 1993.

The unamended Section 6 of the Act, under which petitioners terms of service were governed, provided that such person shall remain in service till completion of 5 years in service or till attaining the age the 62, whichever is earlier. The petitioners had attained the of 62 but the five year period had not completed. The said section was substituted in 2016. The new section, which was to take effect prospectively, provided the age of retirement as 65 years apart from the five-year clause. The question for consideration before the Court was whether the petitioners would be governed by the unamended section or the substituted section. In other words, were the petitioners to retire at the age of 62 or could they continue till 65.

The Supreme Court gave due consideration to the submission made by the parties. It perused the object behind the amendment which was to reduce the pendency of cases by increasing the retiring age of Presiding Officers. Furthermore, the Court observed, wherever the word substitute or substitution is used by the legislature, it has the effect of deleting the old provision and make the new provision operative. Thus, the effect of amendment was to make the old provision non-existent from the date of such enforcement. The Court was of the view that examined in the above-mentioned perspective, the question of prospective or retrospective operation does not arise. Thus, it was held that the petitioners, who were serving at the time of enforcement of amended Section 6 would be given benefit of the same. The petitioners were allowed to continue in service till completion of five years or till attaining the age of 65, whichever is earlier. The petition was allowed. [Gottumukkala Venkata Krishamraju v. Union of India,2018 SCC OnLine SC 1386, decided on 07-09-2018]

Case BriefsHigh Courts

Madhya Pradesh High Court: In a matter arising under Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act, 2002, a Division Bench comprising of Hemant Gupta, CJ and Atul Sreedharan, J. allowed a writ appeal and set aside the Orders of the learned Single Judge as well as the Debts Recovery Tribunal.

The appellant, a secured creditor, invoked the jurisdiction of the District Magistrate under Section 14 of the SARFAESI Act. Against the order passed by the District Magistrate, the respondents preferred a challenge before the Debts Recovery Tribunal who declined to exercise jurisdiction, holding that an application under Section 17 of the Act is not maintainable before the Tribunal. Respondents filed an appeal before the learned Single Judge who by his impugned judgment, allowed the challenge and set aside the Order of the District Magistrate. Aggrieved by the Order of the Single Judge, the appellants were in appeal before the High Court.

The High Court, after considering the record, held that the learned Single Judge was not right in setting aside the Order of the DM. The Court, relying on its previous judgments, held that an appeal under Section 17 of the Act against an order passed by the DM, is maintainable before the Debts Recovery Tribunal. Thus, the Court set aside the orders of the learned Single Judge as well as the Debts Recovery Tribunal. The matter was accordingly sent back to the Tribunal for adjudication under Section 17 of the SARFAESI Act. [Authorized Officer v.  Prafulla Kumar Maheshwari; 2018 SCC OnLine MP 325; dated 01-05-2018]

Case BriefsHigh Courts

Karnataka High Court: A Single Judge Bench comprising of Vineet Kothari, J., decided a writ petition filed under Articles 226 and 227 of the Constitution, wherein a stay was granted on the possession notice issued by the respondent Bank to the petitioner, directing the petitioners to approach the Debt Recovery Tribunal in proper proceedings.

The petitioners were tenants of Respondent 1 who was a debtor of Respondent 2 State Bank of India. Respondent 1 defaulted in re-payment of the loan and respondent 2-SBI issued notice to Respondent 1 to repay the loan within sixty days. Also, respondent 2 SBI issued notices to the petitioners-tenants, to evict the building within seven days which was a Secured Asset and would be taken over in the condition of non-payment of the loan, under the provisions of SARFAESI Act, 2002. Aggrieved by the said notices, the petitioners field the instant petition.

The Court perused the record and placing reliance on its earlier decisions held that the tenants too have a right to approach Debt Recovery Tribunal under Section 17(4-A) of SARFAESI Act. Holding that since the petitioners had an alternate and efficacious remedy available to them under the said Act, the Court declined to consider the petitions on merit. The petitioners were given liberty and directions to approach the DRT under proper proceedings within one month. Further, SBI was directed not to take any action for eviction of the petitioners for a period of four weeks. The petitions were accordingly disposed of. [Aravindamma v. K.S. Jayalakshmammanni,  2018 SCC OnLine Kar 530, order dated 5.3.2018]

Case BriefsHigh Courts

Allahabad High Court: A Full Bench comprising of Dilip B. Bhosale, CJ, and Devendra Kumar Arora and Vivek Chaudhary, JJ., sat to decide a reference by the learned Single Judge, wherein it was inter alia held that the remedy of an application under Section 17(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 is available only after the measures under Section 13(4) have been taken by the Bank/Financial Institutions against the borrower.

The reference arose in light of divergent opinions expressed by two Division Benches of the Court on the question whether the proceedings before the Debts Recovery Tribunal under Section 17 of the Act would be maintainable before the actual possession of the assets of the defaulting borrower is taken.

In order to settle the controversy, the High Court perused the two decisions concerned of the Division Bench and also other various decisions of the Supreme Court. After a detailed consideration of all decisions referred to and various provisions of the SARFAESI Act, the Court culled out the upshot of legal position regarding the question concerned; which inter alia stated as follows:

· A remedy of an application under Section 17(1) is available only after the measures under Section 13(4) have been taken by the Bank/FIs against the borrower.

· No recourse to an application under Section 17 (1) is available at the stage of issue of notice under Section 13(2).

· The borrower against whom measures under Section 13(4) are likely to be taken, has a right to know as to why his objections have not been accepted.

· The Bank/FIs have been conferred with powers to take physical (actual) possession of the secured assets without interference of the Court and the only remedy open to the borrower is to approach DRT challenging such an action/measure and seeking appropriate relief.

· The borrower is not entitled to challenge the reasons communicated or likely measure, to be taken by the secured creditor under Section 13(4) of the Act, unless his right to approach DRT, as provided for under Section 17(1), matures.

· If Debts Recovery Tribunal (DRT), after examining the facts and circumstances of the case and on the basis of evidence produced by the parties, comes to the conclusion that any of the measures referred to in Section 13(4), taken by the secured creditor is not in accordance with the provisions of the Act, it may by order declare that the recourse taken to any one or more measures is invalid and restore possession to the borrower.

· No remedy under Section 17(1) can be taken by the borrower unless he loses actual (physical) possession of the secured assets. In other words, before losing actual possession or unless the secured creditor obtains physical possession of the secured asset under Section 13(4), it is not open to the borrower to take a remedy under Section 17(1) of the Act.

In the instant case, the bank concerned issued a notice for taking possession of the properties of the defaulting petitioner; and in such notice it was clearly mentioned that a ‘symbolic possession’ of the immovable properties of the petitioner was taken. The High Court was of the opinion that ‘symbolic possession’ could not be equated with ‘actual possession’; it only means constructive/paper possession. Taking symbolic possession could not be treated as a measure taken under Section 13(4) of the Act, and therefore, the borrower-petitioner could not file an application under Section 17(1) at that stage. It was held that the judgment of the Division Bench in Sushila Steels v. Union Bank of India, 2014 SCC OnLine All 15639 laid down the correct law; whereas the judgment in Aum Jewels v. Vijaya Bank (Writ-C No. 13476 of 2017, decided on 30.3.2017) did not enunciate the correct law. The reference was disposed of accordingly. [NCML Industries Ltd. v. Debts Recovery Tribunal,  2018 SCC OnLine All 176, dated 06-02-2018]