Allowed

Kotak Mahindra Bank Ltd. v. Ashok Ravjibhai Desai

DRAT6 Nov 2024REGULAR APPEAL/224/2015

Case brief

AI extract

What is this about?

The Debts Recovery Appellate Tribunal quashed the DRT's decision that barred a bank's SARFAESI enforcement measures under the Limitation Act. The tribunal held that SARFAESI actions are akin to mortgage foreclosures (Article 63(a)) and that the debt remained alive due to prior legal proceedings and acknowledgements.

What did the court decide?

Impugned judgment of DRT set aside and Securitisation Application No. 107 of 2012 dismissed on the files of DRT.

Kotak Mahindra Bank Ltd. versus Ashok Ravjibhai Desai — Banking and Recovery | DRAT (2024)

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

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Appeal No. 224/2015

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Between

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Kotak Mahindra Bank Ltd.

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… Appellant/s

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V/s.

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Ashok Ravjibhai Desai …Respondent/s

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Mr Rohit Gupta along with Mr Vinay Deshpande, i/b M/s V. Deshpande & Co., Advocate for Appellant Bank. Mr Guarang Kinkhabwala, i/b Ms Vaishali Bhilare, Advocate for Respondent.

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-: Order dated: 06/11/2024:-

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The Kotak Mahindra Bank Ltd. impugns the judgment and order dated 20.07.2015 of the Debts Recovery Tribunal-II, Ahmedabad (DRT) allowing the Securitisation Application (SA) No. 107 of 2012 quashing the Sarfaesi measures initiated by the appellant bank under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”, for short). The appellant is aggrieved and hence, in appeal. 2. The facts in brief are thus:

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The State Bank of India (SBI) had sanctioned various financial facilities to the second respondent Oriental Chemicals Limited (under liquidation represented by the Official Liquidator). The initial facility of ₹72 lakhs was granted in 1986. It was thereafter enhanced to ₹155 lakhs in 1995. Properties were offered as security and mortgages were created by deposit of the title deeds. The company failed to repay the amount to the SBI resulting in the account being classified as a non-

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performing asset (NPA) on 31.08.1995. In October 1995, there was a review/renewal of the mortgage. The first respondent redeposited the title deeds with the SBI, and the first respondent confirmed an extension of the mortgage of title deeds on 21.10.1995. The company and the first respondent as guarantor executed a revival letter on 07.04.1997 under Sec. 18 of the Limitation Act in favour of SBI extending the limitation until April 2009. On 22.04.1997, the borrower/guarantor confirmed the balance concerning the cash credit facility as well as the term loan facility. On 09.05.1998, the company and the guarantors including the first respondent executed a revival letter under Sec. 18 of the Limitation Act in favour of SBI for ₹155 lakhs.

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Because of the default in repayment, the SBI filed Original Application (O.A.) No. 552 of 2000 before the DRT for recovery of debt and enforcement of security created by way of mortgage. The O.A. is still pending before the DRT. On 06.05.2001, the first respondent paid ₹30,000/- to the SBI and requested the release of the mortgaged property to one of his tenants. Similar offers were made in 1999 and 2000 as well. The SBI rejected all those offers.

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During the pendency of the O.A., the SBI issued a demand notice under Sec. 13(2) of the SARFAESI Act on 16.06.2003. There was no response from the borrowers.

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SBI assigned the debt in favour of the present appellant Kotak Mahindra Bank Limited on 23.03.2006 and the present appellant was substituted as the applicant in the O.A. in place of the SBI on 16.01.2007.

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Since the borrowers had not cleared the dues, the appellant issued a demand notice under Sec. 13(2) of the SARFAESI Act on 26.06.2012 and cancelled/ withdrew the earlier demand notice issued by the SBI. Thereafter, steps were initiated under Sec. 13(4) to take symbolic possession 29.08.2012. All rules were complied with. On 31.08.2012, the first respondent sent a reply to the demand notice through his counsel to which the appellant sent a reply. On 14.09.2012, a sale notice was issued to the first respondent. Aggrieved by this, the first respondent filed the present S.A. before the DRT on 10.10.2012.

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Respondent No. 1 was interested in settling the matter. On 26.10.2012, the first respondent and his tenant issued a joint letter to the appellant offering to pay ₹35 lakhs to release the mortgage. They had confirmed that similar offers were made to the SBI as well. The appellant rejected the offer on 08.11.2012. The first respondent and his tenant improved the offer to ₹40 lakhs through a letter dated 22.01.2013 which too was rejected by the appellant on 07.02.2013.

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The appellant applied before the District Magistrate Vadodara for getting physical possession of the subject property under Sec. 14 of the SARFAESI Act. The tenant who had made offers to settle the dues applied intervention in the S.A. which was dismissed by the DRT on 25.08.2014.

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The DRT allowed the S.A. mainly on the ground of limitation stating that the Sarfaesi measures were initiated by the appellant beyond the period of 12 years stipulated under Article 62 of the Limitation Act. It was also observed that no sale of the property could

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be affected during the pendency of the O.A. Certain items of the secured assets were sold and money was appropriated towards the debt due. The appellant was found at fault for not disclosing the sale and the amount realised.

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Aggrieved by the impugned judgment, the appellant is in appeal. The Ld. Counsel appearing for the appellant as also the first respondent was heard. Records perused.

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The main thrust of the argument advanced by the Ld. Counsel for the appellant Mr. Rohit Gupta is that the DRT has gone wrong in applying Article 62 of the Limitation Act. The Sarfaesi measures initiated by the appellant are not to enforce payment of money secured by a mortgage. It is rather an act of foreclosure of a mortgage under the SARFAESI Act. Article 63 (a) of the Limitation Act would be attracted and the period of limitations stipulated would be 30 years from when the money secured by the mortgage becomes due.

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Mr Rohit Gupta relied upon the decision of the Hon’ble Delhi High Court in R.K. Agarwal vs. Official Liquidator & Ors MANU/DE/1558/2020 in support of his argument that the Article 63(a) of the Limitation Act would be attracted. The relevant portion of the judgment reads thus:

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“11. Prima facie, the reliance placed by the counsel for the appellant on Article 62 of the Schedule to the Limitation Act is misplaced. Article 62 provides limitation for a suit to enforce payment of money secured by a mortgage or otherwise charged upon immovable property. The proceedings under the SARFAESI Act are not for recovery of money but are more akin to a proceeding for foreclosure of mortgage, limitation for a suit wherefore provided in Article 63(a) of the Schedule to the Limitation Act is of 30 years commencing from the date of when the money secured by the mortgage became due. It thus appears that Article 63(a) and not Article 62 of the Schedule to the Limitation Act would apply.”

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It is further argued by Mr Rohit Gupta that once the O.A. was

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filed in 2000, which is admittedly filed within the period of limitation, the limitation as regards recovery of the debt stopped running against the creditor in support of this proposition, the Ld. Counsel relies on the decision of the Hon’ble High Court of Bombay In Re: Bhimji Nanji & Co. MANU/MH/0204/1967, wherein it was held that the debt would be kept alive either by means of an acknowledgement or part payment or by filing a suit in respect thereof in a proper court well within the time of limitation.

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Mr Gupta would further submit that even if 12 years is considered to be the period of limitation in the instant case, the acknowledgements executed by the first respondent, the renewed mortgage on 20.10.1995, and the confirmation on 21.10.1995. Revival letters dated 07.04.1997 extending the limitation up to 06.04.2009 and Revival letter dated 09.05.1998 extending the limitation up to 08.05.2010 as also the balance confirmation letters dated 22.04.1997 and 21.04.2009 would bring the Sarfaesi action well within limitation. 14. It is also pointed out that the offer made by the first respondent and his tenant to settle the debt and make an upfront payment of ₹30,000/- by letter dated 06.05.2001 would also save limitation. Similar offers of settlement were made on 26.10.2012 and 22.01.2013. These two would be tantamount to an acknowledgement of the debt by the borrower.

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The appellant admits receiving a sum of ₹80 lakhs from the official liquidator on 09.04.2016 under the orders passed by the Hon’ble High Court of Gujarat on 22.03.2016 would extend the limitation.

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The impugned order observes that given the pendency of the O.A. filed by the appellant, the Sarfaesi action would not lie. This finding is against the decision of the Hon’ble Supreme Court in Transcore vs. Union of India & Anr. (2008)1 SCC 125, wherein it is held that the provisions of the SARFAESI Act are in addition to and not in derogation of the provisions of the RDBB & FI Act. It is specifically held by the Hon’ble Apex Court that the doctrine of election does not apply to the proceedings before the DRT. The appellant had also filed I.A. No. 782 of 2023 for receiving additional documents in support of

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the appellant’s case. The documents are mainly copies of the memorandum of equitable mortgage dated 20.10.1995, various letters addressed by the first respondent to the appellant, the revival letters as also the balance confirmation letters. Some of these letters were sent during the pendency of the S.A. The Ld. Counsel appearing for the appellant seeks to produce those documents under the provisions of Order 41 Rule 27 of CPC.

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Per contra, Mr Gaurang Kinkhabwala appearing for the first respondent vehemently supports the impugned judgment by stating that the Sarfaesi action is hopelessly barred by limitation. It is stated that the additional documents now relied upon by the appellant were in possession and could have been produced before the DRT. No justification is given for non-production of those documents and hence, it cannot be entertained at this belated stage.

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On considering the rival arguments and also the documents and the material placed and the question of law, I find that the impugned judgment is riddled with errors. The calculation of the period of

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limitation based on Article 62 of the Limitation Act is apparently erroneous. The appellant had already erased a claim for the debt due by filing the OA which is still pending consideration IA 782/23 needs to be allowed because the documents relied upon by the appellant are essential for the determination of the dispute between the parties. No purpose would have been served by deliberately not producing those documents. The documents would indicate that there was an acknowledgement of debt and revival letters, balance confirmation letters as well as letters agreeing to pay the outstanding debt issued by the borrowers would adequately indicate acknowledgement of the debt. Enforcement of a debt by resorting to the recovery under the SARFAESI Act is an alternate remedy provided to the creditor. The SARFAESI Act was implemented to recover debt without the intervention of courts or tribunals. There is no embargo in simultaneously proceeding against the debtors both under the RDB Act and also under the SARFAESI Act as held by the Hon’ble Supreme Court in Transcore supra. As already pointed out, the claim is not barred by limitation given the precedents referred to above. The claim is kept alive by filing the OA is also by the acknowledgement of debt.

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The upshot of the discussions made about is that the impugned judgment is erroneous and needs to be quashed and set aside. The appeal is allowed and the impugned judgment is set aside and SA No. 107 of 2012 on the files of the DRT is dismissed.

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Sd/Chairperson

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mks-01

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Kotak Mahindra Bank Ltd. v. Ashok Ravjibhai Desai

Case brief

What is this about?

What did the court decide?

Kotak Mahindra Bank Ltd. v. Ashok Ravjibhai Desai

Case brief

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