The High Court dismissed a writ petition challenging a notice to hand over possession of factory premises to ARCIL. The Court held that Section 14 assistance is non-adjudicatory and the petition was devoid of substance.
Writ petition dismissed; rule discharged; no order as to costs.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORIGINAL SIDE
WRIT PETITION {LODGING} NO.276 OF 2010
1. M/s. Jaibharat Synthetics
Limited, a Public Limited
Company registered under
the provisions of the
Companies Act, 1956 and
having its registered
office at 6/4, Ganga
Apartments, Khadi
Commission, Irla, Vile
Parle (W), Mumbai-400 056.
2. Yashpal P. Narula
of Mumbai Indian
Inhabitant, residing at
11/A, Indu Park C.H.S.,
4 Bungalows, Andheri(W),
Mumbai-400 058.
3. Prem Y. Narula
of Mumbai Indian
Inhabitant, residing at
11/A, Indu Park C.H.S.,
4 Bungalows, Andheri(W),
Mumbai-400 058.
4. Satyanarayani M. Narula
of Mumbai Indian
Inhabitant, residing at
11/A, Indu Park C.H.S.,
4 Bungalows, Andheri(W),
Mumbai-400 058.
5. Pooja Narula
of Mumbai Indian
Inhabitant, residing at
11/A, Indu Park C.H.S.,
2
4 Bungalows, Andheri(W),
Mumbai-400 058.
.... Petitioners
- Versus -
1. State Bank of India,
a Government of India
Undertaking, nationalised
under the provisions of
the Banking Nationalization
(Acquisition & Transfer
of Undertakings) Act,
1971 having its office
at Industrial Finance
Branch, Vrindavan,
1st Floor, Sir M.V.Road,
Andheri (E), Mumbai -
400 069.
2. The Asset Reconstruction
Company Ltd. (ARCIL),
a Company incorporated
under the Companies Act,
1956 and registered as
a Securitization Assets
Reconstruction Company
pursuant to Section 3
of the SARFAESI Act
having its registered
office at 17th Floor,
Express Towers, Nariman
Point, Mumbai-400 021.
3. Office of the Collector,
Palghar..... Respondents
Shri S.U. Kamdar, Senior Advocate with
Ms Pooja Patil i/b Little & Co. for
the Petitioners.
Dr. B.B. Saraf with Shri Vinod Kothari i/b
Apex Law Partners for Respondent No.2.
3
CORAM: J.N. PATEL AND
A.P. BHANGALE, JJ.
RESERVED ON : MARCH 22, 2010
PRONOUNCED ON: MARCH 29, 2010
JUDGMENT (Per A.P. Bhangale, J.):
1.Heard. Rule. Learned counsel
appearing on behalf of respondent No.2 waives
notice. By consent, taken up for hearing
forthwith.
2.The petitioners seek to invoke the
writ jurisdiction under Article 226 read with
Articles 14, 19 and 300-A of the Constitution
of India, questioning the legality and
propriety of the notice dated 5-1-2010, issued
by the Tahsildar, Palghar, District Thane,
informing the petitioners to handover
possession of the immoveable and moveable
properties to respondent No.2-the Asset
Reconstruction Company Limited (ARCIL), within
15 days from the date of the notice. The
petitioners have also prayed for quashing and
setting aside of the order dated 24-8-2009,
passed by the learned District Magistrate,
4
Thane and for issuance of a direction
prohibiting respondent Nos.1 and 2 from taking
actual possession of the factory situated at
Plot No.D-24, MIDC, Tarapur, Taluka Palghar,
District Thane, without following the procedure
laid down in Section 13(4) of the
Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest
Act, 2002 (hereinafter referred to as �the
Act�).
3.The facts of the case, in brief, are
thus:
The petitioner No.1 is a duly
registered Public Limited Company and
petitioner Nos.2 to 5 are its Directors. The
petitioners are seeking to protect their
factory premises situated at Plot No.D-24,
MIDC, Tarapur, Taluka Palghar, District Thane
from being proceeded against by or on behalf of
the secured creditors. It is the case of
petitioners that petitioner No.1-company had in
March, 2002 approached respondent No.1-State
Bank of India for financial assistance as the
petitioners were indebted to Bharat Co-
operative Bank and needed further finances.
The respondent No.1 agreed to sanction Rs.3
crores (Three crores) and issued a Pay Order of
5
Rs.1.94 crores in favour of Bharat Co-operative
Bank and took over the accounts. The
petitioners were required to complete
formalities to secure the debt, furnish
undertakings, etc., to enable respondent No.1
to release funds towards the working capital to
the petitioners. According to the petitioners,
respondent No.1 had insisted upon the
petitioners to complete a Tripartite Agreement
with M.M.C. and the petitioners complied with
the requirements of respondent No.1 on
10-5-2002. But in the absence of the provision
for working capital, the petitioners were
unable to carry on their business and were
facing a severe financial crunch.
4.On 10-7-2002, respondent No.1 issued a
notice under Section 13(2) of the Act calling
upon the petitioners to pay the amounts
demanded, which was challenged by the
petitioners by filing Writ Petition No.2088 of
2003 in this Court. By an interim order passed
in the said writ petition on 8-9-2003,
respondent No.1 was allowed to take symbolic
possession of the property in question and not
to disturb the actual physical possession. The
respondent No.1 assigned the debt in favour of
respondent No.2, who took out Chamber Summons
6
No.392 of 2006. Consequent to the judgment of
the Supreme Court upholding the constitutional
validity of Section 13(2) of the Act, the
petitioners withdrew their Writ Petition on
15-2-2007. Thereafter, respondent No.1 filed
Original Application No.65 of 2004 before the
Debts Recovery Tribunal and on 23-6-2009
obtained an order from the Court of the Chief
Metropolitan Magistrate, Esplanade, Mumbai, for
taking forcible possession. The petitioners,
thereafter, filed Writ Petition (Lodging) No.
1315 of 2009 in this Court. By an interim order
dated 7-7-2009, this Court observed that the
symbolic possession shall vest in the
respondents but the physical possession shall
not be disturbed. As the interim order was
continued by this Court with a direction to the
petitioners to argue the original application
before the Debts Recovery Tribunal, on 7-9-2009
the petitioners withdrew Writ Petition No.1315
of 2009 and filed an application before the
DRT-III being Application No.136 of 2009, which
came to be dismissed on 24-12-2009. Thereafter,
the petitioners preferred an appeal before the
Debts Recovery Appellate Tribunal being Appeal
No.36 of 2010. The Debts Recovery Appellate
Tribunal by its order dated 29-1-2010 directed
the petitioners to deposit a sum of Rs.1.25
7
crores by 31-3-2010 and stayed the delivery of
possession of the property till then. Thus,
upon receiving the notice dated 5-1-2010, the
petitioners filed the present petition on
4-2-2010.
5.The learned counsel appearing for the
petitioners urged that after the issuance of
the notice dated 10-7-2003, under Section 13(2)
of the Act, the secured creditors while taking
measures under Section 13(4) of the Act ought
to have issued notice for taking possession of
the secured assets. According to the
petitioners, such an action can be initiated
under Section 14 of the Act by moving an
application before the Chief Metropolitan
Magistrate or the District Magistrate for
assistance in taking possession of the property
which is the subject-matter of the secured
debt. According to the learned counsel, the
remedy under Section 17 of the Act would be
available if a person is aggrieved by adoption
of the measures enumerated under Section 13(4)
of the Act. The learned counsel submitted that
the petitioners were entitled to a notice under
Section 13(4) of the Act calling upon them to
hand over the possession, as once property is
sold, the debtor would have no right to appeal
8
under Section 17 of the Act. The learned
counsel thus contended that without issuance of
a notice under Section 13(4), the District
Magistrate could not have been moved by the
secured creditors to take actual physical
possession. According to the learned counsel,
the factory of the petitioners is still
operational and taking the actual physical
possession thereof would result into a heavy
loss to the petitioners, as it would render the
workers of the petitioners jobless and tarnish
the image of the petitioners in the market. It
is further submitted that respondent No.2-ARCIL
cannot invoke the provisions of the Act as the
petitioners had created security interest only
in favour of respondent No.1-Bank. According
to the learned counsel, the right of the
petitioners to appeal under Section 17 of the
Act could not be made nugatory by the
respondents.
6.Thelearnedcounselforthe
petitioners placed reliance on a Division
Bench decision of the Gujarat High Court in the
case of Kotak Mahindra Bank Ltd. v. O.L. Of
Aps. Star Ind. Ltd. {O.J. Appeal No.156 of 2007
with connected matters} decided on 12-1-2009 to
submit that Section 6(1) of the Banking
9
Regulation Act, 1949 specified the forms of
business in which banking companies may engage,
which did not provide/permit for assignment of
debt to a third party. Reference is then made
to press into service the decision in M/s.
Kalyani Sales Company & Anr. v. Union of India
& Anr. {AIR 2006 Punjab & Haryana 107} to
submit that a borrower or any person in
possession of an immoveable property cannot be
physically dispossessed at the time of issuing
notice under Section 13(4) of the Act so as to
defeat adjudication by the Debts Recovery
Tribunal and that physical possession cannot be
taken by Banks or financial institutions by
following the procedure laid down under Section
14 of the Act, or after the sale is confirmed
in terms of Rule 9 of the Security Interest
(Enforcement) Rules, 2002. According to the
learned counsel, the impugned order and the
notice/communication are violative of the
fundamental right of equality before the law,
freedom of business and right to property.
7.On the other hand, the learned counsel
for respondent No.2 contended that the petition
is misconceived as there is no infringement of
any right of the petitioners. He submitted that
the factory premises of the petitioners were
10
inspected by the Circle Officer of Tarapur at
the instance of the Tahsildar on 28-1-2010 and
it was reported that the factory was closed and
that there was no activity of whatsoever nature
going on in the factory. It was further
contended that the petitioners are persistent
defaulters in repayment of debt as they were
originally indebted to SICOM and then became
indebted to Punjab & Sind Bank for which they
are facing recovery proceedings before the
Debts Recovery Tribunal-II, Mumbai. They had
also borrowed amounts from Bharat Co-operative
Bank but defaulted to repay and approached
respondent-Bank for taking over of the accounts
but again defaulted to repay. The income-tax
authorities had also attached the property of
the petitioners for non-payment of dues. The
respondent-Bank filed an application being
Original Application No.65 of 2004 to recover
dues and for enforcement of mortgage in respect
of the factory. The Debts Recovery Tribunal by
its order dated 30-10-2009 allowed the original
application and directed payment of dues in the
sum of Rs.3,35,26,962.43 along with interest at
the rate of 13% per annum, with quarterly rests
from the date of the original application till
realisation. The learned counsel contended that
in view of the non-obstante clause
11
(Notwithstanding anything contained in any
agreement or any other law for the time being
in force, any securitisation company or
reconstruction company may acquire financial
assets of any bank or financial institution-)
in Section 5 of the Act, there is no legal
impediment whatsoever for a Bank to enter into
an agreement with any financial institution
which is securitisation or reconstruction
company like respondent No.2 to assign rights
of the Bank to recover financial assets. Such
assignee securitisation or reconstruction
company becomes �deemed lender� to enforce
rights of the assignor Bank, according to law.
The learned counsel for respondent No.2,
therefore, submitted that the decision in Kotak
Mahindra Bank�s case (supra) cannot be of any
assistance to the petitioners� case. The
learned counsel for respondent No.2 further
submitted that the decision inM/s.
Kalyani Sales Company�s case (supra) also
cannot of any assistance to the petitioners�
case in view of the legal position which is now
settled by the decisions of the Supreme Court
in the case of Mardia Chemicals Ltd. Etc. Etc.
v. Union of India (UOI) and Ors. Etc. Etc. {AIR
2004 SC 2371} and M/s. Transcore v. Union of
India & Anr. {AIR 2007 SC 712}. Reliance is
12
also placed in the decision of a Division Bench
of this Court in ATV Projects India Limited v.
State of Maharashtra & Ors. {2007 (4) Bom.C.R.
711} to emphasise the submission that once a
notice under Section 13(2) of the Act is
issued, thereafter, for further steps to
enforce the security interest under Section 14
of the Act, the principles of natural justice
are not involved, as only a request for help is
made to the Chief Metropolitan Magistrate or
the District Magistrate concerned, as the case
may be, to take possession of the secured
assets or other documents and to forward such
assets and/or documents to the secured
creditor. The act of the Chief Metropolitan
Magistrate or the District Magistrate
concerned, as the case may be, in assisting the
secured creditor to enforce the security
interest cannot be called into question in any
Court or before any authority. The learned
counsel, therefore, submitted that the petition
is liable to be dismissed.
8.We have perused the petition and the
annexures thereto and have also considered the
submissions advanced as also the decisions
referred to by the respective counsel.
13
9.The Securitisation and Reconstruction
of Financial Assets and Enforcement of Security
Interest Act, 2002 {54 of 2002} was brought
into force since 21-6-2002 with a view to
regulate securitisation and recontruction of
financial assets and to enforce security
interests. It enables Banks and financial
institutions in India to have an identical
level playing field compared with other
participants in global financial markets, so as
to enforce security interests; with power to
take possession of securities and to sell them.
The provisions in the Act aims at � expeditious
recovery of �Non-Performing Assets� (N.P.A.) of
Banks and financial institutions. Success of
financial sector, particularly healthy banking
industry is of salutary importance for the
progress, growth and development of the
nation�s economy. Thus, the enactment is in the
category of a reform legislation in financial
sector to facilitate securitisation of
financial assets of Banks and financial
institutions in India. While Banks and
financial institutions possess more drastic
powers under the Act, the scheme of the Act
also ensures safeguards to protect the
borrower�s interest. A lender owes a duty to
act fairly and in good faith, while a borrower
14
can plead deficiencies on the part of the Bank
or financial institution. As a borrower in
default is entitled to know the reasons as to
why and how his account is classified as non-
performing assets (N.P.A.), a secured creditor
seeking to enforce security interest is
required to give a notice in writing furnishing
details of the amounts payable by the borrower
and details of the secured assets intended to
be enforced by the secured creditor in the
event of non-payment of secured debts within 60
days from the date of notice. Such notice given
in writing affords sufficient time to the
borrower to raise specific objections or to
make representation so that the secured
creditor can apply his mind and duly consider
objections which are raised or representation
made by the borrower in response to written
notice, as above. Borrowers may propose one
time settlement or re-scheduling of instalments
payable to discharge debt liability. As regards
objections, the secured creditor is obliged to
communicate reasons for non-acceptance thereof
or the representation, if any, made. Mere fact
that objections were raised and they are
rejected by the secured creditor cannot be said
to be a valid cause of action for the borrower
to knock at the doors of the Debts Recovery
15
Tribunal by appeal under Section 17 of the Act,
unless measures are taken, as envisaged under
Section 13(4) of the Act by the secured
creditor. The secured creditor is entitled to
take any of the measures to recover his secured
debt once noticee-borrower has failed to comply
with the statutory notice given under Section
13(2) of the Act. Those measures include taking
possession (symbolic or actual) of the secured
assets of the borrower and to transfer the
secured assets for realisation thereof or
taking over of the management of the borrower�s
business for the purpose or realising the
secured assets, appointing any person to manage
the secured assets taken possession of, to
recover the secured assets if acquired by any
person from the borrower. The borrower, if is
aggrieved by the measures taken by the secured
creditor under Section 13(4), can invoke the
remedy of an appeal under Section 17 of the Act
on the ground that the action taken is wrong
and may prefer further appeal as permissible in
view of Section 18 of the Act.
10.Looking to the scheme of the Act; the
non-obstante clauses introduced to give over-
riding effect to the provisions of the Act in
the interest of a healthy and growth oriented
16
economy in India, as also the fact that civil
Court under Section 34 of the Act is barred
from entertaining any suit or to grant
injunction in respect of matters which are
required to be determined by the Debts Recovery
Tribunal or the Appellate Tribunal constituted
under the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993. In our view,
therefore, power under the extra-ordinary writ
jurisdiction under Article 226 of the
Constitution of India can be exercised
sparingly and in exceptionally deserving cases,
wherein the petitioner has made out a case that
the secured creditor has failed to abide and
follow any express legal provision, rule or
regulation which is binding upon him, for which
the petitioner is otherwise remediless. While
the secured creditor, after the expiry of the
notice period under Section 13(2) of the Act,
is expected to take measures under Section
13(4) within a reasonable time, depending upon
the facts of the case, after having considered
the objections raised or the representation
made, if any, by the borrower in view of
Section 13(3A) of the Act and after
communicating non-acceptance thereof to the
borrower, the secured creditor (Banks or
financial institutions, as the case may be)
17
shall be enabled by machinery of law to
overcome the problems arising from the asset
liability mismatch, difficulties in the way of
recovery of non-performing assets or to realise
long term assets by managing problems of
liquidity. Therefore, Section 14 of the Act
provides for an assistance which the secured
creditor may seek from the Chief Metropolitan
Magistrate or the District Magistrate having
jurisdiction over the local area where the
secured assets are situated. In order to take
possession of assets and documents, the
provisions under Section 14 enables the secured
creditor to request the Chief Metropolitan
Magistrate or the District Magistrate having
jurisdiction in the local limits of the area to
take requisite steps, including using or
causing necessary force to be used for taking
possession of the secured assets and documents
and forwarding them to the secured creditor.
The said provision is intended to ensure that
the proceedings initiated under Section 13(2)
of the Act are carried to its logical outcome.
The provision do not contemplate judicial
process or work as it does not involve any
adjudicatory process and as such, therefore,
the principles of natural justice are not
attracted. In view of the observations by the
18
Supreme Court (in para 56) of its decision in
M/s. Transcore v. Union of India (supra), if a
borrower is dispossessed unlawfully or not in
accordance with the provisions of the Act, then
the Debts Recovery Tribunal is entitled to put
the clock back by restoring the status quo
ante. Therefore, it cannot be said that if
possession is taken before the confirmation of
sale, the rights of the borrower to get the
dispute adjudicated upon is defeated by the
authorised officer taking possession. In view
of the non-adjudicatory process under Section
14, it would be erroneous to say that the
rights of the borrower would stand defeated
without adjudication.
11.The order dated 24-8-2009 is issued
pursuant to an action requested by the
assignee-financial institution in terms of
Section 14 of the Act directing the Tahsildar,
Palghar, District Thane to do the needful to
take possession of the secured assets i.e., the
mortgaged property standing in the name of the
petitioners herein. Pursuant to the order from
the District Magistrate, Thane, the Tahsildar
concerned sent a communication dated 5-1-2010
to the petitioners informing them to hand-over
possession of the property in question so as to
19
enable him to hand-over the same to respondent
No.2, the lawful assignee of respondent No.1.
The order and the communication sought to be
impugned herein are nothing but an assistance
sought by the secured creditor from the legal
authorities in accordance with law to enforce
the security interest. In other words, it is a
help provided by the lawful authority by a non-
adjudicatory process, as contemplated under
Section 14 of the Act. There is nothing
unconstitutional or contrary to law in the
impugned order and the communication nor they
are violative of the provisions of the
Constitution of India.
12.For the reasons stated above, the writ
petition being devoid of substance, deserves to
be dismissed and is accordingly dismissed. The
rule is discharged. No order as to costs.
3 issues framed by the court
Whether the order directing the Tahsildar to take possession of secured assets under Section 14 of the SARFAESI Act is valid without adjudication.
Whether the assignee securitisation company has the right to enforce measures under Section 13(4) of the Act after notice under Section 13(2).
Whether the writ jurisdiction under Article 226 of the Constitution can be invoked to stay possession of secured assets.
Colour shows how this judgement treated each authority
Kotak Mahindra Bank Ltd. v. O.L. Of Aps. Star Ind. Ltd.Referred¶33
Kotak Mahindra Bank Ltd. v. O.L. Of Aps. Star Ind. Ltd. {O.J. Appeal No.156 of 2007 with connected matters}
M/s. Kalyani Sales Company & Anr. v. Union of India & Anr.Referred¶37
M/s. Kalyani Sales Company & Anr. v. Union of India & Anr. {AIR 2006 Punjab & Haryana 107} · Who else cites this
Mardia Chemicals Ltd. v. Union of India and Ors.Referred¶42
Mardia Chemicals Ltd. Etc. Etc. v. Union of India (UOI) and Ors. Etc. Etc. {AIR 2004 SC 2371} · Who else cites this
M/s. Transcore v. Union of India & Anr.Referred¶42
M/s. Transcore v. Union of India & Anr. {AIR 2007 SC 712} · Who else cites this
ATV Projects India Limited v. State of Maharashtra & Ors.Referred¶44
ATV Projects India Limited v. State of Maharashtra & Ors. {2007 (4) Bom.C.R. 711} · Who else cites this
3 provisions across 2 enactments
M/s. Jaibharat Synthetics Limited
Yashpal P. Narula
Prem Y. Narula
Satyanarayani M. Narula
Pooja Narula
The Asset Reconstruction Company Ltd. (ARCIL)
J.N. PATEL
A.P. BHANGALE
As recorded by the court registry
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