Allowed

M S Purno Gouri Cold Storage Pvt. Ltd. v. Union Bank of India

DRAT22 Aug 2024MISC APPEAL/52/2024

Case brief

AI extract

What is this about?

The Debar Recovery Appellate Tribunal-Kolkata allowed the appeal, setting aside the order of the DRT dated 22.03.2024. The Tribunal held that the impugned order of the District Magistrate under Section 14 of the SARFAESI Act, 2002, was perverse and passed without recording satisfaction about the nine-point affidavit. Consequently, the bank was allowed to proceed afresh.

What did the court decide?

The order of the District Magistrate dated 16.01.2023 and the DRT order dated 22.03.2024 are set aside. The secured creditor is at liberty to proceed afresh.

M S Purno Gouri Cold Storage Pvt. Ltd. versus Union Bank of… — Banking and Recovery | DRAT (2024)

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Reportable / Non-reportable

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IN THE DEBT RECOVERY APPELLATE TRIBUNAL - KOLKATA

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HON'BLE Justice Anil Kumar Srivastava, Chairperson

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MISC. APPEAL/52/2024

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(Arising out of I.A. No. 153 of 2023 in S.A. No. 52 of 2022 – DRT-II Kolkata)

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22.08. 2024

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M/S Purno Gouri Cold Storage Pvt Ltd Having Registered Office At Bidhan Nagar, Medinipur Town, Dist. Paschim Medinipur, PIN 721101. Unit address at Asthasole, PO Sabrakone, Dist. Bankura under PS Taldangra, PIN 722149.

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2.Mr. Kartik Ghosh Residing At Vill- Choto Dabcha, P.OSatbankura, Chandrakona Road, Dist.- Paschim Medinipur, PIN 721253.

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3.Mrs. Jhulan Ghosh Residing At Vill- Choto Dabcha, P.OSatbankura, Chandrakona Road, Dist- Paschim Medinipur

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... Appellants

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--Vs--

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Union Bank Of India Having Regional Office At 263, G T Road South, Near Kazipara More, 1^st Floor

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2.Authorised Officer Union Bank Of India Residing At 263, G.T Road (South), Near Kazipara More, 1^st Floor, Howrah – 711102.

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... Respondents

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For Appellant : Mr. Snehasis Chakraborty, ld. Adv.

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For Respondent: Mr. Pankaj Kr. Mukherjee, ld. Adv.

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The Appellate Tribunal

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Feeling aggrieved by the order dated 22.03.2024 passed by

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learned DRT-II Kolkata in I.A. No. 153 of 2023 arising out of S.A. 52 of 2022 (Purno Gouri Cold Storage Pvt. Ltd. & Ors. Vs. Union Bank of India & Anr.) whereby I.A. was dismissed, appellants preferred the appeal.

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As per pleadings of the parties, a securitization application u/s 17 of the SARFAESI Act, 2002 (hereinafter referred to as Act) was filed by the appellants challenging the notice dated 21.09.2021 issued u/s 13(2) of the Act possession notice dated 20.12.2021 issued u/s 13(4) of the Act with consequential relief for direction to the secured creditor not to take any further action.

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Pending S.A., I.A. 153 of 2023 was filed by the appellants praying to quash the order of the District Magistrate, Bankura dated 16.01.2023 stating that District Magistrate has not considered nine points in the affidavit filed by the authorised officer of the bank, which is in violation of Section 14 of the Act. Further, learned District Magistrate passed an order of attachment which is in contravention of Section 14 of the Act. District Magistrate stated that land is classified as “Taru”, as such, the land in question is not agricultural land. Learned District Magistrate has satisfied only with respective formalities of Section 13 of the Act.

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Opposition filed by the bank against the I.A. 153 of 2023. It was stated that order passed by the learned District Magistrate u/s 14 of the Act was in accordance with the ingredients as required u/s 14 of the Act and he was duly satisfied with the assertions made in the affidavit.

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After hearing learned counsel for the parties, learned DRT arrived at a finding that learned District Magistrate was satisfied

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with the affidavit filed by the secured creditor. Role of District Magistrate is executory and non-adjudicatory as per Section 14 of the Act. Consequently, I.A. 153 of 2023 was dismissed.

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Feeing aggrieved by the impugned order appellant preferred the appeal.

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At the very outset, learned counsel for the appellants submits that it was incumbent upon the District Magistrate to record his satisfaction about the nine points in the affidavit filed by the authorised officer of the bank. The order of the District Magistrate is bad in law as it was not to assist the secured creditor to take physical possession of the secured asset rather it was an order of attachment. No satisfaction of nine points affidavit was recorded in the order. Even if it was not mentioned as to whether any affidavit was filed by the authorised officer or not?

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Per contra, learned counsel for the respondent bank submits that when the affidavit u/s 14 was filed before the District Magistrate, S.A. was not pending. Further, no issue was raised about the pendency of the S.A. in the I.A. The order was passed by the learned District Magistrate is in accordance with law.

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Only issue to be considered in this appeal is about the compliance of the provisions of Section 14 of the Act. Impugned order was passed on 16.01.2023 which reads as under :

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“Perused the petition u/s 14 of the Act submitted by Shri Sanjay Kumar, authorised officer, Union Bank of India Medinipur Branch, at Judge Court Road, PO Medinipur Dist. Paschim Medinipur PIN

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721101 seeking physical possession of the secured asset of the borrower : M/s. Purno Gouri Cold Storage P. ltd. Director and guarantor : Smt. Julan Ghosh w/o Shri Kartik Ghosh and S/o Late Chittaranjan Ghosh regd. Office Bidhan Nagar, Medinipur town, Dist. Paschim Medinipur, PIN 721101, Unit address : Vill. Asthasole PO Sbrakone, PS Taldangra, Dist. Bankura PIN 722149 against the loan account which was duly been declared as NPA on 13.09.2021 and to forward such asset to the petitioner u/s 14 of the Act may kindly be perused.

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As per report of the block land and Land Reform Officer, Taldangra it is presumed that the land is classified “Tara”. As such, the land inn question is not agree.

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It transpires from the affidavit submitted by the authorised officer Union Bank of India Medinipur Branch, at Judge Court Road, PO Medinipur Dist. Paschim Medinipur PIN 721101that there is no any court case involved into the property for which the attachment order issued herein.

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The secured creditor has maintained all the formalities u/s 13 of the Act before filing the petition u/s14 of the Act. This is a fit case for issuance of order u/s 14(1) of the Act. Henc, being satisfied order for attachment for secured properties against the loan account of M/s. Purno Gouri Cold Storage P. ltd. Director and guarantor : Smt. Julan Ghosh w/o Shri Kartik Ghosh and S/o Late Chittaranjan Ghosh regd. Office Bidhan Nagar, Medinipur town, Dist. Paschim Medinipur, PIN 721101, Unit address : Vill. Asthasole PO Sbrakone, PS Taldangra, Dist. Bankura PIN 722149 passed as follows :

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The BDO Taldangra Dev. Block is hereby authorised to take possession of the secured properties of M/s. Purno Gouri Cold Storage P. ltd. Director and guarantor : Smt. Julan Ghosh w/o Shri Kartik Ghosh and S/o Late Chittaranjan Ghosh regd. Office Bidhan Nagar, Medinipur town, Dist. Paschim Medinipur, PIN 721101 by preparing Panchnama, Inventory list .

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The block land and land reform officer Taldangra is directed to provide all sorts assistance to the BDO Taldangra dev. Block from the date of taking over and making over the possession of the secured property of M/s. Purno Gouri Cold Storage P. ltd. Director and guarantor : Smt. Julan Ghosh w/o Shri Kartik Ghosh and S/o Late Chittaranjan Ghosh regd. Office Bidhan Nagar, Medinipur town, Dist. Paschim Medinipur, PIN 721101. 3) the authorised officer, Union Bank of India Medinipur Branch, at Judge Court Road, PO Medinipur Dist. Paschim Medinipur PIN 721101 is directed to provide all necessary support to my authorised representative, the BDO Taldangra Dv. Block and to confirm the date of taking over physical possession of the secured property of M/s. Purno Gouri Cold Storage P. ltd. Director and guarantor : Smt. Julan Ghosh w/o Shri Kartik Ghosh and S/o Late Chittaranjan Ghosh regd. Office Bidhan Nagar, Medinipur town, Dist. Paschim Medinipur, PIN 721101, Unit address : Vill. Asthasole PO Sbrakone, PS Taldangra, Dist. Bankura PIN 722149 to the Superintendent of Police , Bankura , the BDO Taldangra Dev. Block, the BL&LRO Taldangra, the officer in charge, Taldangra POLICE STATION with an intimation to this end before \hand. .

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the Superintendent of Police Bankura is directed to make necessary arrangement for issuance of order upon the officer in charge Taldangra police station to provide admissible assistance to my authorised representatives the BDO Taldangra dev. Block

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during taking over and making over the possession of the secured asset of the borrower.

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5 the Subdivisional Officer , Sadar, Bankura is directed to make necessary arrangement to maintain law and order on the stipulated and time of taking over and making over possession of the secured assets of M/s. Purno Gouri Cold Storage P. ltd. Director and guarantor : Smt. Julan Ghosh w/o Shri Kartik Ghosh and S/o Late Chittaranjan Ghosh regd. Office Bidhan Nagar, Medinipur town, Dist. Paschim Medinipur, PIN 721101, Unit address : Vill. Asthasole PO Sbrakone, PS Taldangra, Dist. Bankura PIN 722149.

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Thus, this instant case is hereby disposed of. Let a copy of this order be sent to all concerned for strict compliance”

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Section 14 of the Act provides that secured creditor shall file

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an affidavit declaring nine points, which are as under :

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“i) the aggregate amount of financial assistance granted and the total claim of the Bank as on the date of filing the application;

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(ii) the borrower has created security interest over various properties and that the Bank or Financial Institution is holding a valid and subsisting security interest over such properties and the claim of the Bank or Financial Institution is within the limitation period;

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(iii) the borrower has created security interest over various properties giving the details of properties referred to in subclause (ii) above;

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(iv) the borrower has committed default in repayment of the financial assistance granted aggregating the specified amount;

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(v) consequent upon such default in repayment of the financial assistance the account of the borrower has been classified as a non-performing asset;

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(vi) affirming that the period of sixty days notice as required by the provisions of sub-section (2) of section 13, demanding payment of the defaulted financial assistance has been served on the borrower;

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(vii) the objection or representation in reply to the notice received from the borrower has been considered by the secured creditor and reasons for non-acceptance of such objection or representation had been communicated to the borrower;

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(viii) the borrower has not made any repayment of the financial assistance in spite of the above notice and the Authorised Officer is, therefore, entitled to take possession of the secured assets under the provisions of sub-section (4) of section 13 read with section 14 of the principal Act;

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(ix) that the provisions of this Act and the rules made thereunder had been complied with”

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Second proviso of Section 14 of the Act mandates that the District Magistrate shall satisfy himself about the contents of the affidavit and pass a suitable order for the purpose of taking possession of the secured asset.

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It is a settled proposition of law that authority exercising power conferred upon by the statute has to exercise such power strictly in accordance with the provisions of the statute empowering it to do so. In Standard Chartered Bank Vs. V. Nobel Kumar & Ors. [(2013) 9 SCC 620] Hon’ble Apex Court has held in Para 24 and 25 as under :

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“24. An analysis of the nine sub-clauses of the proviso which deal with the information that is required to be furnished in the affidavit filed by the secured creditor indicate in substance that “ 24.1.(i) there was a loan transaction under which a borrower is liable to repay the loan amount with interest,

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24.2 (ii) there is a security interest created in a secured asset belonging to the borrower,

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24.3(iii) that the borrower committed default in the repayment, 24.4(iv) that a notice contemplated u/s 13(2) was in fact issued, 24.5(v) in spite of such a notice the borrower did not make the repayment,

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24.6.(vi) the objections of the borrower had in fact been considered and rejected,

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24.7(vii) the reason for such rejection have been communicated to the borrower, etc.

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the satisfaction of the Magistrate contemplated under the second proviso to Section 14(1) of the Act necessarily requires a Magistrate to examine the factual correctness of the assertions made in such an affidavit but not the legal niceties of the transaction. It is only after recording of its satisfaction, the Magistrate can pass appropriate orders regarding taking of possession of the secured assets.”

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It was held by the Hon’ble Apex Court in R.D. Jain and

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Company Vs. Capital First Limited and others [(2023) 1 SCC 675] that –

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“ 18. Now so far as the powers exercisable by Dmand CMM under Section 14 of the SARFAESI Act are concerned, Statement

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of Objects and Reasons for which the SARFAESI Act has been enacted reads as under:

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Statement of Objects and Reasons

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The financial sector has been one of the key drivers in India’s efforts to achieve success in rapidly developing its economy. While the banking industry in India is progressively complying with the internation prudential norms and accounting practices there are certain areas in which the banking and financial sector do not have a level playing field as compared to other participants in the financial markets in the world. There is no legal provision for facilitating securitization of financial assets of banks and financial institutions. Further, unlike international banks, the banks and financial institutions in India do not have power to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This has resulted in slow pace of recovery of defaulting loans and mounting levels of non - performing assets of banks and financial institutions. Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms have considered the need for changes in the legal system in respect of these areas. These Committees, inter alia, have suggested enactment of a new legislation for securitization and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the Court. Acting on these suggestions, the Securitisation and Reconstruction of financial Assets and Enforcement of Security Interest Ordinance, 2002 was promulgated on 21-06-2002 to regulate securitization and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. The provisions of the Ordinance would enable banks and financial institutions to realise long-term assets, manage problem of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstructions.” 19. Thus, the underlying purpose of the SARFAESI Act is to empower the financial institutions in India to have similar powers as enjoyed by their counterparts, namely, international Banks in other countries. One such feature is to empower the financial institutions to take possession of securities and sell them. The same has been translated into provisions falling under Chapter III of the SARFAESI Act. Section 13 deals with enforcement of security interest. Sub-section (4) thereof envisages that in the event a default is committed by the borrower in discharging his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the measures provided in sub-section (4). One of the measures is to take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset. That, they could do through their “authorized officer” as defined in Rule 2(a) of the Security Interest (Enforcement)Rules, 2002. 20. After taking over possession of the secured assets, further steps to lease, assign or sell the same could also be taken by the secured creditor. However, Section 14 of the SARFAESI Act

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predicates that if the secured creditor intends to take possession of the secured assets, it must approach the CMM/DM by way of an application in writing, and on receipt of such request, the CMM/ DM must move into action in right earnest. After passing an order thereon, he/ she (CMM/DM) must proceed to take possession of the secured assets and documents relating thereto for being forwarded to the secured creditor in terms of Section 14(1) read with Section 14(2) of the SARFAESI Act. As noted earlier, Section 14(2) is an enabling provision and permits the CMM/DM to take such steps and use force, as may, in his opinion, be necessary.

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At this stage, it is required to be noted that along with insertion of sub-section (1-A), a proviso has also been inserted in sub-section (1) of Section 14 of the SARFAESI Act whereby the secured creditor is now required to comply with certain conditions and to disclose that by way of an application accompanied by affidavit duly affirmed by its authorized officer in that regard.”

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13 . Accordingly, Hon’ble Apex Court held that the powers exercisable by the District Magistrate under Section 14 of the Act are ministerial steps and Section 14 of the Act does not involve any adjudication process qua points raised by the borrowers against secured creditor taking possession of the secured assets. It is further held that the District Magistrate is not required to adjudicate the dispute between the borrower and the secured creditor/ or between any of the third party and the secured creditor with respect to the secured assets and the aggrieved party be relegated to raise objections in the proceedings under Section 17 of the SARFAESI Act before the DRT.

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14 . In Noble Kumar (supra) it was held that the satisfaction of the Magistrate contemplated under the second proviso to Section 14(1) of the Act necessarily requires a Magistrate to examine the factual correctness of the assertions made in such an affidavit but not the legal niceties of the transaction. It is only after recording

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of its satisfaction, the Magistrate can pass appropriate orders regarding taking of possession of the secured assets.”

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In view of the above, it is clear that although District Magistrate is not required to put verbatim copy of nine points as required u/s 4 of the Act, but the order must reflect that he is satisfied with the compliance of the provisions of Section 14 of the Act. Bare perusal of the impugned order passed by the learned District Magistrate dated 16.01.2023 would show that no satisfaction about the nine points was recorded by the learned District Magistrate. It appears that learned District Magistrate was under the impression that he has to pass an order of attachment of the secured property rather to pass an order u/s 14 of the Act. It would also reflect from the fourth para of the order wherein it is stated that “This is a fit case for issuance of order u/s 14(1) of the Act. Hence, being satisfied order for attachment of the secured properties against the loan of the appellant is passed ”. It shows that learned District Magistrate was not aware of the legal proposition as laid down by the Hon’ble Apex Court. Hon’ble Apex Court has categorically laid down that District Magistrate has to record his satisfaction about the nine points in the affidavit filed by the authorised officer before him. No order of attachment is required to pass u/s 14 of the Act rather Section 14 of the Act states that learned CMM or DM should assist the secured creditor in taking physical possession of the secured asset. It means the role of the District

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Magistrate is to assist the secured creditor in taking physical possession of the secured asset. That is the reason no adjudicatory power given to him and he is simply performing ministerial act. It appears that learned District Magistrate, Bankura has passed the impugned order without perusing the mandatory provisions of Section 14 of the Act. Hence, the order passed by the learned District Magistrate is perverse, arbitrary and against the law. Accordingly, it cannot be treated as an order passed u/s 14 of the Act.

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In view of the discussion made above I find that learned DRT has erred in recording its finding in the impugned order. Impugned order passed by learned DRT suffers from material illegality and irregularity and is liable to be set aside. Appeal deserves to be allowed.

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O R D E R

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Appeal is allowed. Impugned order dated 22.03.2024 passed by learned DRT is set aside. Order passed by learned District Magistrate dated 16.01.2023 is also set aside. However, secured creditor bank would be at liberty to proceed afresh in accordance with law. Costs easy.

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File be consigned to record room.

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Copy of the order be supplied to the appellant and the respondents and a copy be also forwarded to the concerned DRT. Copy of the judgement/Final Order be uploaded in the Tribunal’s website.

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Order dictated, signed and pronounced by me in the open

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Court on this the 22^nd day of August, 2024.

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(Anil Kumar Srivastava, J) Chairperson

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Dated : 22.08.2024 /pkb

M S Purno Gouri Cold Storage Pvt. Ltd. v. Union Bank of India

Case brief

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M S Purno Gouri Cold Storage Pvt. Ltd. v. Union Bank of India

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