Allowed

Kotak Mahindra Bank Limited v. Mr. Pragnesh N. Jariwala

DRAT29 Jun 2022REGULAR APPEAL/78/2018

Case brief

AI extract

What is this about?

The Debt Recovery Appellate Tribunal allowed an appeal by Kotak Mahindra Bank against a DRT order quashing SARFAESI measures. The Tribunal held that despite the original creditor being an NBFC, the Supreme Court's decision in Indiabulls Housing Finance Ltd. permitted the assignee bank to proceed under the SARFAESI Act.

What did the court decide?

The appeal was allowed, the impugned order dated 06.12.2017 was set aside, and the Securitization Application No. 207 of 2017 was dismissed.

Kotak Mahindra Bank Limited versus Mr. Pragnesh… — Contract and Commercial Disputes | DRAT (2022)

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BEFORE THE DEBTS RECOVERY APPELLATE TRIBUNAL, AT : MUMBAI Present : Mr. Justice Ashok Menon, Chairperson

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Appeal No. 78/2018

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Between

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Kotak Mahindra Bank Ltd. … Appellant/s V/s.

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Mr. Pragnesh N. Jariwala & Anr. …Respondent/s

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Mr. Sanjay Anabhawane, i/b M/s. M & S Legal Ventures, Advocate for Appellant.

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-: Order dated: 29/06/2022 :-

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This Appeal is filed u/s 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Act, 2002 (the SARFAESI Act for short) challenging the order dated 06.12.2017 in Securitization Application (S.A.) No. 207/2017 on the file of Debts Recovery Tribunal No. II, Ahmedabad (D.R.T. for short) allowing the S.A. in favour of the Respondents herein, quashing the Sarfaesi measures initiated against them by the Appellant Bank. The facts, in a nutshell, are thus:

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The Respondents had availed housing loans from the City Financial Consumer Finance India Ltd. (the CCFIL for short), a non-banking financial institution, mortgaging their properties. The loan was assigned by CCFIL to the Appellant on 18.07.2012. The Respondents were also aware that the original creditor had reserved the right to assign the debts/loan, and were also informed of the transfer vide letters dated 25.07.2012 and 26.09.2012. On defaulting payments, the Respondents were issued demand notices u/s 13 (2) of the SARFAESI Act. On the notice going unheeded, further measures were initiated u/s 13(4) of the SARFAESI Act.

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The symbolic possession was taken by the Appellant Bank and consequently, the District Magistrate, Surat, passed an order on 16.12.2016 u/s 14 of the SARFAESI Act directing the Mamlatadar to take physical possession of the secured assets.

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Aggrieved by the SARFAESI measures, the Respondents approached D.R.T.-II, Ahmedabad, with aforesaid S.A. No. 207/2017 challenging the adequacy of the notice u/s 13 (2) of the SARFAESI Act and the subsequent measures taken by the Respondent. The Respondents also challenge the maintainability of the SARFAESI proceedings since the original creditor, CCFIL, was a Non-Banking Financial Institution (NBFC for short) and was neither a “Financial Institution” nor a “Secured Creditor” coming within the definition u/s 2(1) (m) and 2 (zd) of the SARFAESI Act.

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The Ld. P.O. vide the impugned order relied upon the decision of the Hon’ble High Court of Judicature at Bombay in Kotak Mahindra Bank Ltd. Vs. Trupti Sanjay Mehta & Ors . ( Writ Petition No. 722 of 2015) in which the Hon’ble Division Bench of Hon’ble High Court on 16.07.2014 held that the Assignor being an NBFC, the Assignee could not proceed under the provisions of the SARFAESI Act. The Ld. P.O. also distinguished the decision of the Hon’ble Supreme Court in M. D. Frozen Foods Exports Pvt. Ltd. & Ors. Vs. Hero Fincorp Ltd. (2017) 16 SCC 741 , that was relied upon by the Appellant, where the Hon’ble Apex Court had held that the loans which were alive on the date of implementation of the SARFAESI Act would come within the purview of the Act and the Court had noticed various authorities on the retrospectivity and retroactivity while holding firmly, a view that the SARFAESI Act was applicable. The Ld. P.O. distinguished this decision by stating that the facts are different since it pertains

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to a transaction before the implementation of the SARFAESI Act, and being live and realisable, the Act was applied. The Appellant had also pointed out the operation of the decision in Kotak Mahindra Bank Ltd. Vs. Trupti Sanjay Mehta & Ors. (supra) was stayed by the Hon’ble Supreme Court in the S.L.P. No. 20885 of 2015 that was filed by the Appellant and that the same is still pending consideration before the Apex Court. Hence, it could no longer be taken as a precedent to be relied upon. The Ld. P.O., however, not enthused about the fact that a stay on the operation of the decision in Kotak Mahindra Bank Ltd. ( supra ) proceeded to allow the S.A. subject to the outcome of the decision of the Hon’ble Apex Court in the case of S.L.P. No. 20885 of 2015.

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The Appellant is aggrieved and hence before this Tribunal. The short question that arises for consideration in this appeal is whether the Appellant Bank which undoubtedly is a financial institution and also a Bank coming within the definition of Section 2(c) of the SARFAESI Act could resort to the measures u/s 13 of the SARFAESI Act concerning a loan which was assigned to it by CCFIL which was admittedly not a financial institution coming within the definition of Section 2(m) of the SARFAESI Act and was, therefore, not a secured creditor within the meaning of Section 2(zd) the Act. The Ld. counsel for the Appellant during the argument drew my attention to the fact that CCFIL was subsequently brought within the purview of a financial institution and, therefore, the decision in M. D. Frozen Foods Exports Pvt. Ltd. (supra) would apply. This proposition was argued before the DRT also. But the Ld. P.O. observed that though under the notification, consequent to the assignment of the debt, the assignor CCFIL had become a financial institution, that notification was not relevant in the context of the instant case because the notification permits

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Sarfaesi measures to be taken concerning debts above Rs.1 Crore alone. The present loan being less than Rs.1 Crore continues to disqualify CCFIL from recovering the debt by resorting to Sarfaesi measures. And therefore, the assignment of the debt to the Appellant Bank at a later point in time does not improve the situation.

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Heard the learned counsel for the Appellant. The Respondent did not appear.

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The question of whether the assignment from NBFC to a financial institution would enable that financial institution to resort to the provisions of the SARFAESI Act is no longer Res Integra . The Division Bench of the Hon’ble High Court of Judicature at Bombay in Poorti Rent a Car and Logistics Pvt. Ltd. & Ors. Vs. Kotak Mahindra Bank Ltd. & Ors . (Writ Petition No. 11371/2014 and Civil Application No. 2681 of 2017) has concluded that the assignee of a loan from an NBFC could maintain the proceeding under the SARFAESI Act. The Ld. Division Bench of the Hon’ble High Court of Judicature at Bombay relied upon the decision of M. D. Frozen Foods Exports Pvt. Ltd. (supra) and the decision of the Hon’ble Supreme Court in Indiabulls Housing Finance Ltd. Vs. M/s. Deccan Chronicle Holdings Ltd. & Ors. (2018) 14 SCC 783 .

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There is no doubt regarding the proposition that debt is capable of being assigned and, therefore, the assignment of debt by CCFIL to the Appellant Bank is undoubtedly a transfer of right under which the Bank is entitled to realize the amount defaulted by the borrower, mortgagor, and guarantor. The only question that arises for consideration is whether the Appellant Bank would be precluded from taking recourse to Chapter III of the SARFAESI Act since the assignor CCFIL was not a financial institution

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coming within the purview of the Act at the time of assignment of the debt. In M. D. Frozen Foods Exports Pvt. Ltd. (supra) it was held that the date on which the debt is declared as a Non-performing Asset (NPA for short) would have no impact and the provisions of the SARFAESI Act would become applicable to all debts owing and alive when the Act became applicable.

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In Indiabulls Housing Finance Ltd. (supra) the Institution which was the original creditor had merged with the assignee therein. The Hon’ble Andhra Pradesh High Court held that the original lender not being a financial institution within the definition of the terms in the SARFAESI Act on the date money was lent, had no right to initiate action under the SARFAESI Act and, therefore, the Appellant therein being successor in the interest stepping into the shoes of the original lender also cannot initiate action under the SARFAESI Act. The Hon’ble Supreme Court held that in the amalgamation of the original lender with the Appellant, nothing precluded the Appellant from proceeding under the provisions of the SARFAESI Act.

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The Hon’ble High Court of Judicature at Bombay in dealing with the Writ Petition in Poorti Rent a Car and Logistics Pvt. Ltd. (supra) after going through the decision in M. D. Frozen Foods Exports Pvt. Ltd. (supra) and Indiabulls Housing Finance Ltd . (supra) observed thus :

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“23. The arguments canvassed before the Division Bench in Kotak Mahindra Bank Ltd. (supra), to our mind, seem to be the same as those which the Andhra Pradesh High Court had the occasion to consider and which stands reversed by reason of the decision in Indiabulls Housing Finance Limited (supra). In such view of the matter, we need not keep this writ petition pending awaiting a decision of the Supreme Court in the pending appeal arising out of the decision in Kotak Mahindra Bank Ltd. (supra). Incidentally, at one point

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of time, the appeal arising from Kotak Mahindra Bank Ltd. (supra) and the appeal in Indiabulls Housing Finance Limited (supra) were tagged together by the Supreme Court for hearing. However, the same got segregated and the decision in Indiabulls Housing Finance Limited (supra) came to be pronounced, which in our opinion, brings about a quietus to the issue. The decision in Kotak Mahindra Bank Ltd. (supra) must, therefore, be and is held to have been impliedly overruled.

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For the reasons aforesaid, we are of the opinion that the action taken by the respondent no.1 to issue demand notice under section 13 (2) of the SARFAESI Act as well as to approach the magistrate under section 14 is legal and valid and it cannot be invalidated based on the decision of this Court in Kotak Mahindra Bank Ltd. (supra). We, thus, answer the question formulated in paragraph 11 in the affirmative.”

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Given the above finding of the Hon’ble High Court of Judicature at Bombay, I have no hesitation in upsetting the finding of the Ld. P.O., D.R.T. in the impugned order. The Appeal is, therefore, allowed and the impugned order is set aside, and the S.A. No. 207 of 2017 stands dismissed. There shall be no order as to the costs.

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All Miscellaneous Applications, if any, are dismissed as infructuous.

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Sd/Chairperson

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dpj-1

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Kotak Mahindra Bank Limited v. Mr. Pragnesh N. Jariwala

Case brief

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Kotak Mahindra Bank Limited v. Mr. Pragnesh N. Jariwala

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