Case BriefsHigh Courts

Madras High Court: A Bench of V.K.Tahilramani, CJ and M. Duraiswamy, J. dismissed a writ petition filed under Article 226 seeking to quash the subject Sale Certificate issued by the Authorised Officer of IDBI Bank.

The petition committed default in repaying the loan amount to IDBI Bank. Consequently, his property was auctioned and a Sale Certificate was issued in favour of the purchaser. The petitioner, represented by his counsel R. Amardeep, challenged the Sale Certificate contending that an insolvency petition on the file of Principal Sub Court. Salem filed by one Raji (Respondent 1) was pending and therefore the said certificate had to be set aside.

The High Court relied on Supreme Court decisions in State Bank of Travancore v. Mathew K.C.,(2018) 3 SCC 85Agarwal Tracom (P) Ltd. v. Punjab National Bank, (2018) 1 SCC 626 and ICICI Bank Ltd. v. Umajanta Mohapatra, 2018 SCC OnLine SC 2349 to hold that the present writ petition was not maintainable. It was clear from the cases relied on that the aggrieved parties cannot challenge the proceedings under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) directly by filing a writ petition under Article 226 of the Constitution without exhausting the appeal remedy available to them. Accordingly, the Court held, “Since the petitioner has not challenged the Sale Certificate before the Debts Recovery Tribunal under Section 17 of the SARFAESI Act, the writ petition cannot be entertained.”The writ petition was thus dismissed. [Rajagopal v. Raji, 2019 SCC OnLine Mad 733, dated 11-03-2019]

Case BriefsHigh Courts

Madras High Court: P.T. Asha, J., held that Section 8 of the Arbitration Conciliation Act, 1996 clearly indicate that the role of judicial authority to refer parties to arbitration arises only upon an application being made by a party to the arbitration agreement.

The High Court was faced with a very interesting question: “Whether the Civil Court can act at the threshold in returning/rejecting a Plaint without numbering the suit on the ground that the parties have entered into an Agreement to refer the disputes to arbitration?”

In the present case, there existed a Lease Agreement between the parties. As per Clause 19 of the Agreement, all disputed arising between the parties were to be resolved under the A&C Act. Subsequently, a dispute arose between the parties. The petitioner filed a suit before the District Munsif who returned the suit at the very threshold, observing on the basis of Clause 19 that “this Court does not have jurisdiction to entertain this suit. Hence, this plaint is returned.” Aggrieved thereby, the petitioner approached the High Court.

The High Court referred to Section 9 CPC (courts to try all suits unless barred) and observed Civil Court have to try all suits of civil nature except those suits which have been specifically barred under provisions of some Acts or impliedly barred. Therefore, the Court perused Section 8 of the A&C Act (power to refer parties to arbitration where there is an arbitration agreement). Relying on the decision in P. Anand Gajapathi Raju v. P.V.G. Raju, 2000 (4) SCC 539 and Ameet Lalchand Shah v. Rishabh Enterprises, 2018 SCC OnLine SC 487, the Court observed, “a reading of Section 8 would clearly indicate that the role of the Judicial authority to refer parties to arbitration will arise only upon an application being made by a party to the arbitration agreement or a person claiming under or through him. This window is given only to enable the defendant who is not desirous of having the dispute settled by arbitration to waive his right for having the dispute referred to arbitration. Therefore, from a reading of the above, it is very clear that a Judicial authority cannot suo moto return/reject a suit on the ground that the parties to the suit have agreed to refer all their disputes to arbitration at the threshold when the case is filed.” It was further observed that under the A&C Act, there is no total ouster of jurisdiction of Civil Courts unlike in cases arising under the SARFAESI Act, Motor Vehicles Act, etc. Resultantly, the petition was disposed of by directing the District Munsif to number the suit forthwith on the petitioner resubmitting the returned papers along with the copy of orders. [Convinio Shopping Nine 2 Nine v. Olympia Opaline Owners Assn., 2019 SCC OnLine Mad 646, Order dated 04-03-2019]

Case BriefsHigh Courts

Punjab and Haryana High Court: This petition was filed before a Division Bench of Amit Rawal and Arun Kumar Tyagi, JJ. against the impugned order passed by the Debts Recovery Tribunal-II, Chandigarh whereby an application for condonation of delay accompanied by Securitization Application was dismissed, being barred by 52 days.

Petitioner submitted that an order passed by this court held that DRT had jurisdiction to entertain an application for condonation of delay lest accompanied with Securitization Application. It was viewed that the explanation provided in the application was reasonable. The DRT should not have dismissed the application and decided the same in limine. The case of Esha Bhattacharjee v. Raghunathpur Nafar Academy, (2013) 12 SCC 649 was referred to wherein the principles applicable to an application for condonation of delay were given.

High Court observed that the securitization application filed against the measures taken under Section 13(4) of the SARFAESI Act was dismissed being barred by 52 days. DRT’s jurisdiction under S. 5 of the Limitation Act was not disputed and it should not have adopted harsh approach by not condoning the delay as per the principles laid down in Esha Bhattacharjee case. Therefore, the impugned order was set aside and the DRT (II), Chandigarh was directed to decide the case on merits. [Ajmer Enterprises v. Debt Recovery Tribunal, 2019 SCC OnLine P&H 4, decided on 04-01-2019]

Case BriefsHigh Courts

Kerala High Court: A Single Judge Bench comprising of Devan Ramachandran, J. dismissed a civil writ petition calling into question the statutory competence of a Chief Judicial Magistrate (CJM) to act under the provisions of Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002.

Learned Senior Counsel on behalf of the petitioner, Mr. K.P. Dandapani, submitted that Section 14 of SARFAESI Act vests jurisdiction to assist the secured creditor in taking possession of a secured asset, only with a Metropolitan Magistrate or a District Magistrate, within whose jurisdiction any such secured asset is situated or found. Since Ernakulam district was not a metropolitan area under the provisions of the Code of Criminal Procedure, 1973, therefore, the CJM would not have jurisdiction to act under Section 14 of SARFAESI Act.

The Court noted that the present issue was pending consideration of Supreme Court in a case titled P.M. Kelukutty v. Young Mens Christian Association numbered as SLP No. 4665 of 2016. However, relying on the judgments of Division Bench of this Court in Muhammed Ashraf v. Union of India, 2008 SCC OnLine Ker 201 and Radhakrishnan V.N. v. State of Kerala, ILR 2008 (4) Ker 863 it was held that a Chief Judicial Magistrate is also authorized by law to act under the provisions of Section 14 of the SARFAESI Act.

In view of the above, the petition was dismissed and petitioners were granted liberty to approach the competent statutory forum for invoking alternative remedies as per law.[Pouly v. Union of India,2018 SCC OnLine Ker 5415, decided on 15-11-2018]

 

Case BriefsHigh Courts

Kerala High Court: A Single Judge Bench comprising of Devan Ramachandran, J. was seized of a civil writ petition filed by a defaulter challenging proceedings initiated by the respondent bank against him under Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act).

The Court took note of the financial constraints and burden pleaded by the petitioner and in the interest of saving time, disposed of the petition granting petitioner an opportunity to repay the loan in installments.

At the outset, the Court opined that it was jurisdictionally proscribed from considering the legality impugned proceedings in view of binding judicial pronouncements of the Apex Court in United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110. Therefore, it refused to consider any of the contentions raised by the petitioner on merits. However, counsels for the petitioner Sri Saiju S. and Smt Rubeena Hilal prayed that notwithstanding jurisdictional limitations, the petitioner may be granted leniency to enable him to pay off respondent’s loan in installments.

It was noted that banks are only interested in recovering and not in pursuing pending litigations for recovery; and on respondent bank’s submission to that effect, petitioner was granted an opportunity to pay the entire outstanding amount to respondent in installments.

The Court clarified that in case of any default by the petitioner, a benefit granted to him under its judgment would stand vacated and the bank would be at liberty to recover entire amount from him by continuing proceedings under SARFAESI Act from the stage as it was on the date of this judgment.[Wills I v. Kerala State Co-operative Bank Ltd., 2018 SCC OnLine Ker 5227, decided on 10-12-2018]

 

 

 

Case BriefsHigh Courts

Kerala High Court: A Single Judge Bench of Dama Seshadri Naidu, J., decided a writ petition wherein it held that the jurisdiction of Article 226 of the Constitution of India does not go to the extent of altering the terms of a contract.

As per the facts of the case, the petitioner took a loan of Rs 9 lakhs from the respondent bank and defaulted in making the repayment due to financial problems. As a result, the respondent bank initiated proceedings under the SARFAESI Act. The petitioner submitted that despite his best efforts, could not repay the loan because of his financial difficulties. Therefore, he approached the High Court to direct the respondent Bank to receive the outstanding loan amount in installments.

The High Court observed that its jurisdiction under Article 226 of the Constitution of India does not go to the extent of altering the contractual terms, especially in a financial transaction involving public money and, to compel the respondent bank to accept repayment in installment. The Court based on the bank’s concession to accept the repayment of the loan in twelve equal monthly installments directed the petitioner to pay the accumulated dues accordingly. The Court gave liberty to the respondent bank to proceed with recourse to the Court if the petitioner fails to pay any two consecutive installments within the stipulated time. The petition was accordingly disposed of.[Muhammed Saleem M.T v. State of Kerala,2018 SCC OnLine Ker 2998, dated 01-08-2018]

Case BriefsHigh Courts

Madhya Pradesh High Court: A petition filed against the possession notice issued under Rule 8 of the Security Interest (Enforcement) Rules 2002 was dismissed by a Division Bench comprising of Hemant Gupta, CJ and Vijay Kumar Shukla, J.

Argument of the petitioner was that earlier, the concerned Bank initiated proceedings against the petitioner under Section 13 of the SARFAESI Act, 2002. The petitioner invoked the jurisdiction of Debts Recovery Tribunal under Section 17 of the Act. However, such notice was withdrawn. Therefore, the petitioner contended that the Bank was estopped to issue fresh notice to the petitioner.

The High Court did not find any merit in the contention of the petitioner and held that the withdrawal of notice under Section 13(4) did not discharge the petitioner’s debt. The Bank was a secured creditor and a mortgagee and therefore, by withdrawal of earlier notice, the debt did not stand discharged. The Bank continued to be a creditor and petitioner a debtor. Thus, the possession notice could have been issued under the provisions of the Act. Further, the petitioner had an alternate efficacious remedy under Section 17 before the DRT. Accordingly, the petition was dismissed while the petitioner was given a liberty to approach DRT. [Devarshi Kirana Store v. Authorised Officer, 2018 SCC OnLine MP 354, dated 18-5-2018]

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]

Case BriefsHigh Courts

Allahabad High Court: A civil writ petition was dismissed by a Single Judge Bench comprising of Ram Surat Ram Maurya, J., on the ground that the petitioner had an alternate remedy of appeal under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

The petitioner filed the instant petition being aggrieved by the proceedings initiated by the respondent-Bank under SARFAESI Act, whereunder the petitioner’s account was declared as ‘non-performing account’ and his property was auctioned. The petitioner claimed that the proceedings against him were malafide and he was being wrongly deprived of his property in a high-handedness manner. Learned counsel for the respondent contended that the writ petition was not maintainable as the petitioner had an alternative remedy of appeal under Section 18 of the Act. The petitioner submitted that if he was to file an appeal under the Act, he will have to submit 35% of the outstanding amount and he was not in a condition to deposit the same.

The High Court gave due consideration to the submissions made on behalf of the parties and also adverted to a Supreme Court decision cited by the respondent wherein the Court deprecated the practice of the High Courts to entertain a writ petition, ignoring the statutory alternative remedy of appeal. The High Court was of the view that it is well settled that writ jurisdiction has to be exercised according to the provisions of law and not bypassing the provisions of law. If the legislature imposed a condition for entertaining the appeal, to deposit 35% of the amount, then the Court in exercise of writ jurisdiction, should not ignore that condition.

Since the appellant had equal efficacious remedy of appeal under the SARFAESI Act, the Court dismissed the petition. [Anil Kumar Sharma v. Punjab National Bank,  2018 SCC OnLine All 146, order dated 08-02-2108]

Bail Application
Case BriefsHigh Courts

High Court of Himachal Pradesh: A Division Bench comprising of Dharam Chand Chaudhary and Vivek Singh Thakur, JJ., dismissed a civil writ petition observing that no proceedings should be entertained against action taken under SARFAESI Act, 2002.

The petitioner Society filed the petition praying that Respondent 3 Bank be restrained from taking physical possession of petitioner’s institute under Section 13(2) and (4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

While dealing with the prayer made by the petitioner, the High Court perused the reply filed on behalf of the Respondent 3 and found that the petitioner became irregular in repayment of loan amount and it even failed to deposit the outstanding amount in its account despite opportunities granted. The petitioner failed to adhere to the terms of compromise as entered into between the parties. The Court also observed that it is a settled legal principle that no proceeding including that under Article 226 of the Constitution of India should be entertained against any action taken under the SARFAESI Act.

Accordingly, the petition was dismissed as the Court found it to be sans merit. [Awasthi Education Society v. State of H.P., 2016 SCC OnLine HP 4201, order dated 23.12.2016]

Case BriefsHigh Courts

High Court of Bombay: In a case where the petitioners were charged against unanticipated dues on a property by the Sales Tax authorities long after they had purchased the property, the division bench of B. P. Colabawalla and S.C. Dharmadhikari, JJ., held that even though the property was bought on an “as is where is basis” by the petitioners, they, having no knowledge (either actual or constructive) of the dues of the sales tax authorities before they purchased the said property, the sale tax authorities cannot recover their dues from the petitioners by enforcing their charge against the said property.

The petitioners purchased the said property pursuant to a sale conducted by the Nationalized Banks under the provisions of the SARFAESI Act, 2002. Petitioners contented that the Sales Tax Authorities cannot enforce their alleged charge on the said property purchased by the Petitioners as the alleged Sales Tax dues of the Defaulter Company were never disclosed to the Petitioners, and if at all the Sales Tax have any charge, it would have to be recovered from the sale proceeds which lie in the hands of the secured creditors i.e. the banks who had sold the mortgaged property. The Respondents submitted that once the sales tax dues were in arrears and they were always payable, then it is a charge on the properties of the dealer or any other person within the meaning of Section 38C of Bombay Sales Tax Act, 1969. This would enable the Sales Tax Department to go after the properties of the Defaulter Company and recover the sales tax dues. It was submitted that the sale being on ‘as is where is basis’ position, the Petitioners ought to have made their own inquiry to ascertain whether there were any encumbrances on the said property. Not having done so, the petitioners cannot contend that the claim of the Sales Tax Authorities cannot be enforced against the said property. Relying upon the Section 100 of the Transfer of Property Act,1882, which states that a ‘charge’ may not be enforced against a transferee if she/he has had no notice of the same, unless by law, the requirement of such notice has been waived, the Court rejected the aforesaid contention of the Respondents.

The Court noticed that the petitioner had merely purchased the said property which originally belonging to the Defaulter Company and which was mortgaged with the Respondents. Since, the Defaulter Company did not pay its dues to the Respondents, they, exercising their rights under the provisions of the SARFAESI Act, sought to enforce their security interest and sell the secured asset (the said property) to the Petitioners. Hence, the Court observed that the Petitioners can by no stretch of the imagination be termed as a successor of the business of the Defaulter Company to enable the Sales Tax Authorities to recover their dues from the Petitioners by enforcing their alleged charge against the said property purchased by the Petitioners under the provisions of the SARFAESI Act. However, it was clarified that its order and direction does not mean that the Sales Tax Authorities cannot proceed against the Defaulter Company.  [Sonoma Management Partners Pvt. Ltd. v. Bank of Maharashtra, 2016 SCC OnLine Bom 9649, decided on 22.11.2016 ]

 

Case BriefsSupreme Court

Supreme Court: Dealing with the matter where it was contended that a Sale Notification issued under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) was in infraction of Section 187 of the Tripura Land Revenue and Land Reforms Act, 1960, the Court held that the dominant legislation being the Parliamentary legislation, the provisions of the Tripura Act of 1960 would be invalid. It is the provisions of the Act of 2002, which do not contain any embargo on the category of persons to whom mortgaged property can be sold by the bank for realisation of its dues that will prevail over the provisions contained in Section 187 of the Tripura Act of 1960.

Applying the test of ‘dominant legislation’ on the encroachment in the present case, the Court, explaining the difference between the Central and State Law, said that the provisions of the Act of 2002 enable the bank to take possession of any property where a security interest has been created in its favour, specifically, Section 13 of the 2002 Act enables the bank to take possession of and sell such property to any person to realise its dues. The purchaser of such property acquires a clear title to the property sold, subject to compliance with the requirements prescribed. Section 187 of the Tripura Act of 1960, on the other hand, prohibits the bank from transferring the property which has been mortgaged by a member of a scheduled tribe to any person other than a member of a scheduled tribe.

The bench of Ranjan Gogoi and Abhay Manohar Sapre, JJ, hence, said that sale of mortgaged property by a bank is an inseparable and integral part of the business of banking. So long there did not exist any parallel Central Act dealing with sale of secured assets and referable to Entry 45 of List I, the State Act, including Section 187, operated validly. However, the moment Parliament stepped in by enacting such a law traceable to Entry 45 and dealing exclusively with activities relating to sale of secured assets, the State law, to the extent that it is inconsistent with the Act of 2002, must give way. [UCO Bank v. Dipak Debbarma, 2016 SCC OnLine SC 1391, decided on 25.11.2016]